WASEONG - Price Target News

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

Wah Seong Corp Bhd
(April 2, RM2.69)
Reiterate buy at RM2.62 with fair value of RM3.40: Wah Seong's wholly-owned Gas Services International Ltd (GSI) has reached a settlement with Weatherford UK Ltd. Weatherford had claimed damages as a result of GSI's failure to deliver 28 booster compressors in time for testing and commissioning, comply with relevant standards, specification and fitness for purpose and commissioning/onsite support obligations.

Weatherford had claimed €2.4 million (RM11million) plus additional damages for the breach, which were to be offset against any amount owing to GSI, which had also filed a counter claim. In the settlement, Weatherford agreed to pay US$2 million (RM6.5million) to GSI.

We understand that Wah Seong had made some provisions for Weatherford's claims in the past quarters. But we are uncertain at this stage on the quantum of writeback of provisions arising from this settlement.

Assuming full writeback of the full US$2 million, we estimate that FY10 net profit could be raised slightly by 5% under a best-case scenario.

For now, we maintain our FY10F-FY12 estimates, which project an average earnings growth of 8%.

This is conservative compared to management's organic annual earnings growth target of 15% over the next five years.

Wah Seong's tender book of RM5.3 billion appears huge but most awards for the tenders are likely to be announced towards year-end. As such, there is a likelihood that Wah Seong's order book of RM1.4 billion currently could slide towards RM1 billion by 2QFY10, but rebound towards year-end as new orders materialise.

Wah Seong is still in advanced negotiations with Italy-based Orleans Group to buy a stake - around 60%-70% - in a former Socotherm pipe-coating facility in Port Harcourt, Nigeria.

But to mitigate the huge risks in Nigeria, Wah Seong is looking at a technical arrangement with the Orleans Group to provide pipe-coating consultancy services first but with an option to later buy an equity stake if the operation kicks off successfully.

The stock trades at an attractive CY10 diluted price earnings (PE) of 14 times, above Malaysia's oil and gas (O&G) sector of 12 times but below its five-year average of 16 times and peak of over 25 times.

We reiterate our buy call on Wah Seong with unchanged fair value of RM3.40 per share, pegged to FY10's PE of 18 times at parity to the stock's four-year average.

We still like the group for its proven expertise in pipe-coating, growing regional presence in the O&G industry and merger and acquisition excitement. - AmResearch, April 2


This article appeared in The Edge Financial Daily, April 5, 2010.

EONCAP - Price Target News

Stock Name: EONCAP
Company Name: EON CAPITAL BHD
Research House: MAYBANK

EON Capital Bhd (EONCap)
(April 2, RM7.13)
Maintain hold at RM7.05 with target price of RM7.20: Hong Leong Bank Bhd's (HLBB) revised offer values EONCap at 1.42 times book based on RM5.13 book value of equity per share as at December 2009; still at the lower end of recent banking mergers and acquisitions (M&A).

HLBB's terms are also very restrictive in terms of deadline, to avoid having to comply with the new guidelines on asset disposal.

We expect EONCap's new board of directors to agree with a shareholders' EGM. The sale is almost a foregone conclusion as it requires only 50%-plus-one-share vote. Minorities will have little say.

Last Thursday, HLBB revised its offer to buy the entire assets and liabilities of EONCap for RM5.06 billion cash or at RM7.30 per share. This is a mere 2.8% above the revived offer of RM4.92 billion or RM7.10 per share made on March 30, where the offer price was unchanged from the original offer made on Jan 21. The revised offer price is also a mere 3.5% premium over EONCap's last Thursday's closing share price.

The offer price is subject to a due diligence on EONCap. EONCap's board of directors has until today to confirm with HLBB that it agrees to submit its application for authorities' approval on or before April 19, and issue a notice of shareholders' EGM on or before April 30, and for the EGM be held not later than 14 days from despatch date of the notice. Also, the completion date for the exercise is not later than May 31. There are other conditions, amongst which EONCap must not entertain, pursue or negotiate with any other parties on similar subject matter and HLBB can withdraw its offer if there is a new guideline or law which affects its offer.

With a completion deadline set for May 31, it is obvious that the speed is to avoid the exercise having to fall within the ambit of the Securities Commission's new guidelines on asset disposal which are up for public comments by April 9, and which may be effective as early as June.

The revised offer price still values EONCap at the lower end of recent domestic banking M&A which averaged 1.7 times their historical book values.

We think that the new offer price is still low considering that it is for the business in entirety. The deal requires only the go ahead of shareholders who hold 50%+one share of EONCap, and will go through if Tan Sri Tiong Hiew King (17.1%), Rin Kei Mei (15.5%), Employee Provident Fund (12%) and Khazanah Nasional Bhd (10%), who hold a total 54.6% agree to sell.

We expect EONCap's new board to accept HLBB's terms. - Maybank IB, April 2


This article appeared in The Edge Financial Daily, April 5, 2010.

TCHONG - Price Target News

Stock Name: TCHONG
Company Name: TAN CHONG MOTOR HOLDINGS BHD
Research House: OSK

Tan Chong Motor Holdings Bhd (TCM)
(April 2, RM3.89)
Maintain buy at RM3.77, target price raised to RM4.51: News of TCM securing an exclusive distributorship in Laos is taking the group closer to establishing a regional presence.

TCM announced on Bursa that it has entered into a distribution agreement with Nissan Motor Co Ltd for the sole and exclusive rights to distribute Nissan's completely built-up vehicles in Laos. TCM will spend US$5 million (about RM16 million) over the next five years to set up showrooms and as working capital.

The distribution of vehicles will commence beginning 2Q10, with initial sales of 200 units a year.

TCM's Laos foray comes on the heels of earlier news of the group securing exclusive distributorship rights in Cambodia and a certificate of investment to set up a manufacturing plant in Vietnam. With these three Indochinese countries in the picture, it's a matter of time that its Vietnam plant will play a key role as TCM's second assembly plant catering to these three countries.

The automotive industry in Laos is undeveloped, with vehicles sales (mostly reconditioned trucks not road worthy in developed countries) growing by double digits over the past few years. Most of the roads in Laos are in very poor condition, which makes driving safer only during the day, and are prone to seasonal flooding during the months of August up to November.

The demand for vehicles is largely met by the import of used reconditioned models and the secondary car market, which accounts for more than 90% of total industry volume. Of the total circa 700,000 vehicles on the road, 80% are motorcycles, with the remainder mostly comprising of pick-ups and light trucks.

We are positive on this development given the relatively untapped Laos market, where new vehicles sales is likely to be encouraging as the country's auto industry develops. This leads us to upgrade our FY10-FY12 earnings forecast by 1%-1.8% on the back of higher vehicle sales.

Hence, our target price is raised from RM4.26 to RM4.51 as we roll our 12-month earnings forward. With Indonesia left to go, we expect more excitement ahead as TCM's regional plans unfold.

Given our new volume assumption (from the increase in unit sales from Laos) of 34,408 units for 2010 and 35,537 and 50,572 units in 2011/2012, this raises our revenue estimates by 0.6%-0.9% (RM20.9 million-RM35.2 million) over the next three years. Effectively, our bottom line for FY10-FY12 also edges up some 1%-1.8% (RM2.2 million-RM5.9 million).

Hence, we are upgrading our target price to RM4.51, with our buy call maintained. We continue to like TCM for its regional transformation going forward.

TCM may see increasing earnings momentum given that the ringgit has been strengthening against the Japanese yen in the past one week. Our sensitivity analysis suggests that a 10-sen deprecation or appreciation in our yen/ringgit assumption (at RM3.50 for every ¥100 in FY10 and RM3.27 in FY11) would respectively shave off or increase some RM14.8 million-RM18 million from TCM's net profit, or 7% on average over a two-year horizon. - OSK Research, April 2


This article appeared in The Edge Financial Daily, April 5, 2010.

TASEK - Price Target News

Stock Name: TASEK
Company Name: TASEK CORPORATION BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research has downgraded Tasek Corp from Outperform to Neutral due to the lack of short-term catalysts due to weak demand and high rebates.

It said on Monday, April 5 its recent plant tour left it feeling optimistic about Tasek's medium- to-long term prospects. However, earnings could be weak in the near term given lower sales volumes and higher rebates across the industry.

"In light of this, we are cutting our FY10 EPS by 11%. However, our blended target price is raised from RM5.20 to RM5.90 as we revise our target valuations to 13.5x P/E (12x previously) and 1.0x P/BV (0.8x previously) given the potential improvement in the mid- to long-term prospects," it said.

CIMB Research said while it acknowledges that a stronger pick-up in demand is likely to come through in 2H, the rise in demand is coming through more slowly than expected.

It added furthermore, there is limited share price upside given the buying interest seen since its 4Q results announcement. Given the lack of short-term catalysts due to weak demand and high rebates, we downgrade the stock from Outperform to Neutral.

AIRPORT - Price Target News

Stock Name: AIRPORT
Company Name: MALAYSIA AIRPORT HOLDINGS BHD
Research House: OSK

Malaysia Airports Holdings Bhd (MAHB)
(April 2, RM4.95)
Maintain trading buy at RM4.80 with target price of RM5.50: MAHB has launched "Runway To Success: Building A World-Class Airport Business 2010-2014".

We are generally pleased with the five-year business direction placing aeronautical revenue as the backbone supported by a conservative traffic growth of 4.1%, its aim to nurture its retail business, expanding its horizon to strategic land development and boosting its overseas earnings five years from now.

The key target is to achieve earnings before interest, tax, depreciation and amortisation (Ebitda) of RM822 million on a base-case scenario and RM1.12 billion on an optimistic case for FY14.

Being an airport operator, air traffic growth remains MAHB's underlying fundamental. The company has estimated a base growth rate of 4.1% compound annual growth return (CAGR) from 2008 to 2014, which may offer some upside given the robust growth in the low-cost carrier segment and other Asian markets.

Nevertheless, as its earnings projection incorporates a potential increase in passenger service charges in 2014 as well as 30% increase in landing charges plus other aeronautical charges in May 2011, we may see some road blocks covered by the marginal cost support agreed to by the government under the operating agreement.

MAHB has big plans to raise its non-aeronautical contribution to 67.1% by 2014, or by an absolute revenue of RM2.1 billion, from RM860.6 million.

Going forward, the company has established clear plans to grow the retail business by introducing the right products at the right locations.

MAHB has identified 2,730 acres (1,105ha) of land surrounding the KLIA for development. While the management has guided for rental on the high side and has a bullish revenue projection of RM112 million by FY14, we are upbeat on its potential, given its previous success in developing Malaysia International Aerospace Centre at Subang Airport.

The company has also been building its name in airport management overseas, having three such ventures under its belt. It is also bidding for two airport management jobs in Asia, and hopes to secure these by year-end. However, these investments will bear fruit only after a five-year gestation period.

We maintain our trading buy recommendation with a target price of RM5.50 based on 16 times FY10 earnings per share. - OSK Research, April 2


This article appeared in The Edge Financial Daily, April 5, 2010.

MRCB - Price Target News

Stock Name: MRCB
Company Name: MALAYSIAN RESOURCES CORP
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research has raised its target price for MALAYSIAN RESOURCES CORP [] Bhd (MRCB) to RM2.25 adding that the Employees Provident Fund may be forced to make a higher offer if it is serious in bringing its stake to 50%.

It said on Monday, April 5 that it believes the Prime Minister's recent statement on the Government and the EPF forming a JV for the 3,400 acres of Rubber Research Institute Malaysia (RRIM) Land where MRCB will likely be the master developer has thwarted EPF's GO at RM1.50/share.

"We read EPF's market moves (buying shares post ex-rights, subscribing heavily for extra rights shares and bringing its stake to 41.5% post GO) as it being serious in seeing this conditional take over materialize and it solidifying its shareholding prior to a material announcement.

"At a higher offer of RM1.80/share, the additional 8.5% to raise its stake to 50% will cost MRCB RM209m. With financial obligations to its contributors, we assume EPF sees further deep embedded value in MRCB," it said.

Hwang DBS Vickers Research also provided a scenario analysis on it clinching different land deals which are all mutually exclusive.

In all scenarios, it assumed there is 50:50 sharing with EPF. The most accretive deal, in its view, is the 3,400 RRIM land in Sungei Buloh given its sheer size, potential pricing power and also expectations of a LRT station.

In Scenario 4 (RRIM), the research house assumes MRCB clinches just one-sixth of the development portion with a 50% stake, a plot ratio of just 3x and ASP of RM300 psf will translate into a total GDV of RM17bn and raise our SOP value by 50% to RM2.70/share.

"We estimate break even at RM243 psf based on land cost of RM10 psf and CONSTRUCTION [] costs of RM180 psf. Another likely deal, is the additional 20-30 acres of land in KL Sentral," it said

"We raise our PT to RM2.25/share assuming a 50% probability from Scenario 4 which has yet to take into account any fee income or construction work from its master developer status. Even if a higher offer doesn't materialise, MRCB is transforming into a credible GLC-linked contractor/developer with strong earnings support - 3-year EPS CAGR of 40% anchored by higher progress billings at KL Sentral and external orderbook of RM1.5bn. Reiterate BUY," it said.

DIGI - Price Target News

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

DiGi.com Bhd
(April 1, RM22.70)
Maintain hold at RM22.58 with target price of RM23.20: With its initial toehold snugly expanded into a meaningful foothold over the last five years, DiGi is now well-prepared for the next great sprint of a marathon to be a key wireless Internet and data provider.

Our RM23.20 discounted cash flow-based (DCF) target price is based on a weighted average cost of capital (WACC) of 8.3%, risk-free rate of 4%, beta of 0.7 and terminal growth rate of 2.4%.

DiGi's remarkable transformation in the 2005-2009 period when its revenue market share rose from 16 percentage points (ppts) to 26ppts, put into perspective how it is now a meaningful and sustainable third-placed telco.

Despite the many challenges of transition and competition in 2009, DiGi is now well-entrenched to reap a sustainable if not growing share of future mobile revenues.

With its 14.4Mbps High-Speed Packet Access (HSPA) network launched, DiGi can finally offer the full suite of mobile voice and data services that its competitors had a year's head start on.

Smartphones such as the BlackBerry and iPhone are now on offer, whilst capacity and coverage are now in place for DiGi to start competing effectively in the burgeoning non-voice and value-added segments.

Braced for potentially single-digit revenue growth in voice revenues, DiGi is focused on growing future mobile data revenues significantly. Although DiGi is prepared for continued price pressures in mobile Internet, it can be expected to rely on its operational efficiency to ensure generally neutral earnings before interest, tax, depreciation and amortisation (Ebitda) margins.

DiGi quoted various independent sources expecting the mobile broadband market to be worth RM3 billion to RM4 billion by 2013. DiGi's Internet revenue contribution though not likely to be significant in 2010, could be so in 2011.

There are already over 500,000 mobile Internet users at end-4Q09 of whom about 10% are on wireless broadband.

With recent discussions on spectrum refarming, DiGi is potentially a key beneficiary. DiGi has been a relatively efficient user of the limited spectrum available and therefore would seem to be a sensible choice for the award of more spectrum.

This could drive penetration and usage further, but may not happen in the immediate forecast 2010-2012 period.

The recent announcement of RM1 billion in Universal Service Provision funds allocated for the building of various community-focused broadband initiatives is generally positive for the industry.

Aiming for above-industry average growth. DiGi hopes to achieve a better than 5%-6% revenue growth in 2010, assuming gross domestic product growth influences revenue growth the most. Whilst this may be challenging, investors are likely to be pacified by its continued commitment to further active capital management. - Maybank IB, April 1


This article appeared in The Edge Financial Daily, April 2, 2010.

WCT - Price Target News

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

KUALA LUMPUR: OSK Research is retaining its OVERWEIGHT rating on Malaysian contractors driven by expectations of more positive news flow. Its top picks are Mudajaya (BUY, TP: RM6.48) for its strong earnings growth and WCT (BUY, TP: RM3.08), as it believes more contracts are in the pipeline. It also likes Naim (BUY, TP: RM4.21) for thematic Sarawak play but downgrade Hock Seng Lee (NEUTRAL, TP: RM1.50), owing to the recent run-up in its share price. OSK Research said on Friday, April 2 that over the 1Q10 period, about RM2.85 billion worth of jobs was awarded. Domestic contracts showed a healthy 16% y-o-y increase but contracted by 38% q-o-q due to the high base effect. "We believe the domestic contract flow will exceed last year's RM9.86 billion, with better numbers showing up in the upcoming quarters," it said. It said during the 1Q10 period, of the RM2.85 billion worth of jobs was awarded, 65.2% was domestic based and 34.8% foreign. The average size per domestic job stood at RM169 million, in line with one of its key sector themes for 2010 that jobs flow will be centred on the mid-small sized ones. OSK Research said contract awards in Sarawak appear to be gaining traction, with Hock Seng Lee (NEUTRAL, TP: RM1.50, Downgrade, given the share price run-up) and Naim (BUY, TP: RM4.21) collectively bagging RM245 million worth of jobs. For the more "popular" jobs, Gadang (NR) secured the LCCT EW2 (RM291m) while IJM (NEUTRAL, TP: RM4.70) was finally awarded the RM600m Besraya extension after almost a year. "Market talk is that the UEM-Bina Puri JV and privately held AHT Norlan-Carriage JV are the finalists for the LCCT terminal building (RM750 million to RM850 million) and satellite tower (RM400 million to RM500 million). Shortlisted contractors that did not make it were Sunway (NR), IJM and Gadang. The Government is also evaluating the proposal for a RM5-6bn highway parallel to the existing NSE connecting Banting (Selangor) and Taiping (Perak), which could eventually be extended all the way to Gelang Patah in Johor. "We think the proposal makes little economic sense as the current NSE is not fully utilised (festive seasons excluded). Furthermore, the completion of the Double Track at end-2013 would already provide an alternative route, especially for cargo flow," said OSK Research. In East Malaysia, there are plans to construct an 11km bridge linking Sabah and Labuan, which could cost RM3 billion (RM6 billion if delayed). "We are sceptical on the feasibility of this project as Labuan's population is a mere 90, 000," it said. Recently, the 60:40 JV between Loh&Loh (NR) and Sinohydro received the LOI for the Hulu Terengganu Dam (RM828 million). The other finalist for the job was Gamuda (NEUTRAL, TP: RM2.75).

MUDAJYA - Price Target News

Stock Name: MUDAJYA
Company Name: MUDAJAYA GROUP BHD
Research House: OSK

KUALA LUMPUR: OSK Research is retaining its OVERWEIGHT rating on Malaysian contractors driven by expectations of more positive news flow. Its top picks are Mudajaya (BUY, TP: RM6.48) for its strong earnings growth and WCT (BUY, TP: RM3.08), as it believes more contracts are in the pipeline. It also likes Naim (BUY, TP: RM4.21) for thematic Sarawak play but downgrade Hock Seng Lee (NEUTRAL, TP: RM1.50), owing to the recent run-up in its share price. OSK Research said on Friday, April 2 that over the 1Q10 period, about RM2.85 billion worth of jobs was awarded. Domestic contracts showed a healthy 16% y-o-y increase but contracted by 38% q-o-q due to the high base effect. "We believe the domestic contract flow will exceed last year's RM9.86 billion, with better numbers showing up in the upcoming quarters," it said. It said during the 1Q10 period, of the RM2.85 billion worth of jobs was awarded, 65.2% was domestic based and 34.8% foreign. The average size per domestic job stood at RM169 million, in line with one of its key sector themes for 2010 that jobs flow will be centred on the mid-small sized ones. OSK Research said contract awards in Sarawak appear to be gaining traction, with Hock Seng Lee (NEUTRAL, TP: RM1.50, Downgrade, given the share price run-up) and Naim (BUY, TP: RM4.21) collectively bagging RM245 million worth of jobs. For the more "popular" jobs, Gadang (NR) secured the LCCT EW2 (RM291m) while IJM (NEUTRAL, TP: RM4.70) was finally awarded the RM600m Besraya extension after almost a year. "Market talk is that the UEM-Bina Puri JV and privately held AHT Norlan-Carriage JV are the finalists for the LCCT terminal building (RM750 million to RM850 million) and satellite tower (RM400 million to RM500 million). Shortlisted contractors that did not make it were Sunway (NR), IJM and Gadang. The Government is also evaluating the proposal for a RM5-6bn highway parallel to the existing NSE connecting Banting (Selangor) and Taiping (Perak), which could eventually be extended all the way to Gelang Patah in Johor. "We think the proposal makes little economic sense as the current NSE is not fully utilised (festive seasons excluded). Furthermore, the completion of the Double Track at end-2013 would already provide an alternative route, especially for cargo flow," said OSK Research. In East Malaysia, there are plans to construct an 11km bridge linking Sabah and Labuan, which could cost RM3 billion (RM6 billion if delayed). "We are sceptical on the feasibility of this project as Labuan's population is a mere 90, 000," it said. Recently, the 60:40 JV between Loh&Loh (NR) and Sinohydro received the LOI for the Hulu Terengganu Dam (RM828 million). The other finalist for the job was Gamuda (NEUTRAL, TP: RM2.75).

GAMUDA - Price Target News

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

KUALA LUMPUR: OSK Research is retaining its OVERWEIGHT rating on Malaysian contractors driven by expectations of more positive news flow. Its top picks are Mudajaya (BUY, TP: RM6.48) for its strong earnings growth and WCT (BUY, TP: RM3.08), as it believes more contracts are in the pipeline. It also likes Naim (BUY, TP: RM4.21) for thematic Sarawak play but downgrade Hock Seng Lee (NEUTRAL, TP: RM1.50), owing to the recent run-up in its share price. OSK Research said on Friday, April 2 that over the 1Q10 period, about RM2.85 billion worth of jobs was awarded. Domestic contracts showed a healthy 16% y-o-y increase but contracted by 38% q-o-q due to the high base effect. "We believe the domestic contract flow will exceed last year's RM9.86 billion, with better numbers showing up in the upcoming quarters," it said. It said during the 1Q10 period, of the RM2.85 billion worth of jobs was awarded, 65.2% was domestic based and 34.8% foreign. The average size per domestic job stood at RM169 million, in line with one of its key sector themes for 2010 that jobs flow will be centred on the mid-small sized ones. OSK Research said contract awards in Sarawak appear to be gaining traction, with Hock Seng Lee (NEUTRAL, TP: RM1.50, Downgrade, given the share price run-up) and Naim (BUY, TP: RM4.21) collectively bagging RM245 million worth of jobs. For the more "popular" jobs, Gadang (NR) secured the LCCT EW2 (RM291m) while IJM (NEUTRAL, TP: RM4.70) was finally awarded the RM600m Besraya extension after almost a year. "Market talk is that the UEM-Bina Puri JV and privately held AHT Norlan-Carriage JV are the finalists for the LCCT terminal building (RM750 million to RM850 million) and satellite tower (RM400 million to RM500 million). Shortlisted contractors that did not make it were Sunway (NR), IJM and Gadang. The Government is also evaluating the proposal for a RM5-6bn highway parallel to the existing NSE connecting Banting (Selangor) and Taiping (Perak), which could eventually be extended all the way to Gelang Patah in Johor. "We think the proposal makes little economic sense as the current NSE is not fully utilised (festive seasons excluded). Furthermore, the completion of the Double Track at end-2013 would already provide an alternative route, especially for cargo flow," said OSK Research. In East Malaysia, there are plans to construct an 11km bridge linking Sabah and Labuan, which could cost RM3 billion (RM6 billion if delayed). "We are sceptical on the feasibility of this project as Labuan's population is a mere 90, 000," it said. Recently, the 60:40 JV between Loh&Loh (NR) and Sinohydro received the LOI for the Hulu Terengganu Dam (RM828 million). The other finalist for the job was Gamuda (NEUTRAL, TP: RM2.75).