CIMB Research has technical buy on Perdana Petroleum

KUALA LUMPUR (Oct 31): CIMB Equities Research has a technical buy on Perdana Petroleum at 70.5 sen at which it is trading at a FY12 price-to-earnings of 9.0 times and price-to-book value of 0.6 times.

It said on Monday, Perdana Petroleum broke out of its downtrend channel last week.

“We expect the bulls to take charge from here. If prices can continue to hold steady above the resistance-turned-support trend line, there is a good chance that prices may re-rate towards 74.5 sen and 79 sen,” it said.

CIMB Research said the rebound from its 55 sen low also lifted prices above its 30-day and 50- day SMAs. This, together with the rising MACD and RSI indicators, bode well for the stock.

“Any pullback is an opportunity to accumulate. However, always put a stop at between 69.5 sen and 67.5 sen depending on one’s risk appetite,” it said.

CIMB Research: Worst is over for Tenaga

KUALA LUMPUR (Oct 31): CIMB Equities Research said the worst is over for TENAGA NASIONAL BHD [] as a higher gas allocation in FY12 will boost its earnings.

It said on Monday that this was offset by the lack of a complete fuel cost pass-through mechanism, which means that Tenaga has to absorb coal costs above US$85/mt and is susceptible to gas supply shocks.

“FY8/11 core net profit was 5% below our forecast and 10% above consensus. As expected, there was no final dividend. We fine-tune FY12-13 EPS and introduce FY14 numbers.

“We raise our target price (1.1x P/BV) after rolling it over to end-2012. Our target price also goes up from RM6.00 to RM6.47. Still a HOLD,” it said.

RHBCap to test resistance level

SENTIMENT on Bursa Malaysia continued to strengthen last week, spurred by the strong technical rebounds on the New York and Asian stock markets, particularly Hong Kong and Tokyo.

The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) continued to stay above the key 1,450-point level for the entire week, trading between a low of 1,448.12 on Tuesday and a high of 1,488.20 on Friday, a range of 40.08 points. The benchmark index closed at 1,481.82, posting a week-on-week gain of 42.99 points, or 2.99 per cent.

Among other indices, the FTSE Bursa Malaysia Small Cap Index gained 318.19 points, or 2.85 per cent, to 11,501.27 and the FTSE Bursa Malaysia ACE Market Index advanced 112.46 points, or 2.84 per cent, to 4,072.95.

On the foreign front, New York staged yet another follow-through rebound. The Dow Jones Industrial Average soared 3.58 per cent over the week to end at 12,231.11 on Friday.

The S&P 500 index, a broader indicator of the market, gained 3.78 per cent, to 1,285.08 and the tech-stock heavy Nasdaq Composite Index advanced 3.78 per cent to 2,737.15.

In Hong Kong, the stock market rebounded across the board and the Hang Seng Index advanced 11.06 per cent to 20,019.24.

Tokyo's benchmark index, the Nikkei 225, raced through the critical resistance of 9,000 points closing at 9,050.47 on Friday, up 4.28 per cent for the week.

On Bursa Malaysia, RHB Capital Bhd closed at RM7.67, a week-on-week gain of 54 sen, or 7.57 per cent.

The following are the readings of some of its technical indicators:

Moving Averages: RHBCap's daily price trend continued to stay above its 10-, 20- and 30-day moving averages. It continued to stay below its 50-, 100- and 200-day moving averages.

Momentum Index: Its short-term momentum index stayed above the support of its neutral reference line last week.

On Balance Volume (OBV): Its short-term OBV stayed above the support of its 10-day moving averages.

Relative Strength Index (RSI): Its 14-day RSI had since stayed above the 50 level. Its technical reading stood at the 57.84 per cent level at the market close on Friday.

Outlook
Strong buying support for key heavyweight index-linked stocks, particularly higher-priced counters, components sent the FBM KLCI above its crucial support of level of 1,450 last week. Of the benchmark index's 30 component stocks, 26 ended higher.

Once again, heavyweight blue chips continued to dominate trading activities, reflecting the continued buying support by institutional investors.

Select heavyweight blue-chip counters were well supported by institutional buying. RHBCap was one of these counters.

Chartwise, RHBCap's monthly price trend staged a successful re-test of the support of its neckline. Its fast monthly MACD (Moving Average Convergence Divergence indicator) continued to stay below its monthly slow MACD.

Its weekly price trend staged a breach below its intermediate-term uptrend support (see RHBCap's weekly price chart B1:B2). Last week, its weekly price trend continued to stay below its intermediate-term downtrend (B3:B4).

RHBCap's daily price trend staged a technical breakout of its intermediate-term downtrend (see RHBCap's daily price trend C1:C2) last week and continued to stay above it at the market close on Friday.

Its daily fast MACD stayed above its daily slow MACD at the end of the week. However, its weekly and monthly fast MACDs continued to stay below their respective slow MACDs.

Its 14-day Relative Strength Index (RSI) stood at the 57.84 per cent level. Its 14-week and 14-month RSI were at the 44.55 and 54.85 per cent levels respectively.

Given the decisive technical breakout of its intermediate-term downtrend (C1:C2) last Thursday, it is envisaged that RHBCap's daily price trend is likely to stage a follow-through rebound this week. It is likely to rechallenge its immediate overhead resistance at the RM8.00-RM8.40 levels.

The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.

Plan to be Asian industry leader in paint binders

KUALA LUMPUR: Kuala Lumpur Kepong Bhd, the biggest shareholder in London Stock Exchange-listed Yule Catto & Co plc, has set its sights on being Asia's biggest paint binder supplier in the mid-term.

It is now Southeast Asia's largest supplier of paint binders, following the British firm's £10 million (RM49.4 million) purchase of Quality Polymer Sdn Bhd from Nippon Paint Malaysia.

Quality Polymer is now placed under Yule Catto's 70 per cent unit Revertex Malaysia Sdn Bhd.

Yule Catto is also the owner of the Synthomer Group, of which Revertex is a key part.

Paint is essentially made up of pigments, binders and solvents. A pigment gives the paint its colour and is mixed into a solvent. The binder in the paint, however, binds the pigment to the solvent to form a very thick liquid so that it can properly coat a surface.


In an interview with Business Times here, Synthomer Asia managing director Dr Brendan Catlow said: "The Quality Polymer purchase is just the beginning of our plans to expand across Asia.

"We aim to have more than 50 per cent of our sales from emerging markets by 2015. The only way to achieve this target is via major investments and acquisitions," he said.

On the size of Synthomer's war chest, Catlow declined to specify but said: "We have a very strong balance sheet."

On details of the recently-concluded Quality Polymer purchase, Catlow said: "We've been in talks with Nippon Paint for over a year before we finally agreed on the price. This acquisition is all about growth, not cost reduction. There's no voluntary separation scheme."

Quality Polymer, which employs 30 staff at its Pasir Gudang factory in Johor, chalks up an annual sales of some STG10 million.

With the addition of Quality Polymer's 15,000-tonne facility, Catlow said Synthomer's paint binder capacity in Asia now totals over 65,000 tonnes a year.

"Our binders are used in eight of top 10 global paint brands. In view of the increasing demand for paint binders in Southeast Asia, we're planning to set aside more investments to raise capacity at the Pasir Gudang facility. This will be carried out next year," he said.

According to the World Paint & Coatings Industry Association, the 10 most popular paint brands are AkzoNobel, PPG Industries Inc, Sherwin-Williams Co, DuPont Coatings & Color Technologies Group, ICI Paints, BASF Coatings AG, RPM International Inc, SigmaKalon Group BV, SACAL, Valspar Corp, and Nippon Paint Co.

Synthomer is not a newcomer to Malaysia, having been in business here for 75 years.

Apart from making paint binders, it is also the world's number one supplier of nitrile latex, catering to the needs of the top 10 rubber glovemakers in Southeast Asia.

Describing Synthomer's business, Catlow said: "Our polymers are used in a wide range of industries to create and enhance everyday consumer products.

"Whether you're reading a book, opening a pack of breakfast cereals, painting your kitchen, labelling an envelope, laying a carpet, tiling a bathroom, using hairspray or simply driving your car, you could be using a product that has been improved by our scientists," he added.

KL bourse expected to show upside resilience

Lower liner property counters like Hua Yang, Mah Sing and UOA Development should enjoy gains in the immediate term, given their strong upside bias, says a head of research

Shares on Bursa Malaysia climbed last week, lifting the blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) to a two-month high on external strength following better-than-expected economic data and positive outcome from the EU finance ministers' summit on October 26.

The expansion of the euro-zone bailout fund to €1 trillion, agreement by bondholders to take a 50 per cent haircut on Greek debt and robust US economic growth collectively boosted global equities, due to relief over the decisive action taken by EU leaders to prevent a debt contagion.

Subsequently, the FBM KLCI surged 42.99 points, or 3 per cent to end the week at 1,481.82, with Genting Bhd (+85 sen), Tenaga (+40 sen), Sime Darby (+35 sen), CIMB (+27sen) and Petronas Chemical (+40 sen) contributing to 60 per cent of the index's rise.

The average daily traded volume and value increased marginally to 1.486 billion shares and RM1.77 billion respectively, compared with the 1.478 billion shares and RM1.32 billion average the previous week, as trading momentum focused on lower liner penny stocks while blue chips showed slowdown in buying interest.

Agreement on affirmative actions to resolve the euro debt crisis and the fact that the US gross domesticproduct (GDP) grew at a stronger 2.5 per cent annual rate in the third quarter compared to a mild 1.3 per cent expansion a quarter earlier allayed concerns about a double dip the US and raised appetite for risky assets last week.

Raising the bailout amount to €1 billion will provide more clout to deal with the recapitalisation of European banks while the 50 per cent haircut will provide Greece more breathing space to manoeuvre itself out from under the debt crisis.

Nevertheless, it is yet to be seen how these eurozone countries will contribute to the bailout fund without affecting their credit ratings with countries like Italy forced to pay a higher interest (indicating rising default risk) in a recent bond auction that underperformed expectations.

This is an important week as more details on the Euro bailout measures are expected to emerge after the meeting of Group 20 leaders in Cannes, France this Thursday and Friday.

There are also expectations that the US Federal Reserve will reveal more hints about the third quantitative easing when it meets over the next two days. It is unlikely for the central bank to launch a third quantitative easing (QE) in the immediate term with unwavering recent economic data and the absence of deflationary pressure.

The ISM manufacturing, factory orders, non-farm payrolls and unemployment data that will be released this week could shed more clues on US Fed's next action in coming months.

On the home front, the index, in the absence of any negative news externally, may continue to chalk some gains early this week albeit at a slower pace before consolidation sets in later as short-term technical indicators have turned increasingly overbought. Rotational plays into lower liners are expected to continue with many small cap plays in the construction, property, consumer and oil & gas sectors trading at attractive valuations.

Oil & Gas sector deserves a special mention with Petronas indicating 22 marginal fields are available for development and it is giving free hands to interested oil & gas players to submit proposals by 1Q2012 before awarding them in the next three months.

The merger between SapuraCrest and Kencana place them in a stronger footing to bid for more contracts in the future and undoubtedly both these stocks are trading at undemanding valuations. Petronas' admission would lead to more M&A activities in the sector where smaller players, which are trading at a single digit forward price-to-earnings ratio, will be forced to consolidate and improve their competitiveness.

Technical outlook
Spot month October KLCI futures contract traded on Bursa Malaysia Derivatives Berhad was up a huge 47.5 points week-on-week to 1,476.5, reducing to a 5.32-point discount to the cash index, compared to the large 9.83-point discount the previous Friday.

The local stock market climbed on Monday, copying regional strength on stronger-than-expected economic data from China and Japan and after European leaders moved closer to overhaul the region's sovereign debt crisis.

The key index gained 11.19 points to settle at 1,450.02, off an opening low of 1,449.10 and early high of 1,462.06. Stocks fell into profit-taking congestion mode the next day as investors stayed sidelined ahead of the Deepavali holiday break and await the conclusion of the EU finance ministers' summit on October 26.

Still, the FBM KLCI ended up 7.78 points at the day's high of 1,457.8 due to late spurts on select index heavyweights, and off a low of 1,448.12.

The local market rose on Thursday along with strong regional gains on hopes China may soon ease monetary policy to support economic growth and on reports European leaders have agreed on writing down Greek's debt.

The index rose 13.13 points to settle at 1,470.93, off a high of 1,474.27, on robust volume totaling 1.88 billion shares worth RM2.41 billion.

The market extended gains ahead of the weekend, fueled by the strong overnight rally on US and European markets following the expansion of the euro-zone bailout fund to ?1 trillion and robust US economic growth.

The index added 10.89 points to end the week at 1,481.82, off an early high of 1,488.2 and low of 1,478.15, as gainers edged losers by 470 to 338 on strong turnover of 1.88 billion shares worth RM2.3 billion.

Trading range for the FBM KLCI was 40.08 points last week, compared with the 94.3-point range the previous week caused by the sharp intra-day dip to extreme low of 1,371, due to late programme selling from a foreign broker the previous Friday.

For the week, the FBM-EMAS Index advanced 310.41 points to 10,117.36, while the FBM-Small Cap Index climbed 318.19 points to 11,501.27, as lower liners in the construction, oil & gas and property sectors rallied to outperform the broader market.

The daily slow stochastics indicator for the FBM KLCI reissued a buy signal at the overbought zone early last week, confirming the buy signal from the oversold region on the weekly indicator.

The 14-day Relative Strength Index (RSI) indicator climbed higher to above the 60-point mark, while the 14-week RSI listed a positive reading just above 50.

Meantime, the daily Moving Average Convergence Divergence (MACD) trend indicator's signal line extended higher above the zero line to reinforce a bullish trend, while the weekly MACD signal line continued hooking up to suggest more upward momentum.

The 14-day Directional Movement Index (DMI) trend indicator will see the -DI line crossing back below the +DI line to trigger a buy signal on further strength, but the ADX line continued inching lower, confirming a trendless market.

Conclusion
Given the further improvement on momentum and trend indicators for the benchmark index, the local stock market should show upside resilience this week, even as short-term momentum becomes more overbought.

As such, profit-taking dips are likely to be shallow as investors should be more confident to return and bargain stocks, especially those in the construction, property and oil & gas sectors which have suffered losses in recent weeks.

Moreover, improvement on the eurozone debt situation following the decisive action taken by EU leaders to boost its rescue fund to €1 trillion as bondholders agreed to a relatively mild 50 per cent haircut on Greek debt, as well as stronger-than-expected US and Chinese economic data, should combine to boost sentiment further.

Hence, blue chips such as CIMB, Gamuda, Genting Bhd, RHB Capital and MMHE at current levels are good to accumulate for further upside potential in the medium term, while lower liner property counters like Hua Yang, Mah Sing and UOA Development should enjoy gains in the immediate term, given the strong upside bias after stock prices have been heavily and unfairly sold down in recent weeks.

On the other hand, investors should look to take profit or sell AirAsia and Supermax, since both register overbought RSI reading of above 70.

On the index, immediate resistance comes from 1,488, the 61.8per cent Fibonacci Retracement (FR) of the sell-off from the 1,597 record high of July 11 to the recent pivot low of 1,310 on September 26, matching last Friday's high.

A breakout going forward would see stronger resistance from the 100-day and 200-day moving averages at 1,495 and 1,512 respectively, being challenged, while the 76.4 per cent FR at 1,529 would act as a formidable upside barrier.

Immediate support on profit-taking dips will be at 1,454, the 50 per cent FR, with better retracement support at 1,420, the 38.2 per cent FR, followed by 1,400 and then 1,378, the 23.6 per cent FR.

The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.

Penang-based MNCs feeling heat of Thai floods

Some Penang-based multinational corporations with supply chains tied to Thailand have begun cutting back on production.


George Town: While the full effects of the massive floods in Thailand on Malaysian-based companies cannot be quantified yet, there appears to be mixed signals from industrialists in Penang.

While those who are not highly dependent on Thai firms for the supply of parts and components for their products - notably in the electronics and automotive sectors - seem unaffected, others with a deeply entrenched supply chain in Thailand are already feeling the heat.

Speaking to the Business Times on condition of anonymity, some Penang-based multinational corporations (MNCs) with supply chains tied to Thailand have begun cutting back on production. Others are scrambling to source alternative supplies of materials locally and elsewhere.

"The visibility of the supply chain for companies here is not known to many people and the long-term effects of the Thai floods to Penang is still not known," an industrialist said.

Malaysian American Electro-nics Industry chairman Datuk Wong Siew Hai said some members - like those in the hard disk drive industry - with high inventory levels of components and parts, may initially have a buffer and have time to work with other suppliers to meet continued demand, or grow their capacity locally.

"Given Thailand's position as a global supplier for hard disk drives, I would expect the lead-time to the end-product manufacturer to be extended," he said in an interview.

It is learnt that at least one Penang-based global electro-nics manufacturing services (EMS) provider has shut down one production line owing to a shortage of parts caused by the Thai floods.

Another EMS firm with ope-ration scattered in Penang and other Malaysian states said that it was not affected because its supply chain is concentrated in Malaysia and China.

"The situation in Thailand has minimal impact on our company as we have next to zero suppliers in Thailand," a company spokesman said.

Wong anticipates some hiring by Penang firms to occur as member companies with manufacturing presence in Thailand turn to Malaysia to grow their capacity.

"The multiplier effect on Penang is likely to spill down to small and medium industries such as machine suppliers," he noted.

Meanwhile, Penang Freight Forwarders Association president Krishnan Chelliah said: "Since the airport, seaport and access roads in Bangkok are now closed indefinitely, we are unable to assess the impact on our over 110 members yet.

"The transportation chain has definitely been crippled because of the floods and the issue will be discussed this coming week when council members of the Federation of Malaysian Freight Forwarders meet and we will have better visibility on the situation."

Glomac eyes land in Greater KL for integrated mixed projects

PETALING JAYA: Armed with a net cash position of RM361.6mil as at July 31, 2011, Glomac Bhd is on the lookout to buy small land parcels with fast turnaround and high gross development value potential in the Greater Kuala Lumpur area.

Group managing director and chief executive officer Datuk Fateh Iskandar Mohamed Mansor said negotiations were under way for some suitable sites to be developed into integrated mixed projects.

He said there were some “under-rated” sites where Glomac could use its expertise to enhance the land value through innovative infrastructure, branding, marketing and design.

“At the same time, this strategy will contribute to a solid balance sheet while keeping down the company's debt position,” he noted.

Glomac is also keen to participate in government land privatisation and is looking at some of the projects.

Based on a consistent growth in profit over the past three years, the company is confident of posting a double-digit growth in its earnings for its financial year ending April 30, 2012 (FY2012).

Glomac recorded a profit after tax of RM32mil for FY2009; RM41mil for FY2010; and RM63mil for FY2011.

“For FY2012, Glomac is looking to launch up to RM1.2bil in new projects comprising affordable housing units, medium to medium upper range of properties and commercial projects.

The developments slated for launch this year include projects in Glomac Damansara (RM250mil), Mutiara Damansara Residences (RM250mil), Glomac Utama Phase 1 (RM250mil), Glomac Cyberjaya 2 (RM100mil) and townships in Rawang, Sungai Buloh and Johor (worth a combined RM295mil).

“Having achieved RM100mil in sales for the first quarter ended July 31, Glomac is on track to achieve its sales target of RM500mil for FY2012,” he added.

The company raked in sales of RM418mil in FY11. As at July 31, it has unbilled sales of RM550mil.

Iskandar said Glomac's landbank of close to 404.68ha had an estimated GDV of RM3.8bil. The landbank will keep it busy for the next six to seven years, and he expects Glomac to undertake projects worth some RM600mil a year.

Glomac assistant general manager, group corporate communication and corporate marketing, Fara Eliza FD Mansor said the company would be unveiling its latest property projects at The Star Property Fair 2011 to be held from Nov 25 to 27 at the Kuala Lumpur Convention Centre.

The projects to be exhibited include Glomac Damansara, the company's flagship mixed development on 2.75ha fronting Jalan Damansara.

Fara said the project with a GDV of RM898mil, offered a hybrid mix of business and leisure property.

“Glomac Damansara Residences comprise two blocks of service apartments. The 356 apartments with built up of 876 sq ft to 2, 529 sq ft are priced from RM581,660, or around RM650 per sq ft. So far, 75% of the units have been sold,” she added.

Also sold are the five and eight-storey shop offices (GDV of RM54mil), and the 25-storey corporate tower office suites (GDV of RM171mil) which was sold en-bloc last year.

Glomac Damansara will also have a 16-storey office block and a boutique retail mall (with a total GDV of RM388mil) that will be launched later.

Fara added that the other projects to be showcased at the property fair will be Glomac Utama's double-storey shop offices and service apartments; Mutiara Damansara Residences, consisting of 299 units of 1,200 sq ft to 1,600 sq ft of freehold service apartment project; Sinaran@Suria Residen a gated and guarded development in Cheras and three to 41/2-storey shop offices at the RM250mil Glomac Cyberjaya 2 project.

Bursa likely to extend gains

TA Securities expects the positive sentiment globally will further help property and construction stocks to slightly recover after their recent losses.

STOCKS on Bursa Malaysia are likely to extend its gains this week, underpinned by the recent strong performance on Wall Street and news of an European plan to address Greece's debt issues.

The news are expected to bring cheer to the local market and help boost investors' appetite.

Investors will price in the stronger US and European economies as well as the reduced banking crisis risk in both continents in their investment strategy.

Wall Street held its gains from Thursday's big rally and ended with the fifth straight week of advances last week. As for Europe, it has expanded a bailout facility and recapitalise the region's biggest banks in efforts to rescue Greece.

At home, the uptrend news on the global front is expected to help push the benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) to a possible 1,524 level, the highest level recorded in 2008 before the subprime crisis.

The FBM KLCI was up 114.3 points from 1,367.52 on October 3 to end 1,481.82 last Friday. For last week, the main index was up 30.9 points, or 2.19 per cent.

Bursa Malaysia was closed on Wednesday for the Deepavali holiday.

TA Securities senior technical analyst Stephen Soo said the key index is expected to strengthen, boosted by rising appetite in riskier assets. "We foresee the positive sentiment globally will further help property and construction stocks to slightly recover after their recent losses," he added.

Despite the positive views, OSK director and research head Chris Eng warned that the market is still in defensive position and investors will remain cautious amid the uncertain global economic outlook.

"There is a possibility the market will dip if the index reaches the 1,500 level, due to selling pressure," he added.

Week-on-week, the FBM KLCI advanced 42.99 points to 1,481.82 against the previous Friday's closing of 1,438.83. Total volume declined 6.03 billion shares worth RM7.10 billion from 7.40 billion shares worth RM6.58 billion before.

Main Market turnover fell 4.67 billion units worth RM6.94 billion from 5.49 billion units worth RM6.362 billion previously.

Among stocks in focus this week are Tenaga Nasional after it announced a fourth-quarter net loss of RM453.90 million, the second consecutive quarter of losses, last Friday. Others include Tasek Corp Bhd, Cycle & Carriage Bhd and SILK Holdings Bhd.