DIGI - OSK Research maintains Neutral on DiGi

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

KUALA LUMPUR: OSK Research is maintaining its forecast and NEUTRAL recommendation on DiGi.Com pending the release of its 4QFY10 results at month end.

'We think there is a likelihood that DiGi may declare a special dividend for the final quarter, adding to RM1.20 DPS/share paid to-date as part of its progressive capital management plans (internal target to raise net debt/equity to 0.5-0.8x from 0.2x over the mid to longer term),' it said on Monday, Jan 17.

OSK Research said its FY10 DPS forecast is RM2.10/share (more than 8% net yield), implying a final dividend of 90sen/share. The target price on the stock is maintained at RM24.20.

Last Friday, Jan 14, DiGi announced that its unit DiGi Telecommunications Sdn Bhd had submitted a detailed business plan on 14 Jan 2010 to the MCMC in respect of its application for spectrum in the 2600 MHz band.

OSK Research said the submission of the business plan is a condition attached to the earlier provisional letter of award issued by the MCMC in October 2010.

In addition to Digi, 8 other companies were assigned the spectrum, Celcom Axiata, Maxis, U-Mobile, YTL, Packet One, Asiaspace, Redtone and an unknown outfit, Puncak Semangat.

'We view the assignment of the 2.6GHz spectrum to Digi positively in strengthening its longer-term data/mobile broadband roadmap and offerings, allowing a seamless migratory path for its 3G/HSPA network,' it said.

BENALEC - OSK Research sees TP for Benalec at RM1.42

Stock Name: BENALEC
Company Name: BENALEC HOLDINGS BERHAD
Research House: OSK

KUALA LUMPUR: OSK Research said Benalec, which will make its debut on Monday, Jan 17, has target price of RM1.42, based on the sum-of-parts method, implying a strong 42% upside.

It said the company is involved in marine engineering in which it has an 18% market share. Its business model is unique in that it also accepts the reclaimed land as payment.

'Margins are above the CONSTRUCTION [] sector average. We see more reclamation jobs from Melaka, Penang and Johor. There is also potential to expand into land scarce Singapore. Our RM1.42 TP, based on the SOP method, implies a strong 42% upside,' it said.

BENALEC - Benalec soars on debut

Stock Name: BENALEC
Company Name: BENALEC HOLDINGS BERHAD
Research House: AMMB

KUALA LUMPUR: Shares of Benalec Holdings Bhd surged at the start of trade on Monday, Jan 17, making its debut at RM1.36, which was 36 sen above its offer price of RM1.

At 9am, there were 12 million shares of the integrated marine engineering specialist transacted.

The FBM KLCI rose 3.32 points to 1,573.21. Turnover was 38.71 million shares valued at RM33.40 million. Advancers led decliners 155 to 26 while 95 stocks were unchanged.

AmResearch has a Buy call and a sum of parts-derived fair value of RM1.90. The research house said Benalec enjoys an 18% share of the Malaysian marine CONSTRUCTION [] market dominated by only five major active players.

Meanwhile, OSK Research has target price of RM1.42, based on the sum-of-parts method, implying a strong 42% upside.

It said the company is involved in marine engineering in which it has an 18% market share. Its business model is unique in that it also accepts the reclaimed land as payment.

'Margins are above the construction sector average. We see more reclamation jobs from Melaka, Penang and Johor. There is also potential to expand into land scarce Singapore. Our RM1.42 TP, based on the SOP method, implies a strong 42% upside,' OSK Research said.

SPSETIA - RHB Research maintains Outperform on SP Setia, FV RM8.05

Stock Name: SPSETIA
Company Name: SP SETIA BHD
Research House: RHB

KUALA LUMPUR: RHB Research Institute is maintaining an Outperform on SP Setia, with an unchanged fair value of RM8.05, based on 30x CY11 earnings.

The research house said on Monday, Jan 17 that with more news flow on SP Setia's landbanking efforts (plus the recent successful bid for the Penang International Convention Centre project), the company has shown its strength and reputation for successfully bidding for land deals (from the Government), which hence differentiates itself from the other developers.

RHB Research said this explains the large valuation premium against its peers.

It also quoted'' The Edge weekly that the Government will swap with SP Setia the Institute for Medical Research (IMR) land in Jalan Bangsar for the CONSTRUCTION [] of a new 1National Institute of Health (1NIH) integrated complex at Setia Alam.

The land parcel in Setia Alam together with construction of the proposed 1NIH is estimated to cost RM600-700m.

'This implies that the 40-acre IMR land in Bangsar is valued at a price of RM402 psf, which is around the market value that we checked with some valuers.

'The Bangsar IMR land is expected to be developed into an integrated complex of residential and high-rise office buildings. Assuming a plot ratio of 9, efficiency ratio of 65% and average selling price of RM800 psf (benchmarking with KL Sentral), this piece of land could potentially yield a GDV of RM8.2bn,' it said.

KINSTEL - Steel sector poised for re-rating

Stock Name: KINSTEL
Company Name: KINSTEEL BHD
Research House: HWANGDBS

Southern Steel Bhd
(Jan 17, RM2.21),
Kinsteel Bhd
(Jan 17, 96 sen)
Sector's valuation remains attractive: Construction of the RM36 billion mass rapid transit (MRT) project is targeted to begin in July. With that, local steel demand is set to rise.

Pulling back the steel consumption trend from 1994 to 1997 ' when the government implemented high-impact projects such as KLIA, Petronas Twin Towers, Putrajaya city and the LRT lines (project values totalled RM54 billion) ' long steel consumption in Malaysia surged above 310,000 tonnes per month, higher than the average 270,000 tonnes per month.

Then, the sector traded at an average multiple of 1.6 times book value. Looking ahead, we believe the MRT project together with the LRT extension (estimated project values RM36 billion and RM7 billion'' respectively) could lift the demand momentum to the levels recorded in 1994 to 1997.

Hence, we believe the sector is poised for a re-rating given the positive contract flows. The sector's valuation remains attractive, currently trading below book at 0.8 times book value.

We advocate a 'buy' on Kinsteel. Our RM1.25 target price (36% upside) is based on 1.3 times FY11F net tangible assets (NTA). Kinsteel is a value buy, trading at one times NTA, with three-year earnings compound annual growth rate (CAGR) of 42% and 10% return on equity (ROE).

We upgrade Southern Steel to 'buy' (from 'hold') and retain our RM2.50 TP based on 1.2 times FY11F NTA. Southern Steel offers an attractive matrix of 13% ROE, 3% dividend yield and currently trades at one times NTA.

Our forecast for long steel consumption ex-MRT impact in 2011 is 3 million to 3.2 million tonnes, a conservative 5% growth from 2010.

Hypothetically, if steel comprises 10% of the MRT project value, it will translate to 1.6 million tonnes of steel requirement and effectively lift steel usage by about 8% per annum.

The two key risks: (i) Delay in execution. In our opinion, major delay is unlikely as the MRT project was earmarked as a vital component of the Economic Transformation Programme and is one of the prime minister's priority projects; (ii) Soft steel prices and rising iron ore cost affecting profitability. That said, we expect steel prices to improve in 2011.

On our scorecard, Kinsteel ('buy'; TP RM1.25) is ranked first. Kinsteel is an earnings recovery play with three-year net profit CAGR of 42% and 10% forward ROE.

Coming closely behind are Ann Joo Resources Bhd (non-rated) and Malaysia Steel Works (KL) Bhd (non-rated), followed by Southern Steel Bhd ('buy', TP RM2.50).

Meanwhile, Lion Industries Bhd (non-rated) and Perwaja Holdings Bhd (non-rated) scored the lowest. ' Hwang DBS Vickers Research, Jan 17


This article appeared in The Edge Financial Daily, January 18, 2011.

SPSETIA - RHB Research ups SP Setia share to RM8.05 from RM6.95

Stock Name: SPSETIA
Company Name: SP SETIA BHD
Research House: RHB

KUALA LUMPUR: RHB Research said the boost in SP Setia's share price has prompted it to relook at its valuations.

It said on Friday, Jan 14 that instead of using its previous revised net asset value (RNAV) based valuations, it changed its valuation methodology to price-to-earnings.

'From our quantitative analysis, SP Setia's historical forward PE is highly correlated (correlation factor 0.9) to the new property sales.

'Given the high correlation, this suggests that target price based on PE is hence meaningful. Based on SP Setia's sales target of RM3bn for this year, the forecast PE is actually 30x,' it said.

RHB Research said based on a PE of 30x, it raised its indicative to RM8.05 (from RM6.95). Maintain Outperform.

QL - Sabah plants to contribute significantly to QL

Stock Name: QL
Company Name: QL RESOURCES BHD
Research House: OSK

QL Resources Bhd
(Jan 13, RM5.92)
Maintain 'buy' at RM5.86 with target price of RM6.88: Recently, we took a group of 10 fund managers and analysts to Kota Kinabalu, Sabah on a visit to QL's poultry farm and marine plant. The two-day visit started with a tour of its broiler farms followed by a presentation and a visit to the marine plant where surimi, fishmeal and frozen fish are produced and where deepsea fish is processed. The plants are equipped with automated machines, are clean and organised, and comply with EURO and HACCP standards. The management conducted a briefing, which was followed by questions from the visitors that focused on QL's operations.

QL has nine marine manufacturing plants and six poultry farms in Malaysia, which include one marine manufacturing plant in Kota Kinabalu and three poultry farms in Kota Kinabalu, Tawau and Kuching. Its marine manufacturing plant and poultry farm in Kota Kinabalu, Sabah produce 20%-30% of its total surimi and fishmeal production and 17% of total broilers production/year.

QL is now replicating its success in Indonesia (setting up a surimi and fishmeal plant and at the same time constructing breeder and layer farms) and Vietnam (setting up layer farm). All these expansion plans are on track for completion and to achieve the targeted production volume between end of FY11 to 1QFY13. On the other hand, the group has planted 8,200ha in its new oil palm estate in Kalimantan, Indonesia and aims to finish planting 15,000ha by FY14. It is also targeting to commence production of its biogas and palm pellet plants by early February 2011.

We like QL for its experienced and hands-on management, its leadership in the poultry and marine manufacturing industry, which also helps to lower cost of production, its ability to ride through tough times and the replication of its strategy in Vietnam and Indonesia, which all serve to drive the group to a higher level. Hence, we maintain our 'buy' call on the stock, with a target price of RM6.88, based on 16 times CY12 EPS. Meanwhile, QL has proposed to acquire 51% stake in Pilihan Mahir SB, an associate of QL Endau Marine, for RM500,000. Upon completion, QL Endau will own 100% of Pilihan Mahir SB. ' OSK Investment Research, Jan 13


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

TM - TM looking forward to higher UniFi take-up

Stock Name: TM
Company Name: TELEKOM MALAYSIA BHD
Research House: RHB

Telekom Malaysia Bhd
(Jan 14, RM3.74)
Maintain 'trading buy' at RM3.70 with fair value raised to RM4.05: The take-up of UniFi services is quite low so far, but the management is not too worried, stating that the high-speed broadband (HSBB) network was rolled out with a supply-driven approach in mind. As at December 2010, TM had 33,000 UniFi subscribers out of the 750,000 premises passed as at end-December 2010. Together with 40,000 orders, this indirectly brings its take-up rate to 9.7%, marginally exceeding its initial target of 6%-8%. The blended HSBB ARPU is RM160, implying most subscribers opted for the cheapest package that costs RM149/month.

On a more positive note, the number of installations per month has increased to 300-400, from 100-200 previously. This is mainly driven by expanding the number of UniFi installation teams and upgrading the capability of some teams to install UniFi in two (instead of one) premises per day. Assuming TM sustains this momentum, TM should have at least 125,000 UnFi subscribers out of 1.1 million premises by end-2011. This translates to an expected take-up rate of 11%, but contribution to overall revenue will still be modest, in the range of mid-single digit.

While UniFi is among, if not the cheapest, broadband in the market (measured on per gigabyte (GB) basis), affordability may be hindering take-up. The cheapest UniFi package starts at RM149/month, but mobile operators are offering monthly packages as low as RM38/month. To boost UniFi take-up, TM is embarking on more aggressive marketing to raise brand awareness. We believe TM may not have much room to lower its prices, given the huge cost of the HSBB network at RM11.3 billion (with RM2.4 billion co-investment by the government).

The risks include: 1) further fixed-to-mobile substitution leading to declining revenues; 2) low returns from HSBB project; 3) weaker-than-expected earnings, which could adversely affect dividend payments; and 4) further irregularities on TM's purchasing procedures.
We have left our earnings forecasts unchanged.

We maintain our 'trading buy' call on TM for the high likelihood of 50 sen per share in special dividends (TM has about RM1 per share in gross cash), in addition to its minimum annual dividend per share of 19.6 sen. In total, dividend yields in 2011 could potentially reach 19% (please refer to report dated Dec 3, 2010). We raise our fair value to RM4.05 after imputing the potential special dividends, while retaining the required net yield assumption of 5.5% on the minimum RM700 million dividends. ' RHB Research, Jan 14


This article appeared in The Edge Financial Daily, January 17, 2011.

CIMB - AmResearch keeps 'buy' call on CIMB

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

AmResearch expects CIMB Niaga to contribute 28 per cent to group pre-tax in financial year 2011 forecast from 25 per cent from 2010 financial year.

It said CIMB Niaga has just completed its fund-raising exercise in the form of Rupiah (Rp) 1.6 trillion sub-debt last month and Rp 1.5 trillion rights in early 2011.

For financial year 2011 forecast loans, CIMB Niaga was looking at achieving growth rates of about 18 to 20 per cent, which are similar to the latest quarterly trend in September last year.

"Its loan portfolio mix is still quite evenly spread between retail, business and corporate," it said in a research note.

AmResearch maintained its "buy" call on CIMB at a fair value of RM10.20. - Bernama

GENM - Genting (M) upgraded at Credit Suisse

Stock Name: GENM
Company Name: GENTING MALAYSIA BERHAD
Research House: CREDIT SUISSE

Genting Malaysia Bhd was raised to “neutral” from “under perform” at Credit Suisse Group AG after raising its profit forecasts to reflect new contributions from the UK casinos and its upcoming slot-machine-style terminals in New York City.

The share estimate was increased to RM3.30 from RM2.50, Loke Foong Wai, an analyst at Credit Suisse, said in a report today. - Bloomberg