TA - TA Enterprise a 'buy' at HwangDBS

Stock Name: TA
Company Name: TA ENTERPRISE BHD
Research House: HWANGDBS



HwangDBS rates TA Enterprise a "buy" with a lower target price of RM1.25, given that TAE one of the key beneficiaries given the scarcity and rapid rise in prime land prices in Kuala Lumpur.

TA Enterprise owns 7 acres of prime land bank in KL.

The Greater KL plan under the Economic Transformation Programme aspires to transform the city into a vibrant economic hub and the top-20 most livable cities globally.

TAE's plan to launch projects with potential RM2.6 billion Gross Development Value in the KL prime area is intact, says HwangDBS.

Average daily trading value and volume soared to RM1.5 billion (+36 per cent quarter-on-quarter) and RM1.0 billion (+40 per cent), respectively, in the third quarter of 2010, and almost doubled TAE's broking income in 3QFY11.

Income from hotel operations grew 84 per cent driven by strong occupancy rates at Swisshotel. However, 9MFY11 net profit of RM49 million fell short of "our estimate as we were too bullish on its hotel and property divisions," says the research firm.

" Hence, we cut FY11-13F EPS by 26 per cent-42 per cent.

"Our forecast for the broking division is intact, and we believe trading momentum is sustainable given the slew of structural changes taking place in Bursa that are aimed at improving trading interests and liquidity," says HwangDBS.

KNM - KNM jumps to highest since April on target price upgrades

Stock Name: KNM
Company Name: KNM GROUP BHD
Research House: MAYBANK

KUALA LUMPUR: KNM GROUP BHD []' shares and warrants advanced in active trade on Wednesday, Dec 15 after Maybank Investment Bank Bhd Research and OSK Investment Research upgraded their respective target prices for the stock.

At 11.01am, KNM was up 18 sen to RM2.51, the highest since April 20 this year, with 22.5 million shares done.

Its warrants added 1.5 sen to 16 sen with 28.15 million units done.

Maybank IB maintained its buy call on KNM and raised its target price to RM3.10 from RM2.20, while OSK Research said it was raising its target price to RM2.96 from RM2.22.

Maybank IB said it was positive over KNM's JV with Petrosab as East Malaysia fabrication opportunities are huge, riding on PETRONAS' rising domestic capex spend.

The Sabah Oil and Gas Terminal'' and Sipitang CTF projects are some of the JV's targeted projects, it said.

'KNM remains a Buy with a raised 12-month target price of RM3.10 (+41%) as we foresee a sustained recovery outlook, locally and globally.

'Our new target PER is 10 times (previously 9 times) and we roll-over valuations to 2012 earnings,' it said.

KENCANA - OSK Research: Maintain Buy on Kencana, TP RM2.93

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

KUALA LUMPUR: OSK Research said KENCANA PETROLEUM BHD []'s good 1QFY11 results were within estimates, boosted by a two-month contribution from MKR-1.

It said on Wednesday, Dec 15 the results were also boosted by the recognition of a portion of the fabrication works secured since April 2010, better yard utilization and improved cost management and production efficiency.

'We believe the robust quarter is just the beginning with more catalysts coming its way. Maintain Buy on Kencana with a target price of RM2.93. This stock remains our only pick in the O&G sector for now,' it said.

KLK - OSK Research maintains Neutral call on KLK, unch TP RM20.50

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

KUALA LUMPUR: OSK Research is maintaining its Neutral call for Kuala Lumpur Kepong with its target price unchanged at RM20.50.

It said on Wednesday, Dec 15 that Yule Catto contributes very minimally to KLK's net profit i.e. with less than 1%. As such, its doubts the acquisition of PolymerLatex would make any material difference to KLK's bottom line.

To recap, KL Kepong will spend RM209.8 million to subscribe for Yule Catto & Co's rights issue. Yule Catto, which is listed on London Stock Exchange, has proposed to acquire PolymerLatex Group for 443 million euros via the rights issue and bank borrowings.

PolymerLatex Group is an emulsion polymer products manufacturer with assets in Europe and Asia, which among others, supplies raw material for the manufacture of synthetic rubber gloves.

OSK Research said'' KLK has a 18.8% stake in Yule Catto. As Yule Catto is trading at an undemanding 10.7 times'' CY11 earnings and 7.0x EV/EBITDA, it makes sense for KLK to subscribe for the rights to prevent its stake from being diluted.

'Moreover, the rights shares are priced at a steep discount of 34.7% to their theoretical ex-rights price. The subscription will do little to stretch KLK's balance sheet. Its gearing is very low at 7.2% and cash flow generation is very strong given the currently high CPO price. KLK generated an operating cash flow of RM783.9m in its FY2010,' it said.

GPACKET - OSK Research cautious on potential competition in Malaysia's broadband universe

Stock Name: GPACKET
Company Name: GREEN PACKET BHD
Research House: OSK

KUALA LUMPUR: OSK Research said it was turning increasingly cautious on potential competition in Malaysia's broadband universe and it believes Green Packet could lose out owing to Packet One's limited coverage.

The research house said on Wednesday, Dec 15 following its earnings revision, it cut its target price from 92 sen previously to 78 sen, based on an unchanged 8x FY11 EV/EBITDA.

'The stock price has retreated by more than 25% since mid-2010 and hence we maintain our NEUTRAL recommendation,' it said.

The key re-rating catalysts are: (i) potential earnings surprises in the near term on solid broadband net adds, (ii) a quicker-than-expected earnings turnaround on cost moderation, (iii) solution sales to surge on more WiMAX deployment, and (iv) expedited coverage expansion to take advantage of fledging broadband take-ups.

WCT - CIMB Research maintains Outperform on WCT, TP RM4.21

Stock Name: WCT
Company Name: WCT BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research said WCT's deal to develop a RM688 million commercial project in Medini was a positive surprise.

It said on Wednesday, Dec 15 this marks another milestone for WCT as it is its third venture in Medini and raises its profile as one of the leading developers and contractors in Iskandar.

'This project raises WCT's outstanding GDV to RM4.6bn, which will last 7-8 years. Though the project will only start filtering through to earnings from FY12, it reinforces our positive stance on the group's outlook.

'We make no changes to our EPS forecasts, OUTPERFORM call or RM4.21 target price, which is pegged to an unchanged 10% discount to RNAV. Potential re-rating catalysts include (i) this announcement, and (ii) other contract wins. WCT remains one of our top picks for the CONSTRUCTION [] sector,' CIMB Research said.

KNM - KNM up, OSK keeps Trading Buy, TP RM2.96

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

KUALA LUMPUR: Shares of KNM GROUP BHD [] rose in early trade on Wednesday, Dec 15 with OSK Research maintaining its trading buy on the stock with a higher target price of RM2.96 from RM2.22.

At 9.45am, KNM was up 14 sen to RM2.47 while its call warrants, KNM-CE rose 1.5 sen to 16 sen with 20.12 million units done.

The FBM KLCI rose 0.31 of a point to 1,510.89. Turnover was 213.36 million shares valued at RM233.46 million. Gainers led losers 201 to 142 while 217 stocks were unchanged.

OSK Research said sentiment in the O&G industry has improved tremendously over the last few weeks with the announcement of collaborations between Malaysia and its neighbouring countries on new oilfields, as well as the dishing out of new O&G contracts and a spate of positive news.

'We are maintaining our Trading Buy call on KNM with a higher target price of RM2.96 (previously RM2.22), based on a higher PER valuation of 12x (previously 9x) FY11 EPS,' it said.

OSK Research said KNM is one of the front-runners should there be a re-rating on the share prices of O&G stocks.

'Hence our target price higher as we believe there is still upside for investors to trade on the stock. In addition, KNM recently addressed concerns over its over-liquidity by implementing a 4-into-1 share consolidation. However, note that we are keeping our Trading Buy call until we see improved earnings potential for the company going forward,' it said.

YTLPOWR - Credit Suisse maintains Underperform on YTL Power

Stock Name: YTLPOWR
Company Name: YTL POWER INTERNATIONAL BHD
Research House: CREDIT SUISSE

KUALA LUMPUR: Credit Suisse Securities Research is maintaining its Underperform on YTL Power International on concerns about its investments in projects which are not widely adopted.

It said on Wednesday, Dec 15, YTL Power is fairly valued, as it is trading at a FY11E price-to-earnings (PE) of 15 times, which is in line with the Malaysian market P/E.'' It maintained its Underperform rating.

On Tuesday,'' YTL Power said it was investing in oil shale in Jordan with the acquisition of a 30% stake in Enefit's Jordanian oil shale projects, marking its foray into the upstream oil business.

The consortium plans to develop an oil plant with output of approximately 38,000 barrels per day and a 900 megawatt oil shale-fired power plant. As oil shale extraction is not widely adopted yet, the output figure may be contentious.

'Main concerns with oil shale: (1) cost has been significantly higher than conventional pumped oil (2) environmental concerns.

'As oil shale is still largely 'conceptual', we would not incorporate any profit contribution from this project yet. The risk profile of YTL Power continues to increase as it is investing in projects that are not widely adopted, that is Wimax and oil shale,' it said.

It rose one sen to RM2.42 at midday on Wednesday.

BJTOTO - BToto out of luck in 2Q

Stock Name: BJTOTO
Company Name: BERJAYA SPORTS TOTO BHD
Research House: CIMB

Berjaya Sports Toto Bhd
(Dec 13, RM4.23)
Maintain neutral at RM4.13 with target price of RM4.67: A higher-than-expected prize payout led to a subpar interim showing by BToto, with 1HFY4/11 core earnings coming in at only 39% of our projection and 34% of consensus.

The second interim tax-exempt dividend per share (DPS) of four sen was marginally below forecast and took year-to-date (YTD) DPS to 12 sen or 42% of our full-year estimate. Factoring in the higher payout for 2Q, we cut our FY11 EPS forecast by 11% and trim FY11 DPS by one sen. Our FY12-13 numbers are unchanged. Our discount dividend model-based end-CY11 target price also stays at RM4.67 due to the minimal reduction in dividends assumed.

We remain neutral on BToto given the competitive threat from Magnum's 4D Jackpot game and concerns over softer sales following the recent cut in prize payout for the Big 4D game. We prefer Genting for exposure to the sector.

2QFY11 topline fell 1.3% year-on-year (y-o-y) due to a lower number of draw days compared to the previous year. On a quarter-on-quarter (q-o-q) basis, 2Q sales advanced 1.3%, lifted mainly by stronger lotto sales despite the lower number of draw days. Like the previous quarter, Supreme Toto 6/58 was the main growth driver, propelling 2Q11 lotto revenue higher by a staggering 55% y-o-y and 26% up q-o-q, thanks to its attractive jackpot which snowballed to RM47.8 million during the quarter. On a year-to-date basis, revenue dipped 0.1% y-o-y as the gaming business was affected by the lower number of draw days and rising competition.

2Q11 earnings before interest and tax (Ebit) fell 33% y-o-y due to the two percentage points (ppts) hike in pool betting duty on June 1 and the less favourable prize payout ratio of 70% versus 2Q10's 63%. Ebit margin continued to narrow q-o-q due to the higher payout ratio. We expect BToto's gaming margin to improve in 4Q as the government recently approved a reduction in the special prize payout, which we estimate will lower the payout ratio for the Big 4D game by two ppts effective Dec 15.

Although we expect BToto to retain its market leadership in CY11 due to decent punting interest in its flagship 4D game and the boost from its three lotto variants, we expect its lead to be crimped by strong interest in Magnum's 4D Jackpot game. Because of this and the maturity of the NFO market in general, we see some downside risk to our flat to +3% annual topline growth projections for BToto for FY11-13. ' CIMB Research, Dec 13


This article appeared in The Edge Financial Daily, December 14, 2010.

TENAGA - Tenaga's tariff hike deferred again

Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD
Research House: MIDF

Tenaga Nasional Bhd
(Dec 13, RM8.66)
Maintain buy at RM8.60 with target price of RM9.98: The latest deferment in tariff hike is the third over the past year. Also, it fails to comply with the earlier government's commitment for a biannual review. Despite the inconclusiveness as to when the adjustment will take place now, we believe the recent announcement on potential possible adjustment as positive. The last tariff adjustment was in March 2009 when the electricity tariff structure in Peninsular Malaysia was reduced by 3.7% to 31.3 sen/kWh following a 25% cut in gas prices to RM10.70 respectively.

In tandem with a moderate economic outlook in CY11, with real GDP to expand by 5.3% from 7.2% in CY10, Tenaga expects electricity demand will grow by 5% in FY11 which is slightly higher than our forecast of 4.5%. Upside potential for electricity demand to grow remains. Much will depend on projects rolling out under Budget 2011 and the Economic Transformation Programme (ETP). We found for every 1% change in power demand growth, it affects Tenaga's core net profit by 2%-3%.

Tenaga's average coal cost in FY10 was US$88.20 (RM276.07) per metric ton (MT), slightly lower than FY09 by 2.2% to US$90.20/MT. For FY11, we expect coal cost to average at US$100/MT, which is in line with Tenaga's projection of US$100 to US$102 per MT. Room for average coal prices to be above the current level is brewing as the average coal price of Newcastle is at US$97.20/MT for the first eleven months of CY10. Should average coal cost be above both our and Tenaga's estimation, we found Tenaga's core net profit will drop by 15% for every US$10/MT increase in coal cost, assuming no changes to other factors (ceteris paribus).

We have maintained our forecasts for FY11 and FY12 on the assumption that: (1) there is no tariff hike; (2) average coal cost is at US$100/MT; and (3) gas price stays at RM10.70/mmBTU which translates into an average electricity tariff of 31.3 sen/kWh. On that premise, our fair value is at RM9.98. But should we assume Tenaga were to adjust its tariff upwards by 4% and holding all other factors constant, it will raise its core net profit by 35.2% to RM3.4 billion. This would translate to a fair value of RM11.50 which is a 15% premium to our current fair value of RM9.98 based on discounted cash flow with WACC of 10.9% and Terminal Growth of 3%. Our sensitivity analysis showed for every 1% change in tariff, it will affect Tenaga's core net profit by 7.8%. ' MIDF Research, Dec 13


This article appeared in The Edge Financial Daily, December 14, 2010.