AXIATA - ECMLibra maintains 'neutral' call on telco sector

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

ECMLibra Investment Research has maintained a neutral call on the telecommunication sector. It gave a buy recommendation on Axiata with target price of RM6.08.

"Axiata is our strong pick in the sector given strong growth prospects and potential upside surprises in dividend payments.

"Although earnings growth is lower for other telcos, valuations are likely to be supported by the high dividend yields," the research house said in its Sector Monthly Review (Telecommunication) today.

ECMLibra gave hold recommendations on Maxis, DiGi and TM with target prices of RM5.70. RM30.14 and RM3.86 respectively. -- Bernama

CIMB - Banking sector rebounds in March

Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD
Research House: AMMB

Maintain overweight: The latest leading loan indicators have staged a strong rebound in March 2011 after a soft patch in February. This indicates that February data was likely affected by the Chinese New Year holidays. We are encouraged that fixed deposit and private sector deposits (from the business and individual segments) have continued to strengthen. Gross impaired loans data is also better.

Having said that, we believe leading loan indicators may slow going forward due to the supply chain disruption from the Japan earthquake. We believe the supply disruption has yet to be felt, largely due to a rundown in stocks. We expect slower leading loan indicators to start to show from May onwards. This could affect loans growth, or if the situation is prolonged, cash flow of business borrowers.

For the upcoming results season, we believe Malayan Banking Bhd (Maybank) and Malaysia'' Building Society Bhd (MBSB) will likely report results ahead of market expectations. Based on CIMB Niaga's results last week, we believe CIMB Group Holdings Bhd will likely be marginally below market consensus estimates. RHB Capital Bhd (RHBCap) is also likely to be below market consensus estimates given that a large chunk of earnings growth (non-interest income) will be related to the government's Economic Transformation Programme (ETP).

We foresee a stronger 2H11, as we still expect a pickup in corporate loans then with the likely rollout of the ETP. We are maintaining our sector rating at 'overweight', with our 'buy' ratings for CIMB, Maybank, MBSB, Hong Leong Bank Bhd and RHBCap.

Loans application growth rebounded in March 2011 to 37.5% year-on-year (y-o-y) from 17% in February. Loans approved growth also picked up strongly to 44.7% in March, after rising by only 7.1% in February. Both were driven by much higher corporate loans applied and approved growth, which is positive.

Residential mortgage growth was resilient at 19.8% y-o-y in March 2011 (February: 23%). Growth has certainly picked up against January's'' growth of 4.3% and December 2010's 8.6% when we believe there was some initial impact from the implementation of a loan-to-value (LTV) limit on the third mortgage and above at a maximum of 70% since the beginning of November 2010.

Auto loan applications growth was surprisingly resilient at 13.5% in March, likely due to consumers buying ahead of anticipated supply disruption due to the Japan earthquake.

Overall loans growth was stronger at 13.2% in March, compared with 12.2% in February. March growth accelerated in both the consumer and corporate loans segments. The consumer loans segment (64.7% of total loans) grew 13.7% in March against 13.2% in February. Corporate loans growth picked up to 12.3% in March 2011, ahead of February's +10.2% y-o-y.

Deposit growth was maintained at 9.7% y-o-y. The fixed deposit segment rose 8% in March against 6.1% in February 2011. This was the strongest expansion rate in 18 months since September 2009's 8.3%. Deposits growth from the private sector (business and individuals) has continued to strengthen for the fifth consecutive month.

Gross impaired loans remain benign. The industry's gross impaired loans ratio was slightly better at 3.2% in March 2011, compared with 3.3% in February, and was certainly better than the 3.6% of March 2010. Loan loss cover has gone up further to 91.1% in March from 89.6% in February. ' AmResearch, May 3


This article appeared in The Edge Financial Daily, May 4, 2011.

DIGI - Accelerated depreciation to hit DiGi earnings

Stock Name: DIGI
Company Name: DIGI.COM BHD
Research House: OSK

DiGi.Com Bhd
(May 3, RM29.60)
Maintain neutral at RM29.08 with an upward revision of the target price to RM29.20 from RM27.90: DiGi released its 1QFY11 results at mid-day on April 29. Core earnings came in at RM331.4 million (+19% year-on-year) against a revenue of RM1.43 billion (+11% y-o- y) supported by: (i) stronger data revenue momentum (+8% quarter-on-quarter/ +38% y-o-y), offsetting the extended contraction in voice revenue (-4% y-o-y and '3% q-o-q) with 15% of its subscriber base now on smartphones against 13% a quarter ago.

The continuing tight lid on operational expenditure contributed to the improvement in earnings before interest, taxes, depreciation and amortisation (Ebitda) margin, from 44.7% in 1Q10 and 45.7% in 4Q10 to 45.9% in 1QFY11. Management has declared 43 sen a share first interim dividend, equating to 100% of its net profit.

DiGi is undertaking a two-to-three year network modernisation exercise with ZTE Corp Sdn Bhd to swap its existing network for a new one.

This is to cater for growing data demand with the new network long-term evolution (LTE). The modernisation exercise will result in DiGi accelerating depreciation on its current 2G network as its lifespan is shortened. Management expects the impact to be front-loaded at RM400 to RM450 million for FY11, RM500 million to RM550 million in FY12 and less than RM100 million in FY13.

While putting pressure on earnings in the medium term, DiGi foresees good operational and capital expenditure savings in the longer term (post FY13). Management believes the accelerated depreciation will more than offset operational expenditure savings from the ongoing network collaboration with Celcom for FY11 and FY12, resulting in earnings being crimped.

DiGi has guided for the negative impact from the new roaming rates to be some RM1 million based on the profile of its roaming traffic.

We reduce our FY11/12 net profit forecast by 24% to 32% after building in the accelerated depreciation charges and making some housekeeping adjustments to our operational expenditure assumptions. Our fair value on the stock is raised to RM29.20 from RM27.90 as we now roll over to FY12.

DiGi remains a 'neutral' following our earlier downgrade on April 21 after the good share price run year-to-date. ' OSK Research, May 3


This article appeared in The Edge Financial Daily, May 4, 2011.

AIRASIA - Higher earnings forecast for AirAsia

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

AirAsia Bhd
(May 3, RM3.00)
Maintain buy at RM2.87 with an upward revision of target price to RM3.80 from RM3.50: We revise up FY11 earnings by 9.7% after imputing higher passenger load factor, fares, and ancillary income as well as the implementation of a fuel surcharge to offset higher jet fuel prices. We have also increased our FY12/13 earnings forecast by 15% to 20%.

We also upgrade our target price for AirAsia to RM3.80 from RM3.50 per share previously after estimating higher net income for FY11/13. We use the sum-of-parts valuation method to better reflect AirAsia's valuation post listing of AirAsia X, Thai AirAsia and Indonesia AirAsia, and re-rating catalysts from the planned listing.

AirAsia has re-introduced a fuel surcharge for bookings from yesterday due to escalating jet fuel costs which have touched some US$140 (RM415.80) a barrel. To recap, AirAsia abolished its fuel surcharge on Nov 11, 2008, when jet fuel prices dropped to US$80 a barrel. The fuel surcharge will vary between RM10 and RM30, depending on the flight hours.

With this exercise, overall demand for AirAsia flights may be affected, as consumers may switch to competitors. However, we opine that the fuel surcharge is minimal as AirAsia's'' total fare is still one of the lowest and the airline will be able to sustain its market share due to its strong brand name, connectivity, frequency, and the continued strong growth of regional air travel.

The appreciation of the ringgit against the greenback has been providing some cushion against the impact of escalating jet fuel costs, as the fuel is denominated in US dollars.

On April 27 this year, AirAsia announced its maiden gross dividend payout of three sen a share, translating into a net dividend payout of 2.77 sen a share (0.97% net dividend yield). This was in line with our expectations of a possible low dividend payout. Nevertheless, we are positive on the move as it will widen the stock's appeal to investors who are looking for dividend yields (especially pension funds), apart from capital gains. ' Hong Leong Investment, May 3


This article appeared in The Edge Financial Daily, May 4, 2011.

PARAMON - Paramount land acquisition price reasonable

Stock Name: PARAMON
Company Name: PARAMOUNT CORPORATION BHD
Research House: RHB

Paramount Corp Bhd
(May 3, RM5.66)
Maintain market perform at RM5.66 with target price of RM5.92: Paramount announced that it had entered into an agreement with FK Realty Sdn Bhd for the acquisition of nine parcels of contiguous freehold commercial land in Klang, measuring 12ha. The total cash consideration of RM110 million will be funded by internal funds and borrowings.

The price tag translates into a cost of RM87 psf for the land. It seems reasonable given that the land has been approved for commercial development, hence it has some plot ratio. The land is located within a matured Klang town centre along Jalan Goh Hock Huat. It is easily accessible via the North Klang Valley Expressway, Shapadu Highway, and Federal Highway.

The land is also linked to Kuala Lumpur, Port Klang, Tanjung Malim and Seremban via KTM commuter. The Klang KTM station is situated at Jalan Raya Timer, which is just six minutes drive from the land. In the vicinity, there are Shaw Centre Point, Carrefour Klang, Jusco Bukit Raja and Klang Parade.

The land has been earmarked for an integrated commercial hub development. While the gross development value (GDV) for the project has not been disclosed pending finalisation and approval of a detailed layout plan, the project is expected to commence in FY12, with a development period of about 10 years.

We are positive on this acquisition, as Klang, with an estimated population of some 750,000, is the second largest city in the Klang Valley after Kuala Lumpur. A well-planned commercial development is therefore marketable. The risks include regulatory and country risks, delay in approvals and launches, and competition from peers.

There is no change in our earnings estimates pending guidance from the management on the GDV of the project. We maintain our 'market perform' rating on the stock, with an unchanged indicative fair value of RM5.92, based on a 30% discount to realisable net asset value. ' RHB Research, May 3


This article appeared in The Edge Financial Daily, May 4, 2011.

EPMB - EP Manufacturing: Bottom up, top down

Stock Name: EPMB
Company Name: EP MANUFACTURING BHD
Research House: OSK

EP Manufacturing Bhd
(April 29, 78.5 sen)
Maintain buy at 76.5 sen with revised target price of 89 sen (from 78.7 sen): EPMB registered revenue and net profit of RM125.5 million and RM8.6 million respectively for 1QFY11. Revenue fell 16% y-o-y (q-o-q: 5%) given the lower top line contribution arising from the slowdown in Perodua's volume in 1Q (by 4.1% y-o-y and 3.6% q-o-q) as production of the existing Myvi is expected to cease sometime end-1H.

But EPMB dropped a surprise with earnings soaring 109% y-o-y and 15% q-o-q, which beat our expectations as its 1Q earnings represented 40% of our full-year forecast.

Management also announced a tax-exempt final dividend for FY10 of one sen per share, bringing its full-year dividend to two sen per share.

Despite the lower revenue from its auto division, the segment's margins expanded as earnings before interest and taxes (Ebit) margin improved from 4.96% and 7.32% in Q1FY10 and Q4FY10 respectively to 8.68% during the quarter.

While economies of scale are unlikely in the recent quarter given Perodua's lower production volume, we suspect that the margin boost at Ebit level was due to the lower amortisation rate for Perodua's production line (based on unit output) as a significant portion was amortised in 2010, during which the volume sold beat initial projections.

Hence, we suspect that the better earnings before interest, taxes, depreciation and amortisation (Ebitda) margin amid rising raw material prices could have been relatively lower than in 4QFY10 but slightly higher than 1QFY10 owing to enhanced operating efficiency. A tax credit also contributed to the improved bottom line.

Despite the better than expected 1Q earnings, we are still concerned over a potential slowdown from Perodua in 2Q and 3Q arising from an acute disruption in components supply after Japan's earthquake in March, although things could pick up in 4Q once the new Myvi is launched.

After revising our numbers earlier and downgrading autos to underweight, we feel it is too early to make any changes to operating earnings.

Below the operating level, we are slashing off minority interest (as EPMB has fully acquired the remaining 4% stake from Proton Holdings) and lowering the effective tax rate from 25% to 20% in view of the favourable tax incentives EPMB will enjoy on investment allowances over the next three years as per management guidance.

This ultimately raises our earnings by 13% for FY11/13 and our fair value to 89 sen from 78.7 sen, premised on six times price-earnings ratio (PER) with our 'buy' call maintained. EPMB still offers a decent upside given its attractive valuation as it is still trading below its eight to nine times five-year historical forward PER.

Instead, the stock is trading at 5.2 times FY11 earnings per share, with 50% of the share price representing its free cash flow. Maintain 'buy'. ' OSK Research, April 29


This article appeared in The Edge Financial Daily, May 3, 2011.

DIGI - DiGi cut to 'market perform' at RHB

Stock Name: DIGI
Company Name: DIGI.COM BHD
Research House: RHB

DiGi.Com Bhd was downgraded to “market perform” from “outperform” at RHB Research Institute Sdn Bhd which said the stock was “almost” fully valued following a rally in its share price.

Its fair value was raised to RM30 from RM29.10, analyst Lim Tee Yang wrote in a report today. -- Bloomberg

DIGI - CIMB Research Neutral on DiGi, ups target price to RM31.60

Stock Name: DIGI
Company Name: DIGI.COM BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research said though DiGi's 1Q11 annualised core net profit was only 1% above its forecast and consensus was spot on, it considered the performance to be above expectations as 1Q is a seasonally weak quarter.

CIMB Research said on Tuesday, May 3 that the outperformance came from better-than-expected revenue and margins.

'Although we raise our revenue and EBITDA margin assumptions, our FY11-12 core EPS numbers are reduced by 14-16% because of accelerated depreciation resulting from a network upgrade.

'FY13 EPS is raised by 11%. Our DCF-based target price, which uses an unchanged WACC of 11.6% rises from RM28.65 to RM31.60. We also cap our FY11-13 DPS forecasts at levels similar to FY10's.

'Rising prepaid competition and DiGi's stretched valuations keep the stock as a NEUTRAL despite the commendable results. Downside risks should be limited by its dividend yield of 7%. Axiata remains our top Malaysian telco pick,' it said.

HWGB - CIMB Research has Sell on Ho Wah Genting

Stock Name: HWGB
Company Name: HO WAH GENTING BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research has a Sell on Ho Wah Genting Bhf at 67 sen, at which it is trading at a price-to-book value of 3.2 times.

It said on Tuesday, May 3 HWGB is gyrating in a bearish flag pattern. Although prices could still inch a tad higher from here, it was worried about its medium term sustainability.

CIMB Research said if the 50-day SMA fails to hold, the support channel at 60 sen will be the next target.

Technical landscape remains subdued. MACD is still losing pace while RSI has slipped below the 50pts mark. Once the RM0.60 level is breached, prices would likely fall towards 56.5 sen and 51.5 sen.

'Our strategy here is to unload on strength, preferably near the 70 sen to 72 sen resistances. However, always put a buy stop at 73 sen, in case we underestimate the strength of this rebound,' it said.

HLBANK - AmResearch maintains Buy on Hong Leong Bank, unch FV RM12.20

Stock Name: HLBANK
Company Name: HONG LEONG BANK BHD
Research House: AMMB

KUALA LUMPUR: AmResearch maintains its Buy rating on HONG LEONG BANK BHD [] (HLBB), with an unchanged fair value of RM12.20/share.

'This is based on unchanged P/BV of 2.3 and calendarised 2011 ROE of 15.7%,' it said on Tuesday, May 3.

EON Capital (EON Cap) announced that its board had on April 28 confirmed to Hong Leong Bank Bhd's (HLBB) to accept the offer by HLBB to buy the entire assets and liabilities of EON Cap for RM5.06bil or RM7.30/EON Cap share.

However, EON Cap unexpectedly added in one major new condition before accepting the offer, which was that EON Bank, the wholly-owned subsidiary of EON Cap, will pay a net dividend of RM311.9mil, to EON Cap.

An application for the proposed interim dividend will be submitted to Bank Negara Malaysia (BNM).

HLBB has confirmed it has no objection to EON Bank declaring and paying net dividend amounting to RM311.9mil upon receipt by EON Bank the approval from BNM.

HLBB said it will maintain the acquisition price of RM5.06bil with no deduction for payment of the proposed interim dividend.

AmResearch said EON Cap has not yet announced it will pay up the dividend to its shareholders EON Cap's announcement is vague in the sense that it did not mention what it intended to do with the net dividend of RM311.9mil.

'We are not able to get further indications from EON Cap at this point. We expect EON Cap to pay the dividend eventually to shareholders, which will be RM0.45/share.

'Despite this, we expect EON Cap to eventually pay the unexpected net dividend of RM311.9mil to EON Cap's shareholders. This is on the basis that EON Cap will likely be delisted post the merger,' it said.

AmResearch said in EON Cap's circular to shareholders dated Sept 1, 2010, EON Cap's board said that it did not intend to maintain the listing status of EON Cap and would make the necessary arrangements to request for the delisting of EON Cap.

Also, in the circular to shareholders, EON Cap had said that it intended to pay a capital distribution amount of RM1.76bil or RM2.54/share, which represent the existing share capital and share premium reserve of EON Cap, as

AmResearch said EON Cap cannot declare a special dividend from these capital accounts, but only via a capital repayment exercise in accordance with Sections 60 and 64 of the Companies Act 1965.

On top of this, EON Cap had said that it intended to pay a special dividend of RM3.3bil or RM4.76/share, which comprise the retained earnings as at 31 December 2009 as well as realised capital gain from the proposed disposal of assets and liabilities to HLBB.

'On this basis, we expect the RM311.9mil that EON Cap will receive to be declared as dividends to EON Cap's shareholders. This works out to RM0.45/EON Cap share,' AmResearch said.