JTINTER - Tobacco sector - smoke signals for 2011

Stock Name: JTINTER
Company Name: JT INTERNATIONAL BHD
Research House: OSK

Tobacco sector
Maintain 'underweight': In view of lower consumption and possibly higher illicit trade in the future, we project that tobacco industry volume will fall by 8%, thus resulting in tobacco manufacturers experiencing an earnings decline ranging from 5% to 10% next year. Notably, we expect the sector to see: (i) higher selling prices resulting in downtrading to value-for-money (VFM) brands from premium brands; (ii) a greater incidence of illicit trade, which will correspondingly cause the legal market to shrink; and (iii) a greater likelihood of brand switching in 2011.

BAT, in our opinion, could face a tough year in FY2011. On the back of declining tobacco industry volumes, we expect earnings to decline in spite of higher selling prices. Nevertheless, there may be a positive re-rating catalyst for the stock should its re-launched Peter Stuyvesant garner a higher market share next year.

JTI is likely to chart slightly lower earnings on lower industry volume. Although we see stiff competition among competitors limiting the earnings upside going forward, the company's sizeable net cash position means that it would still be able to pay out dividends. Notwithstanding the possibility of a special dividend payout, assuming that JTI paid a gross dividend of 30 sen per share, this will translate into a gross yield of 4.9%.

With concern over declining sales clouding the sector, we maintain our 'underweight' recommendation. In line with our conservatism, we maintain our 'sell' recommendation on BAT with its target price unchanged at RM38.75, while JTI is maintained a 'neutral', with its target price intact at RM5.96. ' OSK Investment Research, Dec 29


This article appeared in The Edge Financial Daily, December 30, 2010.

BAT - Tobacco sector - smoke signals for 2011

Stock Name: BAT
Company Name: BRITISH AMERICAN TOBACCO (M)
Research House: OSK

Tobacco sector
Maintain 'underweight': In view of lower consumption and possibly higher illicit trade in the future, we project that tobacco industry volume will fall by 8%, thus resulting in tobacco manufacturers experiencing an earnings decline ranging from 5% to 10% next year. Notably, we expect the sector to see: (i) higher selling prices resulting in downtrading to value-for-money (VFM) brands from premium brands; (ii) a greater incidence of illicit trade, which will correspondingly cause the legal market to shrink; and (iii) a greater likelihood of brand switching in 2011.

BAT, in our opinion, could face a tough year in FY2011. On the back of declining tobacco industry volumes, we expect earnings to decline in spite of higher selling prices. Nevertheless, there may be a positive re-rating catalyst for the stock should its re-launched Peter Stuyvesant garner a higher market share next year.

JTI is likely to chart slightly lower earnings on lower industry volume. Although we see stiff competition among competitors limiting the earnings upside going forward, the company's sizeable net cash position means that it would still be able to pay out dividends. Notwithstanding the possibility of a special dividend payout, assuming that JTI paid a gross dividend of 30 sen per share, this will translate into a gross yield of 4.9%.

With concern over declining sales clouding the sector, we maintain our 'underweight' recommendation. In line with our conservatism, we maintain our 'sell' recommendation on BAT with its target price unchanged at RM38.75, while JTI is maintained a 'neutral', with its target price intact at RM5.96. ' OSK Investment Research, Dec 29


This article appeared in The Edge Financial Daily, December 30, 2010.

TOMEI - Time to accumulate Tomei

Stock Name: TOMEI
Company Name: TOMEI CONSOLIDATED BHD
Research House: HLG

Tomei Consolidated Bhd
(Dec 29, 70 sen)
Accumulate at 67.5 sen with target price of 90 sen: Tomei was listed on the then Second Board in July 2006, and was subsequently transferred to the Main Board in Sept 2007. Tomei was founded in 1968, and has evolved from a small enterprise into an integrated manufacturer and retailer of jewellery.

On the back of appealing gold and gemstone designs, Tomei has set up a total of 59 retail outlets in Malaysia, 10 kiosks in Vietnam and three in China, operating under the brand names of Tomei, My Diamond, TH Jewellery and Le Lumiere.

In 9MFY2010, revenue grew 21% year-on-year to RM263 million while profit after tax jumped 26% to RM16 million, driven by improved consumer spending and higher retail prices for gold.

Investor concern over the sustainability in demand for jewellery as well as margin pressures following the recent spike in gold prices is misplaced as Tomei retains the ability to pass down the rising cost of raw materials.

As Tomei adheres to a policy of purchasing gold on a constant basis, the group benefits when gold prices increase and vice versa due to the average-cost principle. In other words, the spread between the purchase and selling prices of gold increases as gold prices move up, thereby enhancing the group's margins in the process.

Tomei's share price tumbled 18% from a 52-week high of 79.5 sen (Nov 15) to 65 sen (Dec 9) before closing at 67.5 sen (50% FR) on Dec 28, which has fulfilled the minimum retracement target.

In view of the uptick in the momentum and trend indicators after recovering from the oversold territory, indicating that the odds will remain in the bulls' favour as long as the price is held steady above the daily upper uptrend line (UTL) of 64.5 sen or 61.8% FR.

We are eyeing 70 sen (38.2% FR) as the immediate upside target, followed by the 74 sen (23.6% FR), and 80 sen (UTL of the weekly chart). A further run-up above 80 sen will spur prices higher to tough resistance zones of 85 and 90 sen. Immediate support levels are 64.5 and 63 sen (two-month low).

Tomei is trading at trailing 4.2 times price-earnings ratio (based on cumulative four-quarter earnings per share of 16.2 sen), which is greatly undervalued against its peers' PER of 8.9 times.

Our six-month target price is 90 sen, implying a 5.6 times trailing PER, in line with Poh Kong's PER of six times. Stop loss below 63 sen. ' Hong Leong Investment Bank Research, Dec 29


This article appeared in The Edge Financial Daily, December 30, 2010.

IJM - IJM Land better off without merger

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



IJM Land Bhd is better off without going through the merger with Malaysian Resources Corp Bhd (MRCB) because its valuations would otherwise be severely diluted by the injection of low-yielding assets from MRCB into the enlarged company.

In a report, AmResearch said it could not see how the enlarged entity would offer compelling earnings without the transfer of low-yielding assets out of the enlarged entity.

The latter exercise, it said, was to have taken place post-merger.

On the parent IJM Corp, AmResearch said there were strong catalysts underpinning its share price going into 2011 which included large highway jobs in India and roll-out of six highways including West-Coast Expressways.

IJM Land was sold down (pre-suspension share price of RM2.86) this morning prior to the announcement that the proposed merger with MRCB had been aborted.

IJM Land and MRCB, which were suspended at 11.34am, would resume trading on Monday, Jan 3, 2011.

The proposed merger has been scrapped as both parties were unable to reach an agreement on the definitive terms of the proposed merger.

AmResearch said it would maintain its 'buy' call on IJM Corp Bhd and IJM Land with unchanged price of RM7.52 and RM3.88 respectively. -- Bernama

IJMLAND - 'IJM Land better off without merger'

Stock Name: IJMLAND
Company Name: IJM LAND BERHAD
Research House: AMMB



IJM Land Bhd is better off without going through the merger with Malaysian Resources Corp Bhd (MRCB) because its valuations would otherwise be severely diluted by the injection of low-yielding assets from MRCB into the enlarged company.

In a report, AmResearch said it could not see how the enlarged entity would offer compelling earnings without the transfer of low-yielding assets out of the enlarged entity.

The latter exercise, it said, was to have taken place post-merger.

On the parent IJM Corp, AmResearch said there were strong catalysts underpinning its share price going into 2011 which included large highway jobs in India and roll-out of six highways including West-Coast Expressways.

IJM Land was sold down (pre-suspension share price of RM2.86) this morning prior to the announcement that the proposed merger with MRCB had been aborted.

IJM Land and MRCB, which were suspended at 11.34am, would resume trading on Monday, Jan 3, 2011.

The proposed merger has been scrapped as both parties were unable to reach an agreement on the definitive terms of the proposed merger.

AmResearch said it would maintain its 'buy' call on IJM Corp Bhd and IJM Land with unchanged price of RM7.52 and RM3.88 respectively. -- Bernama

Auto sector set to cruise ahead in 2011

The automotive industry is set to cruise ahead into 2011 despite challenging times, after recording a stellar volume this year.

But industry experts remain cautious that 2011 will not be another bumper year.

At the Kuala Lumpur International Motor Show 2010, it was smiles all around as the industry was delighted by a record total industry volume (TIV) growth of 13.8 per cent for the 11 months period to November, bolstered by positive consumer sentiment and better economic landscape.

An analyst from a local stockbroking house expected TIV for 2010 to finish an average 9.7 per cent growth, year-on-year, driven by new model launches.

Costs were well contained due to economies of scale as margins widened owing to the strengthening ringgit despite a mild increase in steel prices, the analyst said.

Moving forward into 2011, the industry is set to strengthen gradually but at a modest pace, in line with regional and global auto demand recovery, in view of several rounds of interest rate hike and higher petrol prices.

OSK Research expected TIV of new motor vehicles to grow five per cent in tandem with the Gross Domestic Product (GDP) growth, which was projected at 5.8 per cent.

The replacement cycle for new vehicle purchases typically lasts three to four years, which would reflect the positive year-on-year growth in TIV before a decline kicks in.

In a research note, OSK said the model pipeline slated for launch could boost demand particularly for Perodua Myvi and Proton Persona replacement.

It forsees limited risk of any further upside in hire-purchase rates, which was already high, given the government's effort to push loans growth due to the deceleration in economic growth.

Another analyst said although industry players, such as UMW, introduced a hybrid line-up in their stable after the 100 per cent exemption on excise duty and efforts to promote hybrid cars, there is unlikely to be a big shift toward this direction.

Proton is slated to launch its hybrid version of the Exora as early as 2012 but some remain skeptical of the time-line for mass production.

Auto parts firms are expected to see respectable earnings growth benefitting from the upcoming Myvi replacement and the setting up of a regional manufacturing base by Volkswagen and Peugeot, the analyst added.

Elsewhere, Proton will be watched closely with efforts to lift its sports car unit, Lotus Group, which will invest a substantial sum for its involvement in Formula 1 as title sponsor and part owner of Lotus Renault GP team.

Meanwhile, the Lotus Racing Formula One team, owned by Airasia''s Datuk Seri Tony Fernandes has initiated legal proceedings against Proton over the use of the name Lotus.

In January, the British High Court will hear and decide as who has the right to use the name Lotus in the next season of F1.
Then, there is the status of relationship between Proton and Perodua.

The industry is awaiting the decision by the authorities after a study on whether to merge both entities or to have them cooperate through other arrangements.

On the other hand, MIDF Research was not so positive and projected TIV to see a slight dip in sales of -1.6 per cent, year on year, as car sales momentum stabilised in the second-half of the year, suggesting a flattish growth prospect that could stretch into 2011.

Research Senior Vice President and Head of Research Department Zulkifli Hamzah said the industry was not expected to remain vibrant as the market was heading into a consolidation phase with TIV estimated to be flattish at best.

He said interest rate remains friendly but he did not discount the possibility of interest rate hikes in the second-half that could be a major dampener to sales.

Interest rate movements and stringent bank approval criterion will impact low-mid income bracket consumers of the national car companies which make up about 70 per cent of total vehicle sales in Malaysia.

Zulkifli said the fact that banks were offering higher interest rates for national car models was testament of the inherent default risk in this particular segment.

A dip in the sale of national car models will have a significant bearing on the industry TIV, he said.

MIDF does not expect another bumper year in 2011 as the replacement cycle, commonly defined as five years, is ending.
The previous high was in 2005 and what happened this year is a cyclical repeat of the peak.

Throughout the year, DRB-Hicom and Naza managed to lure European partners like Volkswagen and Peugeot, respectively, into committing more investments here from 2011 onwards as part of efforts to make Asean an export hub.

Tan Chong is keen to expand its commercial vehicle market to Indochina and the Brunei, Indonesia, Malaysia and Philippines-East Asia Growth Area. -- BERNAMA

OSK remains positive on Telekom, Axiata

With the recent allegation of telecommunications giant Alcatel Lucent SA (ALU) bribing Malaysian government officials and company employees in securing contracts, OSK Research is still positive of Axiata Bhd and Telekom Malaysia Bhd (TM).

'We view positively the move by both companies to carry out independent and joint investigations into allegations of graft, the findings of which should further strengthen and reinforce internal procurement policies and uphold integrity of dealings with equipment vendors,' OSK Research said in a research note today.

It has maintained its ''Buy'' call on Axiata with a target price of RM5.80 and taken a 'Neutral' stance on TM with a target price of RM3.28.

'Axiata remains our top pick for exposure to Malaysian and regional telecommunication companies given its attractive regional growth prospects and undemanding solutions,' it said.

Meanwhile, it noted that inproprieties occurred during the tenure of the previous management team and when Axiata (formerly known as TM International) was part of the TM Group before the demerger in 2008.

Previously ALU was a major vendor of network equipment, including radio access network infrastructure, peripherals and solutions to Axiata and TM.

It was also the principal vendor selected for the deployment of 3G/HSPA mobile services for Celcom Axiata back in 2006.

The alleged payment of bribes was revealed to have occurred between October 2004 and February 2006, following that, ALU has agreed to pay US$137 million in fines and penalties to settle the charges after reaching an agreement with the US Department of Justice and Securities Exchange Commission.

Elsewhere, according to news reports, the government viewed the allegations seriously and Information, Communications and Culture Minister Datuk Seri Dr Rais Yatim has called on the Malaysian Anti-Corruption Commission to investigate the matter.

TM and Axiata, in separate filings to Bursa Malaysia yesterday, said they viewed the potential allegations seriously and vowed to probe the allegation. -- BERNAMA

MRCB, IJM Land scrap merger plan

The proposed merger between IJM Land Bhd and Malaysian Resources Corporation Bhd (MRCB) has been scrapped as both parties were unable to reach an agreement on the definitive terms of the proposed merger.

'Accordingly, the company wishes to announce that the proposed merger between MRCB and IJM Land is now aborted,' IJM said in a filing to Bursa Malaysia today.

MRCB also made a similar announcement to the stock exchange.

MRCB said that both companies were not able to reach an agreement after a series of discussions.

'As such, the MOU between MRCB and IJM Land on the proposed merger, dated Nov 23, 2010, shall terminate and cease to have any further effect,' the statement added.

If the merger had gone through it will have created the country's second largest property player after the enlarged UEM Land Holdings Bhd, with a market capitalisation exceeding RM7 billion and a landbank of over 3,642 hectares.

Under the earlier proposed now aborted merger plan, shareholders of both companies were to exchange their shares for that of a new merged company, which was to be listed after the second-quarter of 2011.

The non-binding offer price for IJM Land and MRCB were pegged at RM3.65 and RM2.30, with premiums of 18.5 per cent and seven per cent, respectively, over their then last traded prices.

At the proposed take-over prices, IJM Land was valued at 2.43 times book and MRCB at 2.61 times book, based on their net assets per share of RM1.50 and 88 sen, respectively, as at Sept 30.

IJM Land dipped 38 sen to RM2.86 while MRCB was last traded at RM1.99, down six sen.

Both counters, which was suspended at 11.34pm, will resume trading on Monday, Jan 3, 2011. - BERNAMA

Cocoaland unit now F packer

Cocoaland Industry Sdn Bhd (CISB), a subsidiary of Cocoaland Holding Bhd, has been appointed a non-exclusive contract packer in Malaysia by Singapore-based FandN Foods Pte Ltd.

The contract which includes preparation, packaging, packing and delivery of FandNF's products is estimated at a minimum of RM800,000 per annum.

In filing to Bursa Malaysia, Cocoaland Holdings said the contract was for a period of 24 months.

The contract is expected to contribute positively to the earnings of Cocoaland for the financial year ending Dec 31, 2011 and Dec 31, 2012. -- Bernama

Berjaya Q2 profit at RM187m, names CEO

Berjaya Corp Bhd's (BCorp) pre-tax profit for the second quarter ended Oct 31, 2010 rose to RM186.747 million from RM176.966 million in the same quarter of 2009.

Revenue increased to RM1.72 billion from RM1.62 billion previously, it said in a statement today.

BCorp said the increase in revenue was due to better performance from the direct selling, retail and distribution businesses as well as the general insurance business and higher property sales.

On the future prospect, BCorp said barring unforeseen circumstances, it expected the group's operating performance for the remaining quarters of the financial year to be satisfactory.

Meanwhile, BCorp has appointed Datuk Robin Tan Yeong Ching as chief executive officer with effect from Jan 1, 2011 replacing Tan Sri Vincent Tan Chee Yioun.

However, Chee Yioun will remain as chairman of the company. -- Bernama

Dialog unit bags RM64.6m job

Dialog Group Bhd's subsidiary, Dialog EandC Sdn Bhd, has been awarded a RM64.6 million contract by Asean Bintulu Fertilizer Sdn Bhd (ABF).

Dialog, in a filing to Bursa Malaysia today, said the contract was for the provision of engineering, procurement, construction, commissioning and associated works of ABF''s new cooling tower in Bintulu, Sarawak, which was expected to be completed by Sept 2011.

The project is expected to start contributing positively to group earnings from the financial year ending June 30, 2011. - Bernama

TM - TM raised to 'trading buy' at RHB Res

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



Telekom Malaysia Bhd was raised to "trading buy" from "market perform" at RHB Research Institute Sdn Bhd, which cited the likelihood of significant special dividends.

The stock's fair value was maintained at RM3.55, RHB said in a report today. -- Bloomberg

Crescendo Q3 pre-tax profit rises to RM13.4m

Crescendo Corp Bhd announced a higher pre-tax profit of RM13.38 million for its third quarter ended Oct 31, 2010 compared with RM5.96 million in same period last year.

The profit was achieved over a higher revenue of RM59.11 million against RM37.95 million previously, the company said in a filing to Bursa Malaysia.

For the nine-month period, pre-tax profit rose 66 per cent to RM34.64 million on a 35 per cent increase in revenue to RM158.52 million.

Crescendo said the higher revenue was due to higher sales in services and its concrete products while the increase in profit was also contributed by an improved margin especially from industrial properties and construction operation.--Bernama

JAKS swings back to the black

Steel-pipe maker, JAKS Resources Bhd, has returned to the black with a pre-tax profit of RM4.4 million for financial year ended Oct 31, 2010 compared to a pre-tax loss of RM2.4 million in 2009 financial year.

In a filing to Bursa Malaysia today, JAKS said the improvement was mainly due to recovery in selling prices of various steel-related products and better margins as compared with previous year.

It said despite a higher pre-tax profit, its turnover, however, decreased by seven per cent to RM257.3 million from RM278.1 million previously.

For the fourth quarter ended Oct 31, 2010, it recorded a pre-tax profit of RM2.5 million compared to a pre-tax loss of RM580,000 in the same quarter of 2009.

Its revenue increased by 38 per cent to RM85.7 million from RM62.3 million previously.

On prospects, JAKS said the outlook for the steel industry was expected to improve in anticipation of the spending for infrastructure and development projects, which required vast amount of steel-related products.

However, JAKS said, it was aware of the challenges and competition in the market.

JAKS said it would continue to review its internal efficiencies, remain committed to continuous productivity improvement and manage its operation cost in order to be more competitive,' it said. -- Bernama

V.S. Industry Q1 net profits triple

V.S. Industry Bhd (VSI), an integrated electronics manufacturing services provider, kicked off its new financial year on a strong note, with group net profits for the first-quarter ended October 31, 2010 (1Q11) more than tripling to RM13 million from RM4.1 million chalked up in the previous corresponding quarter.

In a statement, VSI said group revenue charted an impressive 40 per cent year-on-year growth to RM247.8 million, resulting from increased orders from existing customers and new clients in line with the improved sentiment worldwide.

In light of the excellent performance, the board declared a single-tier interim dividend of 2 sen per share.

'VSI is clearly a beneficiary of the improving outlook for consumer electronics worldwide and our steadily-increasing top and bottom lines are positive indicators of a longer-term impact.

'We believe this trend will continue in FY2011,' said Managing Director Gan Sem Yam in a statement today.

The group also gained traction in winning sales contracts for high-technology sectors such as Light Emitting Diode and new segments such as automotive and healthcare.

'We are optimistic this will effectively broaden our earnings base for the long-term and further improve our sales mix,' said Gan.

The board is optimistic FY2011 would see the group achieving a strong financial performance due to the clear order book visibility ahead.

'The declaration of the interim dividend is reflective of the group's confidence in the current year prospects and the board is considering a quarterly dividend practice to continuously generate shareholder returns,' Gan said. -- Bernama

QL - Consumer spending to remain resilient in 2011

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

Consumer sector
Maintain neutral: The government recently raised the prices of petrol and sugar by 2.7% and 2.8% respectively, and we expect a similar hike to follow in 1H2011, in line with its plan to reduce subsidies every six months. Due to the gradual and small nature of the subsidy reduction, we believe that it will have a minimal impact on consumer spending, which RHB Research Institute projects will grow by 5.4% in 2011 (against 5.6% estimated for 2010).

The stable consumer spending growth outlook of 5.4% will provide a growth platform for the retail stocks under our coverage that derive their revenues locally. We expect Aeon's ('market perform', fair value = RM6.47) same store sales (SSS) to grow at 3.5% in 2011 (2010: 2.5%). Parkson, on the other hand, will continue to ride on China's strong consumer spending growth in 2011 (2010: 10%), which is expected to grow by 9.4%, according to consensus estimates.

We believe domestic demand for F&B products such as those manufactured and distributed by CI Holdings ('outperform', FV = RM4.90), KFCH ('market perform', FV = RM3.85) and QL Resources ('outperform', FV = RM6.50) will continue to be resilient. However, in terms of growth, we expect F&B companies to be driven by expansion in either capacity (CI Holdings), geographical (KFCH), or both (QL Resources).

Dark days continue for the tobacco sub-sector and BAT ('underperform', FV=RM42.92), as the recent hike in excise duty of about 5% per stick effectively raised cigarette prices for both premium and value segments by 7.5% to 9%. We expect the higher cigarette prices, coupled with other government initiatives to reduce smoking, to cause legal total industry volume (TIV) to contract by 6% in 2011. Unlike tobacco, the brewery sub-sector was spared a hike in excise duty in Budget 2011, marking the fifth time in a row duty was not raised. However, Malaysia's excise duty on beer is the second highest in the world after Norway.

Risks include a further drop in consumer disposable income and rising costs of goods and services, reducing spending power.

We maintain our 'neutral' stance on the sector. Our top pick is CI Holdings as we are optimistic on its growth outlook. In our view, the stock is still inexpensive relative to its F&B peers. ' RHB Research Institute Sdn Bhd, Dec 28


This article appeared in The Edge Financial Daily, December 29, 2010.

CIHLDG - Consumer spending to remain resilient in 2011

Stock Name: CIHLDG
Company Name: C.I. HOLDINGS BHD
Research House: RHB

Consumer sector
Maintain neutral: The government recently raised the prices of petrol and sugar by 2.7% and 2.8% respectively, and we expect a similar hike to follow in 1H2011, in line with its plan to reduce subsidies every six months. Due to the gradual and small nature of the subsidy reduction, we believe that it will have a minimal impact on consumer spending, which RHB Research Institute projects will grow by 5.4% in 2011 (against 5.6% estimated for 2010).

The stable consumer spending growth outlook of 5.4% will provide a growth platform for the retail stocks under our coverage that derive their revenues locally. We expect Aeon's ('market perform', fair value = RM6.47) same store sales (SSS) to grow at 3.5% in 2011 (2010: 2.5%). Parkson, on the other hand, will continue to ride on China's strong consumer spending growth in 2011 (2010: 10%), which is expected to grow by 9.4%, according to consensus estimates.

We believe domestic demand for F&B products such as those manufactured and distributed by CI Holdings ('outperform', FV = RM4.90), KFCH ('market perform', FV = RM3.85) and QL Resources ('outperform', FV = RM6.50) will continue to be resilient. However, in terms of growth, we expect F&B companies to be driven by expansion in either capacity (CI Holdings), geographical (KFCH), or both (QL Resources).

Dark days continue for the tobacco sub-sector and BAT ('underperform', FV=RM42.92), as the recent hike in excise duty of about 5% per stick effectively raised cigarette prices for both premium and value segments by 7.5% to 9%. We expect the higher cigarette prices, coupled with other government initiatives to reduce smoking, to cause legal total industry volume (TIV) to contract by 6% in 2011. Unlike tobacco, the brewery sub-sector was spared a hike in excise duty in Budget 2011, marking the fifth time in a row duty was not raised. However, Malaysia's excise duty on beer is the second highest in the world after Norway.

Risks include a further drop in consumer disposable income and rising costs of goods and services, reducing spending power.

We maintain our 'neutral' stance on the sector. Our top pick is CI Holdings as we are optimistic on its growth outlook. In our view, the stock is still inexpensive relative to its F&B peers. ' RHB Research Institute Sdn Bhd, Dec 28


This article appeared in The Edge Financial Daily, December 29, 2010.

PCHEM - Petronas Chemicals - fire at aromatic plant

Stock Name: PCHEM
Company Name: PETRONAS CHEMICALS GROUP BHD
Research House: OSK

Petronas Chemicals Group Bhd
(Dec 28, RM5.53)
Maintain neutral at RM5.53 with target price of RM5.51: On Monday, Petronas Chemicals Group announced on Bursa Malaysia that a fire had broken out at about 11.35pm last Friday, at the naphtha hydrotreater unit at an aromatic plant within its integrated petrochemical complex (IPC) in Kertih, Terengganu.

We understand that the fire was quickly put out, and although there were no casualties, plant operations have been suspended as a safety precaution. We understand that this was a minor incident as operations at the other facilities within the IPC were not affected. Petronas Chemicals is still waiting for the authorities to determine the damage.

Heavy naphtha is used to produce two chemical products ' paraxylene and benzene. Based on our FY2011 forecasts, these two chemicals make up about 26% of the olefins and polymers division's revenue and 20% of group revenue (comprising olefins and polymers as well as fertiliser and methanol). Hence, the financial impact will depend on how long operations are disrupted, which we are unable to assess at this point. However, judging from the total revenue contribution from paraxylene and benzene of about RM2.5 billion, a day's delay would give rise to a revenue loss of about RM7 million. Assuming an average net profit margin of 18% for its chemical products, this may lead to a loss of RM1.3 million per day on a rough calculation. For FY11, we forecast total revenue and net profit of RM12.7 billion and RM2.2 billion respectively. We are also keeping our FY11 forecast unchanged unless the recommencement time line is prolonged. As for the damage caused by the fire, we would assume the company is fully insured.

Our target price for the stock remains unchanged at RM5.51 based on a price-earnings ratio of 16 times FY12 earnings per share. Since the fire has been put out, we do not think there is any further downside to its current share price as a result of this piece of news, unless there is a delay in re-coommencing operations, which we do not anticipate. Despite our 'neutral' call, we continue to like the company's strong backing from Petronas Group, especially in keeping its feedstock prices low, and attractive dividend payout ratio of 50%, which is the highest among its closest peers. ' OSK Investment Research, Dec 28


This article appeared in The Edge Financial Daily, December 29, 2010.

SUNWAY - Real construction growth forecasted at 4pc

Stock Name: SUNWAY
Company Name: SUNWAY HOLDINGS BHD
Research House: OSK



Real construction growth for 2011 has been projected at four per cent, OSK Research said in its 2011 report.

It re-rated valuations upwards for the construction sector fuelled by the possibility of an early general election, implementation of the proposed projects under the Economic Transformation Programme and Budget 2011.

In its research note, OSK Research said the top pick was Sunway with a target price of RM2.72 and within the small cap space, AZRB, with a target price of RM1.51.

"Investors should pick Gamuda (TP: RM4.31) for the euphoria over the proposed MRT. Lastly, we recommend Naim (TP: RM5.10) for the Sarawak theme," OSK Research said.

In its overview of the construction sector, OSK Research said it was a constructive year for the construction sector.

"The KL Construction Index chalked up a year-to-date return of 24 per cent," it said, adding that a reduction was however expected for 2011 and 2012 development expenditure which would be negative for the sector.

"For 2011, development expenditure is targeted at RM48.5 billion, down 9 per cent year-on-year (y-o-y).

"We expect the negatives of lower development expenditure to be offset by more jobs being implemented via private finance incentives (PFI)," OSK Research added.

It said the momentum of contract awards would continue into 2011 and conservatively set domestic job wins at an estimated RM15 billion.

"Jan-Oct domestic contract awards totalled RM12.1 billion (+66.8 per cent y-o-y) and is very likely to surpass 2010 target of RM13 billion," OSK Research elaborated. -- BERNAMA

OSK ‘overweight’ on healthcare sector

More potential remains to be tapped for the healthcare sector moving forward, with the government and private sector recognising it as one of the economy's key growth sectors, said OSK Research.

'The healthcare sector grew steadily in 2010 after emerging unscathed from the economic downturn in 2009.

'For 2011, we expect the healthcare sector in general to continue to chalk up sturdy earnings growth owing to increasing demand for healthcare products and services,' said OSK Research in a statement today.

It highlighted that momentum for merging and acquisitions may continue in 2011 as more investors capitalise on the growing demand for healthcare products and services, not only in Malaysia but also regionally.

'Moving forward, we expect the sector's growth to be led by the private sector with support from the government as it encourages bigger private sector participation in the sector,' it said.

It added, under the Economic Tranformation Programme (ETP), the healthcare sector was set to be transformed from being a social service and consumer of wealth to a private sector-driven engine of economic growth.

'The industry will require RM23.3 billion from 2011 to 2020 to fund this targeted growth, of which only 1.0 per cent will be via public money, while the Health Industry Development Corp will be established to ensure the remaining funds are achieved from the private sector,' it said.

OSK maintained its overweight rating on the sector due to its ample growth potential and its defensive nature.

'Due to intense competition among the generic pharmaceuticals producers, we prefer private healthcare and healthcare related services players over pharmaceutical players.

'As the largest and leading private healthcare sector provider, we believe KPJ Healthcare is set to reap the most benefits arising from the more vibrant private healthcare segment,' it said. -- BERNAMA

Tobacco industry volume may drop 8pc: OSK

OSK Research is projecting an eight per cent drop in tobacco industry volume which will result in tobacco manufacturers experiencing an earnings decline of between five per cent and ten per cent next year.

The research house said its slightly higher natural attrition rate for tobacco consumption was mainly due to more smokers kicking the habit owing to the currently high price of cigarettes, it said in its research note today.

A steep hike in the excise duty of cigarettes, of as much as three sen per stick a week before 2011 Budget, made tobacco manufacturers revise selling price by more than the quantum of duty increase in order to pass on the cost to consumers.

'In view of that, we expect the sector to see higher selling prices in downtrading to value-for-money brands from premium brands, a greater incidence of illicit trade and a greater likelihood of brand switching next year.

'We think the resulting higher selling prices of a pack of cigarettes, at RM10, would curb the consumption and further encourage the proliferation of illicit cigarettes next year.

'Keeping our bearish view, we maintain our underweight recommendation for the sector,' OSK added. -- BERNAMA

HIAPTEK - Challenging outlook for steel; demand growth for cement priced in

Stock Name: HIAPTEK
Company Name: HIAP TECK VENTURE BHD
Research House: RHB

Building materials
Maintain neutral: We believe the outlook for the global steel sector in 2011 is challenging due to the slowing demand in China and less robust construction activities in the developed countries. Steel demand growth in China is expected to slow down with credit tightening measures and policies to curb speculation in the property sector.

Spot iron ore prices have been picking up recently due to supply disruptions in India. This has resulted in a 7% to 8% rise in quarterly benchmark price for iron ore in 1Q2011. In addition, scrap prices have also been on an upward trend, reaching US$430 (RM1,332)-US$440/tonne now. Owing to higher raw material costs, most large international steelmakers have raised their selling prices for January and February deliveries next year.
The potential hike in natural gas tariffs will hurt the margins of direct-reduced iron producers, while the potential hike in electricity tariffs will hurt the margins of upstream steelmakers in Malaysia as all of them produce steel via the electric arc furnace route. Higher electricity cost will also affect the margins of cement producers.

We project domestic cement consumption to grow by 6% in 2011 (vis-''-vis flat in 2010), underpinned by key on-going and potential large-scale infrastructure projects, robust property development activities, as well as potential mega privatised property projects on federal land such as the 2,680-acre Rubber Research Institute land in Sungai Buloh and the 400-acre Royal Malaysian Air Force land in Sungai Besi.
For steel, the risk of an oversupply situation in China and steep contraction in global steel consumption would weigh down on international steel prices. For cement, the risks are delays in the rollout of projects, steep rise in energy prices, and potential price war in the industry when new capacity is added in end-2012.

Overall, we are maintaining our neutral call on the sector. Valuations for the steel sub-sector are based on one-year target forward price-earnings ratio (PER) of 10 times, while for the cement sub-sector, valuations are based on one-year target forward PER of 13 to 16 times. ' RHB Research Institute Sdn Bhd, Dec 27


This article appeared in The Edge Financial Daily, December 28, 2010.

CSCSTEL - Challenging outlook for steel; demand growth for cement priced in

Stock Name: CSCSTEL
Company Name: CSC STEEL HOLDINGS BERHAD
Research House: RHB

Building materials
Maintain neutral: We believe the outlook for the global steel sector in 2011 is challenging due to the slowing demand in China and less robust construction activities in the developed countries. Steel demand growth in China is expected to slow down with credit tightening measures and policies to curb speculation in the property sector.

Spot iron ore prices have been picking up recently due to supply disruptions in India. This has resulted in a 7% to 8% rise in quarterly benchmark price for iron ore in 1Q2011. In addition, scrap prices have also been on an upward trend, reaching US$430 (RM1,332)-US$440/tonne now. Owing to higher raw material costs, most large international steelmakers have raised their selling prices for January and February deliveries next year.
The potential hike in natural gas tariffs will hurt the margins of direct-reduced iron producers, while the potential hike in electricity tariffs will hurt the margins of upstream steelmakers in Malaysia as all of them produce steel via the electric arc furnace route. Higher electricity cost will also affect the margins of cement producers.

We project domestic cement consumption to grow by 6% in 2011 (vis-''-vis flat in 2010), underpinned by key on-going and potential large-scale infrastructure projects, robust property development activities, as well as potential mega privatised property projects on federal land such as the 2,680-acre Rubber Research Institute land in Sungai Buloh and the 400-acre Royal Malaysian Air Force land in Sungai Besi.
For steel, the risk of an oversupply situation in China and steep contraction in global steel consumption would weigh down on international steel prices. For cement, the risks are delays in the rollout of projects, steep rise in energy prices, and potential price war in the industry when new capacity is added in end-2012.

Overall, we are maintaining our neutral call on the sector. Valuations for the steel sub-sector are based on one-year target forward price-earnings ratio (PER) of 10 times, while for the cement sub-sector, valuations are based on one-year target forward PER of 13 to 16 times. ' RHB Research Institute Sdn Bhd, Dec 27


This article appeared in The Edge Financial Daily, December 28, 2010.

AXIATA - Axiata divesting non-core investment

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

Axiata Group Bhd
(Dec 27, RM4.73)
Maintain buy at RM4.70 with target price RM5.50: It was announced on Dec 22 that Axiata has completed the sale of its entire stake of 18.9% in Samart Corp (parent of Samart group) to existing shareholders. The stake, which Axiata has held since 1997, was transacted for a total cash consideration of US$34.8 million (RM108.4 million). Axiata, however, still holds its 24.4% stake in Samart i-Mobile, a subsidiary of Samart Corp.

Samart group has three areas of interest. They are i) ICT solutions, ii) mobile-multimedia and iii) technology-related solutions. Samart i-Mobile's area of interest is in mobile-multimedia ' it develops its own mobile phones such as the i-mobile 8500.

We do not see any significant impact to earnings from the divestment. The cash consideration of RM108.4 million will only contribute 3.8% to the expected FY2010 earnings. We, however, welcome Axiata's move to divest its Samart stake as it is a non-core investment and will allow Axiata to focus on its core business, especially in the high-growth market of Indonesia and Bangladesh. Interestingly, it is holding on to Samart i-Mobile. It is possible that it may have future plans of entering Thailand's telecommunications market.

With the good performance expected in FY2010 and the growth potential in Indonesia and Bangladesh, we maintain our 'buy' recommendation for Axiata, with a target price of RM5.50 based on seven times enterprise value/earnings before interest, taxes, depreciation and amortisation, which is the average of its regional peers. ' MIDF Research, Dec 24


This article appeared in The Edge Financial Daily, December 28, 2010.

JOBST - M&A brewing in JobStreet?

Stock Name: JOBST
Company Name: JOBSTREET CORPORATION BHD
Research House: HWANGDBS

JobStreet Corporation Bhd
(Dec 27, RM2.80)
Maintain buy at RM2.81 with target price RM3.30: SEEK announced it is acquiring a 60% stake in JobsDB for HK$1.59 billion (RM632.87 million), translating into 22.1 times CY2010 enterprise value/earnings before interest, taxes, depreciation and amortisation (EV/Ebitda).

This gives SEEK greater exposure to e-recruitment advertising in the emerging markets such as Indonesia, Thailand and China. There, however, could be a potential conflict of interest for SEEK as it is now the major shareholder in JobsDB as well as JobStreet. It remains to be seen if SEEK would merge JobsDB and JobStreet (it owns 22.4%) as their presence overlaps in some markets.

JobsDB's price tag of 22.1 times EV/Ebitda implies a 27% premium over JobStreet's valuation. Although JobsDB is 38% and 26% larger than JobStreet in terms of revenue and Ebitda, respectively, JobStreet is 3.7 percentage points more profitable than JobsDB in terms of Ebitda margin and is expected to have a cash balance of RM67.5 million in CY2010F. A multiple of 22.1 times EV/Ebitda would imply a market cap of RM1.2 billion for JobStreet (RM3.55 per share versus our target price of RM3.30).

We maintain a buy for JobStreet with a RM3.30 target price based on one times PEG. While SEEK's strategy is unclear at this stage, we think the acquisition sets a pricing benchmark for JobStreet's shares. ' HwangDBS Vickers Research, Dec 24


This article appeared in The Edge Financial Daily, December 28, 2010.

HELP - HELP's FY10 margins not bad

Stock Name: HELP
Company Name: HELP INTERNATIONAL CORPORATION
Research House: OSK

HELP International Corporation Bhd
(Dec 27, RM2.17)
Upgrade to buy from neutral at RM2.30 with revised target price of RM2.59 (from RM2.69): HELP's FY10 revenue was 8% below our and consensus expectations but the better-than-expected margin led to its FY10 net profit coming in within our and consensus estimates.

Ebit margin for FY10 was higher at 26.1% compared with 22.6% a year ago, driven by the stronger demand for its home-grown programmes. Although its home-grown programmes generally fetch lower fees per student, they nevertheless command higher margins given that HELP does not have to pay royalty as it does for twinning or foreign courses developed by other institutions.

As anticipated, due to the weaker performance in 3QFY10 attributed to the summer break for courses that are conducted in collaboration with foreign institutions in the northern hemisphere, HELP's 4QFY10 revenue was higher by 16.9% q-o-q, which led to PBT soaring by 56.5% q-o-q, further driven by the high fixed cost nature of the business.

Ebit margin was higher at 30.1% compared with 23.1% in the previous quarter. Moving forward, in view of the summer break for the courses done in collaboration with foreign institutions in the southern hemisphere in 1QFY11, we see a seasonally weaker performance in the quarter. However, we expect the stronger demand for its home-grown courses to somewhat tone down the seasonal effect for the upcoming quarter.

We maintain our forecast for FY11 and introduce our FY12 numbers. After adjusting for the current net cash of 32 sen per share versus 42 sen previously, our TP has been reduced from RM2.69 to RM2.59 based on 14x PER on FY11 EPS plus the current net cash of 32 sen per share.

Despite being lower, the TP still offers a more than 10% upside. As such, we upgrade our recommendation from neutral to buy. ' OSK Investment Research, Dec 24


This article appeared in The Edge Financial Daily, December 28, 2010.

PLUS records growth in traffic

PLUS Expressways Bhd, which manages the North-South Expressway, New Klang Valley Expressway, Federal Highway Route 2 and Seremban-Port Dickson Highway, announced a traffic volume of 1,403.8 million passenger car unit kilometre (PCU-km) in November 2010, up 8.6 per cent compared with the same period last year.

For the 11-month period ended November 2010, traffic increased by 7.3 per cent to 14,605.4 million PCU-km from the previous corresponding period, it said in a filing to Bursa Malaysia today.

Meanwhile, its ELITE (North-South Expressway Central Link) unit recorded 138.4 million PCU-km in Nov 2010, a 13.9 per cent increase from the corresponding period.

Year-to-date, traffic for ELITE rose by 12.2 per cent to 1,452 million PCU-km against the same period last year. -- Bernama

RHBCAP - RHB Capital pushing the boundaries with Easy outlets

Stock Name: RHBCAP
Company Name: RHB CAPITAL BHD
Research House: OSK

RHB Capital Bhd
(Dec 23, RM8.55)
Maintain buy at RM8.60 with target price of RM9.56: Its 'Easy' banking outlets have been a roaring success, contributing close to 6% of new loans drawn down over the past nine months. The group started with just two Easy banking outlets at the beginning of 2010. Given its relatively low start-up cost structure and pent-up demand as the group was able to create a new market segment, it has expanded the number of outlets to 100 as at 3QFY10 while bringing down its cost to income ratio from 42% to 40%. Most of the loans from RHB's Easy outlets are small, individual ASB-linked consumer loans that are secured against liquid government-linked ASB funds, which lower its risk profile. The success of its Easy outlets is reflected in the group's enlarged 14.4% market share of the ASB market vs 9.4% as at end 2009.

The group's ability to innovate and develop a relatively higher yielding and under-penetrated banking segment via a low-cost distribution channel has certainly paid off, as its 9MFY10 return on equity (ROE) of 15.1% has already beaten consensus' FY11 expectations. Given its aggressive rollout plans (in expanding the number of Easy outlets to 400 by 2012 from the current 120) and its ability to expand the distribution of higher ROE fee income banking products via its enhanced distribution network is likely to lift the group's ROEs in the longer term.

The group plans to replicate the high service standards of the Easy outlets at its traditional branches while the streamlining of the highly efficient processes throughout the group's mainstream branches is likely to benefit the entire organisation in terms of lower cost and increased competitive advantage.

To recap, the group's recent annualised 9MFY10 loans growth of 20% year-on-year (y-o-y) far exceeded industry's 11%, with its 3QFY10 sequential growth of 6.6% quarter-on-quarter being by far the strongest among the banks under our coverage. Government-linked loans were the strongest engine of overall growth at +70% y-o-y. Although the margins of such loans are lower than those from average corporate loans, a zero-credit risk allocation implies that net ROEs generated from such loans are typically higher than traditional loans, which are themselves currently experiencing yield compression as a result of competition. Smooth execution of the Economic Transformation Plans will provide further upside in the sustainability of the group's robust government linked loan growth.

RHB Capital remains our top mid-cap banking pick which boasts of ROE generation at the upper end of the industry average, while its current FY11 PBV of 1.72 times is at a discount to the industry's 1.86 times. EPF's commitment to further reduce its stake by another 9% will improve the stock's liquidity, which has been cited as the key reason for its below industry valuations despite its promising ROE growth. Maintain buy with a Gordon Growth-derived target price price of RM9.56 (1.92 times PBV, ROE: 14.8%, COE: 9.5% and growth rate of 4%). The stock is cheap as it is trading at an implied FY11 PER of only 11.7 times, despite having outperformed the broader market by 44.8% year-to-date. ' OSK Investment Research, Dec 23







This article appeared in The Edge Financial Daily, December 24, 2010.

BSTEAD - Boustead's MoU to buy MHS Aviation

Stock Name: BSTEAD
Company Name: BOUSTEAD HOLDINGS BHD
Research House: ECMLIBRA

Boustead Holdings Bhd
(Dec 23, RM5.39)
Maintain buy at RM5.41 with target price of RM5.96: On Wednesday, Boustead announced that they had entered into a Memorandum of Understanding (MoU) with Drire Equities Sdn Bhd and Tulus Sejagat Sdn Bhd with the intention to acquire 10.2m shares in MHS Aviation Bhd (MHS) representing 51% equity interest therein and 51% equity interest in a special-purpose vehicle (SPV) that shall purchase all the helicopters and aircrafts owned by the subsidiaries of Drire. Under the terms of the MoU, the parties have agreed that total purchase price for the acquisition shall not exceed RM100 million subject to result of the due diligence where RM60 million shall be for the payment of the shares in MHS and RM40 million shall be payment for the aircraft SPV company. The due diligence process will take one month from the date of the MoU and if all goes well, the SPA will be completed within three months

We are neutral on the news for now, given the lack of financial details on MHS. Boustead notes that MHS has some RM3.1 billion in contracts which includes a 10-year contract from Petronas Carigali. This then indicates that the company would have revenue per annum of at least RM300 million. Boustead is typically conservative, we believe and generally not willing to pay more than their own PE (currently at 14 times for FY10F) for an acquisition.

Under the MoU, Boustead is purchasing the stake from shareholders Ma'som Mahadi and Mohsein Ma'som, a father-and-son team which also act as the chairman and executive director of MHS. Our view is that the sellers' motives are to get access to funding through Boustead. There will be fund raising needed for the SPV company which is to buy new aircraft, likely to service the Petronas Carigali job. We continue to have a buy call on Boustead with an unchanged target price of RM5.96. This is based on FY11 EPS pegging a 12 times PE (+1 standard deviation above historical average). To note, the key catalysts for Boustead going into 2011 is the formalisation of their contract with the government to build six navy vessels which we estimate could be worth in excess of RM6 billion. Besides that, their plantation division should also be seeing strong earnings given the current strength in CPO prices. ' ECM Libra Research, Dec 23







This article appeared in The Edge Financial Daily, December 24, 2010.

MIDF sets FBMKLCI target at 1,650 in 2011

The FTSE Bursa Malaysia KLCI is expected to trade between 1,475 and 1,650 points next year, representing up to 18 times
its 2011 earnings.

MIDF Research Senior Vice President and Head of Research Department Zulkifli Hamzah said this projection was based on the 10-year average of its monthly high price earnings ratio of 18 times with a corresponding earnings growth of 15.8 per cent.

'We are setting a 12-month base case KLCI target of 1,650 points for 2011 and the index can easily overshoot the target in a liquidity market.

'In such an extreme bullish scenario, the implicit KLCI target is 1,935 points. However, this is not supported by the bottom-up valuation,' he said at media briefing on the country's economic outlook for 2011 today.

Based on KLCI's close of 1,506.1 on Nov 21, the target of 1,650 represents a 9.6 per cent upside.

The market barometer is expected to continue its uptrend as long as the United States keeps its interest rate at current levels and oil prices stay below US$110 per barrel.

Zulkifli said there were several short-term factors that would keep sentiments positive for the key index next year.

One factor was MIDF's estimate that Malaysia's gross domestic product would grow 5.3 per cent in 2011. Its previous projection was 5.8 per cent growth.

'This conservative view is driven by the less favourable base effects, unwinding of policy stimulus and more subdued growth in several major export markets.

'However, we believe the economy will not fall into technical recession,' Zulkifli said.

He said corporate earnings growth which is expected to accelerate to 15.8 per cent compared to 14 per cent this year with strong growth in banks, plantation and construction sectors, would also be an important factor that would bode well for the index outlook.

Besides, he said, more corporate actions through mergers and acquisitions and more large capital initial public offerings, rally in crude oil and commodity prices, expected foreign buying, more capital-intensive projects of the Economic Transformation Programme, and election factor would also contribute to the sentiments next year.

Zulkifli said the inflow of foreign funds to Malaysian equity was expected increase next year.

FTSE's reclassification of Malaysia as an Advanced Emerging Market effective June 2011 is expected to attract foreign funds tracking FTSE indices which are estimated to be more than US$3 trillion.

'As long as Malaysia continues to make the right moves such as climbing up the FTSE classification ladder, foreign funds will be flowing in.

'And factors that may draw foreign funds next year are commodity rally, continued strength of the ringgit and state and general elections,' he said.

As at December 2010, foreign shareholding in Malaysian equity is still low at 21.7 per cent.

'This year, foreign funds came into Malaysia but most went to Malaysian government securities than to equities.

'We expect the shift to take place when the reclassifying comes into effect that will result into foreign investors coming in,' Zulkifli said. -- Bernama

RHBCAP - OSK maintains 'buy' call on RHBCap

Stock Name: RHBCAP
Company Name: RHB CAPITAL BHD
Research House: OSK



OSK Research has maintained a "Buy" call for RHB Capital Bhd with a target price of RM9.56.

It said RHB's stock was cheap as it was trading at an implied financial year 2011 (FY11) price earnings ratio of only 11.7 times despite having outperformed the boarder market by 44.8 per cent year-to-date.

"Our recent meeting with the management reinforces our belief that the group is on track to deliver return on equity in excess of 14 per cent, backed by surprising strong loans growth exceeding 20 per cent and stable asset quality.

"The company is our top mid-cap banking pick with return on equity generation at the upper-end of the industry average while its current FY11 price by volume of 1.72 times is at a discount to the industry's 1.86 times," OSK said in a research note today.

OSK explained that the key reason for RHB's below industry valuations was EPF's commitment to further its stake by another nine per cent which would further enhance the stock's liquidity.
-- BERNAMA

New deadline for prospective PLUS buyers

New parties interested to acquire PLUS Expressways Bhd have until 5pm on Jan 10, 2011, to submit their bids, said Minority Shareholders Watchdog Group corporate services general manager, Lya Rahman.

'Instead of 5pm (deadline) today, offers to take over PLUS from other bidders have been extended to 5pm on Jan 10, 2011,' she said.

She said this to reporters after the adjournment of PLUS extraordinary general meeting (EGM) here today.

Today's EGM was scheduled to approve the UEM Group Bhd-Employees Provident Fund (EPF) bid to buy over PLUS for RM23 billion.

'Basically, we agree to adjourn the meeting. We will get more time to look at the proposals, and eventually shareholders can get a true picture,' she said.

She said it was important to look at the merits of the two bidders -- UEM-EPF joint bid and Jelas Ulung Sdn Bhd and decide on the best option.

On Jelas Ulung, Lya said, shareholders were more concerned about the higher price than the merits of the company.

About 130 shareholders attended the AGM which was adjourned at noon.

PLUS shares added three sen to RM4.65 at 12.30pm. -- BERNAMA

Malaysia REIT yields expected to fall

The yields of Malaysian Real Estate Investment Trusts (REITS) are expected to come down next year in view of the surplus in office buildings with the completion of new projects.

The yield, which is also known as return on investment in properties, is derived by dividing rental with property value.

President of the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector, Malaysia, Choy Yue Kwong, said while the surplus in office buildings is expected if more developers receive the nod to build, there are very few premium-grade 'A' buildings.

'Investment-grade buildings with premium values are the ones foreigners are looking for,' Choy said in an interview.

Choy said while there are enough of good properties in Kuala Lumpur, not many of them are for sale.

'Some of them are owned by banks and most of them do not have the incentives to sell,' he said.

He said the owners, some of them big corporates like Boustead Holdings Bhd and its major shareholder, Armed Forces Fund Board, own a lot of properties but may not be motivated to sell them as they are in the business of investing in properties and collecting rentals to pay dividend to members.

However, Choy said, there are rare instances when corporates or REITs will sell.

In March this year, Pelaburan Hartanah Nasional Bhd, manager of Amanah Harta Tanah PNB (AHP) sold three parcels of land in Pahang, Perlis and Kedah, together with shopoffice units erected on the parcels, to Permodalan Nasional Bhd for RM2.01 million.

The proceeds from the disposal were used to part-finance the cost of upgrading and refurbishment of Plaza VADS in Taman Tun Dr Ismail, Kuala Lumpur, another property owned by AHP, a REIT.

Choy said that while investment-grade properties are most sought-after, there is no need to buy expensive properties, or Grade A buildings, to get a reasonable yield of seven per cent.

'For instance, you can buy a property in Cyberjaya and still get a reasonable yield.

'It is also important that buildings are rebranded to upmarket category,' he said.

He said one of the well-known office and commercial buildings in KL which has been extensively re-branded to upmarket brand is the Intermark, which is located at the junction of Jalan Tun Razak and Jalan Ampang.

It sets new standards in design and quality by integrating green technology and a lifestyle environment for work and leisure.

The project, which consists of Grade A office towers, an international hotel and retail podium, was a refurbishment of several buildings -- City Square, Empire Tower, Plaza Ampang and Crown Princess Hotel.

Choy said market rate of office space for premium Grade A office buildings in Kuala Lumpur is expected to be stable next year with market rate of between RM5 and RM7 per sq ft. -- Bernama

Visdynamics jumps on profit turnaround

Visdynamics Holdings Bhd, a Malaysian maker of equipment for the semiconductor industry, rose the most in six days after returning to profit in the fourth quarter ended Oct. 31 as sales surged.

The stock jumped 38 per cent to 11 sen at 2:58 p.m. in Kuala Lumpur trading, the biggest gainer on the Kuala Lumpur stock exchange. -- Bloombeeg

MAS climbs after pact with KLM

Malaysian Airline System Bhd had its biggest two-day advance in 10 months after signing an agreement with Air France-KLM Group's Dutch KLM unit to foster closer cooperation.

The stock climbed 4.9 per cent to RM2.13 at 10:16 a.m. in Kuala Lumpur trading, adding to yesterday's 5.7 per cent gain. The two-day 11 per cent increase is the most since Feb. 23. The announcement was made yesterday.

'We are positive on this development as it could help Malaysian Air ride on KLM's global network and possibly drive cost efficiency,' Wong Ming Tek, an analyst at HwangDBS Vickers Research Sdn Bhd said in a report today. -- Bloomberg

Proton rating cut on spending concern

Proton Holdings Bhd, Malaysia's state-controlled carmaker, had its stock rating downgraded at RHB Research Institute Sdn Bhd on concern its spending to help turn around its Group Lotus Plc unit will 'pressure' its balance sheet and erode earnings.

The stock was cut to 'market perform' from 'outperform,' Loong Kok Wen, an analyst at RHB, said in a report today.

Loong also downgraded the Malaysian auto sector to 'neutral' from 'overweight.' -- Bloomberg

KNM to continue uptrend: AmResearch

KNM Group Bhd's share price is expected to continue to outperform the group's vastly improved earnings prospects, underpinned by a faster pace of new contract awards.

AmResearch in a note today said, KNM's share price had risen by 59 per cent, since it upgraded the group to a 'buy' last week.

'The strong price performance has largely been driven by local investors as foreign holdings have remained around 21-22 per cent over the past few months against the 18 per cent earlier this year,' it added.

As news flow in new orders gains traction, AmResearch said it has raised the new order book assumption on KNM Group Bhd to RM3 billion-RM3.2 billion from RM2.6 billion-RM2.8 billion for the financial year ending 2011-2012.

The research house said this is in line with KNM's target based on a success rate of 20 per cent on its tender value.

'Note that our revised order book has not taken into account the UK biomass project.

'But assuming this project commences in early January next year, we estimate that FY11F net profit, could be enhanced by 20 per cent,' AmResearch added, in a research note today.

The newly secured RM2.196 billion EnergyPark Peterborough project is expected to boost KNM Group Bhd's outstanding order book by 90 per cent to RM4.6 billion.

While high-end process equipment would be required, AmResearch said that the pre-tax margin could be around 20 per cent given that KNM is the main contractor for the biomass project, which will be involve sub-contracting some of the jobs to other players. -- Bernama

LMCEMNT - Lafarge Malayan raised to 'buy'

Stock Name: LMCEMNT
Company Name: LAFARGE MALAYAN CEMENT BHD
Research House: MAYBANK



Lafarge Malayan Cement Bhd was raised to "buy" from "hold" at Maybank Investment Bank Bhd to reflect sustained demand for cement.

The share price estimate was increased to RM8.50 from RM7.90, Lee Yen Ling, an analyst at Maybank, said in a report today. -- Bloomberg

PLUS - PLUS raised to 'trading buy' at RM5.20

Stock Name: PLUS
Company Name: PLUS EXPRESSWAYS BHD
Research House: RHB



PLUS Expressways Bhd, Malaysia's biggest toll road operator, was upgraded to "trading buy" from "underperform" at RHB Research Institute Sdn Bhd after receiving a RM26 billion takeover offer from Jelas Ulung Sdn Bhd, topping a rival bid.

The fair value was raised to RM5.20 from RM4.60 to "match the latest offer," Lim Tee Yang, an analyst at RHB Research said in a report today. -- Bloomberg

DIALOG - Dialog price estimate lifted to RM2.20

Stock Name: DIALOG
Company Name: DIALOG GROUP BHD
Research House: CIMB



Dialog Group Bhd was raised to "outperform" from "underperform" at CIMB Investment Bank Bhd to reflect the Malaysian oil and gas services provider's earnings growth prospects.

The share price estimate was increased to RM2.20 from RM1.10, Norziana Mohd Inon, an analyst at CIMB said in a report today. -- Bloomberg

RHBCAP - RHBCap cut to 'hold' at BNP Paribas

Stock Name: RHBCAP
Company Name: RHB CAPITAL BHD
Research House: OTHER



RHB Capital Bhd was cut to "hold" from "buy" at BNP Paribas, which said the company's relative valuation to larger peers has narrowed "substantially" and there's "less exciting" earnings growth prospects in 2011.

The brokerage raised the share-price estimate to RM8.70 from RM8.40, according to a report by analyst Ng Wee Siang. -- Bloomberg

Malaysia plantation sector upgraded

Malaysia's plantation sector was raised to 'overweight' from 'neutral' at RHB Research Institute Sdn Bhd, on higher crude palm oil price forecasts.

The forecast was raised by RM200 a metric ton for 2011 and 2012 to RM3,100 a ton and RM2,900 a ton respectively, Hoe Lee Leng, an analyst at RHB Research said in a report today.

Crude palm oil 'prices are likely to remain at high levels potentially' until the first half of 2011, before falling in the second half of the year as productivity recovers, Hoe said. -- Bloomberg

FABER - OSK maintains 'buy' call on Faber

Stock Name: FABER
Company Name: FABER GROUP BHD
Research House: OSK



OSK Research has maintained its "buy" recommendation on Faber Group at an unchanged target price of RM4.00, based on the standard operating procedure valuation.

In a research note today, OSK said its fair value is based on the assumption that the group's bid for the hospital support services (HSS) concession in Sabah, would be renewed as it is.

In view of its track record and expertise, denying Faber the renewal will run counter to the government's recent economic reforms, OSK said.

It has been reported that Warisan Harta Sabah SB (WHSB) has submitted a bid for the HSS in Sabah, which it deemed, is "competitive and on par" with Faber Group's for the concession.

"Although this piece of news will continue to dampen sentiment in the Faber stock, we believe the negative sentiment has been partly priced into the current share price, as it had been on a downtrend since news first emerged in early October.

"We believe the current uncertainty may present a buying opportunity for investors who are still hopeful of a favorable outcome," OSK explained.

The HSS concession under Faber expires in November next year. -BERNAMA

NOTION - Notion Vtec sued over share sale agreement

Stock Name: NOTION
Company Name: NOTION VTEC BHD
Research House: OSK

Notion VTec Bhd
(Dec 16, RM1.62)
Maintain sell at RM1.65 with target price RM1.45: Notion has been served with a writ and statement of claim on behalf of three key personnel of Swiss Impressive Sdn Bhd for the alleged breach by Notion of a share sale agreement dated Dec 10, 2009.

The principal business of Swiss Impressive is in designing, tooling and manufacturing high precision appearance parts for digital cameras and other consumer electronic devices. Notion has 70% equity interest in this subsidiary, while two of the plaintiffs collectively own the remaining 30%. In FY10, Swiss Impressive recorded an unaudited revenue and loss after tax of RM3.5 million and RM300,000 respectively.

In 2009, Notion entered into a share sale agreement with the plaintiffs to dispose of its 70% equity interest in Swiss Impressive to the plaintiffs for RM400,000. Management was of the view the business of Swiss was no longer in line with Notion's present business strategy. The agreement lapsed prior to the completion and finalisation of an audit on Swiss. The suit came about due to the non-completion of the share sale agreement, which the plaintiffs alleged was due to a breach by Notion.

The plaintiffs are claiming RM4.5 million from Notion, but the company has instructed its solicitors to defend the action. This suit is unlikely to have a major impact on Notion. The financial contribution from Swiss to Notion was considered insignificant as Notion recorded RM226.8 million of revenue and RM37.4 million earnings in FY10. On the operations side, Notion had appointed new personnel to manage Swiss. Should Notion lose this case, it would have no problem absorbing the RM4.5 million claim considering that it has a cash hoard of RM36.9 million as at Sept 30.

Due to the poor outlook for the HDD business, possibly until 1Q11, and given the uncertainty over its 2.5' HDD business, we remain cautious and stick to our 'sell' call by pegging its target price at seven times FY11 price-earnings ratio. For FY11, the company will give more priority to the camera business to sustain its uninterrupted earnings growth streak since FY03. It plans to expand its plant in Thailand from 25,000 sq ft to 100,000 sq ft by May 2011, mainly to cater for Nikon and new camera customers. We think it is still too early to factor in any meaningful contribution from the Thai plant expansion. The Thailand plant only contributed revenue of about RM1.4 million for FY10. ' OSK Investment Research, Dec 16


This article appeared in The Edge Financial Daily, December 17, 2010.

MEDIA - Declining viewership not a concern for Media Prima

Stock Name: MEDIA
Company Name: MEDIA PRIMA BHD
Research House: RHB

Media Prima Bhd
(Dec 16, RM2.36)
Maintain outperform at RM2.32 with fair value RM2.82: Concerns have been raised over the declining trend in TV viewership for Media Prima's channels. On the whole, its viewership market share has fallen to 46% this year, compared with 50% in 2009, on the back of lower TV viewership share for TV3, NTV7 and TV9. According to management, the decline in viewership is partly due to fragmentation as Astro continues to increase the number of channels on its platform. In mitigation, while management believes advertisers will continue to pay attention to TV viewership numbers, it also thinks Media Prima's channels offer better value for advertisers, given the concentration of viewership over its four channels as opposed to Astro's over 100 channels. Hence, Media Prima's channels offer better value for money for advertisers to reach out to viewers. Nevertheless, as fragmentation continues Media Prima is actively repositioning itself as a content provider, allowing users to access its content via multiple platforms (for example tonton.com.my and Telekom Malaysia Bhd's UniFi).

If the general election is held next year, we think this will boost government ad spending. Recall that in March 2008, gross adex for both TV and print media jumped 24% year-on-year (y-o-y) with TV adex up 37.3% y-o-y while adex for print media recorded y-o-y growth of 17.5%. Within the print media segment, New Straits Times' gross adex for March 2008 rose 41% y-o-y while The Star and Media Chinese International Ltd's (MCIL) adex rose 2.1% y-o-y and 12.2% y-o-y respectively.

Both Media Prima's outdoor and radio segments continue to grow. Typically, adex for the outdoor segment has lagged the economic cycle due to its concession-based nature. Thus, earnings for the outdoor segment could potentially see a pick-up next year. After stripping out the new acquisition of Kurnia Asia Bhd, the outdoor division recorded a 15% y-o-y growth. Its radio segment also recorded a decent 17% y-o-y growth in terms of top line, while the division recorded 14% bottom line growth y-o-y due to higher direct costs during the year.

The risks include: (i) weaker than expected adex growth; (ii) high discounting activities; and (iii) high foreign shareholding level (circa 31.7%).
We maintain our earnings forecasts for now.

Our indicative fair value is maintained at RM2.82, based on CY11 price-earnings ratio of 16 times. We reiterate our 'outperform' call on the stock. ' RHB Research Institute, Dec 16


This article appeared in The Edge Financial Daily, December 17, 2010.

TOPGLOV - Persistent headwinds for Top Glove

Stock Name: TOPGLOV
Company Name: TOP GLOVE CORPORATION BHD
Research House: HWANGDBS

Top Glove Corporation Bhd
(Dec 16, RM5.12)
Maintain fully valued at RM5.45 with revised target price RM4.60 (from RM4.80): Southern Thailand, a major rubber growing area, has been hit by severe flooding since October. This has disrupted transportation, lowered rubber output, and delayed shipments. Unfavourable weather has also affected rubber harvesting in Indonesia, Malaysia and Vietnam. As a result, latex prices hit a record high of RM9.45 per kg, and averaged RM7.35 year-to-date. Top Glove has consistently raised average selling prices (ASPs) in the past three months to keep up with rising latex prices. ASPs (per box of 1,000 pcs) for powdered, powder-free and nitrile gloves now average US$31 (RM97), US$35 and US$33, respectively. But as the ASPs lag latex price hikes, Top Glove is being pressured by rising operating costs, given that 83% of its gloves are made from natural rubber latex.

Demand remains soft as destocking is still ongoing. We understand 1QFY11 sales volume fell 5% quarter-on-quarter and capacity utilisation has fallen to 70% from 75%. Given the excess capacity, Top Glove has again deferred the commissioning of Factory 7 and 21 by three to five months. Latex prices rose 11% in the quarter, and as expected there was a time lag in passing on the higher costs. The greenback has also weakened 2% against the ringgit. Given the persistent headwinds, we cut FY11F earnings per share by 9%.

Maintain 'fully valued' with the target price lowered to RM4.60. We have nudged down our TP to RM4.60 (previously RM4.80), pegged to 13 times CY11 EPS. But demand should start to normalise in the next three months when restocking resumes. ' HwangDBS Vickers Research, Dec 16


This article appeared in The Edge Financial Daily, December 17, 2010.

MISC - Tanker shipping's high tide to recede after cold snap

Stock Name: MISC
Company Name: MISC BHD
Research House: CIMB

Tanker Shipping
Maintain underweight: We maintain our 'underweight' call on the crude tanker shipping sector as freight rates are set to fall in the next two years as a result of excessive newbuild deliveries. Although the demand for oil has recovered this year, it has not been sufficient to offset the large pool of excess tankers. We view the current rate recovery as purely seasonal in nature, assisted by the delays at Turkey's Bosporus Straits caused by fog, the coming ice restrictions in the Baltic and the expected rise in oil consumption as a cold winter hits the northern hemisphere. We maintain our 'underperform' call for MISC Bhd (target price: RM7). Despite likely weaker chemical shipping rates in 2011, PT Berlian Laju Tanker Tbk (TP: IDR660) remains an 'outperform' on the basis of its attractive 0.4 time price-to-book value valuation.

The Baltic Dirty Tanker index rose 27% to 30% in the month to Dec 10, mainly on the back of a 26% rise in average suezmax earnings and a quadrupling of average aframax earnings since Nov 12. Both the suezmax and aframax sectors benefited from the congestion at Turkey's Bosporus Straits, where seasonal fog is causing transit delays of around 25 days for both north and southbound. However, suezmax and aframax rates in the Mediterranean dropped last week as the backlog of ships in the Bosporus began to clear and charterers reduced cargo bookings to bring rates down. Aframax rates in the Baltic more than doubled last week as the unseasonably cold month led to a rush to book scarce ice-class aframax ships before ice restrictions come into place at the Russian port of Primorsk. It is worth noting that only owners of a very limited pool of ice-class aframaxes benefit from this.

China's oil imports jumped 28% or 4.52 million tonnes month-on-month (m-o-m) in November, which more than offset a 5.4% or two million tonne m-o-m fall in US oil imports. This helped drive up chartering activity, leading to a rise in very large crude carrier (VLCC) rates in mid-November. However, the number of available VLCC units remained higher than demand and VLCC rates fell for the third straight week. Hopes for a winter rally are dissipating. Shipbroker Charles R Weber noted that another 10 to 15 VLCC cargoes can be expected for the rest of December, against an expected availability of 40 units. This suggests that the excess vessels will spill over into January and the VLCC sector could see a depressing start to 2011.

We introduce a set of floating storage lead indicators in this report, where we track the spread between the 12-month forward and spot crude oil prices and calculate whether a buy-spot-and-sell-forward strategy is profitable. We note that the rise in crude oil prices over the past month has actually been sharper at the front end of the curve, leading to a flattening of the contango which reduces the profit available to oil traders. After deducting charterhire costs and financing expenses, floating oil storage will actually yield a loss of US$5.10/bbl over 12 months. Under present circumstances, the employment of VLCC or suezmax ships for oil storage will be minimal and the full brunt of the excess capacity will bear on spot rates after the winter is over. ' CIMB Research, Dec 16


This article appeared in The Edge Financial Daily, December 17, 2010.

Hai-O records RM9m in Q2 pre-tax profit

Hai-O Enterprise Bhd recorded a pre-tax profit of RM9 million in the second quarter ended Oct 31, 2010, compared to RM28.6 million in same period last year.

The lower profit was due to lower revenue of RM52.6 million compared to RM132.3 million last year.

For the six-month period, the company's pre-tax profit fell to RM19.8 million from RM54.9 million in the previous year on revenue of RM107.3 million and RM280.9 million, respectively.

Hai-O in a filing to Bursa Malaysia today said the drop in revenue and profit was mainly due to lower contribution by the principal subsidiary, which is the multi-level marketing (MLM) division.

It added, recent amendments to the Direct Sales Act have affected the confidence of the direct selling industries, coupled with slower membership growth, having directly affected the performance of the MLM division.

However, the board of directors are of the opinion that the group will continue to perform profitably in the next two quarters after the recent validation of the five-year direct selling licence to the MLM division by the Ministry of Domestic Trade, Co-operative and Consumerism.

It said the validation has enabled the company to plan for a longer term strategies and create confidence in the market.

The division is taking proactive measures to strengthen its education and training programmes by focusing on product knowledge, establishing networking and inculcating professionalism among the distributors, it added.

In addition it said, the group is continuously looking for new key products to enlarge its product range. -- Bernama

Gamuda records higher Q1 pre-tax profit

Gamuda Bhd recorded a higher pre-tax profit of RM109.7 million in the first quarter ended Oct 31, 2010 from RM94.5 million in the preceding year's comparative quarter.

The company's revenue rose to RM634.2 million from RM624 million previously while net profit for the period increased to RM90.4 million from RM77 million.

The increase in pre-tax profit and net profit was due to higher contributions from the construction and property divisions, it said in a filing to Bursa Malaysia today.

Gamuda declared a first interim dividend of three sen per share less 25 per cent income tax and three sen per share single-tier (exempt from tax).

On prospects, Gamuda said it expects to perform better in the next few quarters of the current financial year with existing construction projects progressing on schedule, and the strong performance of the property division.

Gamuda said the group is also expected to benefit from the roll-out of projects earmarked under the government''s Economic Transformation Programme (ETP) such as the Klang Valley Mass Rapid Transit project.

It also said work on the Yenso Park and sewage treatment plant in Gamuda City, Vietnam, remained on track.

Work on the sewage treatment plant was at an advanced stage and is expected to be substantially completed in the current financial year, it added.

On its property division, Gamuda said the group's property developments in Malaysia achieved stronger sales on the back of a buoyant economy, improved consumer sentiments as well as an attractive mortgage environment.

'Unbilled sales reached RM760 million as a result of good sales performance. The property division's financial performance is expected to be better in the next few quarters of the current financial year,' it said.

According to Gamuda, strong buying activity was evident, particularly in matured locations and well-regarded developments such as Bandar Botanic, which attracted significant demand for its semi-detached houses and bungalow homes, Horizon Hills and Jade Homes.

Its flagship development, Gamuda City in Hanoi, was gearing up for its maiden launch with several thousands of interested purchasers having registered their interest in this development.

Gamuda's second development, Celadon City in Ho Chi Minh City, was also ready for its maiden launch in the first half of 2011.
These two developments in Vietnam are expected to be the key drivers of revenue and earnings growth for the overall property division, it said. -- Bernama

TA - Exciting prospects for TA Enterprise

Stock Name: TA
Company Name: TA ENTERPRISE BHD
Research House: HWANGDBS

TA Enterprise Bhd
(Dec 15, 77 sen)
Maintain buy at 76 sen with revised target price of RM1.25 (from RM1.30): The Greater KL Plan under the Economic Transformation Programme (ETP) aspires to transform the city into a vibrant economic hub and place it in the Top 20 most livable cities in the world. And TA Enterprise (TAE), which owns seven acres of prime land in KL, is one of the key beneficiaries given the scarcity and rapid rise in prime land prices. TAE's plan to launch projects with potential RM2.6 billion gross development value (GDV) in the KL prime area is intact.

Average daily trading value and volume soared to RM1.5 billion (+36% quarter-on-quarter) and 1 billion (+40%), respectively, in 3Q10, and almost doubled TAE's broking income in 3QFY11. Income from hotel operations grew 84% driven by strong occupancy rates at Swissotel. However, 9MFY11 net profit of RM49 million fell short of our estimate as we were too bullish on its hotel and property divisions. Hence, we cut FY11/13F earnings per share by 26% to 42%. Our forecast for the broking division is intact, and we believe trading momentum is sustainable given the slew of structural changes taking place at Bursa Malaysia that are aimed at improving trading interest and liquidity. Bursa's year-to-date-November 2010 average daily trading value of RM1.4 billion was ahead of our CY10F assumptions of RM1.2 billion.

We reiterate our 'buy' recommendation with our sum-of-parts-based target price reduced to RM1.25. Our TP is based on a SOP value, that is earnings before interest and tax for broking based on FY12F and overall launch pipeline still intact in spite of some deferment. Consolidation in the broking industry could stir interest in TAE. It has a strong retail franchise with 7% market share of trading volume. Its current valuation is attractive at 0.8 times book value. The market is assigning zero value to its cash-generating broking business, plus a 24% discount for TA Global given its implied market cap of RM1.7 billion against TAE's RM1.3 billion. ' HwangDBS Vickers Research Sdn Bhd


This article appeared in The Edge Financial Daily, December 16, 2010.

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KNM - KNM going to Sabah

Stock Name: KNM
Company Name: KNM GROUP BHD
Research House: RHB

KNM Group Bhd
(Dec 15, RM2.68)
Maintain outperform at RM2.33 with revised fair value of RM3.09 (from RM2.33): The company announced on Dec 14 that it is establishing a JV company with Petrosab Logistik (KNM Petrosab Sdn Bhd (KNMP)). Its total initial investment will be RM51,000 for a 51% stake in the company, but we have been guided that the paid-up capital of the company will be increased soon. Petrosab Logistik is a joint venture between Yayasan Sabah and Asian Supply Base Sdn Bhd (a wholly-owned company of Sabah Energy Corporation).

We are positive on the JV given that the tie-up with the Sabah government will improve KNM's success rate for potential contracts in the state. Besides this, a presence in East Malaysia is imperative for oil and gas players, given that most of the deeper water developments are located in the region. We believe the company will move some of its fabrication capacity from the peninsula to Sabah to support the venture.

The company has guided that it has its sights on the Kimanis and Sipitang areas for contracts. While we have not heard of potential contracts from Sipitang, we note that confirmed projects in Kimanis include the Sabah Oil and Gas Terminal (SOGT) and the 300MW power plant that is jointly owned by Yayasan Sabah and Petronas Gas. Another proposed Petronas project in Kimanis is the urea and ammonia plant.

We are upgrading our FY11/12 revenue assumptions by 9.6% and 5.8% respectively as we have increased our capacity utilisation forecasts for FY11/12 to 67.3% and 73.6% respectively (from 60.9% and 68.6% previously). This results in our FY11/12 core earnings per share increasing by 15.1% and 12.5% respectively.

Risks include sustained competition for mid-end process equipment; and slower than expected pick-up in E&P activities and contract flows.

Things look increasingly positive for the company going forward, and the pick-up in contract wins suggests that the company is heading for an earnings turnaround in 2011. As such we maintain our 'outperform' call on the stock with an upgraded target price of RM3.09 per share based FY11 target price-earnings ratio of 15 times (from RM2.33 per share and 13 times target PER previously). Our new target PER is line with the company's historical average one-year forward PER. ' RHB Research Institute Sdn Bhd, Dec 15


This article appeared in The Edge Financial Daily, December 16, 2010.

KLK - KLK sets foot in Europe

Stock Name: KLK
Company Name: KUALA LUMPUR KEPONG BHD
Research House: MIDF

Kuala Lumpur Kepong Bhd
(Dec 15, RM21.36)
Maintain buy at RM20.98 with target price of RM24.02: Yule Catto, in which KLK is a substantial shareholder with 18.82% equity interest, has announced its acquisition of PolymerLatex Group (Europe's third largest latex producer) for about ''376 million (RM1.86 billion). PolymerLatex is owned by TowerBrook, which has built a '60 million plant in Pasir Gudang, Johor, and a new R&D facility near Dusseldorf.

We view the acquisition positively as it will pave way for Yule Catto to further expand into the latex market for the paint, construction, carpeting and adhesive industries. In addition, the acquisition will strengthen its position in Europe and Malaysia in the latex-coated paper market. It will also add value to the nitrile latex market in Malaysia.

The'' acquisition will be financed via a rights issue and bank borrowings. Yule Catto will issue a 4:3 rights issue to raise ''225 million at 116 pence per share, with KLKI to subscribe in full. Upon subscription, KLK will'' acquire an additional 36.55 million new shares that will result in total shares of 63.96 million. It is believed that KLK will use RM209 million of internal funds to purchase the 36.55 million new shares, which we feel will not be a strain given its cash position of RM1.3 billion.

We reiterate our 'buy' recommendation with a target price of RM24.02 based on a price-earnings ratio of 23 times and earnings per share in 2011 of 104.4 sen. ' MIDF Research, Dec 15


This article appeared in The Edge Financial Daily, December 16, 2010.