HLIB Research 29 July 2011 (MAHB; IOI; WCT; Traders Brief; Trading Idea)

MAHB (Hold; TP: RM6.08)

Growth In Line

§  2QFY11 results in line with HLIB and consensus, in view of seasonally strong 2H.

§  Started recognizing airport construction revenue but imputed zero profit.

§  Strong passenger traffic growth of 12.6% yoy (low cost carrier +18.3%) in 2Q11.

§  Another RM30m airlines rebate in 2Q11 (1H11 RM60m) but expected lower amount in 2H11.

§  Turkey associate continued to make losses (only expected to become profitable by 2015) but partly offset by profits from Maldives associate.

§  RM800m already spent on KLIA2, another RM700m and RM1bn more in 2011 and 2012 respectively.

§  Management confident of securing Madinah airport concession.

§  Forecasts unchanged.

§  Maintain Hold and DCF based target price of RM6.08.

 

IOI Corporation (Hold; TP: RM5.41)

Acquiring land in Sabah

§  IOI proposed to acquire 11,977.9ha of oil palm plantation land in Labuk and Sugut, Sabah for RM830m (translating to an average price of RM69,294/ha).

§  It will raise IOI's net debt and net gearing to RM2.6bn and 0.19x from RM1.8bn and 0.15x as at 31 Mar 2011.

§  Based on our estimates, the acquisition would enhance IOI's net profit by RM9m p.a. (or less than 1% of its total net profit).

§  Positive due to close proximity of the acquired estates to existing estates (enhance economies of scale) and IOI's expertise and experience in improving yield.

§  Earnings forecasts, SOP-derived TP (RM5.41), and Hold recommendation maintained for now, pending further update from management.

 

WCT (BUY)

RM115m Vale order

§  WCT has been awarded an earthworks services contract by Vale for its iron ore distribution centre and pelletising plant in Teluk Rubiah, Manjung, for RM115m. The contract is expected to be completed by April'13.

§  This order marks WCT's first major contract win for the year, bringing its outstanding order book to ~RM2.9bn, translating to 1.9x FY10's revenue and 1.2x market cap.

§  Maintain BUY with TP of RM3.85 on positive outlook for the sector as we expect more orders to materialise under the ETP and is the cheaper large cap construction stock compared to IJM and Gamuda.

 

FBM KLCI - Volatility to continue

§  The hammer formation yesterday could be a positive reversal signal as it appears that the index is trying to form a base near 100-d SMA. If prices can hold on above this level for the next few days, there is a good chance that it may charge towards upside resistance at 50-d (1562) and 30-d (1571) SMAs.

§  However, if the 100-d SMA is broken, selling pressures will intensify and index will head towards 1536 (50% FR) and 1529 (200-d SMA) zones.

 

Stock to watch - Genting Singapore:

Further technical rebound with recent strong breakout and bullish indicators

§  The bulls are gaining momentum following its recent strong breakout above the short term downtrend line (from May). Immediate upside targets are S$2.05-2.30 whilst supports fall on S$1.80-1.90. Trading Buy but stop loss below S$1.80

 

RHBInvest Research Highlights 29th July 2011

29^th July 2011

 

Top Story: Building Materials – Steel: Bracing for continued weakness in 2H11                Underweight

Sector Update

¨       The steel sector has underperformed the broader market YTD. An uptrend in steel prices since the beginning of the year has not filtered down to improve margins due to rising feedstock prices.

¨       Most steel companies are likely report lower net profit or continued losses in 2Q11, as rising raw material costs should start eating into 2Q11 P&L, amid relatively stagnant steel prices qoq.

 

Corporate Highlights

 

SP Setia: Eyeing E&O                                                                                                                    Market Perform

News Update

¨       Business Times reported that shareholders of SP Setia had made overtures in recent months with certain shareholders of E&O, who may have included Temasek Holdings director Goh Yew Lin.

¨       While this rumours is unconfirmed, if the deal materialises, the rationale can be easily explained. SP Setia only left with 60 acres of land in Penang island.

 

IOI Corp: Buys 11,978ha of land in Sabah for RM830m                                                             Underperform

News Update

¨       IOIC's subsidiary has announced an acquisition of 11,978ha of land in Labuk and Sugut, Sabah from Dutaland's subsidiary for RM830m (or RM69,294/ha). The total planted area of the land is about 10,449 ha of which approximately 85% of the estate is at its prime with oil palm trees ranging between three years to fifteen years. The purchase consideration will be funded by its existing cash reserves and/or borrowings and the acquisition is due to be completed by 4QCY2011.

 

WCT: Bags RM115.1m Vale earthwork project in Perak                                                            Underperform

News Update

¨       WCT has been awarded by Vale Malaysia a RM115.1m contract for earthwork for Phase 1A (Stage 1) of Vale Malaysia 's iron ore hub in Teluk Rubiah, Perak.

 

Malaysia Airports: In line with expectations; KLIA-2 on track for completion                          Outperform

2QFY11 Results / Briefing Note

¨       1HFY12/11 net profit came in at 41.9% of our full-year forecast. We consider the results broadly in line with expectations given the expected pent up demand for air travelling in the 2H on the back of holiday season.

¨       According to MAHB, the construction of KLIA2 is around 45% completed on track to be completed by 2013.

 

SEGi: No Surprises                                                                                                                         Outperform

2QFY11 Results

2Q11 net profit of RM18.1m (+67.9% yoy, 0.1% qoq) came within expectations, with 1HFY11 net profit of RM36.3m (78.5% yoy) reaching 50% of our and 48% of consensus estimates. SEGi's revenue of RM69.2m (+31.7% yoy, +1.1 qoq) also came within ours and consensus estimates.

 

HLIB Research 28 July 2011 (KSL; Traders Brief)

KSL (BUY çè)

Warrants to start trading on Friday

§ Recall that on 21 Mar 2011, KSL announced a renounceable rights issue of up to 97.6m new warrants on a 1 for 4 basis

§  The rights for the KSL warrants will begin trading from July 29th until Aug 5th, and the warrants will be listed on Aug 26th.

§  We estimate the fair value of the warrants to be RM0.56, and we believe that any trading price below RM0.36 for the rights will be a good opportunity for investors to buy the rights.

§  While we estimate as much as 17% dilution to EPS upon full conversion of the warrants, this does not affect our positive earnings outlook for KSL, especially given that their flagship project in Klang remains on-track. 

§  No change to our target price of RM2.16 (based on 30% discount to FD RNAV) or our earnings forecasts.     

 

FBM KLCI - Wild swings ahead

§  In the wake of overnight Dow's plunge and the violation of 10-d (1565), 30-d (1571) and 50-d (1562) SMAs, there is greater pressure now that KLCI may retest last week's low of 1552 pts, and exert more selling force towards 1543 pts and 1536 (50% FR from 1474-1597) pts. Upside resistance levels are the 1565-1575 levels.

 

Dow Jones: - Crucial uptrend line support near 12100 pts

§  The Dow already lost 3.3% or 422 pts in four consecutive sessions, as investors were grappled with a tug of war between the headline risk of the debt ceiling issue and better-than-expected 2Q11 earnings.

§  As technical indicators are trending lower, we could witness more selldown towards 12100 pts, a major uptrend line support since Jul 2011. Further support is 11966 (200-d SMA).

 

RHBInvest Research Highlights 27th July 2011

Top Story: Masterskill – Affected by changes in Government policies                       Outperform

Visit Note

¨       Masterskill's management informed us that it has recently incorporated a company in Labuan to capture the income from its international operations, signalling Masterskill's commitment in taking its brand of education into the international market. Management updated us on the progress of its various campuses, as well as giving us an insight into its future diversification plans such as the introduction of new non-health science courses (i.e. business and hospitality) and the possibility of building a private school on the grounds of its Bandar Baru Bangi campus.

 

Corporate Highlights

 

Axis REIT: Asset acquisitions in 4Q                                                                                 Market Perform

Briefing Note

¨       The additional 20% placement of new units was approved by unitholders yesterday. As usual, upcoming asset acquisitions will be funded via placement as well as borrowings so that overall gearing will be reduced to below 35%.

¨       In the pipeline, there is one potential asset from the promoter – Axis Techpoint 1 PJ (office warehouse), as well as five logistic warehouses from third parties that can be injected. These assets are worth about RM260m in total, of which RM170m can be satisfied from the upcoming placement proceeds. The REIT will also take on borrowings that will be sufficient to make up the shortfall.

 

DKSH Holdings: Globally recognized                                                                              Not Rated

Visit Note

¨       Diethlem Keller SiberHegner (DKSH) Holdings is a Market Expansion Services company providing integrated services to support companies looking to expand in new and existing markets.

¨       We believe the positive outlook for Malaysia 's trade activity bodes well for DKSH, underpinned by: 1) resilient growth in imports; 2) stronger real growth of imports vs. export growth which suggests stronger purchasing power as the country focuses on the domestic economy; and 3) rising private consumption.

 

HLIB Research 26 July 2011 (Steel; Public Bank; Sime Darby; Traders Brief)

Steel (Neutral)

More corporate exercises n the pipeline?

§  We believe that several factors will also keep news flows within the Malaysian steel sector alive over the near term, in particular, M&As and upstream expansion plans.

§  In view of the potential corporate exercises ahead, we have shortlisted four companies that could potentially engage in the two corporate exercises mentioned above, which are: (1) Ann Joo Resources; (2) Hiap Teck Ventures; (3) Lion Group of companies; and (4) Perwaja Holdings Bhd.

§  M&A and upstream expansion aside, we also believe that CSC Steel is a potential privatization target by its parent China Steel (which owns 45% of CSC Steel), as it carries many characteristics of a privatization candidate.

§  Although corporate exercises could excite investors, fundamentally, we are maintaining n our Neutral stance on the steel sector, given the sector's unexciting near-term earnings outlook.

 

Public Bank (HOLD çè)

No Surprises "Again!!!"

§  2QFY11 results in line with HLIB and consensus.

§  Declare single-tier interim dividend of 20 sen.

§  1HFY11 20% earnings growth given that all line items heading toward right directions.

§  Loans growth on track to meet management's target of 14-15%.  New HP act has no significant impact.

§  However, guiding for lower NIM as liabilities re-pricing catch up and competitive pressure.  FY11 looking at 10-15bps reduction yoy.

§  Asset quality continues to improve.

§  Suspect minimum common equity ratio could be 10-10.5%.  Unless it is accelerated and much higher than expected, there is no need for cash call.

§  Maintain Hold and target price of RM14.22 (Gordon growth with ROE of 24.4% and WACC of 9.3%).

 

Sime Darby (BUY)

Reaches yard settlement agreement

§  Sime Darby Marine Puteri Offshore I (SDMPO I, a 50%-JV company of Sime Darby) entered into the yard settlement agreement and release agreement with Tetra Applied Technologies for the refund of US$21.6m in return for SDMPO I releasing its claims, rights and interests over the derrick lay barge (DLB, which was supposed to be used in the Maersk Oil Qatar Project).

§  All in, SDMPO I will receive up to US$14.7m (RM44.2m) of the total refund of US21.6m, representing a 28% recovery from the provision of RM155m.

§  Positive albeit non-recurring, as the RM22.1m writeback will lift Sime Darby's FY12 earnings by 0.6% to RM3,631m.

§  Maintain SOP-based TP of RM10.99 and BUY recommendation on the stock.

 

FBM KLCI - Held hostage by U.S. debt deal 

§  As technical indicators are weakening amid a breakdown of 1561 pts (50-d SMA), there is greater pressure that KLCI may retest last week's low of 1552 pts. A breach below 1552 pts will exert more selling force towards 1543 pts (100-d SMA) and 1536 (50% FR from 1474-1597) pts.  Upside resistance levels are 1570 (30-d SMA), 1576 (mid Bollinger band) and record high 1597 pts.

 

Dow Jones

§  On Wall St, if a debt limit deal can be ironed out before 2 Aug, the Dow is expected to consolidate near 12340 pts, before retesting the downtrend line resistance near 12720 pts and 12843 (upper Bollinger band). On the other hand, failure to reach a deal by 2 Aug will trigger a downward correction towards   uptrend line support near 12000 and 3M low of 11822 (16 June) levels.

 

RHBInvest Research Highlights 26th July 2011

26^th July 2011

 

Top Story: MRCB – A little patience for RRI land                                                           Trading Buy

Visit Note

¨       MRCB expects Kwasa Land Sdn Bhd to make some decisions with regards to the RRI land re-development project by the end of the year, with physical works only expected to commence in 2012.

¨       The flow of new construction jobs should improve in 2H2011 and into 2012, underpinned by potential jobs from the LRT line extension project, Penang Sentral and the River of Life project.

 

Corporate Highlights

 

TH Plantation: Planting for posterity                                                                                 Outperform

Briefing Note

¨       An interesting point to note from the briefing is that THP achieved an admirable FFB yield at its newly-matured Sarawak estates. Where most other oil palm plantations only achieve an FFB yield of 8-9t/ha in its first full year of maturity, THP managed an FFB yield of 7.6t/ha in just half a year in one of its Sarawak estates. Annualised, this estate could yield about 16t/ha, double that of other oil palm estates in its first year of maturity. This is in line with management's own targets of achieving an FFB yield of at least 15t/ha for its plantations in the first year of maturity.

 

Sime Darby: RM43.4m writeback for marine project                                                      Outperform

News Update

¨       Sime Darby's subsidiary has, on 20 Jul, entered into a yard settlement agreement and release agreement with its JV partners for the refund of a cash amount of US$21.63m (RM63.6m) in return for the release of its claims, rights and interests over the Marine Project (involving the construction of two tug boats and a derrick lay barge for the Maersk Oil Qatar (MOQ) project). Of this amount, US$16.63m (RM48.9m) has been received, with the balance US$5m (RM14.7m) payable on 17 Nov, if there are no further claims made. Based on Sime's announcement, of the refund total of US$21.6m, it will receive up to US$14.75m (RM43.4m), based on its stake.

 

SP Setia: Full equity interest in KL EcoCity                                                                      Market Perform

News Update

¨       SP Setia announced that its proposed acquisition of the remaining 40% equity interest in KL Eco City S/B (KLEC) from Yayasan Gerakbakti Kebangsaan (YGK) for a total consideration of RM75m is to be satisfied through the issue of 19.38m new SP Setia shares at RM3.87 per share. KLEC was previously the JV company for the RM6bn KL EcoCity project.

 

KNM: HOA with GAP for petrochemical facility in Teluk Ramunia                                 Underperform

News Update

¨       KNM announced yesterday that it, together with Zecon has entered into a Heads Of Agreement (HOA) with Gulf Asian Petroleum to undertake EPCC contracts for projects worth around USD5.7bn (RM17bn) in Teluk Ramunia, Johor. The two projects involve a petroleum refinery, a polypropylene unit and petroleum product storage terminal facility with capacity of 2.3m cubic meters).

 

Fwd: HLIB Research 25 July 2011 (DRB Hicom; Traders Brief)

DRB-Hicom (BUY, TP: RM2.97)

The Next Big, Shining Jewels

§  Existing rare cash jewels: combinations of strong cash cow contributing to stable earnings.

§  Extra jewels harvesting: with multiple sources of new earnings growth from VW contract, Deftech contract, Pos Malaysia acquisition, implementation of regulations amendments and accelerating property developments.

§  Pos Malaysia to add synergistic benefits to DRH-Hicom's existing units. Potential Amendments to Postal Bill Act will allow Pos Malaysia to carry out non-postal related services.

§  Fits into our overall house strategy on consumption play.

§  3-year EPS CAGR of 21.3% pa with potential upside from realizing the synergistic benefits from Pos Malaysia.

§  Initiate BUY on DRB-Hicom with TP of RM2.97 based on SOP and forecasted net dividend yield of 2.0% for FYE3/12.

 

FBM KLCI - All eyes on U.S. debt deal 

§  Negotiations (on US debt ceiling) are continuing with the world watching. 

§  Unless KLCI is able to maintain above last week's low of 1552.7 pts, there's a risk of further downside towards 1542 pts (100-d SMA) and 1536 (50% FR from 1474-1597) pts. Upside resistance levels are 1570 (30-d SMA), 1576 (mid Bollinger band) and all time high of 1597 pts.

Stock to watch - TENAGA: Potential technical rebound 

§  There could be more selling pressures on Tenaga amid declining weekly RSI towards stronger support zones around RM6.00-6.13. However, given technical oversold in the hourly and daily charts, the stock may stage a technical rebound.

§  Technical rebound targets are RM6.42 (lower Bollinger band), RM6.50 (200-d SMA) and RM6.65 (50-d SMA). Stop loss below RM6.00.

HLIB Research 22 July 2011 (Tenaga; AirAsia; Traders Brief)

Tenaga (Hold ê)

Heavy Reliance on Oil and Distillate

§  Below expectation – Reported 3Q11 core loss of RM447.1m, bringing down 9M11 earnings to RM813.3m (35.1% of HLIB and 34.0% of consensus forecast) due to lower than expected power demand and higher than expected fuel cost.

§  3Q11 gas supply dropped to ~900mmscfd, coal-fired plants have been fully utilized, resulting heavy reliance on oil and distillate power generation (6x more expensive vs gas).

§  Tenaga has submitted proposal to share the higher fuel cost during gas curtailment period between TNB, Petronas and IPPs (similar to 2002-2003).

§  Negotiating with Petronas for additional 200mmscfd gas supply from Malacca re-gasification facility. Tenaga will implement cost pass through mechanism, should the gas supply is priced on par with market price.

§  Downgrade to Hold with TP at RM7.10.

 

AirAsia (Buy çè)

AirAsia's Japanese Newborn

§  AirAsia setup new Japan JV, namely AirAsia Japan (AAJ) with 49% effective stakes (33% voting shares + 16% non-voting shares) while the remaining 51% will be held by All Nippon Japan Airways (ANA).

§  The initial start-up capital is JP¥1bn (RM38m) while the authorized capital is JP¥5bn (RM190m). The funding will be generated through AirAsia's internal funds.

§  Based in Terminal 2 of Narita Airport, AAJ is expected to commence operation with 3-4 Airbus A320s by August 2012.

§  Positive on AAJ to broaden AirAsia existing network and positioning AirAsia as Asia's largest LCC operator.

§  Initially, AAJ will leverage on AirAsia's existing low cost expertise and strong brand name as well as ANA's existing infrastructure and routes connectivity. (AirAsia X flies only into Haneda Airport).

§  We expect AAJ to enjoy strong passenger demand due to current low LCC penetration rate in Japan.

§  Maintain BUY at RM4.24.

 

FBM KLCI - Upside bias amid positive external backdrops 

§  With the positive developments in tackling the ongoing Europe debt crisis, cautious optimism of approving the debt ceiling limit and encouraging ongoing U.S. reporting season, sentiment is likely to improve in the near term. Immediate resistance levels are 1570 (30-d SMA) and 1576 (mid Bollinger band). A breakout above 1576 will spur index to re-challenge the all time high of 1597 pts. Support levels are 1560 (50-d SMA) and 1555 (lower Bollinger band).

 

Stock to watch – Genting: Potential technical rebound from oversold position

§  Selling pressures seem moderating for the last two days amid oversold technical indicators. Crucial support is near RM10.40 (lower downtrend channel). A breakdown below RM10.40 is likely to trigger more selldown towards RM10.34 (23.6% FR). Technical rebound targets are RM11.00 (mid Bollinger band) and RM11.20 (downtrend line resistance) levels.

§  Trading Buy with a stop loss target below RM10.34.