ECM Libra Research initiates coverage on Lion Industries with Strong Buy call

KUALA LUMPUR (April 23): ECM Libra Investment Research has initiated coverage on Lion Industries Holdings Bhd at RM1.37 with a strong Buy recommendation and target price of RM2.16.

In a note Monday, the research house said the share price had fallen 37% from its previous peak of RM2.16, reflecting the bearish sentiment faced by the local steel industry, marked by deteriorating earnings reported by its peers like Masteel, Kinsteel and Perwaja over the past few quarters in CY11.

ECM Libra said the company has managed to revamp its balance sheet from being highly geared in FY06 (101%) to one with a net gearing of 3% at end-2QFY12, thus adding 58% to its NAV/share over the period.

“However, we think this accretion to shareholders’ funds has been overlooked as the stock trades at only 0.3x P/B, which is a steep discount to its peer average P/B of 0.6 times.

“Therefore, we feel that the stock deserves to be re-rated to RM2.16, based on sur sum-of-parts valuation, implying a forward FY13 P/B of 0.5 times,’” it said.



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Stocks to watch: Top Glove, Meda Inc, SunREIT, DRB-Hicom

KUALA LUMPUR (March 15): The sell down across China equities could dictate sentiment on the Malaysian bourse on Thursday following updates that the world’s second largest economy will maintain efforts to curb real estate speculation.

China’s premier Wen Jiabao said on Wednesday that measures to curb property speculation must be maintained to prevent a real estate bubble which will be detrimental to the country’s economy.

Wen’s comments had reversed earlier gains across China stock markets, resulting in major indices finishing in the red.

Hong Kong’s Hang Seng closed down 0.15% to 21,307.8 points, while the Shanghai Composite declined 2.63% to 2391.23. The Shenzen Composite fell 4.09% to close at 969.12.

At Bursa Malaysia, the FBM KLCI rose 11.69 points or 0.7% to close at 1575.71.

Apart from macro factors, analysts, have in fact, warned of bearish technical dynamics in local equities, prompting the anticipation of a sell down in local stocks.

“Given the bearish short-term technical momentum, stocks are likely to drift lower on limited trading participation, as most investors would look for cheaper levels before they are prepared to nibble,” TA Securities Holdings Bhd.

Stocks to watch on Thursday include Top Glove Corp Bhd, Meda Inc Bhd, Sunway Real Estate Investment (SunREIT), DRB-HICOM BHD [], TRC SYNERGY BHD [], TELEKOM MALAYSIA BHD [] (TM) and Axiata Group Bhd.

Top Glove is expected to announce its financial results for the second quarter ended Feb 29, 2012 (2QFY12) on Thursday.

According to analyst reports, Top Glove has guided that its 2QFY12 results will be weaker than the preceding quarter’s numbers. Top Glove shares rose five sen to close at RM4.80 on Wednesday.

Meda Inc Bhd plans to undertake an integrated township in Sungai Siput, Perak with the proposed purchase of 256.04 acres of land from RM13 million. The company said its unit Nandex Land Sdn Bhd has signed a sale and purchase agreement with Majuperak Energy Resources Sdn. Bhd to purchase the leasehold land.

Sunway REIT Management Sdn Bhd has earmarked RM200 million as capital expenditure to transform Sunway Putra Place.

Sunway REIT Management, which is the manager for Sunway Real Estate Investment (SunREIT) said the preliminary capital expenditure (capex) for the refurbishment of the mall is estimated at RM200 million.

“The refurbishment exercise is expected to take about 15-18 months with a projected return on investment (ROI) of 12.5% to 15.0%,” it said.

DRB-Hicom has obtained shareholders consent to acquire a controlling 42.74% stake in national car manufacturer Proton HoldingsBhd. DRB-Hicom fell two sen to RM2.64

CONSTRUCTION [] firm TRC Synergy has secured a RM36 million job to undertake alteration works at the Dayabumi Complex. TRC shares closed unchanged at 75 sen.

ECM Libra Research has upgraded TM’s fair value by 29% from RM3.70 to RM4.78 but maintained its hold recommendation for the stock.

ECM Libra has also revised upwards its earnings forecast for TM by between 1% and 24% for the FY12 to FY14 period.

TM plans to roll out the second phase of its high speed broad band (HSBB) services in smaller industrial areas and state capitals where it is economically viable. TM shares rose seven sen to RM5.13.

Axiata Group’s Indonesian unit PT XL Axiata Tbk is expected to register a 10% growth in its subscriber base to 51 million this year from 46.4 million in 2011. Axiata rose six sen to RM5.12.



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Sime Darby gains after price estimate raised

Sime Darby Bhd, the country’s biggest listed palm oil producer, gained 3.1 per cent to RM9.75, set for its highest close since May 15, 2008.

ECM Libra Financial Group Bhd raised its price estimate for the stock to RM9.82 from RM9.16 in a report today. -- Bloomberg



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IJM to get earnings boost from WCE, MRT

KUALA LUMPUR: The two major construction projects that were recently awarded to IJM Corp Bhd will bode well for the company and provide it with earnings visibility for the next two to three years, say analysts.

Last Thursday, IJM received the green light to proceed with the West Coast Expressway (WCE), a project that has been delayed for more than 10 years.

Kumpulan Europlus Bhd, a 25% associate of IJM, announced that its 64.2% subsidiary, West Coast Expressway Sdn Bhd, had received an approval letter from the government for the expressway project, which has an estimated project cost of RM7.07 billion.

The concession is on a build-operate-transfer (BOT) basis and for a period of 60 years – the longest concession the government has ever given out. The expressway from Banting in Selangor to Taiping in Perak will cover a distance of 316km, of which 224km will be tolled while 92km will be toll-free.

Although the construction of WCE will be implemented through open tender, OSK Research, in a Jan 27 note, said it sees IJM as a front runner to bag at least half of the RM6 billion construction works available, given its close rapport with Kumpulan Europlus.

MIDF Research shared the same view and said IJM will have a higher chance to undertake the full WCE project or part of it. Apart from IJM’s association with Kumpulan Europlus, MIDF said IJM’s strong track record of undertaking expressway construction in the country as well as abroad will also increase its chances.

Last Thursday, IJM was also reported to have been awarded a RM974 million construction package from Mass Rapid Transit Corp Sdn Bhd (MRT Corp).

IJM’s wholly-owned subsidiary, IJM Construction Sdn Bhd, was appointed the main contractor for Package V5 of the Klang Valley MRT Sungai Buloh — Kajang Line (KVMRT) project.

Under Package V5, IJM will undertake the construction and completion of Viaduct Guideway and other associated works from Maluri Portal to Plaza Phoenix Station.

Affin Investment Bank, in a report last Friday, said it expects Package V5 to boost IJM’s net profit in FY13 and FY14 by 3.8%, assuming a pre-tax profit margin of 10% and a construction period of three years.

MIDF Research said, assuming the MRT project is for three years with a 6% to 7% net profit margin, IJM is set to recognise RM20 million to RM23 million in additional annual net profit. MIDF said this could increase IJM’s earnings per share by another 1.4 sen to 1.7 sen.

On IJM’s order book, Affin Investment believes that it could increase to RM6 billion, while MIDF said it could rise to RM10 billion.

MIDF said excluding the WCE project, IJM’s outstanding order book stands at RM4.7 billion with the MRT job.

MIDF said the MRT project alone already covers up to 65% of IJM’s RM1.5 billion assumed order book replenishment rate in FY12 (ending March).

OSK Research, meanwhile, has tweaked its FY13 order book replenishment assumption for IJM from RM2 billion to RM4 billion.

For FY11, IJM posted a net profit of RM321.3 million on revenue of RM3.721 billion.

MIDF Research is forecasting net profit of RM442.4 million and revenue of RM4.435 billion for IJM in FY12.

For FY13, it has forecast net profit of RM585.73 million and RM5.557 billion in revenue.

Last Friday, IJM rose 25 sen to RM5.70. Its shares have traded between a high of RM6.71 and low of RM3.90 over the past 52 weeks.

Affin Investment Bank maintains a “buy” call on the stock and has increased its target price to RM7.06 from RM5.73 previously, while ECM Libra Investment Bank reiterated its “buy” recommendation with an unchanged target price of RM7.02.

MIDF Research upgraded its recommendation from “neutral” to “buy” with a target price of RM6.24 from RM5.45 previously.


This article appeared in The Edge Financial Daily, January 30, 2012.



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Kossan set to bounce, says ECM Libra Research

KUALA LUMPUR (Jan 12): ECM Libra Research is recommending KOSSAN RUBBER INDUSTRIES BHD [] a Buy and said commercial operations of the company’s new production lines are expected to commence at end-2Q12.

It said the new capacity would increase output by 2 billion gloves to 14 billion, adding that Kossan has managed to secure buyers for more than 85% of the new capacity.

In a note Thursday, ECM Libra said the current utilisation rate as at end Dec 2011 was 90%.

The research house said valuations were undemanding with Kossan trading at 9.7x FY12 EPS (vs Top Glove’s 24x and Supermax’s 11x FY12).

“The valuation gap should narrow as: (i) Kossan moves up the value chain by offering higher margin surgical and clean room gloves; and (ii) Kossan’s product mix contains less natural rubber glove which is sensitive to movements in latex price.

“Recommend BUY with RM4.02 target price based on 11x FY12 EPS, in line with its historical average,” it said.



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A turnaround for Shin Yang: ECM Libra

KUALA LUMPUR: ECM Libra Investment Research has recommended Shin Yang Shipping Corp (SYS Corp) as a 'trading buy', saying that at its current price, the shipping operator offers a dividend yield of 3.6 per cent and it could potentially double to its targeted price of RM1.

SYS Corp, the largest shipping operator in Malaysia by number of vessels, was hovering at 47 sen, lower by 1.5 sen at 11am today on Bursa Malaysia.

The research house based its optimism on the recent strong rebound on volume by competitor Malaysian Bulk Carriers, despite risks of shipping oversupply and lower global trade demand.

"If so, SYS Corp's share price could also be starting to turn around," ECM Libra said.

Based on estimates, 30 per cent of SYS Corp's shipping business caters to SY Holding Group (Shin Yang Group), a Sarawak-based conglomerate owned by the Ling family, which also owns 29 per cent of listed Sarawak Oil Palms Bhd, a well-managed and profitable plantation company.'

Shin Yang and the Ling family own 67 per cent of SYS Corp.

Another advantage is SYS Corp’s cost advantage against other shipping companies as it builds its own ships, it said. - BERNAMA



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Gamuda’s 1QFY12: Strong but turning cautious

Gamuda Bhd (Dec 19, RM3.12)
Maintain sell at RM3 with target price of RM2.94: Gamuda’s 1QFY12 results came in above house but within market expectations with net profit of RM132.3 million, accounting for 31% of house and 28% of consensus full-year estimates.

Despite flat revenue growth year-on-year in 1QFY12, the key earnings driver that surprised us on the upside was the property development division, which delivered an exceptional pre-tax profit (PBT) increase of 127% for the quarter. This is primarily attributed to new local property sales from Bandar Botanic, Horizon Hills and Jade Hills. Currently, Gamuda has RM1.2 billion of unbilled sales which are expected to tide the group over the next two years and make up for a potential shortfall in securing new sales in Malaysia and Vietnam.

The take-up rate at Celadon City, Ho Chi Minh City, has improved to 40% (98 out of 250 apartment units) from 20% as at October 2011, when the first phase was launched. However, Gamuda City Hanoi saw a 100% take-up of 72 terrace and semi-D houses in Phase 1 soft-launched recently. We opine that the difference in the performance of the mixed commercial developments is because buyers prefer landed to strata properties to hedge against property market downturn risk.

Gamuda’s construction segment PBT margin has normalised to 11.2% this quarter from 5.5% in 1QFY11, mainly due to reversal of earlier provisions made for uncertain cost of building materials required for the Ipoh-Padang Besar electrified double-tracking project (EDTP), now that the group has stockpiled sufficient steel and cement supplies for the project, due to be completed in June 2014.

Despite a strong first quarter, we foresee a challenging year ahead for the group in FY12, particularly for the Vietnam property business as buyers turn more cautious amid possible further credit tightening and the deteriorating global economic outlook arising from the European sovereign debt crisis.

Gamuda-MMC remains the frontrunner for the circa RM8 billion Sungai Buloh-Kajang (SBK) MRT tunnelling job, given its 7.5% built-in price advantage under the Swiss Challenge. The tender will close end-January and the contract award result will be announced by April or May 2012. The JV is expected to sign the project delivery partner (PDP) agreement with the government and MRT Corp in four to eight weeks to firm up the PDP fees and pain/gain formula for the entire circa RM60 billion Klang Valley MRT (KVMRT) project. The SBK MRT underground works is estimated to take five years to finish, and based on our model, we opine that earnings from this will start gaining momentum only from FY14 onwards.

With focus predominantly on the KVMRT, we think the group is unlikely to seriously consider other construction projects, although the management indicated that it will bid for a JV/subcontractor role with a Chinese contractor in the circa RM8 billion Gemas-Johor Baru EDTP project, as well as the much-delayed Langat 2 water treatment plant project.

Maintain “sell” with target price at RM2.94 based on sum-of-parts valuation. — ECM Libra Research, Dec 19


This article appeared in The Edge Financial Daily, December 20, 2011.



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ECM Libra Research downgrades Gamuda to Sell

KUALA LUMPUR (Dec 14): ECM Libra Investment Research has downgraded GAMUDA BHD [] to Sell from Hold previously, and said the company’s share price was above the research house’s SOP valuation of RM2.94, which itself was subject to significant downside risk.

The research house said Gamuda’s 1QFY12 results scheduled to be announced on Dec 16 were expected to be in line with expectations.

However, it cautioned investors that the risk of the group’s exposure to the Vietnam property venture and SPLASH is substantial, at 43% of group RNAV per share.

“The Vietnamese property market continues to show signs of weakness as buyers face more difficulties in getting financing amid local credit tightening,

“Due to the water asset consolidation impasse in Selangor, Gamuda’s 40%-owned associate Syarikat Pengeluar Air Selangor Holdings Bhd (SPLASH) has about RM1 billion of receivables from cash-strapped Syarikat Bekalan Air Selangor Bhd (Syabas) owing to the deferred 37% tariff rate hike in 2009,” it said in a note Wednesday.



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S P Setia: Takeover offer an acceptable one

S P Setia
(Dec 12, RM3.86)

Maintain accept with target price RM3.90 from RM3.20: Net profit for 12MFY11 of RM 318.3 million was within expectations due to property development activities carried out in Klang Valley, Johor Baru and Penang. Property sales momentum remained intact as S P Setia reported 12-month sales of RM3.2 billion. Management is confident of achieving its RM4 billion sales target on the back of more launches in FY12, including Setia Eco Cascadia in Johor and Aeropod in Sabah.

S P Setia posted positive earnings as 12MFY11 net profit of RM318.3 million achieved 95% of house and 108% of consensus full-year estimates.

The profit before tax (PBT) margin increased to 27% from 24% for the current FY. This is mainly due to the flow-through effect of overall increases in selling prices achieved for new launches since FY10 and the general stabilisation in prices of construction materials experienced during the FY. However, 4QFY11 PBT decreased by 20% year-on-year (y-o-y) and 30% quarter-on-quarter (q-o-q) despite improved margins from the preceding financial year.

A final net dividend of 6.75 sen was declared, which was lower than previous year’s seven sen.
Sales momentum remains firm as S P Setia achieved RM1.2 billion of new property sales in 4QFY11 which was 122% higher y-o-y and 56% q-o-q. The 12-month sales came up to RM3.2 billion.

The launch of KL EcoCity, S P Setia’s intergrated green commercial and mixed residential development, is expected to contribute strongly to the group’s sales. Its maiden project in Melbourne, Australia, and second project in Vietnam (EcoXuan), are expected to help augment sales in FY12, which will also benefit from planned project launches like Setia Eco Cascadia in Johor and Aeropod in Sabah.

The group faces a risk of a slowdown in property sales in FY12 should external uncertainties derail economic growth and dampen property buyer sentiment. Estimated current unbilled sales of RM2.8 billion (FY10: RM1.7 billion) should underpin near-term earnings viability. We have made no changes in earnings at this juncture. Although S P Setia has enjoyed brisk property sales recently, its valuation is still not compelling yet considering market risk aversion and a potential property sector downcycle.

In the absence of a competing offer, we advise investors to accept the takeover offer which we view as fair and attractive since it values S P Setia at upcycle valuations when current market conditions are on a downtrend. The offer is also attractive given current conditions in which equity market risk aversion is pervasive while the property sector may enter a cyclical downturn due to weakening economic outlook, deteriorating housing affordability and policy risks.

We raise our target price to match the takeover offer price of RM3.90 from RM3.20 previously (based on mid-cycle price earnings of 15 times). — ECM Libra, Dec 12


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ECM Libra: Delisting of PLUS to benefit others

KUALA LUMPUR (Dec 13): The delisting of PLUS will return RM9.1 billion cash to minority shareholders after Dec 14, 2011 and this is likely to benefit several counters depending on the investment mandate of the shareholders, according to ECM Libra Research.

In a note Tuesday, the research house said the potential beneficiaries are counters like Maybank, Maxis, Telekom, Petronas Chemicals, RHB Capital, MISC, Public Bank, Digi, YTL Power, KLK, BAT, Petronas Dagangan, Petronas Gas, LITRAK, Air Asia, Bumi Armada and UEM Land.

ECM Libra said that if the mandate was for dividend yield, then stocks of decent size (more than RM10 billion market capitalisation) and dividend yield similar or better than PLUS would be the likes of Maybank (MAY MK, Hold, TP: RM8.00), Maxis, Telekom Malaysia, Petronas Chemicals, RHB Capital, MISC, Public Bank, Digi.Com, YTL Power, Kuala Lumpur Kepong (KLK MK, Hold, TP: RM21.75), British American Tobacco, Petronas Dagangan and Petronas Gas.

If the mandate was for concessionaire-type businesses, then similar stocks would be YTL Power and LITRAK, it said.

“If the purpose for holding PLUS was to benchmark against the FBMKLCI, then Air Asia, Bumi Armada and UEM Land were the three stocks that replaced PLUS, MISC and Gamuda in the FBM KLCI.

“However, the combined market capitalization of the new inclusions (Air Asia, Bumi Armada, and UEM Land) amounts to only RM32 billion compared to RM54 billion for the three that were removed (PLUS, MISC, Gamuda).

Hence, there will also be some redistribution to other FBM KLCI components to maintain a benchmark against the FBM KLCI, it said.



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KLCI extends losses at mid-morning, new listing Pavilion most active

KUALA LUMPUR (Dec 7): The FBM KLCI extended its losses at mid-morning on Wednesday as cautious sentiment kept investors on the sidelines.

Regional markets, however, mostly edged up on optimism that Standard & Poor’s threat of mass credit rating downgrades will pressure European leaders to come up with a convincing framework for resolving the euro zone debt crisis at a crucial summit later this week, according to Reuters.

The FBM KLCI fell 3.90 points to 1,477.02, weighed by losses at select blue chips.

Gainers edged losers by 184 to 163, while 231 counters traded unchanged. Volume was 545.44 million shares valued at RM268.58 million.

At the regional markets, Japan’s Nikkei rose 0.70% to 8,634.93, Hong Kong’s Hang Seng Index gained 0.84% to 19,101.11, the Shanghai Composite Index was up 0.22% to 2,330.94, Taiwan’s Taiex rose 1.11% to 7,033.64, South Korea’s Kospi up 0.80% to 1,918.09 while Singapore’s Straits Times Index was 0.54% higher at 2,764.19.

Maybank Investment Bank Bhd head of retail research and chief chartist Lee Cheng Hooi in a note to clients on Dec 7 said the FBM KLCI’s resistance areas of 1,480 and 1,503 may cap market gains, whilst the obvious support areas may be located at 1,458 and 1,477.

“Despite the US markets’ firm tone last night, we might not see a good day for the local index further gap filling takes place today,” he said.

Meanwhile, ECM Libra Investment Research in a strategy note on Dec 7 said it expects the FBM KLCI to trade in a range of 1,520 and 1,300 in 1H2012 before moving up towards 1,600 in 2H2012.

It said Malaysia had outperformed in 2011 and was not cheap relative to other markets.

“Hence, for better potential upside, we would be buying individual stocks that have underperformed the FBMKLCI due to negative news or developments, but could see a turnaround in their situation.

“We have identified Tenaga Nasional and Lion Industries,” it said.

Among the decliners on Bursa Malaysia, MAHB fell 21 sen to RM5.83, Proton down 18 sen to RM4.13, UMW 13 sen to RM6.54, Hong Leong Bank 12 sen to RM10.72, Lafarge Malayan Cement 11 sen to RM6.61, Tasek and Baneng fell 10 sen each to RM7.70 and 3 sen, while IJM Corp and Axis REIT fell six sen each to RM2.65 and RM2.55.

Pavilion REIT, which made its debut on the Main Market of Bursa Malaysia, was the most actively traded counter at mid-morning with 88.65 million units done. The counter added 8.5 sen to 98.5 sen.

Other actives included Sanichi, LFE Corp, MLabs, Wijaya warrants and Compugates.

Gainers at mid-morning included Nestle, Aeon, Orient, QSR, Dutch Lady, BHIC, Perstima and Genting.



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ECM Libra: KLCI to trade in a range of 1,520 and 1,300 in 1H2012

KUALA LUMPUR (Dec 7): ECM Libra Investment Research expects the FBMKLCI to trade in a range of 1,520 and 1,300 points in 1H2012 before moving up towards 1,600 in 2H2012.

It said on Wednesday that Malaysia had outperformed in 2011 and was not cheap relative to other markets.

The research house said that with the outlook for domestic interest rates flattish with downward bias, it made sense to hold high dividend yield stocks while waiting for better buying opportunities.

It also advised investors to avoid stocks with high exposure to Europe as it expects a sharp depreciation in the Euro.

“Stocks which have underperformed the FBM KLCI over the past year, and which are closer to their bottom due to negative news or developments, offer more potential upside if there is a turnaround in their situation.”

“We have identified two such stocks, Tenaga Nasional ( Strong Buy, TP: RM5.95-7.96) and Lion Industries (, Strong Buy, TP: RM2.16),” it said.



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ECM Libra Research maintains Trading Buy call on SapuraCrest

KUALA LUMPUR (Dec 6): ECM Libra Investment Research has maintained its Trading Buy recommendation on SapuraCrest at RM4.22 and said the company’s 9MFY12 earnings of RM233.7 million beat the research house’s and consensus estimates by making up to 80% of both full year estimates.

In a note Tuesday, ECM Libra said the drivers for SapuraCrest were (1) the group’s ongoing merger exercise and (2) significant geographic expansion into Brazil and also Australia (through the purchase of Clough’s marine assets).

“SapuraCrest is becoming a global pipelaying and installation player by 2015 with a fleet of 7 pipe lay barges (currently 4 including Clough’s assets).

“Maintain target price of RM4.60, pegging to the offer price for SapuraCrest in the merger exercise with Kencana,” it said.



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Glomac rises on firm 2Q earnings

KUALA LUMPUR (Dec 5): GLOMAC BHD [] shares rose in early trade on Monday after its net profit for the second quarter ended Oct 31, 2011 rose 50% to RM23.78 million from RM15.88 million a year ago, underpinned by on-going projects particularly Glomac Damansara, Glomac Cyberjaya, Saujana Rawang and Bandar Saujana Utama.

At 9.05am, Glomac added 1.5 sen to 83.5 sen with 76,500 shares traded.

Its revenue for the quarter however declined 4.3pct to RM134.83 million from RM140.89 million, due to completion of two projects namely Glomac Tower and Glomac Galleria.

ECM Libra Investment Research said it maintained its Buy call on the stock premised on Glomac’s strong 3-year earnings CAGR of 35% and more positive news flow on landbanking, en bloc sale and estimated GDV of RM2.6 billion beyond FY12.

“The revised target price of RM1.12 is due to the effect of the share split, and is based on 6x P/E valuation for FY13 earnings.

“RNAV estimate is also revised to RM1.55 which further supports our target price this is at a 28% discount to RNAV,” the research house said on Monday.



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ECM’s list of high-yield stocks for uncertain times

KUALA LUMPUR: Investors wondering where to put their money during uncertain times may want to consider ECM Libra Research’s basket of high dividend yield stocks.

The research house noted that much of the action in the current range-bound market has shifted to penny stocks which have been punished due to their lack of fundamentals.

“Although providing potentially exciting returns, [penny stocks] can be highly speculative and risky,” it said in a note yesterday.

ECM Libra expects the FBM KLCI to trade within the range of 1,300 to 1,520 points over the next six months, with economic growth staying positive but its path hampered by global uncertainties.

“As we are now in the higher end of this trading range, the downside risk is more than the upside risk,” it said.

The more conservative alternative is to invest in high dividend stocks, which offer better yields than the 12-month fixed deposit rates at 3.2% per annum, ECM Libra said. Moreover, given that the outlook for interest rates “is flattish with a downward bias”, chances are that fixed deposit rates would only stay flat at best.

In the event the overall market sees further weakness, some shelter may be found in ECM Libra’s basket of defensive stocks, which offer better yields than fixed deposit rates, have relatively stable businesses and low correlation to the FBM KLCI.

The basket of counters, which only include companies with more than RM300 million in market capitalisation for liquidity, have been ranked in ascending order of beta — where the lower the beta, the less correlated the stock price is to the FBM KLCI.

Most counters on the list are real estate investment trusts. Others include Maxis Bhd, White Horse Bhd, Berjaya Sports Toto Bhd, Telekom Malaysia Bhd, Guinness Anchor Bhd, Malayan Banking Bhd and Lafarge Malayan Cement Bhd.


This article appeared in The Edge Financial Daily, November 24, 2011.



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Malaysia CPO stockpiles may climb 4.2%

Palm oil stockpiles in Malaysia probably rose to 2.21 million metric tons in October, gaining to the highest level in almost two years and nearing a record, as output beat exports, according to a Bloomberg News survey.

Inventories in the second-largest grower climbed 4.2 percent from 2.12 million tons in September, according to the median estimate in the survey of three analysts and two plantation companies this week. Stockpiles were 1.8 million tons a year earlier, according to the Malaysian Palm Oil Board, which is scheduled to publish the official estimates on Nov. 10.

Rising reserves may weigh on prices that lost 24 percent from a 35-month high in February, while curbing profits at producers including Sime Darby Bhd. and PT Astra Agro Lestari. Cheaper edible oil may further cut global food costs that fell 4 percent last month, according to a United Nations gauge.

This “may bring prices down,” Arhnue Tan, a senior analyst at ECM Libra Financial Group Bhd., said by phone from Kuala Lumpur yesterday. “Anything close to 2.2 million tons is near historical highs,” she said.

Palm oil for January delivery gained 0.8 percent to RM3,001 (US$961) per ton on the Malaysia Derivatives Exchange at 12:05 p.m. in Kuala Lumpur. So far this year, most-active prices have lost 21 percent on increased production.

The forecast figure for October’s stockpiles would be the highest since December 2009, when they totaled 2.24 million tons. Inventories reached a record 2.27 million tons in November 2008, according to data from the board on Bloomberg that runs to 1989. -- Bloomberg

Dutaland falls after IOI ends RM830m land deal

KUALA LUMPUR: Shares of DUTALAND BHD [] fell at the start of trade on Thursday, Oct 27 as investors reacted negatively to IOI Corp’s decision to terminate the RM830 million land purchase deal.

At 9am, Dutaland was down 6.5 sen to 54.5 sen. There were 1.32 million shares done.

The FBM KLCI rose 3.75 points to 1,461.55. Turnover was 15.28 million shares valued at RM15.36 million. There were 77 gainers, 27 losers and 52 stocks unchanged.

On Tuesday, IOI Corp announced it terminated its proposed acquisition of 11,977.91 ha (29,597.42 acres) of oil palm PLANTATION [] land from Dutaland, citing “non-compliance of certain terms and conditions”.

However, Dutaland has rejected the reasons for the termination.

ECM Libra Research said that as Dutaland does not accept the termination, a legal suit may ensue.

“Dutaland was expected to make a profit of RM511 million from the sale of the land and they may seek a specific performance relief from the court for the transaction to be completed,” it said.

The research house said at the price of RM69,294 a hectare, many considered the purchase to be a pricey one. As such, some fractions of the market would perceive this to be a positive development.

ECM Libra Research said although the termination of the SPA is a setback to IOI’s plan to increase its fresh fruit bunches, it may allow the group to look for better opportunities elsewhere. However, this issue between IOI and Dutaland will have to be resolved first.

ECM Libra Research keeps IOI TP at RM6.11

KUALA LUMPUR: ECM Libra Research continues to have a Trading Buy call on IOI Corp as crude palm oil (CPO) prices have already corrected and appear to be rising again.

The research house said on Thursday, Oct 27 while it doesn’t expect prices to strengthen significantly in the long term, there could nonetheless be some adjustment back to the RM3,000 a tonne level if more news on the La Nina emerges in the market in coming weeks.

However, it also said prices could also weaken further if there is more news on improving soybean supplies with ongoing South American plantings.

“Whatever the case, we view it to be a trading market at the moment and IOI makes for a good proxy given their healthy liquidity.

“Our target price of RM6.11 is unchanged based on FY12 P/E of 20.4x which represents mid-cycle valuation,” it said.

ECM Libra Research maintains Hold on BAT

KUALA LUMPUR: ECM Libra Investment Research said BRITISH AMERICAN TOBACCO (M) [] Bhd’s 3QFY11 results came in within expectations, with core net profit increased by 3.3% y-o-y to RM176.3 million mostly due to trade loading in anticipation of an excise duty hike which did not materialise.

BAT declared a third interim net dividend of 60.0 sen per share.

In a note Friday, Oct 21, ECM Libra Research said BAT was fully valued at current valuation.

“Nonetheless, CY12 dividend yield of 5.2% remains attractive. Maintain Hold call.

“RM43.80 target price is unchanged based on a DCF valuation (WACC of 7.8%, longterm growth rate of 1.5%),” it said.