News Highlights - DRB Hicom, Axiata Group, Dialog Group, Bumi Armada, Banking Sector

DRB Hicom Bhd (RM2.37/share)

Gets 98.6% of Proton

DRB-Hicom Bhd has received acceptances of up to 98.66% as at 5pm yesterday for its takeover at Proton Holdings Bhd, whose shares will be suspended from May 4. With the acceptances, DRB-Hicom will invoke the provisions of Section 222 of the Capital Markets & Services Act 2007, within the next two months, to compulsorily acquire the remaining shares in Proton and delist it from Bursa Malaysia.

The offer to Proton shareholders remains open until May 9. The deadline was extended from April 25 to give more time for the remaining shareholder of Proton to consider parting with their shares. DRB-Hicom had previously indicated that it would not maintain Proton’s listing status if the acceptances exceeded 75%. – The Edge

Axiata Group Bhd (RM5.31/share)

Celcom withdraws appeal against RM590mil award

Celcom Axiata Bhd has withdrawn its appeal to the Court of Appeal against a decision involving the award of US$193.5mil (RM590mil) to DeTeAsia Holdings GmbH in a dispute during its privatisation in 2003. In a filing with Bursa Malaysia, Axiata Group said yesterday that Celcom withdrew its appeal with no order as to costs.

To recap, Celcom Axiata had appealed to the appellate court over a High Court decision which had earlier set aside its originating summon against DeTeAsia’s bid to enforce the international court decision. In 2005, the International Court of Arbitration of the International Chamber of Commerce ordered Celcom to pay US$193.5mil in principal sum and interest to DeTeAsia for breach of an agreement between Celcom and DeTeAsia.

The dispute between Celcom and DeTeAsia, which had an 8% stake in the telecommunications operator, arose leading up to the merger between Celcom and TM’s subsidiary TM Cellular Sdn Bhd in 2003.  – StarBiz

Dialog Group Bhd (RM2.23/share)

PITSB to set up crude oil storage terminals

Pengerang Independent  Terminals Sdn Bhd (PITSB) plans to set up dedicated terminals for crude oil   storage under its second phase of expansion. Chairman Dr Ngau Boon Keat said the project would probably take place two years after the commercial operations of the company’s independent terminal start in 2014.

He said the dedicated terminals would cater to national and international oil companies and traders to store crude oil for refineries-related activities, adding that they will also conduct a feasibility study on whether there is demand for liquefied national gas (LNG) storage at the complex.

The RM5bil complex on 323.74ha site in Pengerang would provide storage, blending and distribution services for crude and clean petroleum products, he said.  The complex’s petroleum storage facilities of about 1.3 million cu m could be further expanded by an additional 1 million cu m.

Dialog Group Bhd and Royal Vopak hold 51% and 49% equity respectively in a joint venture company, Pengerang Terminals Sdn Bhd, which owns 90% of PITSB. The Johor government, via its investment arm State Secretary Inc, holds the remaining 10% stake in PITSB. – StarBiz

Bumi Armada Bhd (RM4.22/share)

Ananda pares down stake

Tycoon Ananda Krishnan and his bumiputera partners will sell roughly 15% of offshore services provider Bumi Armada Bhd in private placements to local and foreign institutional investors in a deal that will raise close to RM2.0bil.

Financial executives involved in the placement told The Edge Financial Daily that the sale of roughly 440 million shares in Bumi Armada would cut the joint holdings of Ananda and his bumiputera partners to 55% in the company.

One financial executive said the deal will widen their shareholder base and raise a little money. He added that shares would be placed out at a discount of between 3% and 6% of the current trading price. Sales could be tweaked slightly upwards if there is strong response.

The planned placement, which will be finalised in the coming days, represents the latest in a series of asset sales involving units in Ananda’s diversified corporate empire. – The Edge

Banking Sector

RHBCap-OSK merger believed to have received Bank Negara approval

The RHB Capital Bhd-OSK Holdings Bhd merger deal is believed to have received the nod from Bank Negara and is now awaiting approval at the Finance Ministry level, according to sources. Internally, RHB has set a target for the completion of the deal at the end of the third quarter.

Among the issues are those related to pricing; talk that CIMB is still interested in RHB, hence the rationale for RHB buying OSK; and that most department heads proposed for the investment bank are purportedly from OSK.

Also, this is regarded to be a complex deal that will see RHBCap’s reach extended to markets like Indonesia, Cambodia, Hong Kong and China. With RHB mostly in institutional business and OSK in  the mid-sized and commercial sector, there appears to be little overlap between the two. - StarBiz 

Source: AmeSecurites

RHB Capital - DRP price set at RM6.52/share HOLD

- RHB Capital announced that the issue price for its dividend reinvestment plan (DRP) in relation to its final DPS for FY11 has been set at RM6.52. 

- This is in relation to the final dividend for FY11 which was declared on 28 February 2012. The final dividend comprises a gross dividend of 11.82 sen/share less 25% tax (net dividend: 8.87 sen/share) and a single-tier dividend of 5.59 sen/share. 

- The issue price for the DRP of RM6.52/share is computed based on the volume-weighted average market price for the five market days (up to and including 25 April 2012) prior to the price fixing date of RM7.41, minus the gross dividend per share of 17.41 sen and applying approximately a 10% discount equivalent to RM0.72.

- The ex-date is on 10 May and the entitlement date is on 14 May. 

- The new RHB Cap shares arising from the DRP will be listed on 12 June. 

- The DRP discount of 10% is the same as the previous tranches of DRP.

 

- To recap, the interim gross dividend for 2011 was declared on 24 August 2011. Gross dividend declared was 8 sen less 25% tax. The DRP price for that tranche of dividend was set at RM6.44/share, with 63.2% of shareholders opting for the DRP. 

- Similarly, the DRP discount for the previous tranche of FY10 final dividend was also set at 10%. The final gross dividend was 21.38 sen less 25% tax, while the DRP price was set then at RM7.56/share, with 84.17% of shareholders opting for it.

- We expect RHB Cap’s upcoming results to be in line with our forecasts. While we have RHB Cap on a hold, we believe there is limited downside, given the current cheap P/BV valuation. We would advocate for the DRP plan given the 10% discount.   

Source: AmeSecurities

CIMB Group - CIMB Niaga’s 1Q turns out better than expected HOLD

- CIMB Group Holdings Bhd’s (CIMB) 97.9%-owned Indonesian subsidiary PT Bank CIMB Niaga Tbk (CIMB Niaga) reported strong net earnings of Rp937bil (+17.7% QoQ, +28.7% YoY) in 1QFY12, boosted by good one-off treasury gains of Rp300bil arising from sale of bonds. Stripping this off, we estimate normalised annualised net earnings to be only marginally 0.9% lower than our forecast. CIMB Niaga’s net earnings contribution is 31% to our pro-rated group net earnings in 1QFY12, but without the one-off sale of bonds, we estimate core net earnings contribution at 23.6% in 1QFY12, marginally lower than 4QFY11’s 24.6% and 1QFY11’s 27.6%. 

- Loans grew 3% QoQ (ahead of industry’s 0%) and 18% YoY (below industry’s 21%), with loans growth in line with guidance of 18% to 20%. CIMB Niaga remains focused on higher-yielding segments, i.e. the micro finance segment (+19% QoQ, +220% YoY, 1.1% of total loans) and personal loans segment (+53% QoQ, +667% YoY, 0.5% of total loans). Besides this, the corporate loans (+4% QoQ, +17% YoY, 31.5% of total loans) segment benefited from a large syndicated loan in 1QFY12. NIM normalised to 5.67% in 1QFY12 (4QFY11’s 5.87% boosted by one-off recoveries; 1QFY11: 5.51%), with YoY uptick attributed to its strategy to focus on high-yielding segments. NIM is in line with guidance of 5.5% to 5.6%. CIMB Niaga remains selective in mortgage loans (+4% QoQ, +14% YoY, lower than industry’s 5% QoQ and 30% YoY) citing intense competition. 

- Deposit grew 1% QoQ (industry: -1% QoQ) and 11% YoY (industry 18% YoY). Demand deposits also did well in 1QFY12, rising 2.1% QoQ and 15.8% YoY, likely due to improved traction on some corporate deposits. But CASA contribution to overall deposit was unchanged QoQ at 44.9%.  

- Gross NPL ratio recorded a marginal uptick to 2.69% in 1QFY12, from 2.64% in 4QFY11, attributed to a loan which was already classified as impaired now moving into the non-performing loan bucket after three months. Gross impaired loans ratio improved to 3.43% in 1QFY12 from 3.61% in 4QFY11. The company raised loan loss provision expense substantially to Rp425bil or credit costs of 33bps in 1QFY12 from Rp220bil (credit costs: 18bps) in 4QFY11, citing that it had adopted a much more conservative loan loss provisioning stance in this  quarter. Looking ahead, it expects this to normalise to between the Rp200bil and RM400bil range in the next few quarters ahead.   

- Looking ahead, loans growth may slow down given that regulators will start implementing higher down-payment requirements for consumer loans from mid-2012. We sense the company may be more cautious given the higher loan loss provisioning stance, but nevertheless, CIMB Niaga enjoyed a good 1QFY12. We maintain HOLD on CIMB with fair value of RM8.00/share.   

Source: AmeSecurities 

CB Industrial Products - Declares 30 sen tax exempt final dividend HOLD

- CB Industrial Product Holding Bhd (CBIP) has declared an interim tax exempt dividend of 30 sen/share for FY11.

- In the FY11 results announcement released in February 2012, the group had not declared any dividend payment. 

- CBIP practises the policy of only declaring final dividends after the results announcement.

- The dividend entitlement and payment dates for the 30 sen payout will be announced later.

- As the disposal of the plantation assets has not been completed yet, we reckon that CBIP would be paying the dividends from its cash reserves first. As at end-FY11, CBIP’s gross cash amounted to RM70.4mil. 

- In our earnings forecast, we have assumed that the disposal of the plantation assets would be completed by mid-FY12F.  

- The 30 sen tax exempt dividend would cost CBIP about RM83mil in total. 

- The 30 sen dividend would also translate into an attractive yield of 10.5% for FY11.

- Although the market had been expecting CBIP to declare higher dividends from the disposal proceeds of the plantation assets, we had thought that the incremental dividends would only come in 2HFY12. 

- Hence, the earlier-than-expected announcement is a  surprise. We had forecast CBIP to declare a final dividend of 10 sen/share for FY11.

- For FY12F, we expect gross dividend payments to normalise. 

- We are currently forecasting a gross DPS of 6 sen, which translates into a yield of 2.1% for FY12F. 

- Maintain HOLD on CBIP with fair value of RM2.85/share.

Source: AmeSecurites

OSK188 - 27 April 2012: DAILY RESEARCH REPORT

On The Platter

AEON (FV RM8.53 – NEUTRAL) Company Update: Hello AEON, Bye-bye Jusco

AEON unveiled its new brand name „AEON‟ and tagline „AEON Enriching Your Lifestyle‟, superseding the „Jusco‟ brand that most Malaysians have grown accustomed to over the past 28 years The rebranding exercise will take place over the next two years, with the ultimate aim of embracing one brand name for all its stores and shopping centres on a global scale. Moving forward, the company plans to open another outlet in Manjung, Perak after the grand opening of the Ipoh Station 18 mall lately. Maintain NEUTRAL with a FV of RM8.53 given the limited upside potential for the share price.

CIMB (FV RM8.53 – BUY) Company Update: CIMB Niaga Results Beat Estimates

AIRASIA (FV RM4.57 – BUY) Company Update: 1Q Stats: Looking Good

MAHB (FV RM7.53 – BUY) 1QFY12 Results Review: A Good Start to 2012

MPI (FV RM3.64 – TRADING BUY) 9MFY12 Results Review: Better Outlook in 2H

Market Review

Key index gains but caution linger. The FBM KLCI inched up 0.34 pts to 1,579.69. However, the market sentiment was subdued with losers leading gainers by 453 to 253 while 321 counters remained flat and 515 others untraded. Among the key market news today include, Tan Sri Ananda Krishnan is  said to pare down  his  15% stake in Bumi Armada, Pengerang Independent Terminal SB to set up crude oil storage terminals, TA Global to buy Thai hotel for RM275.6m, DRB-Hicom gets 98.6% of Proton shares, AirAsia dismisses “not using KLIA2” talks, CIMB Niaga 1Q profit jumps 29% and Malaysian Pacific Industries posts net loss on weak demand. Overnight, U.S. stocks extended gains into a third day as better-than-expected data on housing and an upbeat forecast from Citrix Systems Inc. helped lift the S&P 500 Index briefly  above 1,400 for the first time in three weeks. The DJIA also added 113.90 pts, to 13,204.62 thus possibly helping to warm up sentiment across the regional bourses today.

MEDIA HIGHLIGHTS

US stocks rise after home sales increase

US stocks rose for a third day as pending home sales increased more than forecast and technology companies rallied on better-than-estimated earnings. Metals led commodities higher, while 10-year Treasury yields approached a two-month low. The Dow rose 113.90 to close at 13,204.62 while the S&P 500 Index closed up 0.7% to 1,399.98. The S&P 500 reversed early losses as the National Association of Realtors reported that pending home purchases rose 4.1% to the highest level since April 2010, tempering concern about the economy after an earlier government report showed 388,000 Americans filed jobless claims last week, 13,000 more than the median economist estimate. (Bloomberg)

Ananda pares down stake in Bumi Armada

Tan Sri Ananda Krishnan and his  bumiputera partners will sell roughly 15% of Bumi Armada in private placements to local land foreign institutional investors in a deal that will raise close to RM2bn and cut Ananda and his partners‟ stake to 55%. The shares would be placed out at a discount of between 3%-6% of the RM4.22 current price. The planned placement represents the latest in a series of asset sales involving Ananda‟s companies. Last month, Anada sold his power generation business to 1MDB for RM8.5bn. Sources also said that 1MDB is in talks to buy Ananda‟s satellite operator Measat Global.(Financial Daily)

Felda Global to offer 2.19bn shares in IPO

Felda Global Ventures Holdings (FGVH) will see up to 2.19bn shares being offered under its IPO scheduled for end-May or early June. The IPO comprises an offer for sale by Felda of up to 1.21bn shares and a public issue of up to 980m shares. FGVH is in the  upstream and downstream palm oil business and other agribusinesses encompassing oil palm and rubber plantation products, soybean and canola products, oleochemical and sugar products. 49%-owned associate Felda Holdings, meanwhile, is the largest CPO producer in the world. FGVH also has MSM under its stable. (StarBiz)

KLIA passenger traffic hit by MAS, AirAsia route cuts

KLIA underperformed regional airports in terms of passenger movement in the first quarter of 2012, due to route cuts by Malaysia Airlines and AirAsia. KLIA saw passenger movement grow by 6.9% for the quarter under review compared with Changi‟s 12.8% growth and Jakarta‟s 18.4% jump. Last year, MAS announced route cuts to at least 10 international destinations as part of efforts to rationalise its network and return to profitability, (BT)

Big spin-offs from Pengerang O&G project

The RM5bn Pengerang Independent Deepwater Petroleum Terminal (PIDPT) project, which will be completed about four years from now, is targeted to contribute RM19.8bn in gross national income and create 14,100 jobs by 2020. It will complement Petronas' Refinery and Petrochemicals Integrated Development (Rapid) complex with its crude oil refining capacity. The project will start next year and is scheduled for completion in 2016. The Pengerang terminal will be the second largest of its kind in Asia, with close to 1.3 million cubic m in capacity. (BT)

ECONOMIC HIGHLIGHTS

Malaysia: Najib spending spree risks credit downgrade

Malaysian Prime Minister Najib Razak's record spending binge, aimed at shoring up support before elections that could be called as early as next month, may risk the country's first credit-rating downgrade since the Asian financial crisis 15 years ago. Standard and Poor's "might have to think about" a potential cut of Malaysia's Arating in a few years unless the next government enacts measures to boost revenue and reduce subsidies after the vote, Mr Takahira Ogawa, an analyst at the rating company, said. (Bloomberg)

Singapore: Production falls on drugs, electronics

Singapore's industrial production fell for the second time in three months last month as electronics and pharmaceutical manufacturers decreased output. Manufacturing fell 3.4% y-o-y after a revised 11.8% gain in February. Economists had expected a 5.8% decline. From the previous month, output climbed a seasonally adjusted 2.7%. (Bloomberg)

Thailand: Exports down in March on continued Europe weakness

Thailand‟s exports fell 6.5% y-o-y in March, the fourth decline in five months, as factories struggled to resume full production after last year's flood crisis. Shipments fell in nearly all product items affected by last year's floods, with March exports valued at USD19.9bn. In particular, shipments to Europe fell 15.3% and to Japan, 3.6%. Exports to the US meanwhile rose 5.3% and to China 1.1%. (Bloomberg)

Spain: Ratings cut by S&P on deficit, bank bailout concern

Spain‟s sovereign credit rating was cut to BBB+ from A by Standard & Poor‟s on concern the nation will have to provide further fiscal support to the banking sector as the economy contracts. Its short-term rating was lowered to A-2 from A-1, while the outlook on the long-term rating is negative. (Bloomberg)

Italy: Business confidence drops to lowest in two years

Italian business confidence unexpectedly fell to the lowest level in more than two years in April amid concerns that the country‟s fourth recession in a decade may deepen. The manufacturing-sentiment index dropped to 89.5 from a revised 91.1 in March. Economists had predicted a reading of 92.1. (Bloomberg)

EU: Spanish, Italian bond yields climb after confidence data

Spanish and Italian bond yields climbed in light volumes Thursday, as demand for lower-rated euro-zone government debt was curbed following a survey that showed economic confidence in Europe was dwindling. The 10-year Spanish bond yield rose by seven basis points to 5.84% while the corresponding Italian bond yield increased by two basis points to 5.65%, according to Tradeweb. The weaker backdrop could pose a challenge to an Italian bond auction on Friday for up to EUR6.25bn. (Bloomberg)

US: Cooling labor market takes a toll on confidence

More Americans than forecast filed applications for unemployment benefits last week and consumer confidence declined by the most in a year, signaling that a cooling labor market may restrain household spending. Jobless claims fell to 388,000 from a revised 389,000 the prior week that was the highest since early January while the Bloomberg Consumer Comfort Index declined to minus 35.8 from minus 31.4 the previous week. (Bloomberg)

US: Pending sales of existing homes increased 4.1% in March

Signed contracts to buy US homes rose more than forecast in March as low interest rates drew buyers back into the market. The index of pending home purchases rose 4.1% to 101.4, the highest level since April 2010, after a 0.4% gain in February that was revised from a previously estimated 0.5% drop, the National Association of Realtors reported. The median forecast of 43 economists surveyed by Bloomberg News called for a 1% rise in the measure, which tracks contracts on previously owned homes. (Bloomberg)

Source: OSK188

DAILY TRADING STOCKS: Ariantec Global, Keladi Maju

Ariantec’s daily chart

Ariantec’s may trade lower after the decline yesterday. The stock is on a strong rally and broke many resistance levels along the way. It even managed to close above RM0.25 on Wednesday, after the failed tests early in the week. However, the trend may take a turn yesterday as sellers have emerged. It formed a “Bearish Engulfing” candle, covering the  body of the prior 3 candles. The close below the prior 2-day low  also  adds to the negative bias, increasing the potency of the false breakout of RM0.25. Thus, a correction is likely to follow, and aggressive traders may exit on rebound towards RM0.25.  A conservative trader may wait until  the stock closes below  Monday’s low of RM0.225 before liquidating.  Support is expected at RM0.20, RM0.175 and then RM0.135, where a close below RM0.135 may signal the end of the two-month rally.  The weak bias will be neutralized should the stock close above RM0.25 and this should lead to a continuation of the rally. If so, look for the stock to test the psychological level of RM0.30.

Keladi’s daily chart

Keladi’s share price  may  trade higher  if it violates the psychological level.  The stock has been rallying  firmly, together with the broad market  since  hitting  the low of Sept 2011. Nonetheless, it spent the last 3 months consolidating the trend. The uptrend is still apparent, from the series of higher lows in the past 7 months.  The latest low should mark a strong support and form a good base for the next leg up. However, a continuation of  the uptrend is only confirmed on a sustained close above RM0.20. That will see the stock closing the highest in four years. Purchases can be made if  this happens with a stop loss on close below RM0.19.  A conservative trade may wait until it closes above the past year intraday-high of RM0.21 before entering.  The price target is RM0.25, based on the 3-year consolidation width, and a strong move may even see the test of psychological RM0.30. A close below RM0.19 will invalidate the trade, but do keep a close watch on the stock, as an attempt to test the resistance level could happen again in the future.

Source: OSK188

HOT STOCK: Green Ocean Corporation Bhd - Consolidating Gains

Thus far, Green Ocean’s price trend has been unfolding according to our expectations. Firstly, the previous rally reached our RM0.30 price target, following the end of the consolidation phase for the 8 Feb 2012 rally. And then, its share price also tumbled as expected, reaching as low as RM0.185, just a shy away from our RM0.17 price target. It now looks like its share price has reached a temporary bottom after a strong rebound occurred on 6 April 2012  and  violating the downtrend line in the process. The stock is now consolidating the gains and traders could consider accumulating shares during the consolidation phase and bet on a potential breakout. 

Green Ocean’s higher volume caught our attention yesterday. The stock’s price trend has  unfolded in line with our expectations thus far. Previously, we advised traders to accumulate its shares while the stock was consolidating the gains of 8 Feb 2012. We also recommended that traders liquidate their positions should the uptrend line be violated.

So, its share price did retrace sharply, reaching as low as RM0.185, after the uptrend line was taken out. Nevertheless, the strong rebound that occurred on 6 April 2012 has violated the downtrend line and the breakout likely signals a temporary bottom. The “Long White Day” created on the breakout day is also another strong indication of a temporary bottom. Since then, the stock has been consolidating the strong gains between the RM0.21 level and RM0.275 level. Traders could consider accumulating the shares during the consolidation phase and bet  on a breakout.  We are eyeing the RM0.30 psychological level as the initial upside target, followed by the RM0.35 level. Traders should cut loss should its share price dip below the RM0.21 support floor of the consolidation phase.

Note that this trade, which requires a breakout from the consolidation phase, may take a longer time to be triggered. It is also possible for the stock to dip below our cut-loss level. At this juncture, bulls only have a slight advantage over the bears in light of the breakout from the downtrend line and the creation of the “Long White Day”.

Source: OSK188

MAHB (FV RM7.53 - BUY) 1QFY12 Results Review: A Good Start to 2012

MAHB reported a set of in-line results with earnings growing by 2% y-o-y. As expected, staff costs continued to inch higher and caused margins to decline y-oy. With the results coming in-line, we maintain our BUY call and FV of RM7.53.  We remain positive on MAHB as its earnings will be boosted by non-aeronautical income earned once the KLIA2 commences operations next year.

In-line set of results. MAHB’s results were in-line with our and consensus estimates. 1QFY12 revenue came in at RM511.1m (q-o-q: -2%, y-o-y: +12%) with core earnings at RM109.8m (q-o-q: +19%, y-o-y: +2%). MAHB’s higher revenue compared to 1QFY11 could be attributed to the increase in Passenger Service Charge (which was implemented in Nov 2011), coupled by the higher spending per pax generated from MAHB’s non-aeronautical side. Do note that for the purpose of analyzing core net profits, we have stripped out the IC 12 accounting standard impact from construction profits as well as the associate’s earnings/losses as these are predominantly FRS 139-related losses from Sabiha Gokcen.  

Risk on capacity cut from MAS. 1Q passenger grew by 6.7% y-o-y with MAS cutting its capacity by 12%.  However, management expects to achieve its passenger traffic guidance of 7-8% growth and its FY12 EBITDA target of RM822m. We anticipate the capacity cuts from MAS to be well absorbed by AirAsia’s 12% capacity increase (including higher frequencies), along with higher load factors from other carriers.

Cost pressure continues. As expected, staff costs continue to creep up and take its toll on overall margins, which  declined to 40% from 43% last year. This  is the result of a salary adjustment after the new union collective agreement took effect late  last year. Management guided that going forward staff cost will show an increase of 4-6% to reflect annual increments, though we anticipate it to be much higher in FY13 due to the enlarged workforce once the KLIA2 comes on-stream by April 2013. Currently, construction is on track with 50% of the new terminal already completed.

Recent developments.  Management continues to eye opportunities for airport acquisitions. Meanwhile, it is unknown at this juncture whether MAHB’s current MD, who is due for retirement by June this year, will stay on until the completion of KLIA2. We are not too worried about this as we are confident on the rest of the management team’s capabilities.

Maintain BUY. With its earnings affirmed, we maintain our BUY call and FV of RM7.53 (premised on 9% WACC on its DCF). We remain positive on MAHB, whose earnings will be boosted by higher non-aeronautical income  streams once the KLIA2 becomes operational next year.

Source: OSK188

AEON (FV RM8.53 - NEUTRAL) Company Update: Hello AEON, Bye-bye Jusco

AEON unveiled its new brand name ‘AEON’ and  tagline ‘AEON Enriching Your Lifestyle’, superseding the ‘Jusco’ brand that most Malaysians have grown accustomed to over the past 28 years The rebranding exercise will take place over the next two years, with the ultimate aim of embracing one brand name for all its stores and shopping centres on a global scale. Moving forward, the company plans to open another outlet in Manjung, Perak after the grand opening of the Ipoh Station 18 mall lately. Maintain NEUTRAL with a FV of RM8.53 given the limited upside potential for the share price. Maintain NEUTRAL with FV unchanged at RM8.53 given the limited upside of its share price.

Rebranding Jusco to AEON.  AEON Co. (M), formerly known as Jaya Jusco Stores, was established since 1984 in response to the Malaysian Government’s invitation to modernize the retailing industry in Malaysia. The ‘Jusco’ brand name, which is entrenched in the hearts and minds of many Malaysians, will be rebranded as AEON – which means ‘eternity’ in Latin. All Jusco signs will be replaced gradually over the next two years. The rebranding exercise is part of the company’s strategy to standardize its corporate identity, which involves the introduction of: (i) a new brand name, AEON, (ii) a new tagline ‘AEON Enriching Your Lifestyle’, and (iii) AEON membership cards.

Replace your card today.  Its customer loyalty programme,  the  J Card will also be replaced by the AEON member card. Some  1m J Card members will enjoy additional privileges such as instant member  reward  points, member get member special  offers and 3-year memberships for the price of 2-year memberships when they replace their existing member cards (also applicable to new card member  registrations). Free card replacements are only offered until 30 April 2012, after which a RM5 replacement fee will be charged. The new card comes in four new designs – Corporate, People, Peace and Community – which reflect the image and core values of AEON.

New Ipoh mall. The new AEON Ipoh Station 18 shopping centre, which is the largest mall in Ipoh, opened its doors to the public on 29 March 2012. With only two other major shopping malls  (Jusco Kinta City and Ipoh Parade) in the city,  the new addition will definitely  broaden the variety of shops and merchandises  for  local shoppers. The 3-storey new AEON mall consists of more than 160 shops with around 700k sq ft  of lettable area.  Located only  20 minutes’ drive from Ipoh town, the mall is strategically surrounded by residential areas and newly developed shop houses (opposite Tesco) which we believe will be  Ipoh’s next hot spot. Another outlet in Manjung, Perak is currently under construction and slated to open by this year as well.

Maintain NEUTRAL. AEON’s share price has appreciated by some 31.2% over the past 3 months, outperforming the KLCI by 26.3%. As such, we consider current valuations as fair. Maintain NEUTRAL with its FV unchanged at RM8.53.

Source: OSK188

CIMB Group Holdings (CIMB MK, BUY, FV: RM8.53, Last Price: RM7.42)

The group’s 97.9%-owned subsidiary CIMB Niaga reported full-year earnings that were in line with estimates. 1QFY12 earnings rose 29% y-o-y and 18% q-o-q largely due to lumpy trading gains, improvement in NIMs, but  this was  partially offset by higher provisions. The key takeaways include a positive stabilization in NIM but a negative deposit growth lag that could slightly dampen the loan growth outlook. Maintain BUY at an unchanged FV of RM8.53 (2.3x P/BV, 16.7% ROE). 

CIMB Niaga – selective growth. CIMB Niaga reported strong 1QFY12 earnings growth of 29% y-o-y and 18% q-o-q. Annualized results were ahead of expectations by 31%. However, the results were bolstered by a lumpy  IDR300bn in treasury trading income which helped drive a 75% q-o-q and 69% y-o-y increase in non-interest income. Adjusting for the exceptional gain which may not be repeated in the ensuing quarters, annualized 1Q12 results was largely in line with expectations.

Taking the opportunity to build in provision buffers. Despite NPLs remaining relatively benign with the NPL ratio inching up a marginal 5bps to 2.69%, the group took the opportunity of the strong non-interest income generation in 1Q12 to raise provision buffers with impaired loans coverage ratios rising from 75.3% to 83.9% in 1Q12. Loans loss provision increased 93% q-o-q and 99% y-o-y as a result of the more conservative pre-emptive provisioning strategy adopted in the quarter. We expect some normalization in provisions in the ensuing quarter as asset quality remains relatively intact for now.

Focusing on profitability rather than beating  industry  loans growth. Despite registering a below-industry loans growth of 3% q-o-q and 18%y-o-y (industry: 5% q-o-q and 21% y-o-y), improved yield management as well as focus on higher margin micro financing and credit cards helped boost Niaga’s net interest margins (NIM) by 4bps q-oq vs the industry’s 51bps q-o-q contraction. This resulted in a commendable 1% q-o-q increase in net interest income vs a contraction that is plaguing some of its larger peers.

Deposit growth continues to lag. The key negative take away from CIMB Niaga’s 1Q12 results was the fact that its deposit growth of 11% y-o-y continued to lag overall industry’s  y-o-y  growth  of 18%. We believe that this could be due to management’s strategy of not competing  aggressively on growing time deposits but to focus on cheaper  current account savings account (CASA) growth which will take time to execute. With LDR at 96.5%  (91.6% if we  include potential liquidity from liquid government bonds), a persistent lag in deposit growth could result in Niaga’s full-year loans growth coming in below the targeted 18% growth. This will result in CIMB group’s loans growth potentially falling short of management’s target of 16%. Anyhow, we have already conservatively built in a slower group loans growth assumption of 12%.

Source: OSK188

AirAsia 1Q Operating Stats (AIRA MK, BUY, FV RM4.57. Last Price RM3.38)

AirAsia’s 1Q operating stats were in-line as both its ASK and RPK accounted for 24% of our full-year forecasts,  with  its  load factor sustaining well at 80%.  We reckon AirAsia has benefited strongly from the capacity cuts by MAS in 1Q and its yields will continue to be stronger y-o-y. Meanwhile, there are intense rumours that the AirAsia-MAS share swap will be scuttled. With or without the share swap, we  believe AirAsia  will still  benefit from the  capacity cuts by MAS  which is unlikely to boost its capacity anytime soon in view of its ailing financial condition.

Maintain BUY with an unchanged FV of RM4.57. AirAsia is trading at a discount of 20% to its average LCC peers on FY12 earnings. We expect  AirAsia  to report better 1Q earnings y-o-y at RM290m (which is lower on a q-o-q basis). 1Q stats in-line. AirAsia’s 1Q operating stats came in-line with our expectations as both its ASK and RPK accounted for 24% of our full-year forecasts. Similarly, Thai Indonesia and Thai AirAsia also reported passenger stats that were well within our estimates. The low cost carrier (LCC) reported that it carried 4.82m passengers from the Malaysia side, up by 12% y-o-y (down  -0.7% q-o-q due to seasonality), with its load factor sustaining well at 80% (y-o-y unchanged, q-o-q:  -2ppts). The encouraging numbers and sustainable load factors were driven by the introduction of new routes and increase in capacity.

MAS cuts, AirAsia gains  – higher yields likely. We reckon  AirAsia has benefited strongly from the capacity cuts by MAS in 1Q. Passenger traffic numbers reported by MAHB saw a decline of 4.2% in domestic travel from the Main terminal in KLIA, while domestic travel  on the LCCT side  reported strong growth of 15.1% y-o-y that is likely contributed by AirAsia. As such, we suspect yields will continue to be stronger y-o-y, easing concerns that the reduced ancillary fees would put pressure on overall yields.

Unraveling the share swap.  There are intense rumours that the AirAsia MAS share swap will be scrapped soon as  the  shareholders could back down due to the strong opposition by MAS’ powerful unionized workforce. Such  a decision could be politically motivated, though we believe  that the reversal of the share swap is unlikely from a business perspective. Even if a reversal of the share-swap deal happens, our sources indicate that the collaboration on maintenance and aircraft purchases will  nevertheless proceed as planned. We believe  the  collaboration on maintenance will work for both sides, but we do not see  likewise for aircraft purchases as this would purely benefit MAS.  With or without the share swap, we believe AirAsia will still benefit from the capacity cuts by MAS which is unlikely to boost its capacity anytime soon in view of its ailing financial condition. Furthermore, we think the share swap reversal could boost the sentiment  on AirAsia as foreign investors prefer the LCC as a standalone business without any link to the Malaysian Government.

Source: OSK188

Malaysian Pacific Industries (MPI MK, TRADING BUY, FV: RM3.64, Last Price: RM2.97)

MPI reported a weaker-than-expected set of results, posting a YTD loss of RM33.3m as fixed costs remained high while assets were under-utilized. Nonetheless, a second interim dividend of RM0.05/share was declared. We anticipate a  potential  turnaround in 2HCY12  on the back of a  slew  of positive demand drivers. We are maintaining our TRADING BUY  call on the stock but we are revising our FV from RM3.70 to RM3.64 as we rollover our valuation to FY13 (pegged to 1.1x P/NTA). We advise investors to accumulate  MPI shares in the event of a pull back in the share price today.

Poor overall performance. MPI’s 3QFY12 revenue was below our expectations but inline with consensus, making up only 68% and 72% of the respective full-year estimates. However, its headline earnings disappointed and fell short of consensus and our expectations on the back of sequential losses. Having experienced weaker demand from the  US and Europe  for  the third  consecutive quarter, the company’s revenue fell marginally by 1.2% q-o-q to RM275.8m (-17.6% y-o-y, YTD:  -18.9% y-o-y). This suggests that its assets were under-utilized while its fixed costs remained high. However, the impact to  the  bottom-line was somewhat  cushioned by a  sequential improvement of RM8.8m that, we suspect, arose from a shift in product mix to  highermargin segments. It also declared a second interim dividend of RM0.05/share during the quarter.

Recovery in the pipeline. Revenue contribution from the US declined by 7.1% q-o-q to RM68.4m (-8.8% y-o-y, YTD:  -12.0%), while  that of  Europe fell by 5.5% q-o-q to RM71.3m (-30.8 y-o-y, YTD: -30.2%). On the other hand, top-line contribution from Asia grew 4.6% q-o-q to RM136m (-13.2% y-o-y, YTD:  -14.8% y-o-y). We still maintain our view that semiconductor sales would improve in 2HCY12, premised on a set of leading indicators that point to increasing demand moving forward. Furthermore, the book-to-bill ratio of semiconductor equipment manufacturers is above the parity level for the second month in a row. Note that recovery in the semiconductor space may be  swifter than expected, since major upstream players from the US are guiding for sequential revenue growth of approximately 3%-12% (please refer to our sector report  entitled,  Turning Positive, on 5 April).

Maintain TRADING BUY with revised FV of RM3.64. We are revising downwards our FY12/FY13 earnings forecasts by RM30.2m/RM1.2m to realign  with our estimates and factor in the weaker financial performance for 9MFY12. We were overly generous with our opex assumptions prior to the results release,  which  led to the variance in our earnings projections vs the actual figures. Since we are fast approaching FY13, we feel compelled to  roll over our valuation to  the  next  financial  year. Consequently, our fair value  is revised from RM3.70 to RM3.64, based on 1.1x FY13 P/NTA. Maintain our TRADING BUY recommendation.

Source: OSK188

CENSOF (FV RM0.57 - BUY) Corporate News Flash: Proposes a 1-for-8 Free Warrant

THE BUZZ

Yesterday, Century Software (CSHB) proposed a bonus issue of 43m 5 year warrants in CSHB on the basis of 1 free warrant for every 8 existing shares.

OUR TAKE

Still having potential upside of 19.2% after dilution impact. Based on an indicative exercise price of RM0.50, the warrant is currently out-of-the-money.  Nonetheless, assuming that the warrants are fully converted into mother shares in the future, our fair value (FV) would be adjusted to RM0.51, after taking into consideration  the RM21.5m cash proceeds to be offset against CSHB’s pre-existing debt obligations. Even with the full dilution impact to our EPS, our back-of-the-envelope FV of RM0.51 is still above the current market price of RM0.425, providing a handsome potential return of 19.2%.

Source: OSK188

SUNREIT (FV RM 1.25 - NEUTRAL) 9MFY12 Results Review: Spot-on Results

Sunway REIT’s 9MFY12 results came in within our and consensus expectations, with both revenue and net profit accounting for about 75% of the respective FY12 forecasts. For 9MFY12, net property income (NPI) rose by 24.7% y-o-y due to the acquisition of Sunway Putra, coupled with the strong performance of the initial 8 assets, especially Sunway Pyramid Mall. We maintain our forecast and Neutral recommendation on Sunway REIT at an unchanged FV of RM1.25, which is based on target yield of 5.7% on CY12 DPU.

Healthier y-o-y. For 9MFY12, Sunway REIT continued to register healthy growth in NPI with  increased by 24.7% y-o-y. This could be attributed to the acquisition of Sunway Putra Place (SPP) back in April last year, coupled with the healthy NPI growth chalked up by its initial 8 assets, especially Sunway Pyramid. However, net earnings for 9MFY12 was only up by 12.6% y-o-y, as finance costs increased 60.4% y-o-y arising from finance expenses for the acquisition of SPP. Sunway REIT has declared a DPU of 1.87 sen for 3QFY12 which brings the total accumulated DPU for 9MFY12 to 5.61 sen. Sunway REIT continue to register strong rental reversion of 15.8% y-o-y, thanks largely to Sunway Pyramid Shopping Mall which has achieved a rental reversion of 17.2% y-o-y for 9MFY12 with a total 294,968 sq. ft of lettable area renewed.

Lower q-o-q. For 3QFY12, NPI rose 21.9% y-o-y to RM74.3m with stronger contribution coming from the initial portfolio of 8 assets and Sunway Putra Place. NPI for the initial portfolio of 8 assets expanded by 9.6% y-o-y with Sunway Pyramid Shopping Mall’s NPI growing 12.3% in 3QFY12 compared to the corresponding quarter in the preceding year. Due to seasonal factors, revenue for 3QFY12 was lower q-o-q mainly due to lower income from the hospitality business since 3QFY12 is traditionally a low season with leisure activities and fewer corporate functions and banquets.

Maintain Neutral. We maintain our forecast and Neutral recommendation on Sunway REIT at an unchanged FV of RM1.25, which is based on target yield of 5.7% on CY12 DPU.  

Source: OSK188

SEG (FV RM2.17 - BUY) Corporate News Flash: Technical MGO Triggered

THE BUZZ

SEG International (SEGi) has received a  notice of  unconditional  takeover offer  from Navis Capital through the latter’s fully-owned subsidiary Pinnacle Heritage Solutions SB (PHS) which currently holds  a  27.8% stake in SEGi. The offer is pegged at a  price of RM1.714 per share and RM1.214 per outstanding warrant.

OUR TAKE

Sequence of  the entire saga. To recap, Navis Capital emerged as the single second largest shareholder in SEGi after its fully-owned subsidiary PHS took up 148.5m shares and 61.1m warrants early this month at RM1.71/share and RM1.21/warrant respectively. This makes Navis Capital’s stake in SEGi second only to Dato’ Sri Clement Hii who held 158.9m shares and 76.2m warrants back then. Nonetheless, Navis Capital has acquired another 18.0m warrants from Dato’ Sri Clement Hii yesterday in an off-market transaction, putting itself on the brink of becoming the single largest shareholder in SEGi with its total investment in SEGi now standing at RM349.6m. Upon the full conversion of all outstanding warrants and excluding existing treasury shares of 26.0m, Navis Capital’s stake in SEGi works out to be 31.5%, while Dato’ Seri Clement Hii would in turn hold 30.0% of the company.

Shareholders’ agreement between the two parties. Following  the acquisition of  the said warrants, PHS had entered into a shareholder’s agreement with Dato’ Sri Clement Hii to regulate the rights and obligations of both parties as shareholders of SEGi. And as a consequence of the agreement, the two parties which hold a combined 57.6% stake in SEGi (or an effective 61.5% upon the full conversion of warrants) triggered a Mandatory General  Offer (MGO) on SEGi. With that, PHS proposed to acquire all the remaining 226.0m shares  (ex-treasury shares of 26.0m) and 52.0m warrants in SEGi not held by PHS and Dato’ Sri Clement Hii currently at RM1.714 per share and RM1.214 per warrant respectively. This brings the MGO cost to as much as RM450.4m, assuming full acceptances on both shares and outstanding warrants by minority shareholders. 

Unattractive pricing. In our previous report, we highlighted that  any privatization offer has to be priced at a minimum of RM2.10/share to entice the minority shareholders. The final offer of RM1.714/share is on par with Navis Capital’s entrance cost but fell short of our expectations and it is at a significant 5.3% discount (instead of premium) to its last closing of RM1.81.  Given the unappealing  MGO  valuation which translates into 14.2x FY12 PER and 12.9x FY13 PER based on a fully enlarged share base vis-à-vis our FV of RM2.17 at 18x FY12 PER, we advise minorities to reject the offer.

Source: OSK188 

NOTION (FV RM2.41 - TRADING BUY) Corporate News Flash: Going ex Tomorrow

THE BUZZ

After  obtaining shareholders’ approval during its EGM  on  16 April, Notion’s (i) 3-for-4 bonus issue, and (ii) 1-for-4 free warrant (Warrant-B) will go ex tomorrow.

OUR TAKE

Revision to share price and our FV. Notion is poised to issue 115.9m new shares to its shareholders,  bringing the  total number of shares to 270.5m.  As a result, the company’s share price will be adjusted to RM1.23 from the current RM2.15 whereas, our fair value (FV) will be revised to RM1.38 (Table 1) from the current RM2.41.

Furthermore, we do not foresee  any of  its  existing  Warrant-A being converted into  mother  shares in the short term as the warrant is deeply out-of-the-money and hence, eliminating the possibility of an added dilution impact to its EPS (Table 2). However, the exercise price for the newly issued Warrant-B will be at RM1.00, which indicates an inthe-money situation. Assuming that investors decide to convert all of their Warrants-B into mother shares, our FV would be  revised  downwards from RM1.38 to RM1.24 – having factored in the utilization of  RM38.6m in cash proceeds in  offsetting Notion’s existing debt obligations (Table 3).

Maintain TRADING BUY recommendation with ex-bonus fair value at RM1.38. We expect its 2QFY12 financial results to be in line with our estimates as we had earlier factored in stronger sales growth and higher average selling prices (ASPs) from its HDD segment. Furthermore, we had gathered from  the  Camera & Imaging Products Association (CIPA) that  the  production recovery for digital single-lens reflex (SLR) cameras and interchangeable (IC) lenses had accelerated and there was pent-up demand for these goods as well. We  continue to like Notion for its diversified product base that provides a cushion against product concentration risks. We are reaffirming our TRADING BUY recommendation on the stock, with an ex-bonus FV of RM1.38, based on 8x CY12 PER. 

Source: OSK188

Fajarbaru Builder - OUTPERFORM - RM300m Sg. Baru station job?

News    The Star reported yesterday that Fajarbaru is expected to bag a RM299m job for the construction of the Sungai Baru light rail transit station (“LRT”) under the LRT extension project by Syarikat Prasarana Negara Bhd (“Prasarana”).

Comments   We are positive with the news. Fajarbaru has always been the frontrunner for the project with management having gotten unofficial indication from Prasarana previously.

The Sungai Baru station will be located next to the Putra Heights station along the Ampang line extension programme.  

The station which will also be slated as a depot for the Ampang line. Worth RM299m, it is one of the last four work packages for the LRT extension project.

Should Fajarbaru secure the contract, it would beef up Fajarbaru’s existing order book of c.RM600m to c.RM900m, providing earnings visibility further out to FY15 (see also impact on earnings below).

Outlook   We believe that Fajarbaru is very well positioned to get a slice of the ETP and MRT projects based on its proven track record and healthy financials. To recap, Fajarbaru is one of the pre-qualified companies for the multi-billion elevated civil, station and depot work packages for the My Rapid Transit project.

Forecast   We maintain our FY12E and FY13E earnings forecast of RM15.8m and RM24.9m respectively at this juncture as we will only factor in the said contract in our forecasts once the Letter of Award is confirmed only. 

However, should Fajarbaru secure the project, our FY13E EPS will increased by 13% to 14.7sen, leading to a higher TP then to RM1.32 (currently RM1.17) based on unchanged 9x PER FY13 earnings.

Rating  MAINTAIN OUTPERFORM  Potential upside of 21% to our existing TP of RM1.17  

The group is trading at FY13E PER of just 7.5x, which is still 20% below its peers’ average of 9x.

Valuation    No changes to our TP of RM1.17 based on 9x PER on its FY13 EPS. 

Risks   The delay in the issuance of Development Orders (D.O.) by the Selangor Government, which will push out earnings recognition to FY14 and beyond.   

Source: Kenanga

News Highlights - Construction Sector, Property Sector

Construction Sector

Enough funds for Klang Valley MRT

Malaysia’s financial system can raise the required financing to support the Klang Valley My Rapid Transit (KVMRT), according to Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz. Despite the “massive funds” needed for the project, which has been touted as the country’s most expensive public infrastructure to date, she cited Projek Lebuhraya Usahasama Bhd’s RM30.6bil sukuk issuance in January as proof the capital market could stomach that level of fund-raising.

She said, “We were invited to give our views and proposals on how this (KVMRT) could be financed and I believe there are innovative ways (to do it). Of course, all these projects need to be staggered and not happen at the same time. And they must be managed very carefully so as not to cause an economic dislocation of talent, supply, resources or liquidity.” - The Star

Property Sector

Developers eyeing former Unilever plant site in Bangsar

A number of developers are said to have submitted their bids to undertake the development of a 8.09ha in Bangsar that used to house Unilever Malaysia’s soap and margarine manufacturing plant. It has been left unoccupied since Unilever Malaysia moved out in 2003. Among the interested bidders are Mah Sing Group Bhd and UEM Land Holdings Bhd.

Located at the intersection of Jalan Bangsar and Jalan Maarof in Kuala Lumpur, the land initially belonged to Perbadanan Aset Keretapi but has since changed hands to new owner Pelaburan Hartanah Bhd (PHB).The successful candidate is expected to be announced in the first half of this year but a source said this might be postponed to after the general elections. - The Star

Source: AmeSecurites 

CB Industrial Product - Mill construction division takes centre stage HOLD

- Maintain HOLD on CB Industrial Product Holding Bhd (CBIP), with a higher fair value of RM2.85/share, which is based on an unchanged PE of 15x on FY13F EPS.

- We have tweaked CBIP’s FY13F EPS upwards by 2.6% to account for slightly higher revenue recognition from the mill construction division of RM300mil versus RM280mil previously.  

- Due to the loss of plantation earnings, we forecast CBIP’s net profit to fall 24% in FY12F. Also, CBIP’s PE would rise from 10x in FY12F to 14x in FY13F. 

- We have assumed that the RM268mil disposal of the plantation assets would be completed by mid-FY12F. We have not included the one-off gain on disposal of RM141mil in our FY12F earnings forecast as it is not part of CBIP’s core operations.

- CBIP’s construction order book is expected to grow in the coming years, with new customers coming from Central America and Indonesia. In Malaysia, CBIP’s main customers continue to be government-linked companies like FELDA and private plantation owners. 

- CBIP has the capacity to build about 20 mills in a  year versus 12-15 mills in the past. The group has increased its labour force so that it would be able to handle a higher number of contracts. 

- Although a large proportion of CBIP’s workforce is foreign, CBIP has not faced problems of labour shortage so far. This is because it does not take long to train workers as the processes are compartmentalised. Most of CBIP’s foreign workers are from Indonesia, Nepal and Bangladesh.

- Our current gross DPS forecast of 6 sen for CBIP in FY12F does not include potentially higher dividends coming from the disposal proceeds of the plantation assets. If 50% of the proceeds are returned to shareholders, then the incremental dividends would come up to 49 sen/share.  

- We believe that the bulk of the disposal proceeds would go towards CBIP’s plantation development expenditure in Indonesia. We estimate the group’s planting cost at RM85mil-RM90mil annually based on new plantings of 5,000ha and cost of RM17,000/ha to RM18,000/ha.

Source: AmeSecurities 

TH Plantations - Squeeze in operating margin in 1QFY12 BUY

- TH Plantations Bhd (THP) is the first plantation company under our stock universe to release its 1QFY12 financial results. At first glance, THP’s 1QFY12 results were below expectations. 

- However, we expect THP to realise a higher average CPO price in the remaining months of the year, which should improve the group’s profitability in the coming financial quarters. Also, first quarter of the financial year is usually the weakest quarter for THP.

- THP’s net profit declined 40.2% YoY to RM13mil in 1QFY12 due to higher costs of production. 

- THP’s costs of production rose on the back of higher amount of fertiliser applied and an increase in labour costs. 

- As a result, THP’s production costs (excluding depreciation) climbed from RM1,252/tonne in 1QFY11  to RM1,624/tonne in 1QFY12. 

- According to Bursa Announcement, THP achieved 25% of the annual fertiliser budgeted for FY12F in 1QFY12 compared to 21% in 1QFY11. Due to heavy rains, fertiliser could not be fully applied in 1QFY11. We believe that fertiliser costs had also risen 15% to 20% YoY in 1QFY12.

- Going forward, we reckon that operating margins would improve in 2HFY12 as most of the fertiliser would have already been applied in 1HFY12. Also according to Bloomberg, average CPO price was RM3,313/tonne yearto-date. 

- THP’s revenue rose 26.6% YoY to RM95mil in 1QFY12 as an increase in the volume of CPO production helped compensate for lower average CPO price realised. Recall that CPO prices were surging to almost RM3,900/tonne in 1QFY11.   

- THP’s FFB production improved 7.6% YoY to 104,391 tonnes in 1QFY12. However, CPO production expanded 22.9% YoY to 22,606 tonnes in 1QFY12 due to higher FFB purchases from external parties.

- The double-digit YoY jump in CPO production in 1QFY12 helped offset an 11.4% decline in average CPO price realised. THP realised an average CPO price of RM3,076/tonne in 1QFY12 compared to RM3,471/tonne in 1QFY11. 

Source: AmeSecurities 

Malayan Banking Bhd - OUTPERFORM

News:    According to media reports, Malayan Banking Bhd (“Maybank”) is exploring a bank business opportunity in Thailand. However, it was reported that Maybank’s CEO, Abdul Wahid Omar, the Group is actually not in active talks about acquiring a stake in TMB bank PCL at the moment. 

Comments:   We view Maybank plan to possibly venture into Thailand banking business positively. Its move to search for business opportunities in Thailand is within expectation as its strong pro-forma Core Capital Ratio (“CCR”) post Dividend Reinvestment Plan (“DRP”) of 10.2% positions the group to make small scale acquisitions. TMB’s stake sales could from the Thailand government (MoF) and ING, which owned 26.1% and 25.2% of TMB respectively.  

However, TMB’s operating metrics and asset quality is not of the standard yet when compared with the industry average. Currently, TMB is trading at 1.4x BV (industry: 1.85x) against its low ROE of 9.1% (vs. industry’s 15.6%).  

Furthermore, TMB’s high NPL ratio and low coverage ratio at 7.5% and 73% respectively (vs. the industry’s 4.1% and 117% respectively), suggest a potential kitchen sinking exercise, followed by a capital injection post acquisition.  Therefore, the effective entry price could be higher than the current 1.4x BV with risk of earnings dilution for the acquirer.  As such, we believe that Maybank is not actively in talks to acquire the TMB stake as well.

Outlook:   A pro-forma Core Capital Ratio of 10.2% should see Maybank well positioned to meet the 1 January 2013 Basel 3 minimum requirement of 7%.   Kim Eng acquisition offers solid and steady feebased incomes from Asean region.  

Forecast :   No earnings impact. 

Rating:  MAINTAIN OUTPERFORM

Earnings upside could come from a lower credit charged-off rate going forward as well as stronger than expected fee-based incomes after the acquisition of Kim Eng.  The group offers a good dividend yield of 6.3%.

Valuation:    Unchanged TP of RM10.40 (2.0x FY13 P/BV, implying 14.9 FY13 PER).

Risks:   Unexpected slowing down in fee-incomes.

Source: Kenanga

STRATEGY - Small Caps: Unveiling The 2012 Jewels

OSK’s small cap corporate day yesterday was attended by over 50 fund managers and buy-side investors. Despite the uncertainty in the market which merits a more cautious investment stance, most investors were keen to explore good ideas and continue to be on the lookout for longer-term ‘winners’ in the small cap space. We see pockets of opportunities as valuations (based on our small cap universe) remained inexpensive at 7.3x FY12 EPS, a 40% discount to the broader market. There are good underlying re-rating catalysts for the small cap oil & gas, consumer and consumer-related sub-sectors. We have BUY ratings on our top picks  – DAYANG (FV: RM2.34), JOHORETIN (FV: RM1.51), PRESTARIANG (FV: RM1.48) and TAKAFUL (FV: RM4.42). Our NEUTRAL call on the broader market remains with our year-end target for the FBM KLCI unchanged at 1,620.

Malaysia’s best small caps unveiled. Held in conjunction with the launch of the 2012 edition of our small cap handbook (OSK Jewels), our corporate day for small caps drew in more than 50 local and overseas fund managers as well as buy-side investors. We showcased 4 companies from the handbook – Prestariang, Johore Tin, Dayang Enterprise and Syarikat Takaful Malaysia (STM)  – which are among our top picks for this year.  At the outset, investors were given the opportunity to catch a glimpse of these companies’ core businesses  from  the management’s perspective, followed by individual breakout sessions  (which attracted good sign-ups). Prestariang was represented by its CEO, Dr. Abu Hasan Ismail, Johore Tin by Edward Goh (Managing Director), Dayang Enterprise by Bailey Kho (Head of Corporate Affairs) and STM by Dato’ Mohamed Hassain Ismail (Group Managing Director).  

10 new jewels. The 4 companies showcased form part of the 10 companies featured in our handbook for the first time (see Appendix). Of the shortlisted top 5 names, Kossan and Dayang need little introduction as OSK has covered the stocks for some time already. The companies that generated the most interest were Prestariang, Johore Tin and Takaful as investors were either unfamiliar or had wanted to find out more from management on their earnings prospects. Since our initiation reports on these 3 stocks, their share prices have risen 17-75%. YTD, their share prices have gained 24-100% relative to the 7% rise on the FBM Small Cap index. We see further re-rating catalysts for these stocks as more investors warm up to their fundamentals and growth opportunities.

Source: OSK188

DAILY TRADING STOCKS: Ecofirst Consolidated, Three-A Resources

Ecofirst’s daily chart

Ecofirst may trade higher if it can stay above the psychological support level. The stock has been on a correction  for almost 3 months, after spiking just below RM0.30 in early February. It seems that selling pressure has eased considerably in  the  past month  as the price moved lower rather reluctantly. This raises the possibility that the stock will find support above  the psychological  RM0.20 level, thus keeping the rally since Sept 2011 intact as the stock is still seeing a series of higher lows. However, buying support is only confirmed if it closes above last week’s high of RM0.215 and purchases can be made if  this happens with a stop loss on close below RM0.20. A conservative trade may wait until a close above the 5-week high of RM0.23 before entering. Look for a retest of the recent high of RM0.30 should the buy signal be triggered, provided that the RM0.25 resistance is violated convincingly first. The upside bias is erased if the stop loss is triggered and this should lead to an extended correction. Strong support is at  the  December-low of RM0.185, a violation of which spells the end of the rally.

3A’s daily chart

3A’s  share price  may  trade higher after the firmer move yesterday.  There is no doubt that the stock is trading lower since peaking in early 2010. However, this may end as the stock is forming a gentle uptrend in the past 7 months, printing a series of higher lows in the process. A new up-leg likely started yesterday, when it closed above last week’s high of RM1.23. It closed on a high volume “Long White” candle, which suggests firm buying interest. It even closed above the RM1.27  resistance level.  Thus,  an  upward continuation is expected and purchases can be made above RM1.30, with a close below RM1.27 as  the  stop loss.  The price target is RM1.55, which will regain 62% of the 2011 decline, provided that the strong resistance of RM1.40 is violated. The trade may not work out should it close below RM1.27, but do not discount the possibility of a second breakout. Support  lies at RM1.25, where the trend line is.

Source: OSK188

HOT STOCK: Top Volume Stocks - Ariantec Global, Metronic Global, Focus Dynamics, JoTech Holdings

In this report, we are  revisiting the stocks  that were highlighted in our previous Daily Trading Stock reports. As  these stocks  have  continued to garner market interest, we are  examining  their current technical picture and identifying the new levels to be mindful of, including their price targets as well as support and resistance levels. 

Ariantec Global: Testing another resistance. The stock had earlier faced strong selling pressure at RM0.20, as signalled by the “Upper Shadow” of the 18-19 April candles. The fact that high volumes have accompanied the candles gives rise to the possibility of distribution at that level. However, the stock managed to overcome this bearish bias last Friday, where it closed  convincingly  above RM0.20. As expected, the  surge was soon met with resistance at last week’s intraday high of RM0.25. Thus, this level has to be violated to keep the rally intact and this could see the stock testing the round figure of RM0.30. A failure to break RM0.25 may see a return in selling, where a close below the 2-day low of RM0.225 serves as the confirmation. Liquidation can be made if this happens and support is expected at RM0.20, RM0.175 and then RM0.135. A close below RM0.135 may signal the end of the two-month rally.

Metronic Global:  Struggling at resistance. The stock  was highlighted in early April for  its likelihood of bottoming at  the RM0.15 level. The stock has moved favorably, with  the formation of white candles on 17-18 April. As anticipated, it soon met with resistance at the round figure of RM0.20. It  also failed to close above this level despite 6 attempts and selling pressure is illustrated by the “Upper Shadow” of the last few candles. Thus, it has to close above RM0.20 to keep the rally going. The price target remains at the psychological RM0.25 and thereafter, the all-time intraday high of RM0.315. A failure to break above RM0.20 could see sellers taking control, with a close below the 3-day low of RM0.185 as the confirmation. The RM0.185 level can also be employed as the stop loss for exiting positions. Strong support is at RM0.15, a violation of which likely spells the end of the 3-month rally.

Focus Dynamics: Uptrend in jeopardy. This stock was highlighted early last week for the possibility of a rally continuation, following the highest close in a month.  This close  indicated that a higher low was formed at RM0.16. However, buying interest was short lived as the expected resistance of RM0.20 proved hard  to break. The “Upper Shadow” of 17-18 April, with closed below RM0.20, is a good indicator of the selling pressure. Furthermore, the high volume that accompanied the candles also suggests distribution. Thus, the possibility of an upward continuation has reduced significantly and the stock is likely to trade lower. A close below RM0.16 should confirm the weakness and  if this happens, traders should consider liquidating their positions. Strong support is at RM0.13, the violation of which may signal the end of the rally.

JoTech Holdings: Tight consolidation. The stock is still on a longer-term uptrend and an upward continuation was expected in late January. However, this did not materialize and the stock traded sideways. Despite this, the upward trend is still intact and in fact, the stock was making a higher base for a new up-leg at RM0.14. The expected upward continuation may happen soon as the stock was inching higher in the past month. It was accompanied by higher volume too, which suggests firm buying interest. Thus,  an  upward continuation is expected as long as it stays above RM0.14, and purchases can be made with a close below as  the  stop loss. A conservative trade may wait  for a consecutive close above RM0.155 before entering. The price target is RM0.215, a measured move based on the year-long sideways consolidation range, provided that the 2011-high resistance at the RM0.17 level is broken. The trade may not work out should the stop be triggered and strong support is expected at RM0.115.

Source: OSK188

News Highlights - Berjaya Land Bhd, I-Bhd

Berjaya Land Bhd (BLand) (RM0.87/share)

Courting Parkson

Berjaya Land Bhd (BLand) is in discussions with Parkson Holdings Bhd (PHB) to open a department store at its RM7.5 billion Great Mall of China (GMOC) in East Beijing,China. BLand CEO Datuk Francis Ng Sooi Lin told Business Times that it is trying to get Parkson to take up space at the GMOC and nothing has been finalised. Business Time

I-Bhd (RM0.75/share)

Injects touristic value into i-City projects

I-Bhd, the developer of i-City, has unveiled plans of developing an integrated leisure destination at its RM3bil i-City to mirror Clarke Quay in Singapore. According to its CEO Datuk Eu Hong Chew, Clarke Quay@i-City would be developed in three phases with the first phase comprising a cosmopolitan food and beverage zone, which will be established independent of the Sungai Rasau upgrading works. The Star 

Source: AmeSecurities

Construction Sector - Fajar in driver’s seat for Sg.Baru LRT station OVERWEIGHT

- The Star  reported today that Fajarbaru Builder Group has been tipped to bag the construction of the Sg.Baru LRT extension by Syarikat Prasarana Negara Bhd (SPNB). 

- The indicative contract value is around RM299mil. We gather that the letter of award was signed just last Friday.

- The Sg.Baru station forms part of the extension works along Ampang line. It would be located next to the Putra Heights station. In addition, the station is also slated to be a depot for the Ampang line.

- Prior to this, Fajarbaru has earned the distinction of having previously undertaken some rail-based projects. These include:- 

(i) A RM63mil sub-contract from the Bina Puri Holdings-Tim Sekata JV for the Ampang line extension; and 

(ii) RM87mil contract from TRC Synergy to construct, complete, test and commission stations 1, 2 and 3 for the Kelana Jaya line extension in March last year.

- The entire Klang Valley LRT extension project is scheduled to be completed by end-2014. The Kelana Jaya LRT extension line will commence from Lemban Subang to Kelana Business Centre. Along the way, it will snake through the townships of Subang, USJ, Alam Megah before ending at the hub in Putra Heights. The extension would consist of 13 new stations and approximately 17km of guideways. 

- On the other hand, the Ampang LRT extension will commence from the present Sri Petaling station - passing through the suburbs of Puchong and Kinrara – before eventually terminating at the hub in Putra Heights as well. The proposed line consists of 13 new stations and ~17.7km of guideways. 

- With the imminent roll-out of the Sg.Baru station works, we estimate ~RM1bil balance of works remaining that has yet to be dished out for the Klang Valley LRT Extension works (both Ampang as well as Kelana Jaya lines)    

- The remaining three contracts – comprising the system works for the Ampang line, the card access system for the Kelana Jaya line into the Ampang line and the development of station 10 and 11 for the Ampang line – would be awarded within the next two months.

- While foreign contractors would likely be front-runners for the Ampang line system, we reckon that WCT could in the running for works along station 10 and 11 of the line.   

Source: AmeSecurites

Oil & Gas Sector - April jack up rig rates up, but mid-depth semisub down OVERWEIGHT

- IHS Petrodata reported that day rates for mid-water depth semi-submersible drilling rigs worldwide have decreased considerably in April, while jack-up rates have risen significantly (See Chart 1-4). But the resilience of the overall rig market is still demonstrated in deepwater rig rates, which augurs well for key Malaysian players against a backdrop of global rig utilisation rising to 81% from 80.6% in the previous month (See Chart 6) amid reaccelerating development programmes. 

- The strongest charter rate increase was in the Northwest Europe Standard Jack-ups, which surged by 103 points to 589. Fleet utilisation remained unchanged at 90% for the third consecutive month. As rig availability remains tight with demand still strong for standard jack-ups in this region, this segment’s charter rates could continue on an upward trend.

- The US Gulf of Mexico (GOM) Jack-up Day Rate Index (250 to 300-feet) rose by 7 points to 314 in April 2012, the highest level over the past three years since February 2009. GOM fleet utilisation rose by 1ppt to 59% with further possible upside, as the Obama administration begins to approve more offshore oil & gas activities. 

- After surging strongly to its highest level since April 2009 (in the aftermath of the global financial crisis), the Deepwater Rig Day Rate Index (for rigs operating at water depths of over 5,000 feet) dipped slightly to 893 this month. However, this is nearly 200 points higher than the day rate index recorded during April 2011. Fleet utilisation remains almost full at an unchanged 98% this month, highlighting the resiliency and potential uptrend of this market segment. 

- The Mid-Water Depth Semi-submersible Day Rate Index (for water depths of 2,001 to 5,000 feet) dropped by 123 points to 669 in April. While this is considerably lower than rates recorded during April last year, it is still higher than the mid-2010 lows when the index fell to 550 points. Utilisation for this category of rig is unchanged over the past quarter at 79% in April.

- Firm global rig rates in the medium-to-long term underpin prospects for local rig operators such as UMW Oil & Gas, Kencana Petroleum, SapuraCrest Petroleum and Perisai Petroleum. We expect fresh news over the next few months from Petronas’ RM15bil fast-tracked programme to develop gas reserves from a cluster of fields in the North Malay basin, off Peninsular Malaysia as well as other enhanced oil recovery jobs in East Malaysia. News flow momentum is also gaining traction for Petronas Carigali’s and Murphy Oil’s floating liquefied natural gas vessels for the Kanowit and Rotan fields respectively. France-based Total and Petronas Carigali are currently drilling landmark exploration wells into deep high-pressure, high temperature reservoirs such as the Saujana, Restu and SK 317B-1X fields, off Peninsula Malaysia. These involve drilling to an extremely deep 4,500 metres and encountering temperatures up to 250 degrees Celcius. These uncharted developments are likely to require more complex engineering capabilities.

- Hence, we maintain MMHE as our top pick in the sector as it is the only domestic yard which has a proven track record in complex engineering platforms with deepwater capabilities.  We retain our OVERWEIGHT view on the sector with our other BUY calls being Bumi Armada, Dialog, SapuraCrest, Kencana Petroleum and Petronas Gas.  

Source: AmeSecurities