SP Setia falls to March low, CLSA downgrades

Stock Name: SPSETIA
Company Name: SP SETIA BHD

Research House: CLSA

Price Call: SELL

Target Price: 4.30

KUALA LUMPUR: SP SETIA BHD []'s share price hit a low of RM3.84 in late afternoon trade on Friday, July 15, the lowest since early March as analysts downgraded it to underperform.

At 3.28pm, it was down 17 sen to RM3.84 with 2.34 million shares done. KLCCP slipped 10 sen to RM3.40.

The FBM KLCI fell 5.02 points to 1,574.82. Turnover was 431.83 million shares valued at RM756.03 million. There were 185 gainers, 422 losers and 315 stocks unchanged.

CLSA Asia-Pacific Research had downgraded SP Setia to Underperform from Outperform with a revised target price of RM4.30, based on a 10% discount to RNAV of RM4.80.'' It said this was in line with the discount applied to other property names under its coverage.

'Given that SP Setia is a pure property developer play, we believe that the 10% discount is justified from zero discount previously. We do not see any compelling reason for SP Setia to be valued at a premium compared to the rest of the property companies given that the visibility of the physical property market has been reduced by the mixed signals,' it said.

However, CLSA said it did not change its earnings estimates for FY11 and FY12 as these will continue to be supported by the strong unbilled sales recorded at RM1.8billion as at FY10, which had subsequently increased to RM3billion as at H111.

'For FY13 earnings estimates, we see potential downside risk if the mixed signals above tilted towards more negative outlook. Another potential headwind could be the change in government policy in tightening the lending requirement, which at this stage, still unclear as it remains at the proposal stage,' it said.

Buy 51% stake in Anewa

Stock Name: DIALOG
Company Name: DIALOG GROUP BHD

Research House: MIDF

Price Call: BUY

Target Price: 2.94

The relocation of AirAsia's operations in KK

Stock Name: AIRASIA
Company Name: AIRASIA BHD

Research House: MIDF

Price Call: HOLD

Target Price: 3.43

AirAsia remains a 'buy' at OSK Res

Stock Name: AIRASIA
Company Name: AIRASIA BHD

Research House: OSK

Price Call: BUY

Target Price: 3.89

OSK Research Sdn Bhd has maintained its "buy" call on AirAsia Bhd at a fair price of RM3.89 as it views the possible tie-up with All Nippon Airways (ANA) of Japan as positive.

In a research note today, OSK said an announcement of the joint venture (JV)to set up a low-cost carrier, likely to be called AirAsia Japan, was expected sometime next week.

"The JV's structure is uncertain but it may see both companies taking up equity stakes, with AirAsia being the airline's operator," it said.

OSK said although the management has yet to comment on the proposed JV, the likelihood of it materialising could be high since Japan's aviation market was increasingly being liberalised.

It said there was also a high chance of AirAsia being roped in into another JV, Peach Aviation, with a stake ownership.

"Peach Aviation, the country's first low-cost carrier, is expected to start operation in March next year. It is a partnership between ANA, Hong Kong's First Eastern Investment Group and Innovative Network Corp of Japan," it said.

Meanwhile, MIDF Research said the relocation of AirAsia's operations in Kota Kinabalu International Airport, from current Terminal 2 to Terminal 1, was expected to increase its operational costs.

In a note today, MIDF said it would, however, not lead to a reduction in the number of flights and one million passengers annually as highlighted in the media.

"The move is win-win to all parties as it will not only help AirAsia improve efficiency in operations, but will also result in better customer satisfaction and boost passenger traffic due to better connectivity," it said.

MIDF has reiterated a 'neutral' call on the stock with a target price of RM3.43.

On Bursa Malaysia, AirAsia fell five sen to RM3.50 at 11.50am. -- Bernama

ECM Libra Research expects Tenaga 3Q results to be weak

Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD

Research House: ECMLIBRA

Price Call: BUY

Target Price: 7.84

KUALA LUMPUR: ECM Libra Research expects TENAGA NASIONAL BHD [] (TNB) to report weak results for its 3QFY11 results. The results are due on July 21.

'We expect the results to be weak, as the company had earlier issued a profit warning during the 2QFY11 results conference call.

'Weak results will mainly be attributed to gas shortages leading to TNB burning more alternative fuels such as coal, oil, distillate and even resorting to importing electricity from Power Seraya, Singapore,' it said.

ECM Libra Research said unfortunately, this gas shortage problem coincided with seasonally strong demand in April and May, which further adds to TNB's fuel costs, as it burns more alternative fuel to meet the strong seasonal demand.

'Over a 12-months horizon, we are still positive on TNB's fundamentals. Hence, any short-term price weakness arising from the weak 3QFY11 results will be a good opportunity to accumulate,' it said.

It said the gas curtailment problem should be over, after the last of three scheduled maintenance work by Petronas is completed by end-June. From July onwards, it will be business as usual for TNB as gas supply to the power sector should recover to the usual 1,150 mmscfd.

The government has set-up a new special-purpose unit called MyPower Corp to review the power purchase agreements (PPAs) between TNB and the IPPs.

'We view the setting up of this special-purpose unit positively, as it signals that the IPP re-negotiation is gaining momentum.

Investment merits are:

A big-cap, index-linked stock trading at a discount to market P/E multiple.

Beneficiary of improving regulatory environment for the power sector.

Re-rating catalysts:

Successful pass-through of higher coal costs in the next tariff review in Dec 2011.

Favourable outcome from power purchase agreements re-negotiation with the independent power producers (IPP) leading to lower future capacity payments (CP).

Key risks:


Continued appreciation in coal prices resulting in higher fuel costs. TNB's current tariffs are only covered up to USD85/MT, compared to market price of about US$120 a tonne.

Longer-than-expected gas curtailment from Petronas.

Valuation:

Maintain BUY on TNB with a target price of RM7.84, based on unchanged P/E multiple of 15x on CY11 EPS.

CIMB Research ups Maybank TP to RM11.20

Stock Name: MAYBANK
Company Name: MALAYAN BANKING BHD

Research House: CIMB

Price Call: BUY

Target Price: 11.20

KUALA LUMPUR: CIMB Research has replaced RHB Capital with Maybank as its top pick for the sector as its well-diversified business portfolio makes it the biggest bank beneficiary of the implementation of Economic Transformation Programme (ETP).

It said on Friday, July 15 that the ETP spillovers will drive its investment banking income, consumer and business loan growth as well as the growth of its insurance and asset management businesses.

'We retain our earnings forecasts but raise our target price from RM10.30 to RM11.20 (10% above the DDM value) as we increase the assumed dividend growth rate from 7.7% to 8.7% to reflect ETP prospects.

'Our BUY rating is reaffirmed, premised on the potential re-rating catalysts of (1) ETP catalysts, (2) swift expansion in Indonesia, (3) faster-than-expected loan growth, and (4) the pick-up in investment banking income. The stock also commands the best dividend yield of about 7%,' it said.

Unisem still seeing weak demand

Stock Name: UNISEM
Company Name: UNISEM (M) BHD

Research House: UOB

Price Call: SELL

Target Price: 0.99

Unisem (M) Bhd
(July 14, RM1.57)
Maintain sell at RM1.56 with target price 99 sen: Unisem's upcoming 2Q11 is likely to be impacted by the prolonged weakness in demand. The company had guided a 5% to 6% sequential growth in top line in 2Q11. Even if Unisem manages to meet its internal targets, revenue for 1H11 will still be at least 12% lower than a year before.

The minor recovery in sales could have been faster and more immediate if not for the weakening US dollar in 2Q11, which has fallen by 1% quarter-on-quarter.
Higher cost of outsourcing in US dollars will reduce the attractiveness of outsourcing from Unisem's foreign Integrated Device Manufacturers (IDM) clients.

Order visibility is weak as customers pull back their orders. Orders are based on global economic outlook and consumer sentiments, where there is still a lot of pessimism. Unisem's customers are currently adopting a wait-and-see approach before committing to any further orders.

Unisem could currently be running at below 70% utilisation, showing no marked improvement from 1Q11's near break-even levels of 65%.

The Chengdu operation has been affected by the Chinese government's attempts to cool down the economy. The energy rationing policies imposed by the Chinese government didn't affect its plant operations but Unisem Chengdu is not doing as well as expected. The clampdown on China-made handsets by the authorities has affected chip sales. Consumer electronics chips account for more than 30% of Unisem's product.

Capital expenditure has been put on hold for now due to the sedate recovery in demand. We expect Unisem to spend around RM100 million on equipment, down from 2010's heavy investment in new equipment of RM260 million.

We keep our earnings forecasts unchanged. We forecast that Unisem's earnings will contract by 54% year-on-year (y-o-y)'' for 2011, before recovering in 2012.
Our estimates are 18% below consensus, and there could be more downside if the recovery in demand is slower than expected.

Margins will remain thin, and on the net level will be in the single-digits for 2011/12. The rest of 2011 will remain challenging for Unisem.

Maintain 'sell' with a target price of 99 sen based on eight times FY11 price-earnings ratio. Unisem is currently trading at 12.7 times FY11 PER, significantly higher than its historical PER of eight times.

Semiconductor revenue saw a y-o-y decline for the first time in April and May, since the global financial crisis. Growth rates for chip sales are forecast to moderate to low single-digits in 2011.

Lower capital spending could be a sign that the industry is expecting a slowdown. Book-to-bill ratio for semiconductor equipment spending has fallen below its historical long-term mean parity levels.

The aggregate inventory level taken from a sample of the Philadelphia Semiconductor Index component members is increasing faster than sales growth.

Disruption risk from the Japanese earthquake and its impact could potentially surface in 2Q11 or 3Q11 results with a lag impact. This will weigh down the already poor performance in 1Q11. Semiconductor packaging companies have a short turnaround time, hence profitability could be severely affected if the turnaround time is lengthened. ' UOBKayHian, July 14


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

Public Bank's underlying earnings momentum intact

Stock Name: PBBANK
Company Name: PUBLIC BANK BHD

Research House: AFFIN

Price Call: BUY

Target Price: 15.00

Public Bank Bhd
(July 14, RM13.40)
Maintain add at RM13.32 with revised target price of RM15 (from RM14.35): Public Bank's 2QFY11 results are expected to be released next week, with earnings to be in line with consensus' and Affin's full-year net profit estimate of RM3.4 billion. Management remains optimistic on achieving 13.5% growth rate on group loans and a 13% to 13.5% group deposit growth for FY11. Dividends for FY11 will be based on a payout ratio of between 50% and 55% while asset quality has continued to improve, with gross impaired loans ratio dipping below 1% for the group on the back of lower individual allowances. Credit charge-off rate for FY11 is expected to decline to around 30 basis points (bps).

Recent amendments to the Hire Purchase Act 1967 resulted in a slowdown in car sales in the past month. Nonetheless, based on Public Bank's management feedback (the bank has the largest industry share at 25.6% as at 1QFY11), the industry has been gradually recovering in the last one or two weeks. A total industry volume growth rate of 14% to 15% year-on-year is likely achievable. In our view, the situation should remain under control and will not affect Public Bank's hire purchase financing (HPs) growth given a revival in loan applications/approvals. Based on the assumption that HPs growth for FY11 to FY13 slows down to half of our projections, FY11 to FY13 net profits are expected to be impacted by 2.6% to 7.3%.

Management shared the view that interest rates are still on an uptrend, despite the impact on the consumer debt-servicing burden as Bank Negara Malaysia targets to curb speculative investments and irrational price competition. Coupled with another 1% hike in the Statutory Reserve Requirement (SRR) to 4% effective tomorrow, this will erode another 3.5bps off Public Bank's net interest margins which stood at 2.6% in 1HFY11. Nonetheless with another potential hike in the overnight policy rate by September, this should help mitigate the squeeze in margins.

We maintain our 'add' rating and raise our target price to RM15 from RM14.35, as we roll forward our valuation to FY12. This equates to three times price-to-book value based on FY12 return on equity of 22.9% (FY11 ROE of 24.1%), 5% growth rate (unchanged) and a cost of equity of 10.8% (unchanged). We still like Public Bank for its superior asset quality, good earnings visibility, established franchise, deep market penetration and strong leadership in the consumer loan market segment and unit trust business. ' Affin IB Research, July 14


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

Mudajaya still top sector pick for OSK

Stock Name: MUDAJYA
Company Name: MUDAJAYA GROUP BHD

Research House: OSK

Price Call: BUY

Target Price: 5.48

The appointment of Datuk Yusli Mohamed Yusoff as an independent, non-executive director should reinforce Mudajaya Bhd's credibility and assure investors that there are no suspicious dealings going on in the company.

OSK Research, in a note today, said it viewed the appointment positively.

It said Mudajaya's share price has been unjustifiably punished since the "poison pen" saga in July last year, despite the issue being resolved with no charges being pressed.

OSK said Mudajaya remained its top sector pick, with a strong possibility of an upwards earnings revision.

It maintained its 'buy' call on the stock with a fair value of RM5.48. -- Bernama

OSK positive of Tasco's international business

Stock Name: TASCO
Company Name: TASCO BERHAD

Research House: OSK

Price Call: BUY

Target Price: 1.93

OSK Research, positive of Tasco Bhd's international business, is expected to see high volume growth hence giving the management greater bargaining power on rates, vis-'-vis, shipping lines and airlines.

Tasco, a leading third party logistics provider, was optimistic its trucking and auto completely built-up division will perform well supported by the robust domestic economy and strong demand for the Honda Insight, it said in a research note today.

"Although fuel price has escalated, TASCO has been able to transfer the higher cost to its customers within three months as it can adjust its fuel cost under the Association of Malaysian Hauler's Fuel Adjustment Sector Formula," it added.

The research house maintained a "buy" call on TASCO with an unchanged fair value of RM1.93 based on seven times the financial year 2011 earnings per share. -- BERNAMA