TM - Strong demand for Axiata shares: ECM

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



Telekom Malaysia (TM) should not face any problem in placing out the remaining 101.5 million of Axiata shares, given the quick speed at which the first placement of 90 million Axiata shares were taken up.

"The quick speed indicates that there is strong demand for Axiata shares," said ECM Libra in a research note today.

TM announced to Bursa Malaysia that it has completed the book- building exercise for 90 million of Axiata shares on Dec 2, 2010.

The 90 million Axiata shares have been placed to successful third-party institutional investors under private placement at a price of RM4.60 per Axiata share.

ECM Libra said its base case scenario assumes that TM would use the RM879.4 million proceeds from the sale of its entire stake in Axiata to repay US$260.3 million (RM820 million) of USD-denominated borrowings due to mature this month.

"This will help TM to save on RM65.6 million of interest expenses annually, therefore could revise upwards our financial year 2011 and financial year 2012 net profit by 10.3 per cent and 9.8 per cent, respectively," it said.

However, it does not discount the possibility that some or all of the proceeds could be returned to shareholders in the form of special dividends, the research house said.

ECM Libra reiterates its "Buy" call on TM with a target price of RM3.80. -- Bernama

ALAM - OSK Research maintains Neutral on Alam Maritim

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

KUALA LUMPUR: OSK Research is maintaining its Neutral view on Alam Maritim as it is unsure of the latter's next course of action following the recent rejection of a debt revamp by Vastalux.

Vastalux has proposed that 20% of the amount it owes to its creditors to be settled through the issuance of 117.5 million new shares in Vastalux, 50% to be settled through the issuance of 293.6 million redeemable cumulative unsecured loan stocks (RCULS) and the remaining 30% to be waived.

Alam Maritim (M) Sdn Bhd will emerge as a substantial shareholder in Vastalux if it fully converts its portion of the proposed RCULS.

OSK Research said Vastalux directors were currently consulting their advisers on the next course of action. We are not aware of any timeline fixed for the next course of action.

'As we are unsure of Alam's next course of action, we maintain our Neutral view on the stock for now. Also, there is not expected to be much excitement in offshore marine support vessel industry in the near term, probably not until the marginal oilfield contracts have been awarded out to the fabricators first,' it said.

The research house said it was also not too upbeat on the company's 4QFY10 results, we believe its share price should hover within this level in the immediate term until there are further developments in the company or the vessel market.

'Our target price for Alam remains unchanged at RM1.00 based on a PER of 10 times FY11 earnings. As for longer term investors, we still believe that there is value in the company and they should look towards its 2011 performance,' it said.

KLK - KLK surges, OSK ups target price to RM20.50

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

KUALA LUMPUR: KUALA LUMPUR KEPONG BHD []'s (KLK) share price advanced in early trade on Monday, Dec 6 in thin trade while OSK Research raised its target price to RM20.50 from RM18.50.

However, its share price overshot the TP, surging 52 sen to RM21.90 with 1,700 shares done at 9.09am. KLK's major shareholder Batu Kawan climbed 12 sen to RM16.42.

The FBM KLCI rose 3.18 points to 1,504.16. Turnover was 38.86 million shares done valued at 42.45 million. There were 124 gainers, 33 losers and 84 stocks unchanged. Genting PLANTATION []s added 20 sen to RM8.80.

OSK Research said the young age profile of KLK's plantations should drive its production at double-digits. The weaker than expected performance in FY10 should be followed by a stronger FY11 output.

'Our forecast for FY11 is raised to RM1.20 billion from RM1.059 billion previously, factoring in a stronger production and average CPO price of RM2,700. Our target price is raised from RM18.50 to RM20.50 based on 18 times CY11 earnings. Maintain Neutral,' it said.

PETGAS - Petronas Gas gets LNG regasification plant

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

Petronas Gas Bhd
(Dec 2, RM11.40)
Maintain buy at RM11.14 with revised target price of RM13.65 (from RM13.50): Petronas Gas (PTG) has signed a Heads of Agreement (HoA) with Petroliam Nasional Bhd (Petronas) for the development and provision of liquefied natural gas (LNG) facilities and services in the vicinity of Sungai Udang Port, Melaka. The facilities will include two floating and storage units to receive and store LNG, an island jetty and regasification units and pipelines to transport the LNG to the peninsular gas utilisation (PGU) network. The regasification plant will have a maximum capacity of 3.8 million tonnes per annum and be completed by July 2012. The terms of operation will be spelled out in a regasification services agreement (RSA) expected to be signed by March 2011.

While we had known the LNG plant would be built, it was previously not known who would get to operate it, given the track record of previous large gas projects such as the Sabah Sarawak Gas Pipeline (SSGP) where Petronas Carigali is the owner rather than PTG. With this HoA, PTG will now act as the plant's owner and operator. We expect the RSA to contain revenue terms comprising a fixed component to allow for the recouping of capex and a volume-driven component to maximise PTG's service levels. We understand that the capex involved will be about RM1 billion and the EPCC contract will be tendered out. The exact revenue drivers will only be unveiled with the RSA signing. Note that this plant will resolve the problem of gas supply constraints in Peninsular Malaysia and allow the possible extension of first generation power purchase agreements as well as increase the supply of gas for non-power users such as the rubber glove makers.

We had already built in RM1 billion of capex for this plant as well as RM1 billion for the refurbishment and rehabilitation of gas processing plants 2 and 3.

We now include additional gas volume which will be transported by PTG through the PGU in FY13 and FY14. As two million tonnes of LNG are roughly equivalent to 250mmscfd of sales gas, we are conservatively assuming 89mmscfd additional gas from LNG for FY13 and 211mmscfd for FY14. This will boost PTG's gas transport revenue. We are not building in any additional revenue from regasification pending the RSA terms.

Our FY14 net profit forecast is raised by 2% although this should eventually be higher with the potential regasification revenue. Our discounted cash flow-based fair value is raised to RM13.65 and we are becoming increasingly more positive on PTG's longer-term growth prospects with this plant. ' OSK Investment Research, Dec 2


This article appeared in The Edge Financial Daily, December 3, 2010.

DIALOG - Dialog expanding into New Zealand fabrication

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

Dialog Group Bhd
(Dec 2, RM1.58)
Maintain hold at RM1.50 with fair value of RM1.32: Dialog Group Bhd has entered into a conditional agreement to acquire a 90% stake in Fitzroy Engineering Group Ltd from Peter Clayton White-Robinson for NZ$14 million (RM32 million) cash. Fitzroy's current managing director Richard Ellis will own the remaining 10% stake and White-Robinson will remain as chairman of the company. Given Dialog's net cash balance of RM191 million, the group can easily fund the proposed acquisition, expected to be completed by 1Q2011.

New Plymouth-based Fitzroy is one of New Zealand's largest heavy fabrication and multidiscipline engineering companies. It owns a large fabrication yard on 4ha of leased land, with a capacity of 2,000 tonnes and over 9,000 sq m of covered workshops in Waiwhakaiho, New Plymouth, North Island, New Zealand. The fabrication yard is linked to Port Taranaki's deepwater port by a wide-load heavy-haul transport corridor.

New Zealand's reserves are relatively small, with an annual production of 21 million barrels of oil equivalent (3% of Malaysia's 606 million BOE). The government is encouraging more exploration in the Taranaki Basin and other basins for oil and gas potential. The Taranaki Basin currently has 10 producing fields. Auctions are planned for Pegasus and the Great South Basin areas in 2011 and 2012. The rationale for the proposed acquisition is for Dialog to expand its fabrication presence into the New Zealand and Australian markets.

We are positive about the acquisition as Dialog appears to be acquiring Fitzroy at a bargain five times FY11F PER based on an annualised net profit of NZ$2 million for the six-month period ending Sept 30. But PBV is high at three times (compared with the sector's 2.4 times) based on a book value of NZ$5 million ' which is a condition precedent on completion of the acquisition.

There is currently a legal dispute over Fitzroy's offer to acquire the land on which the lease will expire within two years. But assuming the purchase price of the land at NZ$300 per sq m or NZ$12 million, the combined price tag for Fitzroy still translates to a low PER of seven times. Assuming interest rates at 7%, this acquisition could slightly enhance Dialog's FY12F earnings by 2%.

Dialog currently trades at a CY11F PER of 20 times, at a premium to the oil & gas sector's 11 times due to its defensive earnings profile. We maintain our 'hold' rating for now on Dialog with an unchanged fair value of RM1.32 based on our sum-of-parts valuation. ' AmResearch, Dec 2


This article appeared in The Edge Financial Daily, December 3, 2010.

SUNWAY - Sunway Holdings to build more factories in China?

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

Sunway Holdings Bhd
(Dec 2, RM2.28)
Maintain buy at RM2.25 with target price of RM2.60: Sunway Holdings announced on Nov 29 it entered into a memorandum of understanding (MoU) with the Jiangsu Changshu Economic Development Zone Authority to acquire two pieces of land measuring 50,000 sq m and 100,000 sq m to build factories to manufacture undercarriage parts and hoses.

Details on the MoU and the proposed project are scant at this point, but conditions appear conducive for an investment in manufacturing facilities in the vicinity. The land Sunway proposes to acquire is located within the 71 sq km Changshu Economic Development Zone (CEDZ), established in 1992. CEDZ has grown into one of the Top 10 Economic Development Zones in Jiangsu province, with US$6 billion (RM19 billion) invested by 230 foreign firms. It is easily accessible via highways and railways, with tax incentives, warehousing and transport facilities. We feel the strongest advantage of the CEDZ is its close proximity to the deepwater international port of Changshu as the group caters for a large export market. Although it will undoubtedly contribute to the group's earnings growth, we do not see this happening in the near term until the land acquisition is sorted out and construction takes place.

Sunway is our top 'buy' for the construction sector. This is premised on: (i) strong earnings growth of 86.5% in FY10: (ii) undemanding forward PER valuation of 8.8 times; (iii) more landbank acquisitions in the pipeline; and (iv) strength in securing overseas construction contracts. Although our RNAV estimate stands at RM3.61, our target price is adjusted to reflect the offer price of RM2.60 in the proposed merger of the group with sister company Sunway City Bhd. ' ECM Libra Investment Research, Dec 2


This article appeared in The Edge Financial Daily, December 3, 2010.

GLOMAC - ECM keeps 'buy' call for Glomac

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



ECM Libra has reiterated a "Buy" call for property developer, Glomac Bhd, and has raised estimates of financial year 2011 to financial year 2013 by between 0.3 per cent and 11.1 per cent after taking into account higher project launches over the next 12 months.

It said Glomac remains a buy premise on its strong three-year earnings compound annual growth rate of 24.9 per cent.

"Our earnings upgrade led to target price revision from RM1.93 to RM1.98, which are derived from historical average nine times per earnings on 2011.

"We believe Glomac has the financial capacity to grow, given its strong balance sheet with net debt/equity of just 0.12 times," it said in a research note today.

The research house said Glomac was entering into a new growth phase as it aims to launch RM1 billion worth of projects over the next 12 months, of which 60 per cent are residential and 40 per cent commercial.

Meanwhile, AmResearch said it was placing its rating and fair value on Glomac under review, pending a meeting with the management later. -- Bernama

TM - TM upgraded to 'buy' at ECM

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



Telekom Malaysia Bhd was raised to "buy" from "hold" at ECM Libra Capital Sdn Bhd to reflect prospects that the fixed-line operator may use the cash from selling shares in Axiata Group Bhd for a special dividend. - Bloomberg

IJM - IJM Corp cut to 'neutral' at OSK

Stock Name: IJM
Company Name: IJM CORPORATION BHD
Research House: OSK



IJM Corp was cut to "neutral" from "trading buy" at OSK Research Sdn Bhd following the recent surge in the Malaysian builder's stock price. -- Bloomberg

GAMUDA - Buy Gamuda at RM4.90: HwangDBS

Stock Name: GAMUDA
Company Name: GAMUDA BHD
Research House: HWANGDBS



HwangDBS Vickers has given a "buy" recommendation to Gamuda and raised the stock's target price to RM4.90.

"Like for MMC, we built in realistic assumptions for the RM40 billion MRT project - 50 per cent probability the MMC-Gamuda JV would clinch the RM14 billion tunneling works, " says HwangDBS.