GLOMAC - OSK Research maintains FV for Glomac at RM1.84

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

KUALA LUMPUR: OSK Research said Glomac's 1HFY11 results were spot on with its estimates and within consensus expectations when annualised.

It said on Friday, Dec 5 that after stripping out the RM4.9 million fair value gain on PROPERTIES [], its 1HFY11 turnover and core net profit improve significantly by 99% (+12% q-o-q) and 47% (+40% q-o-q) respectively on the back of higher progress billings from its high unbilled sales.

OSK Research said Glomac's latest unbilled sales stood at RM572 million (1.8 times FY10's turnover).

'Leaving our earnings forecast unchanged for now, we continue to value Glomac at RM1.84 based on 0.9 times CY11 P/NTA. Maintain BUY,' it said.

TM - OSK Research: Telekom Malaysia's valuations stretched

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

KUALA LUMPUR: OSK Research said its fundamental view on Telekom Malaysia remains unchanged and it is retaining its NEUTRAL recommendation.

The research house said on Friday, Dec 3 that TM is trading at a stretched 20.1 times FY11 EPS, which is not justified given the structural erosion in its traditional fixed line business, competition risks in the mobile broadband segment and persistent margin pressure.

'Our target price of RM3.28 is 5% below the current share price,' it said, in its comments after TM proposed to undertake the disposal of up to 191.5 million Axiata shares which were previously issued as part of an ESOS programme, for which the options were not exercised and lapsed on Set 16.

The disposal will be carried out via a private placement executed through a book building exercise to institutional/sophisticated investors and/or in the open market.

'We are not surprised by the latest move, which is currently the talk of the investment community and consistent with its focus to monetise its non-core investments and assets. The key unknown is what management intends to do with the proceeds, which based on the last close of Axiata's shares, would work out to RM907.5 million (25 sen per TM share), giving a resultant gain on disposal of RM473 million (TM's cost of investment is RM2.27 for the 2.7% stake).

TM had said the proceeds would be used for working capital, investments and/or acquisitions, including the repayment of borrowings. TM is slated to repay a US$250 million (RM800 million) bond due by end-4Q10.

PETGAS - Petronas Gas stronger 2Q, target price raised

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

Petronas Gas Bhd
(Dec 1, RM11.14)
Maintain buy at RM11.14 with revised target price of RM14.10 (from RM12.80): We raise Petronas Gas Bhd's (PetGas) discounted-cash-flow target price to RM14.10 (+10%), following a 10% rise in our earnings forecast on the revision of transport fees forecast to RM1.30/GJ (GigaJoule). Overall, we see PetGas as a major beneficiary as Malaysia liberalises its gas supply and prices. We expect sustained earnings growth as it reaps transport income from third party gas injected into the PGU network pipeline by 2014 or earlier.

Results were ahead of expectations ' 2QFY11 net profit of RM389 million (+2% quarter-on-quarter; +91% year-on-year) took 1H earnings to RM772 million (+63% y-o-y). This is 60% and 58% of our and consensus initial full-year forecasts. The flat q-o-q performance was better than expected considering that 2Q results tend to be seasonally weaker largely due to deferment of maintenance costs (estimated RM100 million to RM150 million per annum) in 2H. An interim single-tier dividend per share of 15 sen was declared, payable on Dec 15.

Throughput services were the leading contributor, contributing 90% of PetGas's gross revenue in 2Q. Contributions from gas processing and gas transportation services were almost equal, with a 48:52 mix. The utilities division reported a 6% q-o-q drop in gross profit on weaker margins (-2.5 percentage points q-o-q) despite a higher revenue (+4% q-o-q).

FY11/13 earnings were lifted by 10%, to reflect the stronger 1H results but weaker 2H (-15% half-on-half). We raise throughput services gross profit by 13% to RM1.7 billion on higher capacity reservation charge (CRC) assumptions for transport rates (from RM1.18/GJ to RM1.30/GJ). We also raise the utilities division's gross margin by 4%.

We see upside to earnings if Petronas commercialises its first regasification plant (3.8 million tonnes par annum capacity) before 2014. We have not incorporated earnings from the: (i) 60%-owned 300MW Kimanis power plant; and (ii) two 40%-owned floating storage units (FSUs) for the first regasification plant in Melaka. PetGas may co-own more than two FSUs if a second regasification plant (similar to Melaka) is built in Johor by 2020. ' Maybank-IB Research, Dec 1


This article appeared in The Edge Financial Daily, December 2, 2010.

AEON - Aeon Co's 3Q results above expectations

Stock Name: AEON
Company Name: AEON CO. (M) BHD
Research House: BIMB

Aeon Co (M) Bhd
(Dec 1, RM6.01)
Maintain buy at RM6 with revised target price of RM7.30 (from RM6.70): Aeon's revenue for the quarter rose by 1.38% year-on-year (y-o-y) to RM708.8 million thanks to: (i) the opening of new stores (Bandar Mahkota Cheras and Bandar Melaka); and (ii) higher contribution from existing stores after refurbishment.

Furthermore, net profit shot up strongly by 42% y-o-y to RM46.2 million due to lower finance cost and higher interest income (+17.6%).

On a sequential basis, Aeon's revenue and net profit increased by 1.9% and 39.4%, thanks to higher spending during school holidays and major festivals (Hari Raya Aidilfitri).

Aeon's 9MFY10 revenue and net profit came in at 5% and 56% higher y-o-y. Higher net profit growth was driven mainly by lower finance cost, higher interest income (net finance reduced by 137%) and lower operating expenses on the back of the company's continuous cost control measures to improve efficiency.
As results came in above our expectations, we are raising our FY10 and FY11 net profit forecasts by 9.5% and 9% to largely factor in lower operating and net interest expenses.

We are bullish on Aeon's future outlook as consumer sentiment remains stable (3Q10 CSI: 115.8 pts), coupled with strong economic recovery as 3Q10 GDP grew by 5.3%.

Aeon's FY10 and FY11 net profit is forecast to grow by 20.6% and 13.7% y-o-y to be supported by: (i) the opening of new stores and the refurbishment of existing stores; (i) the improvement in consumer sentiment as a leading indicator to boost consumer spending; (iii) the visibility of festive seasons such as Christmas and Chinese New Year; and (iv) the company's continuous cost control efforts to improve efficiency.

We are raising our target price on Aeon from RM6.70 to RM7.30 based on target PER of 14 times and revised FY11 EPS of 52.2 sen. As total return, including FY11 dividend yield of 3%, is at 24.8%, we are maintaining our buy call on the counter. ' BIMB Securities Research, Dec 1


This article appeared in The Edge Financial Daily, December 2, 2010.

MAXIS - Better margins for Maxis

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

Maxis Bhd
(Dec 1, RM5.30)
Maintain hold at RM5.29 with target price of RM5.10: Revenue in 3Q10 inched up 1% quarter-on-quarter (q-o-q) mainly supported by 8% increase in the non-voice segment (37% of group revenue) to RM809 million, which helped to cushion the lower interconnect revenue. The non-voice segment was partly driven by the 36% q-o-q growth in the wireless broadband segment (to RM106 million) on the back of stable average revenue per user (ARPU) of RM70 and 17% growth in subscriber base (to 524,000). Mobile voice revenue dipped 3% q-o-q following the reduction in termination rates and 2% to 3% q-o-q decline in postpaid and prepaid ARPUs. During the quarter, Maxis' voice subscriber base grew 4% q-o-q to 13 million (478,000 net adds).

Earnings before interest, tax, depreciation and amortisation (Ebitda) margin expanded 4.4 percentage points q-o-q to 51.4% due to lower customer acquisition costs, that is subsidies and devices to secure customers and lower interconnect rates (started in July 2010). Sales and marketing costs also dropped 7% q-o-q following lower expenses incurred on World Cup 2010 promotions.

Maxis announced its third interim net dividend per share of eight sen which translates into 2% yield. Maintain hold with discounted cash flow-based target price of RM5.10 (8% WACC; 1% terminal growth). Net yield of 6.6% should lend support to its share price. ' HwangDBS Vickers Research, Dec 1


This article appeared in The Edge Financial Daily, December 2, 2010.

SAPCRES - SapuraCrest wins new contract

Stock Name: SAPCRES
Company Name: SAPURACREST PETROLEUM BHD
Research House: RHB

SapuraCrest Petroleum Bhd
(Dec 1, RM2.80)
Maintain outperform at RM2.65 with fair value of RM3.34: Sapuracrest announced on Nov 30 its SapuraAcergy venture had won a contract from PTTEP Australasia (Ashmore Cartier) Pty Ltd (PTTEPAAA) worth US$160 million (RM506.4 million) for the provision of offshore transport and construction for PTTEPAAA's Montara Development Project in Australia. The job is expected to be executed in 2011 and should be completed within the year.

As the project is performed by SapuraAcergy which is a 50:50 joint-venture between SapuraCrest and Acergy, the earnings will be recognised as a JV contribution. Based on a 7.5% net margin assumption, the contract could reap JV earnings of RM18 million. This is the company's second win of the year. Its first win was in India for the transport and installation of platform jackets in the Mumbai High North Field project.

Things have been pretty quiet on SapuraCrest's end after winning the RM3 billion umbrella contract from Petronas. However, we take the recent contract win as a sign that the company is still committed to expanding its international contributions. The government's recent tax incentive move could potentially result in more demand for the company's self-erecting tender-assist rigs, given tender rig charter rates do not fluctuate as much as jack-up rigs, thus providing a cheaper alternative for marginal oilfield development. The stronger contract pipeline expected in 2011 for the sector will also be very positive for the company given its solid track record

Risks include: (i) rising costs of materials, labour and assets; (ii) potential margin squeeze for the installation of pipeline and facilities (IPF) division due to price competition for new contracts; and (iii) continued losses on the marine division.

No change to forecasts at this juncture. We look forward to the company's 3QFY11 results in December to reassess our earnings assumptions.

We reiterate our outperform call on the stock with an unchanged fair value of RM3.34 based on a first-month FY12 target PER of 18 times. ' RHB Research, Dec 1


This article appeared in The Edge Financial Daily, December 2, 2010.

RHBCAP - HLIB Research maintains Buy on RHB, TP at RM9.36

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

KUALA LUMPUR: Hong Leong Investment Bank Research (HLIB Research) is maintaining its Buy call and target price of RM9.36 for RHB CAPITAL BHD [], based on Gordon Growth with returns on equity of 15.3% and WACC of 9.3%.

The research house said on Thursday, Dec 2 that the Employees Provident Fund's (EPF) undertaking to subscribe for no less than 51% remains unchanged but subject to written confirmation from the Ministry of Finance (via Bank Negara) that there is no objection for EPF to hold more than 45% of RHB Cap.

In the event the confirmation is withheld, EPF irrevocable undertakes to subscribe for a minimum of 45% of the rights issue.

EPF currently holds 53.4% in RHB Cap and is further pairing down its stake in the company via private placement (of 200 million shares or 9.3%) to meet the regulatory requirement of holding not more than 45% (40% holding block as the strategic shareholder and another 5% buffer for change in shareholding by both internal and external Fund Managers) by June 2011.

If the placement is successful, it could reduce EPF's stake to circa 44.1% or less. If the placement is not successful, and confirmation is withheld, EPF's stake will be reduced post rights issue.

"We believe the placement would be well received as valuations are still relatively lower vis-''-vis its larger peers as well as expectation of strong earnings growth ahead," it said.

ALAM - OSK Research cautions of potential provisions by Alam Maritim

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

KUALA LUMPUR: OSK Research has cautioned of potential provision for doubtful debts by Alam Maritim following its exposure to Vastalux which is currently undergoing debt restructuring.

'We are downgrading our FY10-11 earnings by 12%-18% respectively and cut the stock to a Neutral, with a lower target price of RM1,' it said on Thursday, Dec 2. The previous target price was RM1.46.

OSK Research said Vastalux had proposed a debt restructuring scheme with its creditors, one of which is Alam Maritim.

The amount owing by Vastalux to its creditors is about RM146.8 million, to be resolved through: i) new ordinary shares of Vastalux (20%); ii) redeemable cumulative unsecured loan stocks (RCULS) (50%), and iii) the balance 30% to be waived.

Alam together with the other creditors has until Friday to decide whether to accept the proposal, to re-negotiate further, or consider the amount owing as bad debts.

'We understand that management is still considering their options and no decision had been made to date. Also, we gathered that the amount owing to Alam is less than RM30 million,' said the research house.

DIALOG - OSK Research maintains TP for Dialog at RM1.47

Stock Name: DIALOG
Company Name: DIALOG GROUP BHD
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its'' target price for DIALOG GROUP BHD [] at RM1.47 based on a sum-of-parts valuation following the latest corporate development involving the acquisition of Fitzroy Engineering Group Limited (FEGL) for a total cash consideration of NZ$13.5 million (RM31.7m).

'We understand that FEGL has been generating an average net profit of about NZ$3 million (RM7 million) over the past three years. This amount is of course immaterial compared to our net profit forecast for Dialog of about RM139 million and RM149 million for FY11 and FY12 respectively.

'Given that the earnings contribution for Dialog's FY11 is immaterial as announced, we are keeping our FY11-12 earnings unchanged for now,' it said on Thursday, Dec 2.

The acquisition of FEGL to strengthen and enhance its fabrication business in the O&G and petrochemical industries. This would also enable it to penetrate into the New Zealand and Australian markets.

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.