GAMUDA - Gamuda cut to 'hold' at ECM

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

Gamuda Bhd. was cut to “hold” from “trading buy” at ECM Libra Capital Sdn Bhd to reflect concerns over the Malaysian builder’s exposure to Vietnam’s property market, according to a report today. -- Bloomberg

AIRASIA - Deutsche Bank cuts AirAsia profit forecasts

Stock Name: AIRASIA
Company Name: AIRASIA BHD
Research House: DEUTSCHE

AirAsia Bhd.’s profit forecasts for this year and 2012 were cut at Deutsche Bank AG, which said higher fuel prices pose earnings risk to Southeast Asia’s biggest budget carrier.

The airline’s earnings estimates were reduced by 18 percent in 2011 and 15 percent next year, Michelle Foong, an analyst at Deutsche, said in a report dated March 14. The share price estimate was reduced to RM3.02 from RM3.55. -- Bloomberg

AXIATA - OSK Research maintains Buy on Axiata, TP RM5.83

Stock Name: AXIATA
Company Name: AXIATA GROUP BERHAD
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining a Buy recommendation on Axiata with a target price of RM5.83.

It said on Tuesday, March 15 that India press reports indicated that Axiata's 19.3%-owned associate. Idea Cellular (Idea) has received a cancellation notice from the Department of Telecommunications (DOT) on March 11 for its mobile license in Punjab.

'We believe at stake is Idea's inherited license from Spice Telecom following the merger last year given the overlapping circles of both Idea and Spice,' it said.

OSK Research said the issue is currently under arbitration as Idea had earlier written to DOT to surrender the licenses in overlapping circles but received no reply.

'Idea contributes less than 5% of our sum-of-parts and less than 10% of our core PATAMI forecast for Axiata. We are maintaining our forecast. Axiata's share price has not been spared the recent sell-down in the market.

'The current weakness in its share price presents a good buying opportunity given its compelling FY12 PER of just 12 times,' it said. ''

LIONIND - RHB Research has market perform on Lion Industries, FV RM1.80

Stock Name: LIONIND
Company Name: LION INDUSTRIES CORPORATION
Research House: RHB

''KUALA LUMPUR: RHB Research Institute has a Market Perform recommendation on LION INDUSTRIES CORPORATION [] Bhd (LICB) with an indicative fair value is RM1.80 based on 'sum-of-parts' basis

It said on Wednesday, March 15 that Lion Industries Corporation Bhd (LICB) is the largest integrated long steel producer in Malaysia, with total annual billet production capacity of 3.05m tonnes.

RHB Research said the basis of its investment case for LICB are: 1) Largest long steel producer with dominant market share in Malaysia; 2) A value play as stakes in listed entities are worth more than its market capitalisation; and 3) Stronger balance sheet compare to peers.

'However, its recently proposed blast furnace project increases potential investment risk. The project is still pending approval from minority shareholders. If the project gets rejected, this would serve as a re-rating catalyst for LICB's share price,' it said.

PARKSON - RHB Research downgrades Parkson to Market Perform, reduces FV to RM5.90

Stock Name: PARKSON
Company Name: PARKSON HOLDINGS BHD
Research House: RHB

KUALA LUMPUR: RHB Research Institute has expressed concern over one of Parkson's major shareholders, Lion Industries (LICB) decision to invest RM281.3m for a 29% stake in Lion Blast Furnace (LBF),

The research house said on Tuesday, March 15 that under the terms of the loan facilitiy, LICB is required to create a second charge over its 14% equity interest in Parkson as collateral in the event that LFB defaults on its loan of RM2.3bn.

'We believe this development will dampen investor sentiment on the stock. Note that the JV is subject to shareholders approvals at their respective EGMs. In view of the above risks, we are attributing a 10% discount to our SOP-based fair value for Parkson, and reducing our fair value to RM5.90 (from RM6.55 previously).

'Given the limited upside to our fair value, we are downgrading our recommendation on the stock to Market Perform,' it said.

TENAGA - Tenaga on a tight rope

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

Tenaga Nasional Bhd
(March 14, RM6.03)
Maintain market perform at RM6.20 with fair value RM6.90: The government has been rolling back subsidies on items such as fuel, and management believes gas could be next. This is more so given the government's decision to freeze toll hikes for the next five years. In fact, gas is the government's second largest subsidy at RM13.6 billion in 2009, after education (RM31.4 billion). Recall the government's assurance that any increase in gas price will be accompanied with a tariff increase. The odds of a tariff review, however, could be diminished by political interference, we believe.

Management reiterated its guidance of 5%-6% electricity demand growth for FY11. Year-to-date, i.e. September 2010-January 2011, electricity demand growth of 3.8% was tepid due to a seasonally weak January (due to December holidays) and a high base effect in FY10. However, management expects growth to pick up for the remainder of FY11 from March onwards.

Management kept its FY11 average coal cost guidance of US$110 per tonne (RM334). As at last week, coal prices stood at US$130 per tonne, creeping back towards the US$138 peak seen in January. However, we understand from management that coal prices are seasonally higher during the March-April period as Japanese energy utilities lock in their coal supply. Subsequently, management expects coal prices to trend lower.

We gather that Tenaga may not necessarily be able to use more gas as part of its fuel mix (subsidised gas is cheaper than coal market price) despite the recent major oil and gas discoveries offshore Sarawak by Petroliam Nasional Bhd (Petronas). Petronas has little incentive to supply gas at subsidised prices to Tenaga when it can export at higher market prices. Preliminary evaluation by Petronas indicates around 100 million barrels of oil and 200 billion standard cubic feet of gas in place.

Despite some criticism in the media, Tenaga is firm that nuclear power is needed to address future energy needs as the cheapest source of power in the long run. Malaysia may deplete its natural gas reserves in two years (excluding Sarawak discovery) while the volatility of coal prices is hurting Tenaga's profitability. We gather that a nuclear power plant, tentatively to be commissioned by 2021, may cost RM20 billion and would largely be government-funded.

Risks include: 1) slower-than-expected demand growth; 2) depreciating ringgit; and 3) rise in coal prices.

We have left our earnings forecasts unchanged.

We maintain our indicative fair value of RM6.90 based on unchanged target CY11 PER of 13 times. Tenaga lacks catalysts due to slowing electricity demand growth of 5.5% for FY11 (FY10: 8.8%) and no clear timeline for a formal fuel cost pass-through formula to help address the issue of fluctuating fuel prices. Maintain market perform. ' RHB Research, March 14


This article appeared in The Edge Financial Daily, March 15, 2011.

GAMUDA - Gamuda results to meet expectations, MRT euphoria fading out

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

Gamuda Bhd
(March 11, RM3.69)
Downgrade to market perform at RM3.75 with revised fair value RM4.03 (from RM4.51): Taking a cue from the firmer construction margins recorded by peers IJM Land Bhd and WCT Bhd in their just released October to December 2010 results, we expect Gamuda's 1HFY11 results to come in within expectations. We expect Gamuda's 2QFY11 core net profit to come in at RM90 million to RM100 million. Cumulatively, 1H net profit of RM179 million to RM189 million will have grown 37% to 44% year-on-year and made up 46% to 49% of our full-year forecast and the full-year market consensus.

We downgrade our 'trading buy' call to 'market perform' on the heels of our downgrade of indicative fair value to RM4.03 from RM4.51 to reflect: (i) our expectations of a lower overall margin of 12% from the MRT project (vis-''-vis 18% previously), taking a cue from the repeated public statements from the government of late that the MRT project will be closely scrutinised to ensure maximum cost savings; and (ii) A higher 50% discount to our net present value estimates for Gamuda's property project in Vietnam (30% previously) against a backdrop of heightened economic uncertainty in Vietnam.

Also, with the news of Gamuda's involvement in the MRT already out in the open, we believe the next round of re-rating will not take place until the market is more sure about the exact timing of the 'first oil' from the project that could well be four to six quarters away given the still preliminary and tentative nature of various aspects of the project.

We maintain our forecasts. Risks to our view include: (i) New contracts secured in FY11/13 (excluding the MRT) to come in below our target of RM2 billion per year; (ii) The RM40 billion MRT project fails to get off the ground; and (iii) Rising input costs.

Over the immediate term, we expect the construction sector in general to perform only in line with the broarder market due to 'news flow fatigue'. We suspect the market is already tired of the same old news flow from the same old projects such as the LRT extension, MRT, 'River of Life' and those under the 10th Malaysia Plan (10MP). We believe that as it stands now, the market has substantially gone past the 'news flow' phase of the cycle for construction stocks.'' ' RHB Research, March 11


This article appeared in The Edge Financial Daily, March 14, 2011.

NTPM - OSK Research maintains Neutral on NTPM, TP 52c

Stock Name: NTPM
Company Name: NTPM HOLDINGS BHD
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its Neutral stance on NTPM and keeping its Target Price at 52 sen, based on 10x FY12 EPS.

OSK Research said NTPM's 9MFY11 revenue, which grew 9.0% y-o-y to RM315.8m while net profit fell 10.4% y-o-y to RM40.5m, were within its expectation.

The higher revenue was mainly driven by higher sales (mainly of tissue products) as the higher selling price of 5%-10% had only a 1-month impact on the current quarter.'' EBIT margin narrowed from 20.3% in 9MFY10 to 17.3% in 9MFY11.

'Despite rising raw material prices, we see margins hovering at the current level as NTPM revised upwards selling prices by 5%-10% in Nov 2010,' it said.

OSK Research said it maintained our FY11 and FY12 earnings forecasts at RM50.5m and RM58.9m respectively. Our TP is kept at RM0.52, based on 10x FY12 EPS. Maintain NEUTRAL.

JTINTER - Another cash bonanza for JTI?

Stock Name: JTINTER
Company Name: JT INTERNATIONAL BHD
Research House: OSK

JT International Bhd
(March 10, RM6.60)
Upgrade to buy at RM6.56 with target price raised to RM7.30 (from RM6.32): In FY08, JTI declared a capital repayment of 75 sen per share (2H) and total dividends of 58 sen per share (1H). The repayment was declared when its cash pile was a whopping high at RM265 million. The repayment resulted in its share capital being reduced to RM65.38 million from RM261.5 million.

Paid out in 1QFY09, the capital repayment amounted to some RM196 million, representing 73% of its FY08 cash balance (RM267 million).

Taking into account its recurring 30 sen per share dividend, JTI incurred a cash outlay of RM254.8 million in dividends and capital repayment for 2009. The total amount (in recurring and capital repayment only) represented about 95% of its cash balance as at late FY08/early FY09.

JTI's total cash shrank from RM267 million in 4QFY08 to RM70 million in 1QFY09 following its dividend and capital repayment. Since then, the company's cash position has been increasing at an average RM13.6 million every quarter.

This average increase takes into account the 30 sen tax-exempt dividend it pays out annually. Our average cash increase assumption also strips out JTI's one-off cash received from repayment from a trustee account totalling RM24 million for both years.

Based on the average cash increase of RM13.6 million per quarter, hypothetically JTI's total cash could range from RM240 million to RM260 million in 4QFY11/1QFY12. This is close to the previous high of RM265 million, based on which JTI declared a 75 sen per share capital repayment. The company's net cash per share stood at 72 sen as of its latest reporting quarter. Another plus is that JTI is also debt-free.

With its growing cash pile, JTI is likely to declare special dividends on top of its annual recurring 30 sen per share dividend.

Though our year-end FY11 cash forecast at RM227.1 million is still below the previous capital repayment trigger point of RM265 million, there is still a possibility of a capital repayment.

Based on its previous cash outlay of 95%, this would mean that JTI would fork out cash of around RM215.7 million in FY12 (assuming a special dividend is declared in late FY11 and paid out in 1QFY12). This would translate to a total dividend of about RM1.10 per share (30 sen dividend per share plus a special dividend of 80 sen per share).

Besides a possible dividend payment, JTI may look for an acquisition target domestically to expand its market presence.

However, given increasing illicit trade ' which currently stands at 40% of all cigarettes sold in the street ' we find this option a risky venture for now.

Our expectation of a high dividend payout may also not be met if JTI chooses to retain funds in view of the industry's market pie shrinking over time on high illicit trades stemming from an increase in tobacco excise duties.

We raise our valuations for JTI to a target price of RM7.30 from RM6.32 previously. Our higher target price is arrived at after lowering our weighted average cost of capital assumption to 8.32% from 9.4%, noting the possibility of a bumper special dividend.

Translating to a stock upside of 11.2% coupled with a gross recurring dividend yield at 4.6%, we upgrade the stock to a 'buy' from 'neutral' previously.

Although we have yet to receive any indication of when or how much the possible special dividend might be, we note that its likelihood is high given its growing cash pile. ' OSK Research, March 10


This article appeared in The Edge Financial Daily, March 11, 2011.

TENAGA - TNB's 5pc growth demand achievable: MIDF

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

Tenaga Nasional Bhd's (TNB) projection of five per cent growth in electricity demand in financial year 2011 is achievable based on the growth trend, said MIDF Amanah Investment Bank Bhd.

In a research note, the bank said electricity demand rose by 3.8 per cent year-on-year between September 2010-January 2011 to 37,664 gigawatt hour (GWh).

"We expect demand will continue to emanate from the industrial and commercial segments respectively, accounting for 44.2 per cent and 33.2 per cent of Peninsular Malaysia's electricity demand, while domestic sector will account for 12.6 per cent," it said.

MIDF said every one per cent change in power demand would lift TNB's core net profit by two per cent to three per cent.

It said TNB's unit sales of electricity in Peninsular Malaysia in January 2011 grew by 1.9 per cent year-on-year from 2.2 per cent year-on-year in December 2010 led by healthy consumption from commercial and industrial segments.

The research firm reiterated its 'buy' recommendation and maintained the target price of RM7.98 on TNB amid recovering demand should see TNB reporting better quarters ahead. -- BERNAMA