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.
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