BSTEAD - Boustead Holdings looking forward to 2011

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

Boustead Holdings Bhd
(Nov 30, RM5.34)
Maintain buy at RM5.25 with revised target price RM5.96 (from RM6.70): Boustead Holdings reported 9MFY10 net profit that came to 61% of our full-year estimates and 62% of consensus estimates. Earnings of Boustead Naval Shipyard (BNS), in which the company owns 80%, came in below our projections. We had projected for higher recognition from the RM700 million SLEP (Service Life Extension) job this year than was actually recognised. We expected about RM100 million would be recognised this year but in 3Q only RM25 million has been recognised so far. The group notes that recognition will be higher towards the end of the five-year job and as such we revise our estimates for that.

For the 9MFY10 period, the group has seen year-on-year fresh fruit bunch (FFB) growth of 1% so far, better than the industry average decline of 1%. Higher crude palm oil average selling price (CPO ASP) in 4Q will give numbers a boost. To note, CPO ASP for the quarter was at RM2,565 per tonne compared with Malaysian Palm Oil Board average of RM2,637 per tonne.

We view that 2011 will be a better year. Besides the full-year contributions from the SLEP job, earnings from the RM1.3 billion submarine service contract will also kick in. The maiden contributions from Pharmaniaga will come in 2011 and possibly the six recently awarded vessel jobs that could be worth RM7 billion. A bonus for earnings would be a new property development project or sale of Sumatran estates. Also, CPO ASP forecast in FY11 is higher at RM2,700 compared with FY10's RM2,600. We project 28% EPS growth in FY11.

We adjust FY10 numbers down by 12.8% to reflect lower BNS earnings. FY11 is also adjusted down for BNS earnings as well as from higher interest expense following the RM600 million MTN issuance. FY12 is only adjusted for higher interest expense. With the adjustment to FY11 EPS, our target price (TP) reduces from RM6.70 to RM5.96 and with a 12% upside, we maintain our 'buy' call. To recap, our TP is derived from FY11 EPS pegging a 12 times PER (+1 standard deviation above historical average). We view this as justified as the group has managed to trade up to 14 times previously when CPO prices exceeded RM3,000 per tonne and BNS numbers were strong from the navy vessel contributions. Also, dividend payout has outperformed ours as of 3Q (27 sen payout versus our 23 sen estimate) and we are raising our full-year payout estimate to 34 sen. As such, we are expecting a 7 sen single tier final dividend in 4QFY10. ' ECM Libra Investment Research, Nov 30


This article appeared in The Edge Financial Daily, December 1, 2010.

DELLOYD - Best numbers on record for Delloyd Ventures

Stock Name: DELLOYD
Company Name: DELLOYD VENTURES BHD
Research House: OSK

Delloyd Ventures Bhd
(Nov 30, RM3.13)
Maintain buy at RM3.13 with target price RM3.90: Delloyd Ventures (DV) registered a core net profit of RM13.3 million for the quarter on the back of revenue of RM99 million, with quarter-on-quarter (q-o-q) growth of 10% and 30.7% respectively. Revenue growth was witnessed across all segments, as DV reaped the benefits from its robust Indonesian autoparts division and higher output from its plantation side, which saw earnings more than double q-o-q as we expected.

While the results were lower at the PBT level (as minority income was somewhat distorted by translation losses), representing 71% of our full-year forecast (in line with consensus nonetheless), we deem the results in line as we expect to see another uptick in earnings in 4Q in view of the uptrend in crude palm oil (CPO) prices and the delivery of its buses.

DV's margins continued to expand, with earnings before interest and tax (Ebit) margin rising to its highest level of 17% owing to significant yield improvement in its plantation division amid surging CPO prices in the past few months. However, auto margins during the period were relatively lower as the lower volume generated from its Malaysia operation affected margins, while its distribution division has become operationally profitable given the increase in number of vehicles sold.

We remain optimistic on DV's prospects and diversification into the plantation business, which have proven the naysayers wrong. DV also benefitted from the growth of its automotive autoparts segment in Indonesia,which capitalised on the robust demand for vehicles in that country, and increasing orders for its elongated buses. With our earnings unchanged, we retain our target price of RM3.90 and 'buy' call. ' OSK Investment Research, Nov 30


This article appeared in The Edge Financial Daily, December 1, 2010.

LMCEMNT - Lafarge boosted by price hikes

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

Lafarge Malayan Cement Bhd
(Nov 30, RM7.52)
Maintain hold at RM7.97 with revised fair value RM7.50 (from RM6.85): We are maintaining our 'hold' rating on Lafarge Malayan Cement Bhd with fair value raised from RM6.85 to RM7.50. This pegs the stock at a higher target PER of 14 times, along with an expected improvement in domestic cement demand in FY11F.

Lafarge posted a 9MFY10 net profit of RM215 million on the back of RM1.7 billion in sales. Its results were below expectations, coming in at only 67% of our full-year estimate and 61% of consensus.

While we had expected a stronger 3QFY10 (+20% quarter-on-quarter) on account of a full-quarter impact from the 9% domestic price hikes in May, the quantum of growth was still below our expectations.

Lafarge's 9MFY10 revenue slipped 8% year-on-year (y-o-y) to RM1.7 billion. This was largely due to muted domestic demand, exacerbated by weak US dollar-denominated export sales.

Its bottom line fell by a steeper 27% y-o-y due to a lumpy one-off plant/repair cost incurred in 1QFY10 and escalating input cost (coal). Its Singapore-based ready-mixed associates incurred losses of RM5.3 million in the period (3QFY10: RM1.8 million). Not surprisingly, group earnings before interest and taxes (Ebit) margin shrank to 19% from 21.3% a year earlier.

We have tweaked downwards our FY10 net profit forecast by 0.8%, as we lower our domestic demand growth assumption from 3% to 2%.

On the flip side, we expect domestic cement demand to pick up in FY11 as the rollout of domestic infrastructure projects starts to gain traction. Amid narrowing rebates, we have raised our FY11F/12F net profit by 2% and 3.3% respectively.

We are inclined to maintain our 'hold' rating on Lafarge. We believe the stock has already priced in most (year-to-date: +26%) of the positive news flow at current forward FY10F/11F PERs of 15'' to 21 times.

For exposure to the building materials play, we prefer the steel and aluminium companies for their more compelling earnings growth trajectory and cheaper valuations. Our top picks within this space are Ann Joo Resources Bhd, Lion Industries Bhd and Press Metal Bhd.

Lafarge remains attractive from a dividend standpoint. The group paid a third single-tier interim dividend per share (DPS) of eight sen during the quarter ' or 24 sen per share for 9MFY10 (9MFY09: 15 sen). Our current DPS forecast implies yields of 4% to 5% over the next three years. ' AmResearch, Nov 30


This article appeared in The Edge Financial Daily, December 1, 2010.

KLK - Early Yuletide cheer for KLK

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

Kuala Lumpur Kepong Bhd
(Nov 30, RM20.22)
Maintain trading buy at RM19.98 with revised target price RM22.84 (from RM20.20): KL Kepong's 9MFY10 net profit met expectations, squeaking 2% past our forecast and 5% past consensus forecasts. The better performance came from higher investment income and retail profit. A final single-tier dividend of 45 sen was declared, bringing the full-year net dividend to 60 sen, above our forecast of 50 sen.

We are raising our FY11/12 EPS forecasts by 2% to 6% for higher retail profit and rubber prices. Our sum-of-parts-based target price increases from RM20.20 to RM22.84 as we apply a higher price-to-book ratio to its property and retail divisions due to rising land values and Crabtree & Evelyn's improved performance.

KLK remains a 'trading buy' and our top pick among the Malaysian planters as we are positive on crude palm oil (CPO) price and fresh fruit bunch (FFB) output growth prospects for KLK. Potential catalysts include higher CPO prices and potential M&A.

In fourth quarter (4Q), the group recorded a higher write-back of RM76 million relating to its investment in Yule Catto. However, this was partially offset by the impairment of some manufacturing assets. The retail division, represented by Crabtree, posted lower losses due to successful restructuring aimed at reducing operating costs. The effective tax rate was also marginally lower than expected due to tax allowances.

In 4Q, net profit grew 28% year-on-year (y-o-y) due to higher contributions from all divisions except manufacturing. Plantation profit rose 19% y-o-y as a result of higher production (+5% y-o-y) and better selling prices for its palm products and rubber.

Losses from the retail division narrowed due to successful efforts to cut costs for its overseas operations. Manufacturing earnings slumped 52% y-o-y because of lower profit margins from its oloechemical division and impairment of assets in a non-oleochem ical subsidiary. For the full-year, the group posted a 65% jump in its net profit, thanks to better performances from all its divisions plus a higher write-back of the allowance for diminution in the value of investments.

We expect the group to record earnings growth of 13% in 2011, driven by: (i) increased FFB output due to higher yields from its young estates and new mature areas; (ii) stronger earnings from its manufacturing division due to increased capacity and improved demand for oleochemical products; and (iii) higher earnings contribution from its retail division following a successful restructuring. ' CIMB Research, Nov 30


This article appeared in The Edge Financial Daily, December 1, 2010.

JCY - JCY at fresh low since listing as results disappoint, downgrade

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD
Research House: CIMB

KUALA LUMPUR: JCY International Bhd's shares fell to their lowest since listing after the hard-disk drive manufacturer posted fourth quarter losses and was downgraded by analysts.

At 4.06pm, it was down 5.5 sen to 84 sen with 15.6 million shares done on Wednesday, Dec 1.

CIMB Equities Research had downgraded JCY to Underperformwith a target price of 92 sen after it slipped into the red in 4QFY10 with a net loss of RM22 million (RM73.5m profit in 4QFY09), which took FY10 net profit to RM176 million (-15% yoy), 33% below consensus and our forecast.

The negative surprises were lower-than-expected sales and a more severe margin erosion arising from the weaker US$ and higher costs.

'We slash our FY11-12 EPS estimates by 20-28%. In view of the murky near-term outlook and P/E compression for HDD suppliers, we cut our target P/E from 12x CY11 to 8x CY12, in line with the industry average. This reduces our target price from RM1.88 to 92 sen.

'We downgrade the stock from Outperform to UNDERPERFORM as the stock could be de-rated by these poor results. Although we remain positive on its long-term prospects, we believe a better time to revisit the stock would be 2H11,' it said.

WASEONG - OSK Research: Wah Seong results below consensus

Stock Name: WASEONG
Company Name: WAH SEONG CORPORATION BHD
Research House: OSK

KUALA LUMPUR: OSK Research said Wah Seong Corp Bhd's 9MFY10 results were below consensus and its estimates, making up 39% and 37% of consensus and its FY10 forecasts respectively.

The research house said on Wednesday, Dec 1 the continuously poor performance was mainly due to delay in the commencement of the Gorgon pipe coating project by about two months due to changes in specifications.

th'However, we have reduced the target price for Wah Seong to RM2 (previously RM2.40) based on the existing PER of 14 times on FY11 earnings following our FY11 earnings downgrade. We believe the company is still supported by an orderbook of more than RM1 billion,' it said.

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WASEONG - Wah Seong cut to 'sell' at AmResearch

Stock Name: WASEONG
Company Name: WAH SEONG CORPORATION BHD
Research House: AMMB



Wah Seong Corp, a Malaysian pipe-coating company, was cut to "sell" from "hold" at AmResearch Sdn Bhd to reflect its weak earnings outlook after third-quarter net income slid 60 per cent from a year earlier.

The stock's fair value was reduced to RM1.80 from RM2.20, Alex Goh, an analyst at AmResearch, said in a report today. -- Bloomberg

MAXIS - OSK Research maintains Maxis TP at RM5.40

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

KUALA LUMPUR: OSK Research is maintaining its target price of RM5.40 for Maxis Bhd with limited upside seen from the last traded price of RM5.29.

The research house said on Wednesday, Dec 1 Maxis reported flattish 3QFY10 and FY10 core earnings y-o-y of RM613 million and RM1.7 billion respectively. Core 9MFY10 earnings, when annualised, were 5% to 6% below its and consensus forecast.

'Backing off the interconnect revenue loss, we estimate Maxis' underlying mobile revenue grew some 2.2% q-o-q, reflecting the contraction in voice revenue but upheld by strong data revenue growth. This is on par with the normalised q-o-q growth witnessed by both Celcom and Digi of 2%-3.5%. An expected eight sen/share quarterly DPS has been declared, payable on Dec 30. (YTD DPS : 24 sen/share),' it said.

OSK Research said Maxis' 3QFY10 results reflected sharply lower World Cup related costs and falling interconnection costs, which brought its 9MFY10 numbers broadly in line with consensus and our forecasts.

The research house said Maxis was not spared the systemic weakness in industry voice revenue, with topline growth trickling down to 1.1% q-o-q in 3Q10. The key positive was the mobile broadband segment, where revenue more than doubled y-o-y.

'We are retaining our forecast and expect some pressure on margins in 4Q10 from the iPhone 4 launch and pick-up in year-end acquisitions. NEUTRAL,' it said.

ALAM - Weak results at Alam Maritim, but pipelay barge could re-rate stock

Stock Name: ALAM
Company Name: ALAM MARITIM RESOURCES BHD
Research House: AMMB

Alam Maritim Resources Bhd
(Nov 29, RM1.09)
Maintain buy at RM1.09 with revised fair value of RM1.31: We reaffirm our 'buy' rating on Alam Maritim, but with a lower fair value of RM1.31, pegging its FY11F earnings to a PER of 15 times its three-year historical average.

Alam's 3QFY10 earnings came in at RM9 million, bringing its 9MFY10 earnings to RM47 million ' a decline of 39% year-on-year (y-o-y) on the back of a 21% drop in revenue.

The main reason for the underperformance is non-renewal of its underwater services order book. Alam is recognising current contracts which are at the tail end.

The focus now will be on consolidating this unit with a recently launched pipelay barge ' a JV with Swiber. Alam has three or four idle vessels awaiting new tenders.

We are cutting our estimates for FY10F/12F by 42% to 45% to RM61 million to RM79 million due to a weaker contribution from both the underwater services and vessel chartering divisions.

Demand for vessels in our waters will be anchored by the 21 vessels Petronas Carigali will require. Recall, 14 vessels needed next year are for deepwater works, boding well for Alam which expects delivery of two DP2 deepwater anchor handling vessels by end-this year.

Apart from Petronas Carigali's requirements, there are few others in the market: (i) rejuvenation works for Petroliam Nasional Bhd (Petronas); (ii) enhanced oil recovery services and so on; and (iii) demand from other PSCs such as Shell and ExxonMobil

With the pipelay barge ready, Alam's target is to be involved in shallow-water pipelaying works in Malaysia ' part of SapuraCrest Petroleum Bhd's 'umbrella contract'.

We believe there is a strong chance for Alam to get some slices of the available jobs because: (i) favourable demand/supply dynamics of this vessel; and (ii) the availability of the underwater unit is an added advantage over competitors.

Concerns over vessel ownership issues have been abated with the recent release of its two vessels ' Setia Ulung and Setia Aman.
Management believes the incidents were one-off and will not recur.

Alam is currently trading at a PER of 13 ' a 13% discount to its historical average of 15 times.

We believe this can be explained by: (i) concerns over litigation issues which saw its two vessels impounded but since released; and (ii) lack of news flow on new contracts. ' AmResearch, Nov 29

ANNJOO - Domestic demand emerging at Ann Joo

Stock Name: ANNJOO
Company Name: ANN JOO RESOURCES BHD
Research House: MAYBANK

Ann Joo Resources Bhd
(Nov 29, RM2.79)
Maintain buy at RM2.86 with target price of RM3.05: Ann Joo Resources' 9MFY10 net profit of RM123 million made up 69% of our and consensus' full-year forecast.

We consider this to be within our expectations as Ann Joo is likely to report a rebound in earnings in 4QFY10 on higher sales volume and better average selling prices (ASPs).

We remain positive on Ann Joo given our expectation of a domestic demand rebound in 2011/12. We maintain 'buy', with an unchanged RM3.05 target price (11 times fully diluted 2011 PER).

Key takeaways from 3QFY10 results: (i) Net profit fell to RM10 million (-77% year-on-year, -85% quarter-on-quarter) on lower manufacturing sales volume of 126,000 tonnes (-21% y-o-y, -45% q-o-q) as management held back sales to the export market in view of weak ASPs. Export sales tonnage fell substantially by 86% q-o-q and only accounted for 13% of total sales volume (2Q10: 50%); (ii) Group earnings before interest and tax (Ebit) margin dropped to 5.7% (-8.2 percentage points y-o-y, -8 percentage points q-o-q) on weak steel ASPs of estimated US$560 per tonne (-10% q-o-q) and higher scrap inventory; and (iii) Net gearing increased to 1.2 times (June 2010: 1 time) due to higher utilisation of trade facilities as inventory level rose to RM1.2 billion (+21% q-o-q).

We understand that domestic steel demand is edging up slowly, driven by the recently awarded KLIA2 project.

Ann Joo has also resumed exports since October, with 20,000 tonnes transacted, and is in the processof concluding another 20,000 tonnes of sales (against 16,000 tonnes in 3QFY10).

We are also encouraged that steel demand in China remains firm, as evident from the rising steel ASPs of US$680 per tonne in China (around 6% premium to our local steel ASPs).

We anticipate earnings to rebound in 4QFY10 owing to restocking activities and better ASPs.

Additionally, Ann Joo's mini blast furnace (+30% billet capacity by January 2011), in the final stage of construction of the auxiliary facilities (underground pipe-laying), will help the company to save costs (lower energy and scrap usage) and catch the domestic steel recovery in 2011/12.

We maintain our earnings forecasts, rating and target price. ' Maybank IB Research, Nov 29


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