Sunway falls 1.6%, AmResearch cuts earnings, TP

KUALA LUMPUR (April 23) : Sunway Bhd shares fell 1.6% after analysts slashed their earnings forecast and fair value for the stock in anticipation of weaker property sales.

The stock fell four sen to RM2.48 as at 12.24pm after AmResearch Sdn Bhd reduced its new property sales forecast for Sunway by between 20% and 25% for financial years ending December 31, 2012 and 2013, hence, a 4% to 5% slash in core net profit estimates during the period.

“Property sales target is a challenge.” analyst Nik Ikhwan Nik Mahmood wrote in a note.

The research house has, therefore, reduced its fair value for Sunway by 5% to RM2.70 from RM2.85 with a “hold” call.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Stocks to Watch Bursa, China Stationery, UMW, CMMT, Naim

KUALA LUMPUR (April 19): Economic and political factors, besides weakening technical indicators, could dictate the direction of Malaysian stocks on Friday, as investors evaluate the impact of global economic data against domestic pre-election sentiment.

Analysts said the on-going European debt crisis and slower growth in China, apart from the anticipation of Malaysia's coming general election, could lead to persistent selling pressure in the FBM KLCI.

The FBM KLCI of 30 stocks erased earlier gains to finish in the red at 1,596.62, down 2.24 points on Thursday.

Stocks to watch on Friday are BURSA MALAYSIA BHD [], China Stationery Ltd, UMW HOLDINGS BHD [], Capitamalls Malaysia Trust (CMMT) and Naim Holdings Bhd.

Bursa posted flat profit growth in the first quarter (1Q), as the stock exchange operator's lower operating expenses mitigated the impact of less revenue during the period. Bursa said its net profit rose 0.7% to RM40.77 million in the quarter ended March 31, 2012 from RM40.49 million a year earlier, while revenue fell 4.8% to RM110.52 million from RM116.11 million.

Regulators have queried China Stationery on the unusual trading patterns of the company's shares. The company said it was not aware of any factors contributing to the rise in the price and volume of the stock. China Stationery also said it had no plans to declare an interim dividend nor undertake a dual listing in Hong Kong.

AmResearch Sdn Bhd had raised its earnings forecast for UMW, an automotive and oil and gas support services entity, by up to 25% for financial years ending Dec 31, 2012 to 2014. AmResearch also revised upwards its target price for the stock by 31% to RM8.90 from RM6.80, and upgraded the shares to a "buy" from "hold".

CMMT's 1Q net profit rose 10% from a year earlier, as the retail-based Real Estate Investment Trust (REIT) registered higher revenue, following the inclusion of the East Coast Mall in Kuantan to the group's portfolio. CMMT said net profit came to RM34.44 million against RM31.44 million previously, while revenue was up 36% to RM71.4 million from RM52.68 million.

Real estate developer and builder Naim is diversifying into the healthcare business via a collaboration with KPJ HEALTHCARE BHD []. Both Naim and KPJ will set up a joint venture company on 30% and 70% basis respectively to construct and operate a hospital in Miri, Sarawak.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

AmResearch upgrades UMW to Buy, raises fair value to RM8.90

KUALA LUMPUR (APRIL 19): AmResearch Sdn Bhd has upgraded UMW HOLDINGS BHD [] to a Buy from hold previously, and raised its fair value to RM8.90 (from RM6.80).

In a note April 19, the research house said its sum-of-parts- derived valuation implied 12 times FY12F earnings (vs. 10x previously) to reflect an earnings re-acceleration which could test record highs from this year onwards.

“We raise earnings by 20%-25% over FY12F-14F to factor in:- (1) Higher auto sales; (2) Higher O&G earnings; and (3) Improved margins at the equipment division.

“After a kitchen sinking year in FY11, we believe earnings have reached an inflection point. Consensus earnings have been downgraded 7%-23% over the past 12 months, and we believe the earnings revision cycle has bottomed,” it said.

AmResearch said its forecasts were now 11% above street estimates and consensus earnings upgrades are a key re-rating catalyst.

It said a fresh mass model line-up, i.e. Avanza, IMV models and the high margin CKD Camry in June, coupled with stronger margins via a stronger Ringgit and improved plant economies of scale will drive a re-acceleration of UMW’s auto earnings (FY12F: +20%).

“We project a Toyota+Lexus TIV of 92,953 units (+5% YoY). Toyota sales are trending against industry (+7% YTD vs. Industry’s -13%).

“March growth momentum is likely to gain traction given:- (1) Recovery from supply crisis; (2) Huge order backlog of 4-6 months’ waiting list; and (3) A more than doubling of Camry annual sales. From a valuation stand-point,

The research house said UMW was a blue-chip laggard, having underperformed the market run-up over the past 6 months.

At 10.5 times FY12F earnings, UMW is trading at a 25% discount to the historical average of 14 times, it said.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

TSH up on firmer CPO prices, higher earnings ahead

KUALA LUMPUR (March 13): Shares of TSH RESOURCES BHD [] rose on Tuesday, riding on the upward trend in the crude palm oil futures prices despite the weakening broader market.

At 3.57pm, TSH was up 13 sen to RM2.32. There were 1.44 million shares done.

The FBM KLCI was just 0.04 of a point higher at 1,564.79. Turnover was 899.56 million shares valued at RM1.032 billion. Losers beat gainers 467 to 231 while 339 counters were unchanged.

Meanwhile, CPO futures for May delivery rose RM44 to RM3,360 per tonne.

Analysts were maintain a buy on TSH with a higher fair value of RM2.60 a shares compared with RM2.10 a share previously based on a FY12F price-to-earnings of 15 times. TSH’s historical seven-year PE band ranged from a low of 4.0 times to a high of 28 times.

“TSH’s FY11 results were in line with our expectations and consensus estimates. Our FY12F earnings estimates for TSH are relatively unchanged.

“Going forward, we have forecast that TSH’s net profit would climb 20% in FY12F, underpinned by a 26% increase in fresh fruit bunches production,” said Amresearch.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Stocks to watch: Padini, Silver Bird, Pelikan, WinSun

KUALA LUMPUR (March 8): Malaysian stocks could be in for further profit taking on Thursday as the European debt crisis continues to take centre stage in global financial markets .

Key regional markets fell on Wednesday as investors were kept vigilant on the status of Greece’s debt relief scheme. The FBM KLCI fell 0.95% or 15.08 points to finish at 1574.83 points, the biggest one-day decline this year. However, year-to-date, it is up 3%. FBM KLCI futures closed seven points down to 1575.5.

Private holders of Greek government bonds have until Thursday night to voluntarily swap their bonds for new ones. The bond swap is vital to help Greece to obtain bailout funds, without which the country may default on its debt obligations this month. A default could have a negative impact on global financial markets.

Weakness across major importing countries in Europe, and China has already been reflected in Malaysia’s latest trade numbers.

Malaysia’s January exports grew at slower year-on-year pace of 0.4 % as shipments of electrical and electronic and commodity-based products to China and Europe declined. This compares to December 2011’s export growth of 6.1%.

Stocks on watch on Thursday are PADINI HOLDINGS BHD [], SILVER BIRD GROUP BHD [], Pelikan International Corporation Bhd and WINSUN TECHNOLOGIES BHD []. Other stocks which could see trading interest are SYARIKAT TAKAFUL MALAYSIA BHD [] and Brahim’s Holdings Bhd.

AmResearch Sdn Bhd initiated coverage on Padini, an apparel maker with a Buy call and target price of RM1.80. Padini shares closed unchanged at RM1.48 on Wednesday. The stock had earlier traded to a fresh intraday high of RM1.49.

The research house said Padini’s market capitalisation, which is approaching RM1billion, will improve the stock’s visibility among institutional funds. Despite its strong share price performance, Padini’s valuation is undemanding in anticipation of the firm’s earnings growth, according to the research firm.

Bread manufacturer Silver Bird was the third most actively traded stock on Wednesday on speculation that Fraser & Neave Holdings Bhd chief executive officer Datuk Tan Ang Meng may be roped in to lead Silver Bird.

This follows news of alleged financial irregularities at the bread manufacturer. However,Tan has denied the speculation. Silver Bird shares rose 4.5 sen to finish at 23 sen.

Pelikan plans to reward its shareholders with one treasury share for evey 50 existing shares held for FY ended Dec 31, 2011. The board also recommended a final cash dividend of one sen per share single tier dividend.

Industrial automation systems entity Winsun Technologies Bhd secured a letter of intent from Ningbo Shanghao which has indicated its intention to buy from Winsun 60,000 tonnes of iron ore a month for a duration of two (2) years. Winsun shares closed 0.5 sen higher at 17 sen.

Brahim’s whose shares closed 8% higher at RM1.23, announced that it had fixed the issue price for its 17.9 million new placement shares at RM1.10. This translates into gross proceeds of close to RM20 million should all the new securities placed out.

Syarikat Takaful Malaysia Bhd could also draw interest after its managing director Datuk Hassan Kamil indicated the Islamic insurer’s plans to further grow earnings in key market Indonesia for the long term. The stock rose seven sen or 3.3% to close at RM2.18.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

AmResearch reaffirms Buy on DRB-Hicom, unch FV RM4

KUALA LUMPUR (March 5): AmResearch has reaffirmed its Buy rating on DRB-Hicom with its fair value unchanged at RM4 a share, pegging a 10% discount to its sum-of-parts value of RM4.40 a share.

The research house said on Monday it was reported in the press today that DRB-Hicom is evaluating plans by Mitsubishi, Volkswagen and General Motors (GM) to revive Proton.

It said that GM has proposed to gain control of half of Proton’s production lines at the latter’s plant in Tanjung Malim. This is not something new as it was already speculated in the market earlier that GM plans to buy a 50% stake in the plant.

“This proposal makes sense given the much-publicised under-utilised Tanjung Malim plant – running at barely 50% utilisation. A valuation of RM800 million for the plant stake has been bandied about but the key point here is that Proton would be able to achieve economies of scale,” it said.

AmResearch said it continues to like DRB-Hicom, given it is one of the cheapest conglomerates – trading at CY12 of 13 times versus its peers of 18 times.

“The group is on an exciting growth path, as it is the best proxy to VW’s ambition to be a key ASEAN auto player. DRB would also benefit in the transformation of Pos Malaysia – recently showing strong a set of results – and the next leg up would be to reap the synergies with its sister company, Bank Muamalat,” it said.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

AmResearch maintains Buy on Sime Darby

KUALA LUMPUR (March 1): AmResearch is maintaining its Buy rating on Sime Darby, but its fair value of RM10.60 a share has been placed under review with an upside bias pending a management meeting.

It said on Thursday that Sime reported a 2QFY12 net profit of RM1.1 billion, which brings its 1HFY12 earnings to RM2.2 billion or an impressive 42% growth on-year.

“This came in within our, and street, expectations, covering 53% and 55% of full-year estimates, respectively. It declared an interim dividend of 10 sen a share (versus 8 sen a share for 1HFY11),” it said.

AmResearch said the PLANTATION [] division saw its EBIT growing by a massive 38% on-year, driven by a stronger average CPO price of RM2,872 a tonne versus RM2,692 a tonne in 2QFY11.

The research house said the solid FFB production growth of 4.6% was driven by healthy growth (+9.5% on-year) in Malaysia although production in Indonesia slid by 4%.

It added that the oil extraction rate was slightly higher at 21.9% against 21.4% due to new mills in operation and some upgrades.

“We continue to like Sime as the company is the most liquid proxy to the plantation sector, which accounts for 61% of its FY11’s EBIT. Valuations are also attractive, currently trading at CY12F PE of 15 times which is below its three-year average of 17 times,” it said.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

AmResearch maintains Buy on Ann Joo Resources, lower FV of RM2.73

KUALA LUMPUR (Feb 20): AmResearch is maintaining its Buy on Ann Joo Resources with a slightly lower fair value of RM2.73 a share (previously: RM2.79) to factor in a more muted 4QFY11 and initial start-up cost for its new blast furnace project.

It said on Monday that notwithstanding, it projects FY12F to be a turnaround year for Ann Joo on account of:

(i) Stronger domestic demand with the imminent roll-out of domestic projects, particularly the Sg.Buloh-Kajang (SBK) MRT;

(ii) Earnings are at an inflection point (4.7 times jump in FY12F net profit to RM139 million);

(iii) Normalisation of key input costs (e.g. iron ore, scrap, coking coal); and

(iv) Full-year impact from its blast furnace operations.

“After a recent re-rating of CONSTRUCTION [] stocks, we recommend investors to catch the next MRT ‘wave’ through domestic steel plays,” it said.

AmResearch said with capex front-loaded, Ann Joo is one of only five integrated local suppliers of construction steel that can ride on the imminent roll-out of MRT works, irrespective of the contractors involved – maiden orders may kick in from June onwards.

"Ann Joo’s earnings are at its inflection point, rising from RM30 million in FY11F to RM139 million and RM179 million in FY12F-13F amid attractive forward PEs of 7.0 times and 9.0 times, below its six-year average historical price-to-earnings of 11 times," said the research house.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Funding scenarios for West Coast Expressway

IJM Corp Bhd (Feb 14, RM5.95)
Maintain buy with unchanged sum-of-parts-derived fair value of RM7.23 per share: In this report, we examine three possible funding scenarios for the West Coast Expressway (WCE).

A key focus of the WCE is on its funding requirements after IJM’s 23%-owned associate Kumpulan Europlus (KEuro) received approval-in-principle to privatise the highway via the latter’s 64%-owned unit West Coast Expressway Sdn Bhd just last month.

Assuming a debt/equity ratio of 70:30, we estimate that the equity portion for the WCE may reach RM2 billion.

Its equity needs may appear huge compared to KEuro’s market capitalisation of only about RM669 million.

Furthermore, KEuro remains relatively highly leveraged with a net gearing ratio of around 1.1 times as at Oct 31 last year compared with 3.4 times a year ago.

By extension, this has given rise to market postulation of the potential involvement of other parties to help bridge the funding gap of WCE, including IJM.



Three possible financing scenarios are: (i) IJM increases its current stake of 23% in KEuro; (ii) IJM owns a direct stake in the highway itself; and (iii) the entry of select cornerstone investors in the project, including government-related entities.

In our view, scenario one is unlikely to materialise as such a move would likely trigger a general offer on KEuro and may undermine IJM’s balance sheet if the former’s debts are subsequently consolidated at IJM group level.

We believe option two and/or three could emerge as realistic choices. Under the first, IJM would help lend credence to the WCE and further solidify its bid for up to RM7 billion worth of associated construction works without the need to consolidate KEuro into its books.

The presence of strategic government-backed investors under scenario three would help plug the funding gap, possibly through the balance 36% share of WCE Sdn Bhd, where the identity of the stakeholder remains unknown at this juncture.

We expect the formalisation of a concession agreement for the WCE in a matter of weeks to boost IJM’s rising order book prospects, where the highway could present over RM4 billion of job opportunities to underpin the group’s RM8 billion to RM9 billion new contract target in 2012.

We also like IJM for its diversified earnings base. IJM Plantations (28% of FY12F group earnings) is on track to double its Indonesian plantation landbank to 40,000ha in three years. — AmResearch, Feb 14


This article appeared in The Edge Financial Daily, February 15, 2012.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Sarawak gas finds to spur new investments

Oil and gas sector
Maintain overweight: Petroliam Nasional Bhd (Petronas) has made two new big gas discoveries offshore Sarawak with estimated recoverable reserves of almost four trillion standard cubic feet (TSCF), an estimated 4% of Malaysia’s current natural gas reserves of 14.8 billion barrels of oil equivalent. The gas finds were at the Kasawari and NC8SW fields in Block SK316 off Sarawak, through exploration wells Kasawari-1 and NC8SW-1. These are the latest wells drilled in Block SK316 which are part of Petronas’ strategy to intensify domestic exploration and prolong its reserves.

The Kasawari-1 well was drilled last November and gas was found in the carbonate reservoirs. The well, drilled to a depth of 3,196m, penetrated about 1,000m of gas column — the longest drilled section of gas column in the country. The well test produced 29 million standard cu ft per day of gas. Preliminary assessments conducted early this month indicate that the gas-in-place for the Kasawari field is over five TSCF, with an estimated recoverable hydrocarbon resource of just over three TSCF — which is one of the largest non-associated gas fields in Malaysia. The NC8SW-1 well, located about 17km south of Kasawari, was drilled last September to a total depth of 3,853m. Gas was found in a 440m column in similar carbonate reservoirs, which are estimated to have recoverable reserves of over 450 billion standard cu ft. Petronas said the NC8SW-1 well discovered potential oil play which requires further evaluation to determine its commercial viability.

While these new gas finds would need another three to five years of analysis and interpretation of seismic data before progressing to the initial development phase, they continue to fuel excitement for oil and gas investments in Sarawak, a major gas producer and exporter with the country’s only liquefied natural gas plant in Bintulu.

Over the next 12 months, we expect Shell’s massive enhanced oil recovery projects in the Baram Delta off Sarawak to gain prominence. These projects involve the Bokor, Bakau, Baram, Baronia, Betty, Fairley Baram, Siwa, Tukau and West Lutong oilfields.

But over the next six months, we expect fresh news from Petronas’ RM15 billion fast-tracked programme to develop gas reserves from a cluster of fields in the North Malay basin, off Peninsular Malaysia. This project is expected to commence production towards the end of 2013. Initial beneficiaries of the North Malay basin development will be fabricators such as Malaysian Marine and Heavy Engineering Holdings Bhd (MMHE), Kencana Petroleum Bhd, SapuraCrest Petroliam Bhd and Dialog Group Bhd. UMW’s oil and gas division, which provides oil country tubular goods and pipelines and rig services, and Wah Seong Corp Bhd for gas compression modules and pipe-coating services, could likewise benefit.

We remain excited about the sector given Petronas’ massive capital expenditure programme of RM300 billion over the next five years involving enhanced oil recovery, marginal fields and cluster/deepwater developments towards maintaining its oil and gas production. We remain “overweight” on the sector and retain our “buy” calls on MMHE, Bumi Armada Bhd, Dialog, SapuraCrest, Kencana Petroleum and Petronas Gas Bhd. — AmResearch, Feb 14


This article appeared in The Edge Financial Daily, February 15, 2012.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

AmResearch maintains Buy on Dialog Group at RM2.85

KUALA LUMPUR (Feb 15): AmResearch is maintaining its Buy call on Dialog Group with an unchanged sum-of-parts derived fair value of RM2.85 a share.

It said on Wednesday its fair value implied a CY12F PE of 30 times, above its three-year average of 25 times but below its peak of 40 times in 2007.

“Dialog’s 1HFY12 net profit of RM86 million (+25% on-year) came in within expectations, accounting for 42% of our and street’s estimates.

“For comparison, 1HFY11 accounted for a slightly higher 45% of FY11 net profit. We expect a stronger 2HFY12 contribution from Dialog’s engineering and procurement division as the land reclamation for the Pengerang Phase 1 tank terminal is scheduled for completion by June this year,” it said.

AmResearch said additionally, the pace of earnings recognition for its tank terminal operations is expected to accelerate as the 76,000 cu metre-Tanjung Langsat Terminal 1 phase 3 was completed in August 2011 while 171,000 cu metre-Langsat Terminal 2 was completed in December last year.

“We remain positive about the group’s expanding recurring earnings profile. The stock currently trades at an attractive CY12F PE of 26 times, below its 2007 peak of 40 times,” said the research house.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Hock Seng Lee awarded RM82m construction contract

KUALA LUMPUR: Hock Seng Lee Bhd (HSL) has been awarded a RM82.22 million road construction contract in Sarawak by the Public Works Department. The stock reached an eight-month high of RM1.72 following the award for the construction of the road linking Balingian to Jalan Persekutuan.

HSL signed the contract with PN Construction Sdn Bhd, a wholly-owned subsidiary of Nam Fatt Corp Bhd, with work for the subcontracted sum including earthworks, drainage and culverts, roads and bridges.

Construction is due to be completed in the first quarter of 2014. This new project complements an earlier contract the group was awarded for a 600MW coal-fired power plant in Balingian, which is expected to start construction this year.

In a report yesterday, Joshua Ng of RHB Research was positive on the latest development. Ng said that with an assumption of earnings before interest and tax (Ebit) margin of between 12% and 15%, the contract should fetch RM9.9 million to RM12.3 million over the construction period ending 1Q14.

Analysts expect investors to remain interested in HSL, even as interest wanes on the sector leading up to the general election. According to the RHB report, the share prices of construction stocks are expected to be muted for at least the next six months, or longer, as the market prices in a higher risk premium ahead of the general election that must be held by March 2013.

Analysts in general are bullish on HSL based on potential projects under the Sarawak Corridor of Renewable Energy (Score).

RHB, which has an “outperform” call on the company, highlighted the group’s outstanding construction order book of RM1.1 billion coupled with its strong balance sheet with a net cash of RM142.1 million or 24.4 sen per share as an added downside protection to its share price.

Analysts covering the stock have priced RM600 million in job wins this year against RM570 million in 2011 in their earnings forecasts, but with contributions to only start in 2013.

The group’s 2011 job wins totalled RM313 million, well below the management’s target and 2010’s RM532 million in contracts, said Wong Chew Hann of Maybank IB in her report last week.

The slow momentum in securing projects was due to a lack of contracts awarded by the state government. State contracts were down by 39% year-on-year (y-o-y), she added. This was not confined to Sarawak as new construction jobs reported for the whole country were down 11% y-o-y to only RM77.3 billion in 2011.

However, both AmResearch and Maybank IB have “buy” calls on the company, with fair values of RM2.30 and RM2.10 respectively. They expect construction awards in Sarawak to pick up this year in a bid to support the state’s industrialisation plans under the Score.

“We believe there will be a flurry of job announcements in the weeks and months ahead relating to the Score development and in particular, the fast-developing Samalaju Industrial Park,” AmResearch said in its report last Friday.

HSL recorded an 11.3% increase in profit to RM22.56 million from RM20.28 million in the quarter ended Sept 30, 2011 compared with a year ago. Revenue was also up by 11.9% to RM150.42 million from RM134.35 million.


This article appeared in The Edge Financial Daily, February 14, 2012.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Good re-rating prospects for HSL

Hock Seng Lee Bhd (Feb 10, RM1.70)
Maintain buy with revised fair value of RM2.44 from RM2.30: We have tweaked downwards our earnings forecast for FY11F by 4%, but upped FY12F and FY13F earnings by 1% to 5% after raising our order book assumption to RM600 million (against RM570 million previously) each per year.

Our upward revisions are prompted by recent news flow that has strengthened our belief in the multi-year re-rating prospects for local construction players in Sarawak.

We believe there will be a flurry of job announcements in the weeks and months ahead relating to the Sarawak Corridor of Renewable Energy (Score) and in particular, the fast developing Samalaju Industrial Park.

According to recent reports, Sarawak Hidro Sdn Bhd is ramping up the 2,400MW Bakun hydroelectricity dam.

Sarawak Energy Bhd (SEB) is looking at spending over RM6 billion to develop an over-RM3 billion coal-fired power station in Balingian, Mukah, and a 500kV transmission network linking Bintulu to Kuching this year.



SEB has recently formalised a second power purchase agreement (PPA) with OM Materials Sdn Bhd for a 20-year supply of 500MW to power the latter’s US$500 million (RM1.5 billion) manganese and ferrosilicon alloy smelting plant in Samalaju.

This followed an earlier pact between SEB and Asia Minerals Ltd (AML) for the supply of 270MW of power, also for 20 years, to a similar project estimated at RM790 million.

HSL will be a direct beneficiary of the massive and rapid developments within Score, given its expertise in infrastructure and construction; and specifically in land reclamation, considering Sarawak’s large areas of swamps and marshland.

HSL currently has RM1.6 billion worth of projects in hand, of which RM1 billion is outstanding. We understand that HSL is actively bidding for energy-related projects as well.

Other potential projects include: (i) the remaining packages of the Kuching central sewerage system worth a total of about RM1.7 billion; (ii) additional flood mitigation packages worth about RM250 million in Sibu; (iii) the development of a port and additional water treatment plants at Samalaju; and (iv) various road and rural water supply jobs.

Valuations are attractive, with forward price earnings of six to eight times FY11F to FY13F. Accumulate ahead of the company securing more lucrative jobs within Score. — AmResearch, Feb 10


This article appeared in The Edge Financial Daily, February 13, 2012.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

PetGas expanding gas infrastructure

Petronas Gas Bhd (Feb 2, RM15.88)
Maintain buy at RM15.68 with revised fair value of RM17.62 (from RM15.30): We maintain our “buy” recommendation on Petronas Gas (PetGas) with a higher sum-of-parts- (SOP) based fair value of RM17.62 against RM15.30 previously. This implies an FY12F price-earnings ratio (PER) of 22 times.

Our higher SOP largely stems from a one percentage point increase in our terminal growth rate to 5% for the group’s core gas processing and transport cash flows and 40% increase in the discounted cash flow of the Lekas regassification terminal (RGT) in Malacca.

We have also raised FY12F to FY14F net profit by 2% to 4% by incorporating the contributions of the group’s RM1.2 billion investment in the Lekas RGT.

While details are still sketchy after our recent company visit, the group’s parent Petroliam Nasional Bhd is evaluating the viability of additional regassification projects in Pengerang, Johor; Lumut, Perak; and Lahad Datu, Sabah, after the completion of the Lekas terminal by August this year.

The RM60 billion Refinery and Petrochemicals Integrated Development (Rapid) programme, encompassing power generation capacity of 1,200MW and other manufacturing processes in Pengerang is likely to involve an RGT project much larger than the over RM2 billion Malacca terminal.

The group is also interested in additional power generation projects after the 60%-owned 300MW Kimanis power plant in Sabah is completed by end-2013. As a benchmark, a 1,000MW combined-cycle gas-fired power plant will cost around RM3 billion to RM3.5 billion. Recall that Petronas is currently one of the 47 prospective bidders for 4,500MW of new power plants in Peninsular Malaysia.

While it is still premature to provide any estimates in earnings contribution to the group for any future RGT or power projects at this juncture, we estimate that every additional RM1 billion in investment could raise PetGas’ SOP by 16 sen, assuming a project internal rate of return of 9%, equity discount rate of 10% and debt-to-equity ratio of 80:20.

We remain positive on PetGas due to: (i) the global shift from nuclear to natural gas for power generation; (ii) the government’s strategy to gradually remove natural gas subsidies by 2015, which will lead to a more viable pricing mechanism for electricity generation; (iii) multiple domestic regassification projects; and (iv) expanding power generation ventures.

The stock is currently trading at an attractive CY12F PER of 20 times, below its 2009 peak of 22 times. We expect further news flow on LNG projects to further catalyse the stock’s re-rating process. — AmResearch, Feb 2


This article appeared in The Edge Financial Daily, February 3, 2012.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

AirAsia 4Q11 traffic numbers in line

AirAsia Bhd (Jan 31, RM3.55)
Maintain buy at RM3.56 with a revised fair value of RM4.40 (from RM5): We maintain our “buy” call on AirAsia, but with a lower fair value of RM4.40 per share (RM5 previously) following an earnings cut. Our sum-of-parts derived valuation continues to peg AirAsia at 12 times FY12F earnings.

The budget airline announced sterling 4QFY11 operating statistics on Jan 30. The group reported a 9% year-on-year growth in 4QFY11 passenger traffic. For the full year, passenger traffic grew by 12% (FY10: +20%). The numbers were in line with our expectations; though the load factor of 80% surprised on the upside given lower than expected capacity growth of 7%.

Traffic numbers aside, however, we are concerned about AirAsia’s ability to achieve our forecast yield of 16 sen per revenue passenger kilometres for FY11F. We believe surcharges are unlikely to go away considering stubbornly high fuel prices, but slowing underlying demand could translate into more aggressive strategies on underlying pricing.

We have conservatively trimmed our forecasts by 15% to 20% over FY11 to FY13F ahead of its results announcement next month on: (i) lower yield assumptions (from 16 sen to 15.4 sen in FY11F); (ii) higher jet fuel price assumptions (from US$120 (RM364.80) to US$126 per barrel); and (iii) lower available seat kilometres (ASK).

Nonetheless, any yield weakness should be cushioned by the elimination of irrational competition with the withdrawal of Firefly’s jet operations in December 2011. Additionally, AirAsia’s Asean-centric network and potential downtrading by passengers from full-service carriers (FSC) suggest that AirAsia passenger trends will not be as badly affected as its FSC peers as a result of the economic slowdown in Europe. During the 2009 economic slowdown, AirAsia managed to grow passenger traffic by up to 20%.

More importantly, our “buy” recommendation is also premised on the value unlocking from the listing of Thai AirAsia and Indonesia AirAsia (both currently 49%-owned, but which for our calculations we assume will be diluted to 45% post listing). The current market price of RM3.59 per share only captures 25% of the value of AirAsia’s holdings in these associates. One of the hurdles for the listing in 4QFY11 was the poor market valuations then — which have since improved quite significantly, suggesting greater certainty in the listing now.

Key 2012 valuation/earnings catalysts include: (i) listing of associates; (ii) recognition of associate earnings; (iii) commencement of AirAsia Japan; (iv) yield upside from AirAsia’s monopoly in Malaysia’s budget airline space. — AmResearch, Jan 31


This article appeared in The Edge Financial Daily, February 2, 2012.




Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Petronas Gas surge after fair value raised

Petronas Gas Bhd surged to a record in Kuala Lumpur trading after the stock’s so-called fair value was raised at AMMB Holdings Bhd to reflect rising demand for natural gas and the prospects of more gas plants in Malaysia.

Shares of the gas distributing arm of state oil company Petroliam Nasional Bhd, or Petronas, jumped as much as 12 per cent to RM17.50, the highest intraday price on record. They traded at RM16.06 at the 12:30 p.m. local time break. Petronas Gas is the third-best performer on the benchmark FTSE Bursa Malaysia KLCI Index today.

Petronas, which is building a $20 billion refining complex bordering Singapore, said in June it will construct a liquefied natural gas import and re-gasification terminal there. The oil and gas hub is aimed at complementing Malaysia’s 10-year $444 billion program to build roads, railways and power plants.

“We remain positive on Petronas Gas due to the global shift from nuclear to natural gas for power generation,” Alex Goh, an analyst at AMMB, wrote in a report today. The company will gain from the “multiple domestic re-gasification projects and expanding power generation ventures,” he said. Goh raised his fair value for the stock to 17.62 ringgit from 15.30 ringgit and kept his “buy” rating.

Petronas and Tenaga Nasional Bhd., Malaysia’s biggest power producer, are investing in a 300-megawatt gas plant and LNG terminal in eastern Sabah state, the Star newspaper reported today, citing Tenaga Chief Executive Office Che Khalib Mohd Noh. He couldn’t be immediately available for comment when phoned at his office today, as he was out for a meeting.

Petronas Gas processes natural gas from offshore fields before being piped and delivered to power, industrial and commercial users. The company reported net income of 350.2 million ringgit ($116 million) for the second quarter ended Sept. 30. Revenue was 927.3 million ringgit. It gave no year-ago comparison after changing the company’s fiscal year-end. -- Bloomberg



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Bumi Armada dips after moratorium ends

KUALA LUMPUR: Bumi Armada closed 1.94% or eight sen lower to RM4.05 yesterday on a volume of 3.98 million shares after a moratorium on its cornerstone investors was lifted last Saturday.

Analysts said the decline was due to profit taking following the expiration of a six-month moratorium which had restricted cornerstone investors from selling the stock.

For its IPO, Bumi Armada managed to lock in cornerstone investors, who paid the listing price but received a predetermined amount of shares and were subject to a six-month lock-up period. According to analysts, cornerstone investors held around 10% stake in Bumi Armada.

The cornerstone investors are state-controlled unit trust outfit Permodalan Nasional Bhd and insurance outfits Great Eastern Life Assurance (M) Bhd and Prudential Assurance (M) Bhd.

Bumi Armada made its debut on July 21 last year and its shares are now trading at a 33.7% premium to the IPO price of RM3.03. After closing at RM4.14 on debut, the stock gradually fell to the RM3.20 level in September last year and has since been on an upward trend.

Analysts reported that the expiration of the moratorium would be a good opportunity for investors to buy into the company.

Research houses HwangDBS Vickers Research and BIMB Securities Research are expecting Bumi Armada to secure a risk service contract (RSC) for Petroliam Nasional Bhd’s (Petronas) marginal oil fields this year, given its track record and synergistic oil and gas services.

According to Bloomberg, there are seven “buy” calls for Bumi Armada ranging from CLSA’s RM4 target price to AmResearch’s RM5.05.

There are four “hold” from RM3.55 to RM4, and two “sell” recommendations with valuations of RM3.16 and RM3.45.

On Jan 16, Bumi Armada announced that its subsidiary, Bumi Armada Navigation Sdn Bhd, was awarded a four-year charter and operations contract (with an extension of a further four years) worth RM155 million from Petrleo Brasileiro SA, a Brazilian oil and gas company, for its anchor handling towing support vessel Armada Tuah 102.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Margin revival for rubber gloves on fast track

Rubber gloves
Upgrade to overweight from neutral: We have upgraded the rubber glove sector to “overweight” as we believe earnings recovery is in the early stages of a cycle and is bound to gain momentum on the back of sustained margin revival.

As it is, quarterly earnings before interest, tax, depreciation and amortisation (Ebitda) margins of glove manufacturers are still two to four percentage points below normalised levels, implying upside potential.

We reckon glove manufacturers are poised to reap higher margins from time-lag induced imperfect price adjustments from: (i) lower input costs due to easing latex price and; (ii) the strengthening US dollar against the ringgit. We expect higher margins to kick in over the next few quarters as cheaper latex costs are fully reflected in average selling prices.

Despite a sharp drop of over 40% in latex price from an all-time high of RM10.60 per kg (February 2011), we see further easing in latex prices as imminent due to a worse than anticipated rubber glut and weakening demand. This will extend support for a sustained improvement in margins for glovemakers.

We understand China’s stockpile of natural rubber (NR) has been on a progressive rise since August, leading to an estimated surplus of 365,600 tonnes as at end-December 2011. Even though global rubber supply for this year is forecast to rise by only half of 2011’s additional production of 610,000 tonnes, this will inevitably exert further downward pressure on latex prices.

Incidentally, the global automobile industry, as led by China with an estimated 23% market share, is expected to grow at a slower rate this year, in tandem with the country’s slower economic growth outlook.

As it is, China’s vehicle sales grew a mere 3% last year, against 32% in 2010. The world’s automobile industry consumes circa 70% of global NR output.

In our view, the structural shift from NR to nitrile gloves will continue alongside industry trends as consumers typically tend to migrate upwards along with rising disposable income.

However, the rate of switching should become less drastic now, given the softening latex price. Most encouragingly, prices of NR gloves are currently at a 7% to 10% discount to nitrile variants. NR gloves were sold at an estimated 12% to 13% premium to nitrile gloves in 2011.

The reversal in ASPs resulting in a favourable price differential should thus help NR gloves claw back some lost market share.

All in, we have raised our earnings forecasts by 35% to 48% for Top Glove Corp Bhd and 2% to 10% for Kossan Rubber Industries Bhd. We have imputed higher utilisation rates, latex price forecast of RM5.50 to RM6 per kg as well as our latest in-house foreign exchange rate at US$1:RM3.10 for both Top Glove and Kossan.

We have upgraded Top Glove to a “buy” with a higher fair value of RM6.15 per share (previously “sell”, fair value: RM3.10) based on a higher fair price-earnings ratio (PER) of 19 times revised FY13F earnings. Our valuation pegs the stock at 0.5 standard deviation above its five-year mean of 16 times, which we deem reasonable in lieu of the improving core fundamentals.

Top Glove is now our top “buy” for the sector as the group is a prime beneficiary of easing latex prices. With over 78% of total production (37 billion pieces per year) in NR gloves, the group is the “purest” and largest NR glove manufacturer. Based on past trends, the stock had seen an upward PER re-rating of eight to 12 times during previous periods of declining latex prices.

Accordingly, we upgrade Kossan to a “buy with a higher fair value of RM4.31 per share (previously “hold”, FV: RM3.38) based on a higher fair PER of 12.5 times revised FY12F earnings.

Our valuation is a tad above the stock’s 10-year mean of 11 times, but still at some 35% discount to Top Glove’s fair PER of 19 times.

We continue to like the group for its less susceptible earnings portfolio underpinned by its more balanced product mix. — AmResearch, Jan 17


This article appeared in The Edge Financial Daily, January 19, 2012.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Public Bank: Pressure on capital and dividends easing

Public Bank Bhd (Jan 17, RM13.18)
Upgrade to buy at RM13.14 with a revised fair value of RM15.40 (from RM13.40): We are upgrading our rating on Public Bank Bhd (PBB) to “buy” from “hold”, with a higher fair value of RM15.40 per share (RM13.40 previously). This is based on an upgraded return on equity of 24% (21.8% previously) for FY12F, leading to a fair price-to-book value (P/BV) of 3.5 times (3.2 times previously).

The newly released guidelines on implementation of Basel III are likely to have a positive impact on PBB in terms of less pressure on capital on two fronts. First, the implementation of a counter-cyclical buffer will now likely take place in 2015. Previously, counter-cyclical buffers were widely expected to be set at 1% to 1.5%, with a timeline for implementation by end-2012. However, under the new guidelines, local regulators are expected to issue concept papers outlining the rules and mechanisms to implement the new capital buffers by 2014.

Second, we understand that local regulators have extended the consultative process to determine possible additional capital requirements under Pillar 2 of Basel II. Recall that in July 2011, PBB first hinted that the central bank may look at raising the capital requirements under Pillar 2 of Basel II (whereby individual banks are assessed based on their own risk profiles), which may involve a higher capital of between 1% and 2%.

This means any possible rights issue by PBB will take place from 2015, rather than from end-2012. This removes the immediate short-term concerns over a possible capital raising exercise. We believe PBB may be allowed to move towards full adoption of FRS139 accounting standards. At the moment, all local banks have adopted the transitional provisions of FRS139 since 2010 with a view towards full FRS139 adoption by 2012. The only exceptions are CIMB Bank and Malayan Banking Bhd, which had crossed over to full FRS139 basis immediately in 2010.

A full adoption of FRS139 will allow PBB to lower its collective assessment (widely perceived to be similar to general provision under the old GP3), from 1.5% to 0.7%. This could lead to a writeback into shareholders’ funds of RM1.1 billion, leading to a possible boost to book value by 31 sen per share or 7%, core equity ratio by 0.3%, and possibly reducing the size of potential rights issue in 2015. P/BV would be reduced from three times to 2.8 times — the trough valuation level of 2008. — AmResearch, Jan 17


This article appeared in The Edge Financial Daily, January 18, 2012.



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.

Proton climbs on DRB-Hicom stake buy

Proton Holdings Bhd, Malaysia’s national carmaker, rose the most in more than a week after DRB- Hicom Bhd agreed to buy Khazanah Nasional Bhd’s 43 per cent stake in Proton at RM5.50 per share.

The stock rose as much as 5.4 per cent, the most since Jan. 9, to RM5.46 ringgit at 10:28 am local time in Kuala Lumpur.

AMMB Holdings Bhd said in reports that investors should accept the general offer that will be extended to minority shareholders.

Proton, which had two annual net losses over the past five years, paves the way for billionaire Syed Mokhtar to widen his share of the Southeast Asian country’s car industry and expand a business empire that already includes ports, airports and power plants. Selangor-based Proton gives DRB control of two Malaysian car plants able to make 350,000 vehicles per year, more than the total number of cars sold in Switzerland annually.

The “turnaround will take time,” Loke Wei Wern, an analyst at CIMB Group Holdings Bhd., wrote in a report today. “This is an opportunity for minority shareholders to exit the company.”

Proton investors should switch their holdings to DRB after holding out for the general offer, Loke said in the report.

DRB distributes and assembles motorcycles to garbage trucks for global carmakers from Volkswagen AG to Suzuki Motor Corp. and Daimler AG’s Mercedes-Benz. The shares fell fell as much as 3.7 percent to 2.09 ringgit in Kuala Lumpur.

DRB-Hicom added 0.9 percent to RM2.19. -- Bloomberg



Get your T+10 interest FREE margin trading account NOW. Attractive brokerage for online trading. Contact Mr Ho at +603-5192 0808 or hoxian@sjsec.com.my for more details.