IJM - IJM Corp's valuations inexpensive

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

IJM Corp Bhd
May 6, RM6.20)
Buy at RM6.18 with revised target price from RM7.30 to RM8.70: We have switched our sector pick to IJM Corp from Gamuda given strong expectations of more assured and immediate order book replenishment. We raise our sum-of-parts derived target price for IJM Corp to RM8.70 after upgrading FY12/13F earnings per share by 9% to 14% to account for RM3 billion to RM5 billion of new wins now against RM2 billion previously, and taking into account a larger 68.1% stake in IJM Land against 61.6% previously, following the conversion of RM400 million worth of redeemable convertible unsecured loan stocks (RCULS) and lower target price for IJM Plantations. Valuations for IJM Corp at a price-earnings ratio of 14 times FY13 earnings and a price to net tangible assets ratio of 1.3 times are inexpensive.

The construction unit is going strong with some RM5 billion of new orders to be converted by CY11, boosting the group's order book to RM9 billion from RM4 billion now. These include the New Pantai Expressway (NPE) extension and West Coast Expressway (WCE).

In addition, the quality of its order wins will be better with some 90% being local government jobs against 50% overseas projects in 2007. IJM Corp is reasonably assured of these wins in the medium term. This is excluding the light rail transit (LRT), mass rapid transit (MRT) and government building jobs such as the KL Financial District and private sector jobs for which the builder is a strong contender. We also expect its manufacturing unit to be a key beneficiary.

IJM Land will continue to chalk up strong property sales of about RM1.35 billion in FY11, beating its FY10 peak of RM1.25 billion. We view the RCULS conversion by IJM Corp as an indication of expected strong earnings momentum in IJM Land in the coming years. In CY12, two key projects will be launched ' Canal City and Sebana Cove with a total gross development value of RM7.4 billion. The success of Canal City is important because it will give IJM Land a much needed flagship Klang Valley township development to leverage on for further expansion, possibly including the Rubber Research Institute Malaysia (RRIM) land.

For the NPE, we expect pretax margins of at least 8%, possibly beating margins for the RM600 million Besraya extension project, because it is being negotiated now when raw material costs are higher.

For the WCE, the cost of the project was initially RM3 billion, but we understand it will be substantially higher now given changes to the overall alignment and overall increase in raw material costs.

Other potential jobs in the pipeline are LRT extensions phase 2 worth RM2.2 billion, MRT non-tunnelling works for the Blue Line worth RM11 billion, and government building jobs such as the KL Financial District, RRIM land and Jalan Cochrane.

We believe IJM is a strong contender for all these projects given its track record, strong balance sheet, and niche in building jobs with experience in Grade A office, luxury condominiums and other commercial and residential projects.

IJM Corp is scheduled to release its 4QFY11 results in late May. We understand there could be some RM70 million in writedowns at its construction unit, largely related to legacy jobs in India and some outstanding jobs, where the management is expecting non-payment and delays in land acquisition.

Even without the writedowns, we do not expect substantial improvement in 4QFY11 construction margins. We only expect margins to normalise in 2HFY12, when key local projects are in full swing. Our current FY11 forecast excludes the likelihood of this provision. ' HwangDBS, May 6


This article appeared in The Edge Financial Daily, May 9, 2011.

TENAGA - Sustained high coal prices a challenge to TNB

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

Tenaga Nasional Bhd
(May 6, RM6.12)
Maintain buy at RM5.99 with target price of RM6.54: We maintain our 'hold' call for TNB as we believe the company could face challenges in the coming months in the form of sustained high coal prices. We also take into account Petronas' gas curtailment which means that TNB has to substitute gas with a higher usage of coal and distillate, and the lack of visibility with regards to timing of any tariff adjustments.

Our target price of RM6.54 for TNB is based on unchanged price-earnings ratio of 15 times FY11 earnings. This is the post-June 2006 average multiple of the company.

According to Bernama, TNB has earmarked four sites to set up geothermal power plants which will utilise steam generated from hot springs. The project is currently in the initial stages of Phase 2, in which geophysics and subsurface analysis are being carried out.

The next stage will include exploratory drilling, which is similar to oil drilling. Each geothermal plant will have the potential to generate more than two megawatts (MW) of electricity. A large hot spring can generate up to 20MW of power. The geothermal project is expected to be fully implemented by 2016.

This move into geothermal energy is part of TNB's long-term strategy to diversify into renewable energy sources, given the rising coal and gas prices.

The need to look at other viable renewable energy options is gaining importance, considering adverse public opinion on the use of nuclear power after the nuclear disaster in Japan.

The foray into geothermal power is in line with the government's plan to increase renewable energy contribution to Malaysia's power generation mix from less than 1% (41.5MW) currently to 5.5% (985MW) by 2015.

With the expected announcement on the operation and maintenance of an 84MW hydropower plant in Pakistan, we believe TNB is on track to achieve its key performance indicator of RM1.8 billion to RM1.9 billion worth of revenue from non-regulated businesses. We are also pleased to hear that political unrest in the Middle East is not holding TNB back from expanding its business into the region. ' ECM'' Libra, May 6


This article appeared in The Edge Financial Daily, May 9, 2011.

F&N - Fraser & Neave cut to 'sell' at Maybank Invt

Stock Name: F&N
Company Name: FRASER & NEAVE HOLDINGS BHD
Research House: MAYBANK

Fraser & Neave Holdings Bhd was cut to “sell” from “hold” at Maybank Investment Bank Bhd, saying valuations of the Malaysian beverage maker shares are “rich.”

The share price estimate was reduced to RM15 from RM15.25, Kang Chun Ee, an analyst at Maybank, wrote in a report today. -- Bloomberg

IJM - HwangDBS raises target price for IJM

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

HwangDBS Vickers Research has raised its target price for IJM Corporation Bhd to RM8.70 from RM7.30 previously.

This follows its upgrading of the company's earnings per share forecast for the 2012 and 2013 financial years by nine to fourteen per cent.

On the construction side, it said there were two jobs in IJM's pipeline that could see its RM4 billion orderbook to at least double. They were the New Pantai Expressway extension and West Coast Expressway which were worth a combined RM5 billion.

Other potential jobs were the LRT extensions Phase 2 (RM2.2 billion), MRT tunneling works for the Blue Line (RM11 billion) and government building jobs such as the KL Financial District, RRIM land and Jalan Cochrane.

"We believe IJM is a strong contender for all these projects given its track record, strong balance sheet and niche in building jobs with experiences in Grade A office, luxury condominiums and other commercial and residential projects," the research house said in its Company Focus today.

In property, it highlighted Canal City and Sebana Cove which would be launched in 2012 with a total gross development value of RM7.4 billion.

"The success of Canal City is important because it would give IJM a much needed flagship Klang Valley township development to leverage on for further expansion, possibly including the RRIM land," it said. -- Bernama

F&N - F&N holds on to gains, AmResearch ups FV to RM22.70

Stock Name: F&N
Company Name: FRASER & NEAVE HOLDINGS BHD
Research House: AMMB

KUALA LUMPUR: Fraser & Neave Holdings Bhd (F&N) continued to be among the top gainers on Friday, May 6, underpinned by its strong earnings and dividends.
At 3.39pm, F&N was up 30 sen to RM18.70 with 60,800 shares done, bucking the weaker market.
The FBM KLCI was down 7.36 points to 1,513.82. Turnover was 602.43 million shares valued at RM908.24 million. Losers beat gainers 473 to 203 while 266 counters were unchanged.
The company posted net profit of RM131.98 million in the second quarter ended March 31, 2011 versus RM85.23 million a year ago, boosted by the sale of a college building.
Revenue was RM1 billion compared with RM872.09 million. Earnings per share were 36.80 sen versus 23.90 sen. It declared 35 sen in dividends.
AmResearch reiterate its BUY recommendation on F&N and lifted its fair value from RM17.40/share to RM22.70/share, based on a PE of 18 times CY11F earnings.
'We believe a small premium is justified given F&N's strong earnings profile within the non-discretionary food industry against a backdrop of rising material costs, as underpinned by its market share leadership position and brand equity strength,' it said.
The research house said though its valuation is at the higher-end of the stock's three-year PE band, it is still at a discount to peer Nestle Malaysia Bhd's current PE of 25 times, at parity to the five-year average historical discount.''

TENAGA - ECM keeps 'hold' call on Tenaga

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

With the expected announcement on the operations and maintenance of an 84MW hydro-power plant in Pakistan, Tenaga Nasional Bhd (TNB) is on track to achieve its Key Performance Indicator of RM1.8 to RM1.9 billion worth of revenue from non-regulated businesses.

"We are also pleased to hear that any political unrest in the Middle East is not holding back TNB from expanding its business into the region," said ECM Libra Capital Sdn Bhd in a research note today.

It was reported that TNB Repair and Maintenance Sdn Bhd (TNB Remaco) is aggressively expanding overseas to boost revenue. Its targeted revenue in 2015 is between RM600 million and RM700 million, up from RM500 million aimed for this year and RM335 million last year.

Of the RM600 million to RM700 million revenue, 30 per cent is expected to come from overseas, compared to the current 10 per cent.

TNB said it was in the process of selecting the right partner and would sign the agreement soon to operate and maintain an 84MW hydro-power plant in Laraib in Kashmir, Pakistan, which is a five plus five year contract.

ECM Libra has maintained a "hold" call on TNB. - Bernama

WASEONG - Wah Seong a 'buy' on better prospects

Stock Name: WASEONG
Company Name: WAH SEONG CORPORATION BHD
Research House: OSK

Wah Seong Corp was raised to “buy” from “neutral” at OSK Research Sdn Bhd, which cited improving earnings growth prospects at the Malaysian pipe-coating company.

The stock’s fair value was increased to RM2.60 from RM2.29, analyst Jason Yap wrote in a report today. -- Bloomberg

NHFATT - OSK Research maintains Buy on New Hoong Fatt, FV RM2.85

Stock Name: NHFATT
Company Name: NEW HOONG FATT HOLDINGS BHD
Research House: OSK

KUALA LUMPUR: OSK Research said New Hoong Fatt's'' 1QFY11 earnings were slightly weak, accounting for 20% of its full year forecast due to seasonality given the shorter number of working days.

It said on Friday, May 6 that margins were crimped by higher raw material cost but was somewhat cushioned by the higher income contribution from the sale of steel scrap at higher prices.

'While the gradual ban of imported used parts will commence with key critical items which New Hoong Fatt (NHF) does not have exposure to, we remain positive over the longer term as eventually the ban would also include body parts.

'We maintain our earnings forecast as we expect stronger quarters ahead. Our BUY call is maintained as with our FV of RM2.85, premised on 6x FY11 EPS. No dividend was announced,' it said.

DAIBOCI - CIMB Research keeps Daibochi TP at RM3.92, Outperform

Stock Name: DAIBOCI
Company Name: DAIBOCHI PLASTIC & PACKAGING
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research said despite that Daibochi's 1Q11 results coming in at only 75% of its forecast, when annualised, the earnings met its and market expectations as earnings in the remaining quarters should be stronger.

It said on Friday, May 6 that also within expectations was the interim tax-exempt DPS of 3.0 sen. We maintain our EPS and DPS forecasts.

'Our target price is also unchanged at RM3.92, based on 10.2x CY12 P/E, a 30% discount to our 14.5x target market P/E. We maintain our OUTPERFORM recommendation,' it said.

CIMB Research said factors that could spark a re-rating include i) further margin recovery over the next few quarters, ii) major contracts secured from major non-F&B companies and, iii) attractive gross dividend yield of 8-9%. Daibochi remains its top pick in the packaging sector.

TOMYPAK - CIMB Research maintains Outperform on Tomypak, lowers TP to RM1.53

Stock Name: TOMYPAK
Company Name: TOMYPAK HOLDINGS BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research said'' Tomypak's annualised 1Q11 net profit was only 48% of its forecast, clearly below expectations as the company absorbed some cost increases, probably to avoid a volume backlash.

It said on Friday, May 6 that however, the 1.4 sen interim DPS was within expectations.

'We are slashing our FY11 EPS by 23% to reflect the margin squeeze while cutting FY12-13 by 2-7% as margins should recover by then.

'Our FY11 DPS forecast is cut by only 13% as we revise our payout ratio from 25% to 30%.

'We now value Tomypak at 6x CY12 P/E, a 40% discount to our 10.1x CY12 target P/E for Daibochi instead of 30%. Although our target price drops from RM1.80 to RM1.53, the stock remains OUTPERFORM as it offers a CY12 P/E of only 4x and 7-10% dividend yields. The main potential catalyst is a sharp fall in raw material prices.'