OSK Research maintains Sell on Eng Tek, FV RM1.24

KUALA LUMPUR: OSK Research is maintaining its Sell call on Eng Teknologi at a revised fair value of RM1.24 based on 0.6 times FY12 price to net tangible asset, down from 0.7 times previously.

It said on Wednesday, Oct 19 that although the share price has retraced by some 15% since its last downgrade two days ago, it believes investors will turn even more cautious as the current flood in Thailand is not showing any signs of subsiding.

“We foresee further downside risks should the flood situation persist, which could compel the bankers of TYK Capital’s privatisation offer to have second thoughts over the proposal,” it said.

On Tuesday, Engtek released an official statement on Bursa Malaysia regarding its Thailand operations amid existing floods in the Ayutthaya province.

The management has confirmed that operations in both its Rojana and Hi-Tech Industrial Park were suspended, while production in other facilities were also experiencing disruptions as their major customers in Thailand are situated in the flood-hit areas.

“The announcement did not come as a surprise as we highlighted previously that all five industrial estates in Ayutthaya have been confirmed to be inundated by water by the Thai army. Given the significant presence of most HDD component manufacturers within the flood-hit province, we continue to expect the negative developments to take its toll on the entire HDD component supply chain,” it said.

OSK Research said Thailand contributes 75% of Engtek’s sales. With a total 400-500 CNCs installed, Engtek’s two factories in the Ayutthaya province supply some 40% of its total production.

“While we believe management would attempt to mitigate any near-term production shortfall by increasing the production from its existing facilities in China, Philippines and Malaysia, we opine what is more of a concern here is that Thailand typically contributes 75% of its consolidated sales,” it said.

OSK Research said given the presence of almost all major HDD makers in the region, i.e. Western Digital, Seagate, Hitachi, and Toshiba.

The research house said due to the severity of the aftermath damage, the entire HDD supply chain is likely to be hit and we foresee downside risks not just on its Thai facilities but also its existing operations in the rest of the region. “Restoration to pre-flood production level would depend largely on how fast all the HDD component manufacturers can shift their respective production out of Thailand in the immediate term and how soon the flood in Thailand would subside in the near term,” it pointed out.

OSK Research said due to the fluidity of the situation with all of the flood-hit industrial parks sealed off by the Thai army as a precaution, the magnitude of losses suffered remains unknown at this point of time.

“Although we make no changes to our forecasts for now, we foresee a difficult 4Q11 given the widespread aftermath impact. Should the monsoon rains subside by the end of this month, realignment or replacement of machineries will take at least another two to three months and hence, we expect production to normalise only by 2Q12 in our base case scenario,” it said.

MAS will take over Firefly jets

PETALING JAYA: Firefly will continue to use its turboprop aircraft to operate short-haul services from Subang and Penang, while its jets will be taken over by Malaysia Airlines (MAS) and redeployed into MAS’ operations by Dec 4 for its short-haul premium full-service offering.

Firefly began offering jet services for connectivity to Sabah and Sarawak from the peninsula in November last year but the plan had been shelved after MAS entered into a share swap with rival AirAsia in August this year.

“The takeover of jet services is an important part of MAS group’s business realignment exercise and is prompted by the need to address network and fleet restructuring plans for short-haul jet services,” MAS Group CEO Ahmad Jauhari Yahya said in a statement.

The takeover also address the issue of continuing heavy losses incurred by the Firefly jet operations.

KLCI opens higher, but gains could be limited

KUALA LUMPUR: The FBM KLCI opened higher on Wednesday, Oct 19 in line with the positive overnight close at Wall Street, and the slight uptrend at key regional markets.

At 9.05am, the FBM KLCI added 9.09 points to 1,449.03, lifted by gains at select blue chips.

Gainers led losers by 220 to 19, while 74 counters traded unchanged.

Among the early gainers were KLK, Batu Kawan, IJM Corp, MMHE, DiGi, Sime Darby, MSM, Genting Malaysia, AirAsia and Bursa Malaysia.

Wall Street received a jolt in the final hour of trading yesterday after the UK Guardian reported that France and Germany had agreed to increase the size of Europe's rescue package to more than EUR2 trillion ($2.7 trillion).

However, the report was almost immediately contradicted by Dow Jones Newswires, which said that European officials were still debating the size of the bailout fund and reports that an agreement has been reached to leverage it to EUR2 trillion are "totally wrong."

At the Asian markets this morning, gains were limited, indicating investors remained caution over the newsflow from the US and Europe.

MBF in race against time on public share spread

Time is running out for MBF to comply with Bursa's public shareholding spread, even as Tan Sri Ninian Mogan Lourdenadin is busy snapping up shares in the open market.

Kuala Lumpur: Time is running out for MBF Holdings Bhd to comply with Bursa Malaysia's public shareholding spread, even as its major shareholder, Tan Sri Ninian Mogan Lourdenadin, is busy snapping up shares in the open market, fuelling speculation that he will make a second attempt in as many years to take the company private.

In July, the stock market requlator rejected an MBF application for more time to comply with the shareholding spread. MBF had asked for until year end to meet the requirement.

The minimum public spread in a listed entity is 25 per cent. As it stands, MBF's public spread is only about 14 per cent.

Mogan, however, isn't the only one buying MBF shares this year. Filings to the stock exchange showed that MBF's non-executive director Datuk Azizan Abdul Rahman had bought 160,000 MBF shares in the second half of this year to bring his shareholding in the company to 2.11 per cent.

Azizan is the second largest shareholder in MBF.

Mogan now owns 84.43 per cent in MBF, up from the 82.66 per cent he had on September 28. His stakes in MBF is now valued at more than RM380 million, based on the company's closing price yesterday.

Wall Street rallies on Europe, Apple falls late

NEW YORK: Stocks surged late in trading on Tuesday, Oct 18 as buyers latched onto another report of agreements to strengthen the euro zone's rescue fund to bid up stocks aggressively.

All three major indexes rose sharply after a Britain's Guardian newspaper said France and Germany will increase the euro zone's rescue fund to 2 trillion euros as part of a plan to resolve the sovereign debt crisis.

Investors and buyers piled into financial shares, which had started the day weak but gained momentum on the late news. Shares of Bank of America rose (BAC.N) 10.1 percent to $6.64 and trading volume for the Direxion Financial Bull 3X ETF (FAS.P) jumped to the highest since April 2010.

The development from Europe is "really what we had been rallying on for the past two weeks before Germany yesterday signaled that the issue wasn't quite resolved," said Larry Peruzzi, senior equity trader at Cabrera Capital Markets in Boston.

"But the direction of the market can easily reverse if we get something bad again from Europe."

Stocks may also be affected on Wednesday by Tuesday's late news from tech bellwether Apple Inc (AAPL.O).

Stock index futures sold off after the bell following weak quarterly results from Apple. Its shares lost more than 5 percent to below $400 in extended trade after the company reported a rare miss in quarterly results after sales of its flagship iPhone fell short of Wall Street expectations. The stock had closed up 0.5 percent at $422.24 during the regular session.

S&P 500 futures fell 6.3 points while Nasdaq 100 futures lost 18.75 points.

Bank of America shares on Tuesday had been lower after it reported a third-quarter profit but showed its main businesses struggled as income from lending and investment banking fell.

Goldman Sachs Group Inc (GS.N) added 5.5 percent to $102.25 after reporting a rare loss, but Goldman said it was moving to cut costs, including employee pay.

Trading picked up shortly after the Guardian report, with 3 billion shares exchanging hands in the final hour on the New York Stock Exchange, NYSE Amex and Nasdaq. A total of 8.86 billion shares traded for the day, above the year's daily average so far of about 8 billion.

"Any news out of Europe is a cue for people to jump in or get out of the market. There was a lot of short covering during the final hour," said Stephen Massocca, fund manager at Wedbush Morgan in San Francisco.

The Dow Jones industrial average .DJI ended up 180.05 points, or 1.58 percent, at 11,577.05. The Standard & Poor's 500 Index .SPX was up 24.52 points, or 2.04 percent, at 1,225.38. The Nasdaq Composite Index .IXIC was up 42.51 points, or 1.63 percent, at 2,657.43.

Shares of Yahoo Inc (YHOO.O) dropped more than 3 percent to $15.96 in extended trading after the company reported its net revenue and profit slipped in the third quarter.

But Intel Corp (INTC.O) shares rose nearly 5 percent to $24.54 after the company forecast quarterly revenue above Wall Street's expectations, defying concerns that the growing popularity of tablets and a shaky economy are eating into demand for personal computers.

The CBOE Volatility Index VIX .VIX, Wall Street's "fear gauge," was down nearly 5 percent but still remained elevated above 30.

Financial stocks were the top gainers. The KBW bank index .BKX advanced 5.6 percent.

U.S. homebuilder stocks were helped by strong homebuilder sentiment data, signaling improvement in the housing market.

Shares of KB Home (KBH.N) rose 11.6 percent to $7.02. - Reuters

Top Glove bullish on growth

KUALA LUMPUR: Top Glove Corp Bhd expects the current oversupply of rubber gloves in the global market to be absorbed over the next one to three years and is pushing ahead with its expansion plans.

“There is a 10% to 20% oversupply right now. This is due to the high demand over the past one to two years,” chairman Tan Sri Lim Wee Chai said.

“But this is a long-term business and we will continue to invest as demand for gloves is still growing at 8% to 10% every year,” he said.

He said at a media and analysts and fund managers' briefing here that Top Glove had set aside RM100mil for capital expenditure next year, mainly for research and development and marketing expenses. Top Glove is the world's largest glove manufacturer.

Top Glove intended to focus more on “market-driven” products rather than being “product-driven”, he said, noting that the company's plants were running at full capacity for high-demand products like nitrile gloves, while for the less-in-demand vinyl gloves, production was running at between 30% and 40% capacity.

Top Glove had targeted to grow its capacity to 463 production lines producing 41.55 billion gloves a year by May 2012 from the current 395 lines that could produce some 35.25 billion pieces per year, Lim said.

Top Glove made a net profit of RM26.1mil for its fourth quarter ended Aug 31, 42% lower than the RM45mil it posted a year earlier, largely due to volatile latex prices, a weaker greenback and oversupply in the industry.

The situation is looking better now with lower latex prices at RM8 to RM8.20 per kg from about RM11 per kg a few months ago coupled with a recovering greenback against the ringgit, according to Lim.

“I think it is a matter of time before latex, which made up 64% of costs in the last financial year, falls to RM7 per kg, hopefully within the next three to six months,” he said.

On the floods in Thailand, where the company sourced most of its latex needs, Lim said the floods were in the north of Bangkok and not south where most of the supply came. “It may have some effect but it will not be critical,” he said.

Lim said Top Glove hoped to grow its sales by 20% in its current financial year ending Aug 31, 2012.

Net profit margin should come in between 8% and 10% for the current financial year and beyond, he added.

For the full year ended Aug 31, Top Glove's net profit stood at RM113.1mil against RM245.2mil a year earlier on revenue of RM2.05bil compared with RM2.08bil previously.

Maxis owner billionaire Ananda Krishnan will not be investigated in M'sia

KUALA LUMPUR: The case filed against Malaysian tycoon and Maxis owner T. Ananda Krishnan by India's Central Bureau of Investigation (CBI) has no impact on Malaysia's telecommunications industry, says Deputy Information, Communications and Culture Minister Datuk Joseph Salang.

He said the Malaysian authorities would not conduct any investigation on the tycoon.

“At the moment it's only an investigation (by India's CBI). There will be no investigation on the Malaysian side as we have been very transparent in how we manage our telecommunications industry,” he said.

Salang was speaking to reporters after opening the Communications and Connectivity Futures 2011 forum on behalf of Information, Communications and Culture Minister Datuk Seri Rais Yatim.

Stocks to watch: MMHE, Boustead, CIMB, Pharmaniaga

KUALA LUMPUR: The selldown on Bursa Malaysia on Tuesday, Oct 18, in line with the regional markets, saw RM21.9 billion erased from the Malaysian stock market capitalisation, according to the stock market data.

The sharp pullback was expected to push investors to the sidelines on Wednesday, unless there was strong economic data from the US or Europe to restore confidence.

Analysts expect trading to be volatile on Wednesday with more downside pressure, if Wall Street extends its losses on Tuesday.

At Bursa Malaysia, the FBM KLCI fell 1.73% or 25.41 points to 1,439.94, weighed by losses including at PLANTATION []s and blue chip stocks. Losers hammered gainers 705 to 145 while volume was 1.36 billion shares valued at RM1.37 billion.

Sime Darby’s 25 sen decline to RM8.65, dragged the 30-stock index down by 3.47 points while CIMB’s loss of 18 sen to RM7.19 erased 3.10 points from the index. Tenaga fell 22 sen to RM5.35, giving up most of Monday’s gains, reduced the index by another 2.75 points.

On the regional front, Hong Kong’s Hang Seng Index tumbled 4.23% to 18,076.46, the Shanghai Composite Index lost 2.33% to 2,383.49, Singapore’s Straits Times Index fell 1.95% to 2,724.69, Japan’s Nikkei 225 was down 1.55% to 8,741.91, South Korea’s Kospi lost 1.41% to 1,838.90 and Taiwan’s Taiex shed 1.36% to 7,359.48.

At Bursa, stocks to watch on Wednesday are BOUSTEAD HOLDINGS BHD [], Pharmaniaga, Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) and CIMB Group Holdings Bhd.

Boustead Holdings Bhd is seeking RM20.80 million in compensation after the Penang government decided not to approve the reclamation plans.

Boustead said the compensation amount was verified by independent consultants and it “is still in negotiation with the Penang Chief Minister and state government on the form of compensation to be paid to Boustead Holdings”.

In a separate announcement, Boustead reduced the offer price for PHARMANIAGA BHD [] shares by 5% from RM5.75 to RM5.46 under the restricted offer due to the prevailing market conditions.

It said the price of RM5.46 per Pharmaniaga share represented an attractive entry level cost into Pharmaniaga.

Boustead cited the relatively stable income stream for Pharmaniaga from the concession held by Pharmaniaga for the distribution of selected medical products to government owned hospitals and the growth prospects of the pharmaceutical industry in Malaysia.

MMHE’s unit has secured a contract for the Teluk gas development project by ExxonMobil Exploration and Production Malaysia Inc.

It said the scope of work included the CONSTRUCTION [] to commissioning of two top sides and two jackets to support the platforms.

CIMB Group Holdings Bhd’s subsidiary CIMB Thai posted net profit of 856.1 million baht (RM87.26 million) in the nine-months ended Sept 30, 2011, down 4.2% from 893.6 million baht in the previous corresponding period.

CIMB Thai, a 93.15% of CIMB Bank Bhd, reported on Tuesday, Oct 18 this was mainly due to one-off gains from the disposal of Sathorn building and certain subsidiaries in the corresponding period in 2010. “Should these items be excluded, the profit would have increased 149.2% year-on-year,” it said.