Construction Sector - MRT packages V2 & v3 go to Gadang, Mudajaya Overweight

- According to a report by Bernama, the MRT Corp one-stop procurement committee has awarded two viaduct packages for the Sg.Buloh-Kajang MRT project, as expected. Both projects are estimated to be worth a combined RM1.6bil.

- Package v2 – involving the stretch from the proposed Kota Damansara station to the proposed Dataran Sunway station – has been awarded  to Gadang. The contact is worth RM863mil, and had attracted bids from all 12 pre-qualified tenderers. As for Package v3 (Dataran Sunway-Section 17), Mudajaya won the bidding among 11 contractors for the job worth RM816mil.

- With these latest awards, seven out of the eight viaduct packages have been awarded. The remaining viaduct package is under the bumi package – Package v8: Taman Mesra-Kajang – is currently under the tendering stage.

- With the award of Packages v2 & v3, we estimate that the total value of contracts awarded under the SBK MRT line would have reached close to RM16bil or roughly 77% of the initial cost estimate of RM20bil. We estimate that another 21 tenders are at the tendering stage while the remaining 31 packages have yet to be called.

- For the balance of the major packages remaining, our channel checks indicate that package v8 and half of the eight elevated station packages would be awarded by August. This would subsequently be followed by the remaining four station packages in October. Another major job still up for grabs is the Kajang Depot under the open category.

- Importantly, both lines would be implemented together – where major city centre works which are largely underground would be completed in one go rather than done on a staggered basis. This portion of the project would likely take 10km-20km each.

- While competition for the remaining packages remains intense, we gather that Naim Holdings would stand a chance in either the Kajang Depot or package v8 under the bumi category. On the other hand, WCT is in for a shot for the station works under the open category – having submitted two bids worth a combined RM300mil-RM400mil.

- Further out, we understand that ~95% of the SBK MRT line contracts would be awarded by year-end. As for MRT 2 (circle line) and 3 (radial: North-South), feasibility studies are nearing completion. Based on MRT Corp’s timeline, contracts could be dished out by end-2013, and targeted for completion within six years – i.e. 2020. But any firm decision on both lines would only be known after the 13^th  General Election.

- Likewise, we also expect investor expectations to slowly gravitate towards the suppliers of building materials, particularly with the multi-year supply prospects for cement and steel. We would advocate Ann Joo Resources (steel), Lion Industries (steel), Lafarge Malayan Cement (cement), IJM Corp (via ICP: concrete-based products) and KimLun Corp (tunnel lining, segmental box girdles).

Source: AmeSecurities

Boustead Heavy Industries Corporation - Still struggling with execution HOLD

- We downgrade our call on Boustead Heavy Industries Corp (BHIC) from BUY to HOLD, with a lower sum-of-parts based fair value of RM2.90/share (vs. an earlier RM4.90/share). Our fair value implies a rolled-forward FY13F PE of 15x – a 10% discount to Singapore Technologies Engineering Ltd’s (STE) 2-year average of 17x. 

- The earlier expected earnings turnaround, after a 1QFY12 loss of RM15mil, is unlikely to materialise due to unabated delays in the execution of the group’s Swire project as well as slower-than-expected revenue recognition for the newly awarded littoral combat ship (LCS) contract. Hence, we have cut FY12F-FY14F net profits by 32%-88% due to additional cost overruns, late-delivery charges and postponement in revenue recognition for both commercial and naval jobs.

- The delivery of two accommodation crane barges to Swire Pacific Offshore Ltd could be further delayed from JuneSeptember this year towards the end of the year, which could translate into further provisions in 2QFY12 until 4QFY12. Recall that BHIC further provided for additional losses of over RM10mil in 1QFY12.

- These delays for the group’s sole remaining commercial project stem from weak execution capabilities, and were exacerbated by a weak external charter market which led to Swire imposing stringent quality requirements. While the award of the LCS contract with a ceiling price of RM9bil last year was positive news, we expect a much slower recognition of revenue as physical construction of the vessels will only commence towards the end of FY13F.

- The group’s net order book currently stands at RM2.4bil, largely stemming from the RM1.5bil combat management system contract awarded by the group’s 21%-owned BN Shipyard. But BN Shipyard’s massive order book of RM9bil could still mean further sub-contracts to BHIC’s subsidiaries. Assuming 30% of the Gen2 patrol vessels are sub-contracted to the group’s wholly-owned Boustead Penang Shipyard, BHIC’s net order book could rise to RM3.6bil – 6x FY13F revenue. 

- As the sole military yard in the country, BHIC’s new order book prospects are clearly unrivalled among equipment fabricators in the country. But for any significant re-rating on the stock to materialise, the group will need to demonstrate a sustainable earnings turnaround, coupled with a consistent execution record for timely delivery.

- The stock currently trades at a fair FY13F PE of 15x – slightly lower than STE, the leading provider of military equipment, arms and services to Singapore.  

Source: AmeSecurities 

Technical (Affin Holdings) - 29 June 2012

Affin Holding’s share price gapped above the short term resistance line at the start of the month after rumours arose that the bank could be an M&A target. Also confirming the ascending triangle pattern in the process, the share price reached the measurement objective of RM3.38 within the same day. With  the trigger line breached, this resistance level has turned support. The share price had since continued its uptrend although the rise has also met equally persistent resistance. Despite the formation of multiple shooting star patterns, these potential bearish reversal patterns were quickly dispelled by the gains made in the ensuing days. At present, the price action is starting to form yet another ascending triangle. A decisive close above the RM3.38 corresponding resistance level will signal further gains towards RM3.60/65. 

On the weekly chart, the price action has broken the long term downward trend, turning the resistance line to a share price support line. With the run-up 3 weeks ago, the share price has also surpassed the recent high of RM3.29 and looks to be consolidating before the next leg up. At present, the MACD is supportive of the momentum while the 20-day SMA has also made a successful golden crossover.  

Source: Kenanga

Banking - OVERWEIGHT - 29 June 2012

MBF Holdings Bhd (“MBF”) is undertaking a tender process to sell its card and payment services business. MBF Cards has one of the largest networks in the country, with its credit card business having a presence at 33,000 merchants nationwide.  A few  banks have expressed their interest, including Hong Leong Bank (“HLBANK”) and AmBank Group (“AMBANK”).  We are mildly positive on this potential acquisition if these banks really made their moves. The ability in capturing market share through this acquisition will enable these banks to grow their fee and interest incomes, leading to top line synergies.

News:  MBF Holdings Bhd (“MBF”) is undertaking  a tender process to sell its card and payment services business.  Its chief executive officer, Tan Sri Dr Ninian Mogan Lourdenadin said on Thursday the company was looking for a healthy gains based on the book value of the business. 

Earlier on, a media reported that several financial institutions had shown an interest in acquiring MBf’s card business. HLBANK and AMBANK were identified as among the interested domestic commercial banks while several non-conventional financial players (including cooperative banks) had also reportedly shown interests.  

We understand that MBF Cards has one of the largest networks in the country with its credit card business having a presence at 33,000 merchants nationwide. As at end-2011, its credit card gross receivables amounted to RM610m, which translated to a market share of ~2%, while its assets and liabilities stood at RM958m and RM724m respectively.

Comments: According to the April 2012 monthly statistic numbers, credit card loans growth was lower at +6.16% (from March 2012’s +6.59%  YoY). This is in line with the recent household loans growth of +11.7% YoY, which grew at a lower rate for the fourth consecutive month. The downtrend was negatively impacted by the new Responsible Finance guidelines. Hence, we believe that the organic growth of credit card business could have reached a saturated level. As such, the financial institutions (banks and non-banks) are targeting non-organic growth strategies in growing their own credit card businesses. 

We are mildly positive on the move. The ability in capturing market share through this acquisition would enable banks to grow fee incomes from merchant transactions as well as interest incomes from credit card loans. Besides, we understand credit card operators need a critical mass in terms of card circulations and merchandisers in order to attract more card applications and to retain existing cardholders. Moreover, organic growth may be less time effective in gaining market share.

Based on our estimate, we anticipate  that  HLBANK  will  increase  its  market  share  to  15.2% (from 13.3%) and AMBANK to 7.4% (5.6%). We believe that an acquisition would make strategic sense for AMBANK to enhance its market share in short span of time. 

While synergies are likely to be seen in the medium-to-long-term, as the enlarged scale of a combined operation should present opportunities for cost savings and supply-chain management, we believe such acquisition will  immediately grow the credit card loan of HLBANK  or  AMBANK  by  1.9%  and  1.8%.  The  acquisition  is  also  likely  to  enhance  their respective total income by 7.2% and 5.7%.  

Overweight:    There  is  no  change  in  our  sector  rating  and  we  are  maintaining  our OVERWEIGHT  call  on  the  sector.  We  have  OUTPERFORM  calls  on  MAYBANK  (TP:  RM10.40), PBBANK (TP: RM15.50), RHBCAP (TP: RM9.60), CIMB (TP:  RM8.50), AMMB (TP: RM6.70), AFFIN (TP: RM4.30) and BIMB (TP: RM3.60). AFG (TP: RM3.70) and HLBANK (TP: RM10.90) are rated as MARKET PERFORM calls.   

Source: Kenanga

Gamuda - OUTPERFORM - 29 June 2012

Period   3Q12

Actual vs.  Expectations

Slightly above ours but  within the consensus’ expectations.

The 9M12 core net profit of RM373m made up 80% and 76% of ours and the consensus’ forecasts of RM466.1m and RM493.3m respectively.

Dividends  Declared a single-tier second interim dividend of 6 sen. Total dividend declared for FY12 is at 12sen.

Key Result Highlights

YTD, the 9M12 core net profit of RM373.8m increased by 35%, YoY on the back of a 14% increased in revenue. The overall improvement was supported by margin improvement in the construction and property divisions. 

During the period, Gamuda also recognised about RM33m in exceptional gain arising from a land sale in Vietnam and IC12 accounting adjustment, which is not included in deriving our core net profit.

QoQ, the core net profit of RM123.0m increased by 4% despite a 8% decline in revenue to RM705m. This was in line with expectations and due mainly to the improved pre-tax margin for its double tracking project, which is already at the tail end of its construction. 

YoY, the revenue grew by 13% backed by the Vietnam land sale transaction of about RM35m in 3Q12. Excluding the land sale, the revenue and core net profit (excluding the exceptional item) would have increased by 8% and 12% respectively.

Outlook  The current order book stands at RM5.5b including the MRT tunnelling works (RM4.2b). 

Its tender book now stands at RM10.0b. We believe that the management will only focus in bidding for niche projects like the EDTP Gemas-JB project with a contract value up to RM8.0b.

Change to Forecasts

We have tweaked our FY12 earnings higher by 5% as we imputed in a higher construction margin assumption. 

Rating  OUTPEFORM

Our OUTPERFORM rating is maintained as our Target Price implies a 34% upside from the current price.

Valuation   We have increased our Target Price to RM4.64 from RM4.16 as we rolled over our valuation to FY13 based on an unchanged PER multiple of 18x. 

Risks  Constructions delays and cost overruns.   

Source: Kenanga

Digi.Com - OUTPERFORM - 29 June 2012

Digi has successfully upgraded more than 1,000 sites to date with an ambition to complete the whole network modernisation plan by year-end. The company is aware that its network upgrading plan had caused some service disruptions to users and has started to compensate some free airtimes to its prepaid subscribers to minimise the dissatisfaction. Meanwhile, its network collaboration with Celcom has been running smoothly with the recent completion of the sharing of the first 200 sites. Digi is targeting to complete all its site consolidation by end-2013 with cost savings to commence as early as 2013 and gradually rising to an average annual saving of RM150-250m after 2015. Digi believes that the next inflection point of the industry strong data revenue growth could be triggered should branded smartphone prices fall to the RM500-RM700 range together with more affordable subscription plans. We are maintaining our FY12-FY14 earnings forecasts with an unchanged TP of RM4.68 based on a targeted FY13 EV/forward EBITDA of 10.8x Maintain OUTPERFORM. 

Network modernisation is on track. The group’s network modernisation plan, which has started since December 2011, has seen the successful upgrades of more than 1,000 sites to date with an aim to complete the 4,000 sites upgrade by end-2012. Digi is aware that its service networks had been disrupted during the upgrading periods and has created some poor user experience to its subscribers. To minimise the dissatisfaction, Digi has started to compensate certain free airtimes to  its prepaid subscribers. We understand that the rationale of Digi to opt for a rapid upgrading strategy for all its sites during a short period instead of spreading the process into phases within a number of years (a strategy implemented by its peers) is to provide a more stable network with higher capacity and cost efficiency within a short period. This will further minimise the gap and enhance its competitiveness vis-à-vis its competitors. Digi has an ambition to secure a capex/sales ratio of a maximum 10% from FY13.  

Network collaboration updates. The group has completed its first 200 sites sharing and is on track to meet its targeted 4,000 sites consolidation and upgrade by 2015. Meanwhile, Digi has also commenced its Phase 1 joint-fibre (50% each for both Digi and Celcom) aggregation and trunk rollout, which is targeted to build ~1000km of fibre cable from the North to the South in West Malaysia. As for the cost savings, Digi expects to see incremental savings as early as 2013 and gradually  rising to an average annual saving of RM150-RM250m after 2015. We understand that the full amount of the cash savings is estimated to be about RM1.1b over 10 years. 

Ample room to grow for data revenue.  The group launched its 3G services in 2Q09, two years after its main competitors, and has since recorded a healthy growth in its data revenue since then. As of 1Q12, Digi’s data revenue accounted for 30.7% of its service revenue. The group has about 2.2m (or 22% of its overall subscribers) smartphone customers but its active mobile broadband users only stood at 315k. This in our view indicates that there are ample rooms for its data revenue to grow going forward. Despite the local market being flooded with ample low to mid-price smartphones that are priced below RM1k, the majority of local consumers are still opting for branded smartphones (i.e. iPhone and Samsung) for profiling purpose. Digi believes that the inflection point for industry to record another strong data revenue growth could be  triggered by branded smartphone prices falling to the RM500-RM700 range  coupled with more affordable subscription plans being launched by the industry players.   

Source: Kenanga

Crest Builder Holdings - OUTPERFORM - 29 June 2012

News  Crest Builder Holdings (CBH), via its 51% subsidiary Landasan Bayu S/B (LB), has received a Letter of Intent (LOI) from Lembaga Getah Malaysia (MRB) for a proposed joint venture development of the MRB site (4.8ac), which is located at the intersection of Jln Ampang and Jln Jelatek. LB is a 51:49 JV between CBH and its partner, Tindakan Juara S/B. 

   

Comments  The proposed JV involves LB as the developer while MRB is the land owner. MRB will get RM299.9m which  will  be  settled  by  a  combination  of  cash  and completed units. While the mix is not finalised, we reckon the structure is similar to the Dang Wangi redevelopment project (60% paid in kind, 40% in cash), where the cash portion will likely be paid progressively over the project life. The land to GDV ratio is slightly lower at 17% vs. Dang Wangi’s 21%, meaning margins should be better, if not similar to Dang Wangi’s 20% pretax margin. We also believe that the group will undertake the construction of the project, implying a two-prong revenue streams. 

It will be a mixed development project with GDV of RM1.33b (refer overleaf for details). Based on the guided GFA of 1.65m sf and assuming utilisation rate of 70%, we derive an ASP of RM1150psf. We understand the project spans 5-6 years and will start works in late 2013 (launch likelier in 2014), so the future pricing appears to be fair as neighbouring MSuites was launched at ASP of RM1000psf last year. 

We are overall positive on the project as the group is moving towards catalytic property development projects, which will rerate the stock from a contractor to a developer. 

   

Outlook Expect a firm agreement to be inked in the next few months. Until then, we will not factor the project into our estimates (refer overleaf for explanation and potential RNAV impact).  

   

Forecast No changes to our FY12-13E estimates pending a firm agreement. Either way, earnings contributions will only be significant towards end FY14E. 

   

Rating Maintain OUTPERFORM

CBH is at its inflection point with rerating catalysts as it moves from its traditional construction business into the property development scene while riding on the ETP play with Dang Wangi and MRB. 

   

Valuation  Maintain TP of RM1.49 based on a 10% discount to our FD SoP of RM1.67, inclusive of 55% discount on the property segment.

   

Risks Capital management risks  as well as property and construction sector risks including negative policies and slow contract awards. 

Source: Kenanga 

News - UMW Holdings : Buys rig for RM684.0mil

UMW Holdings Bhd (RM9.00/share)

Buys rig for RM684.0mil

UMW Holdings Bhd’s unit UMW Drilling 4 (L) Ltd (UMW D4) has signed a sale and purchase agreement with SD Drilling Pte Ltd to acquire a jack-up drilling rig for US$214mil (RM684.13mil). The company said in a statement that completion and delivery was expected early next year. UMW said the acquisition was part of its plan to further develop its drilling operations. It added that the rig, currently under construction, was being built by a reputable and established rig builder, and was of high design specifications to enable operations in more challenging environments. – Bernama

Building Materials Sector

Government to investigate import of steel wire rods from five countries, says Miti

The government will initiate a preliminary investigation on the import of steel wire rods from five countries, Chinese Taipei, China, Indonesia, South Korea and Turkey. In a statement yesterday, the Ministry of International Trade and Industry (MITI) said the government has determined that there was sufficient evidence of dumping, injury and a causal link. The investigation was initiated following a petition for the imposition of anti-dumping duty on imports of steel wire rods from a domestic producer. The petitioner alleged that steel wire rods originating from the said countries were being brought into Malaysia at a price much lower than that in their domestic markets. It was also claimed that this is causing material injury to the domestic industry. – The Edge

Consumer Sector

Parkson to open five new stores in Indonesia next year

Malaysian retailer, Parkson Retail Group’s managing director, Datuk Alfred Cheng, said it is investing US$15.0mil to open five new stores in Indonesia next year.  Cheng said the company was bullish on the Indonesian market as the political stability has provided a fantastic foundation for the growth of the private sector. Parkson has a total of 108 stores spread across Malaysia, China and Vietnam. In September 2013, Parkson will open its first store in Indonesia, which will be located at The St Moritz within the Puri CBD in West Jakarta. Cheng said Parkson’s retail chain in Indonesia contributed less than 3% of its total sales last year, while its stores in China contributed around 70% of the company’s revenue. He said Parkson would open a store in Cambodia in the second quarter of next year. Executive director, Toh Peng Koon, said the five new stores due to open next year would comprise one or two Parkson stores and three Centro outlets. - Bernama

Source: AmeSecurities

Gamuda - Looking for new jobs in 2013

-  Maintain HOLD on Gamuda, with an unchanged fair value of RM3.79/share (5% discount to its sum-of-parts value). Gamuda recorded a 9MFY12 net profit of RM407mil (+36% YoY), coming in at 81% of our full-year forecast (street’s: 78%). We deemed its results to be in line with expectations, as 4Q could slow down on:- (i) the completion of two construction jobs in 4Q12; and (ii) the balance of land sale gains at the Celadon City in Vietnam to AEON Co being booked in 3QFY12.

-  Gamuda declared a second tax-exempt interim DPS of 6 sen, bringing total 9MFY12 DPS to 12 sen – just short of our FY12F forecast of 13 sen or a yield of 4%.

-  Gamuda’s earnings jumped 36% YoY on a 9M basis, boosted by stronger contributions from its construction (+58% YoY) and property (+89%) divisions. The construction division’s margins expanded further to 14.8% (9MFY12: 13.2%). Progress on the Ipoh-Padang Besar double tracking project has reached 81%, while both the Yenso Park infra works and New Doha International Airport projects are in the midst of being handed over.

-  Gamuda’s outstanding order book stands at RM5.5bil, with RM4.2bil or ~76% stemming from the Klang Valley MRT project. Coupled with its PDP role in the project, we expect the MRT to start contributing more meaningfully from FY13F onwards.

-  Gamuda is targeting over RM10bil worth of new contract opportunities in 2013. These would include the Klang Valley MRT 2 & 3 as well as Seremban-Gemas double tracking projects. But any firm decision would only likely materialise after the 13^th  General Election.

-  Gamuda has procured all 10 of the tunnel boring machines (TBM) earmarked for the MRT project. Initial works have commenced on five out of the seven underground stations. Following MRT Corp’s award of another two viaduct packages (V2 & V3), ~77% or 33 packages have already awarded to-date, while another 23 are at the tendering stage. 

-  9MFY12 property new sales stood at RM1.3bil (+30% YoY), but new sales have slowed in 2HFY12 on a weaker macro outlook and lumpy land sales at Celadon City booked during 2Q-3QFY12. As such, the group may revise downwards its RM2bil pre-sales target by ~15% - closer to our FY12F forecast of RM1.7bil. Gamuda’s recent landbanking deal was a 5-acre piece of freehold land in Kelana Jaya (GDV: RM600mil) earmarked for SOHO serviced residences and a lifestyle retail development. This translates into a land cost of ~RM450 psf.

-  Gamuda may opt to re-distribute half of the proceeds from any divestment of its toll investments, subject to its future capex needs. But, we stress that while there have been interested parties (PLUS, Khazanah, UEM), nothing concrete has been forthcoming as yet.

Source: AmeSecurities

Media Prima - More promising prospects in the upcoming months

-  We are maintaining our BUY recommendation on Media Prima (MPrima), with a lower fair value of RM2.90/share vs. RM3.10/share previously, based on a 10% discount to our DCF value.

-  Following a company visit, we have fine-tuned and trimmed our FY12F-FY14F earnings by 1%-2% due to a rather weak 1Q stemming from cautious advertisers’ sentiment. Nevertheless, earnings momentum in 2Q is picking up from Euro 2012, and should sustain in 3Q from the London Olympics 2012, Hari Raya and the Independence Day. Furthermore, advertisers have not cut their annual advertising budgets.

-  Going forward, content creation will become MPrima’s key business focus for the TV segment.  We understand that MPrima sells in-house content to Pay TV operators and concurrently, this content is available on FTA TV. Such an arrangement could potentially be a new income stream and it would also able to amortise and monetise the high content costs.

-  MPrima anticipates that upcoming TV players are unlikely to affect viewership as it targets the mass market, which is geographically well-diversified nationwide. As long as viewership is maintained at 2mil-2.5mil on average, advertising dollar will eventually come in.

-  Given that we see the potential for Internet adex to grow at a faster pace going forward in tandem with the rising number of Internetsavvy households, MPrima’s move to digitalise print (with the recent launch of digital paper on mobile, online, print and tablet edition) would stretch its lifespan to remain relevant in the digital era.

-  We believe that the impact of the new ruling for content sharing is likely to be neutral on MPrima. In most cases, sporting events tend to attract enormous costs. Management is of the view that it is unlikely to cannibalise, especially at the expense of other popular programmes which are already on air. 

-  Newsprint prices have softened and remained fairly flat. The current spot price is at US$621/MT and is unlikely to exceed US$700/MT (including duties and freight charges) due to declining commodity prices. However, with the strengthening of US$, this could translate into a higher newsprint cost.

-  Taking all in, we have revised our newsprint price assumption at US$700/MT from US$750/MT previously. Annual budgeted capex remains at RM100mil. Our adex growth forecast remains

unchanged at 8%-9% for FY12F, in line with our in-house GDP growth forecast of 5%, based on a GDP multiplier of 1.7x. We believe this is achievable considering that Euro 2012 and London Olympics 2012 would further stimulate ad spend.

-  Our BUY conviction is premised on:- (1) Strong position and best proxy in Malaysia due to its fully-diversified media platform; (ii) Dominant position in the Malay-language print segment; and (iii) Virtual monopoly in the FTA TV segment with the lion share of 80%.

Source: AmSecurities

Daily Trading Stocks: Hong Leong Bank Bhd

Hong  Leong  Bank’s  rebound  should  continue  as  long  as  it  stays above  the  RM12.00  support  level.  An  aggressive  trader  may accumulate  above  this  level  or  otherwise,  a  purchase  can  be  made on  a  close  above  the  2012  high  of  RM12.62.  The  price  target  is RM15.00, provided that the all time high of RM13.20 is violated. But a  correction  may  ensue  should  the  RM12.00  support  level  be violated,  after  which  supports  can  be  found  at  RM11.40  and RM11.00.


Source: OSK

Daily Trading Stocks: Affin Holdings Bhd

Selling pressure will continue to act on Affin until the RM3.40 resistance level is broken. A position can be initiated if it happens, with a close below the recent low of RM3.18 as stop-loss. The price target is the 2011 high of RM3.70. However, failure to break this resistance could see further sideways action. Expect strong support at the gap of RM3.10.


Source: OSK

Daily Trading Stocks: Yinson Holdings Bhd

Yinson’s  uptrend  should  continue  as  long  as  it  stays  above  the  3-week  low  of  RM2.06  support  level.  An  aggressive  trader  may accumulate above this level or otherwise, purchase can be made on a  close  above  the  recent  high  of  RM2.20.  The  price  targets  are RM2.50  and  RM2.40.  Failure  to  break  the  resistance  may  invite selling, which is confirmed by a close below RM2.06. Supports  lie at RM1.91 and RM1.83.


Source: OSK

Daily Trading Stocks: IGB Corp Bhd

IGB will likely decline if it closes again below the 4-month support level of RM2.70. Liquidation can be undertaken if it happens, and supports are expected at RM2.50 and RM2.36. The negative bias will only be nullified if the stock closes above the 1-month high of RM2.80 and only with a violation of the strong resistance at RM3.00 can the stock climb further.


Source: OSK

Daily Trading Stocks: Euro Holdings Bhd

Euro has been holding the gains of 15 June pretty well and a close above the 1½ month high will set it higher. A position can be initiated if it happens, with a close below the week's low of RM0.28 as stop-loss. The price targets are the recent highs of RM0.35 and RM0.375. However, the stock will decline further if it closes below RM0.28 and supports are at RM0.25 and RM0.215.


Source: OSK

Daily Trading Stocks: Prestariang Bhd

Prestariang is on a clear uptrend but it may need to further consolidate Monday’s gains. Support is expected at RM1.17, with a stronger one at RM1.12. A close above the recent high of RM1.30 is needed for the stock to continue trading higher and purchase can be made if it happens. The price targets are RM1.40 and the psychological RM1.50.


Source: OSK

Daily Trading Stocks: TMC Life Sciences Bhd

TMC’s rebound should continue after gapping higher yesterday. A purchase can be made above the gap of RM0.32, with a close below it as stop-loss. The price target is the prior high of RM0.38, with selling also expected at RM0.36. Failure to hold above RM0.32 is likely to see the return in selling. Supports lie at RM0.30 and RM0.27.


Source: OSK

Daily Trading Stocks: Ivory Properties Group Bhd

Ivory could resume its rebound if it can respond positively to the “Hammer” of Tuesday. A purchase can be made on a close above the candle high of RM0.52, with a close below the candle low of RM0.505 as stop-loss. The price target is RM0.58, with possible overshoot at RM0.60. A close below RM0.505 should see the stock go lower but expect strong support at the recent low of RM0.47.


Source: OSK

Steel - Probe on Dumping of Steel Wire Rods

THE BUZZ

StarBiz reported that the International Trade and Industry Ministry (MITI) has received a petition from domestic producers alleging that imports of steel wire rods originating in or exported from Taiwan, China, Indonesia, South Korea and Turkey were being brought into Malaysia at much lower prices than those offered in those countries’ respective domestic markets. MITI is initiating a preliminary investigation on such imports from those countries and will study the imposition of anti-dumping duty on steel wire rod imports.

OUR TAKE

Wire rods being dumped in Malaysia? We are not entirely surprised with the petition from steel manufacturers as we have heard complaints from some of them of late. Although a few countries are being targeted in the investigation, we learned that the major competition is coming from China, whose manufacturers have made use of the 9% Value Added Tax (VAT) refund on exports of boron-added steel. Nonetheless, the wire rods imported into Malaysia have only minimal boron content and does not change the characteristic of the material, which is instead still similar to regular carbon steel.

Local wire rods manufacturer may have reason to cheer. The petitioner claimed that the dumping has caused material injury to the domestic industry in Malaysia, and that imports from those countries have increased in terms of absolute quantity. Meanwhile, the import of wire rods jumped significantly to 474,561 tonnes in 2010, based on data compiled by the South East Asia Iron and Steel Institute (refer to Figure 1). We also understand from our sources that the competition from imported wire rods have resulted in local manufacturers pricing the products at around RM2,100 a tonne compared to the price of steel bars at RM2,300 a tonne, although wire rods are normally priced at a premium in the international market. In accordance with the Countervailing and Anti-Dumping Duties Act 1993 and its related regulations, preliminary determination will be made within 120 days from the date of initiation. If the final determination is affirmative, the Government might impose an anti-dumping duty at a rate that would rectify the situation. Thus this may bring cheer to local wire rods manufacturers like Lion Industries, Southern Steel, Kinsteel and Ann Joo.

NEUTRAL on steel sector. While we welcome MITI’s move, investigations may take another quarter before the government makes the final decision. We remain cautious on the gloomy outlook for the steel industry, especially since steel demand is only projected to pick up after the conclusion of Malaysia’s next General Election, which may then see ETP projects eventually take shape. These aside, we are also wary that the recent sharp plunge in steel scrap price – which has consolidated at USD450 to USD400 a tonne - may lead to negative sentiment in the steel market spilling over to the prices of locally finished steel products.

Source: OSK

Hiap Teck Venture - Better Days Ahead

Hiap Teck Venture Bhd’s (HTVB) 9MFY12 results came in stronger on both q-o-q and y-o-y basis but the quantum of outperformance is smaller than expected. We are not too concerned about the iron ore concession award delay and remain confident that HTVB may ink the official agreement soon. As the global economy continues to stay uncertain with the steel sector facing strong headwinds, we are compelled to revise HTVB’s earnings estimates downward. This gives rise to a slightly lower new FV of RM0.73, which is 0.5x FY13 BV and 10% DCF value from the possible iron ore concession. We maintain our Trading BUY call on HTVB as it may see more potential upside with its vertical expansion plan making good progress, apart from a possible revaluation if the iron ore concession is secured.

A weak quarter again. For 3QFY12, HTVB’s net profit came in at RM6.7m, which represents a q-o-q and y-o-y improvement of >100% and 23.1% respectively. This stronger q-o-q performance was mainly attributable to the recovery of sales after the festive seasons in 2QFY12 and an improved gross profit margin. However, HTVB’s 3QFY12 numbers were overall below our and consensus estimates, and the 9MFY12 results only met 43.7% of our FY12 full-year earnings forecast. On a y-o-y basis, although both trading and manufacturing divisions have achieved a higher turnover of RM143.0m and RM132.4m respectively, compared to RM119.1m and RM117.4m, this positive performance was offset by the drop in profit margin from 10% for last year to 8% mainly due to the higher cost of production.

Iron ore concession still pending. It has been 6 months since the Menteri Besar of Terengganu announced the award of the iron ore mining concession in Bukit Besi to HTVB at the ground-breaking ceremony for Eastern Steel’s blast furnace (BF) plant. Despite the fact that the official letter of award has yet to be issued, we are encouraged by Eastern Steel’s ongoing BF plant construction, which fulfills the condition (that the company must set up a plant in Kemaman, Terengganu) imposed by the state government for clinching the iron ore concession,. As such, we are confident that Eastern Steel may still have a good shot at bagging the lucrative mining concession.

Mining rights still a sweetener. HTVB’s BF plant is still under construction and we believe that HTVB already has plans to source for iron ore to be fed into its BF plant from external parties. Thus, the unexpected delay in the official award of the iron ore concession is not a cause for concern and is not expected to jeopardize the company’s prospects in any way.

Making the right decision to expand during challenging times. HTVB’s strategy of moving upstream at this juncture could possibly turn out to be a wise strategy as we understand that it takes time to construct a steel mill and also to overcome the learning curve for steel making. By constructing the BF plant during this challenging period, HTVB could position itself to capture the next upswing for the steel sector and ride on the recovery phase to boost its medium- to long-term earnings.

Revise earnings estimates downward. Although we believe HTVB’s prospects remain intact, the overall sector is still facing sluggish demand for steel and continuing downward pressure on steel prices, owing mainly to the weak global economic recovery amid renewed concerns over the debt crisis in the eurozone. This prompted us to revise HTVB’s FY12 and FY13 earnings estimates down by 33.6% and 23.8% respectively.

Maintain Trading BUY with revised FV. We continue to like HTVB in view of its limited downside and the potential upside surprises arising from: (i) its BF plant which is slated to commence operations in 2013, (ii) its high chance of securing the iron ore mining concession that will trigger an upward revaluation of the company, (iii) the fact that the steel sector may eventually recover due to its cyclical nature, and (iv) the fact that it is currently trading at a deep discount to its FY12 BV of RM1.28. We maintain our Trading BUY recommendation with a FV of RM0.73, which is derived from 0.5x FY12 BV plus 10% iron ore DCF value-add factor. 

Source: OSK

Perdana Petroleum - Hauls in Murphy Job

THE BUZZ

Perdana Petroleum (Perdana) announced yesterday that its subsidiary, Perdana Nautika SB, has secured a contract from Murphy Sabah/Sarawak Oil Co Ltd (Murphy) for the supply of 1 AHTS to support Murphy’s 2012/2014 shallow water drilling programme. The contract is for a period of 2 years, with an extension option of 1 year effective from 27 June 2012. The contract value is about RM86m.

OUR TAKE

Good charter rates. The company did not disclose the charter rate/bhp in the announcement but based on our assumption that the AHTS is likely to be the 12k bhp series and is expected to operate 365 days, as well as a USD/MYR rate of 3.10, the charter rate/day would be about USD3.17/bhp (RM86m/2 years/12k bhp/3.10/365days). Hence, assuming that this is the rate which Perdana will secure from Murphy, it would represent a vast improvement over the average rate of between USD1.60-USD2.50/bhp  2 years ago.

Positive news but no change to our FY12-13 earnings.  This is because we had earlier factored in some orderbook replenishment for its vessels.

Maintain Buy. Our fair value for Perdana is unchanged at RM0.90, based on the existing PER of 12x FY12 EPS. Going forward, we think the worst is over for the company and expect it to turn around starting from 2HFY12. This is considering the fact that more new jobs will be created as O&G activities in Malaysia as a whole pick up, and as the flow of new projects from Dayang increase when the latter lands more brownfield services contracts.

Source: OSK

Hai-O Enterprise - On The Road to Recovery

Hai-O’s FY12 results were in line with consensus but above our forecasts. The better revenue (+7.2%) and net profit (+16.2%) y-o-y were mainly buoyed by stronger sales from the MLM division and higher margin products. EBIT margin widened to 19.9% from 18.4% y-o-y. The company has declared a final single tier dividend of 7 sen for this financial year. Given the stronger-than-expected performance, we are raising our FY12 earnings by 6.5%. Maintain NEUTRAL, with a new FV of RM2.16.

MLM division rebounds. Hai-O’s full-year results were within consensus estimates but 7.8% above our forecast, as its topline and core net profit (excluding a one-off RM0.8m gain from disposal of vintage tea) jumped 7.2% and 16.2% y-o-y respectively. The stronger revenue growth was mainly contributed by higher sales from the MLM division (+12.7%), which made up 59% of the group’s total revenue. Vis-à-vis 3QFY12, the company’s revenue and core net profit came in at RM69.4m and RM8.4m.

Good showing from all divisions. The MLM division’s earnings went up by 7.2%, thanks to proactive strategies to attract new members and distributors, coupled with higher repeat sales from existing members. We reiterate our view that the growth momentum in the MLM division should be sustainable given the improved marketing strategy and balanced product mix. In the wholesale division (revenue: -5.6% y-o-y), the better sales from patented medicine and goods supplied to duty-free shops plus the one-off gain from the disposal of some vintage tea products mitigated the lower revenue from Chinese Medicated Tonic. Nonetheless, PBT in the wholesale division surged 27% due to higher inter-segment sales and sales of higher margin products. On the other hand, the retail division’s revenue was relatively flat (+2% y-o-y) due to the company’s outlet rationalization involving two unprofitable outlets and the opening of seven new outlets. This division’s PBT rose 7.6% mainly due to higher sales of house-brand products.

Better margin. EBIT margin expanded by 1.5% to 19.9%, mainly attributed to: i) better sales from MLM division, ii) higher margins from wholesale products, and iii) higher rental income from renewal of tenancy agreements of existing investment properties and lower research costs. The company has proposed a final single tier dividend of 7 sen, translating into a decent dividend yield of 4.3%.

Maintain NEUTRAL. We remain optimistic on the recovery of MLM division as it continues to introduce new products, implement effective sales campaigns and recruit new members. In view of the better-than-expected results, we are raising our FY13 forecasts by 6.5%. Maintain Neutral, with a higher FV of RM2.16.

Source: OSK

Mudajaya Group - MRT In The Bag

E BUZZ

According to Financial Daily, MRT Corp has awarded v3 viaduct package which spans from Dataran Sunway to Section 17, Petaling Jaya, to Mudajaya Corp for a total contract value of RM816.2m.

OUR TAKE

A surprise win. The announcement, which is a positive surprise, boosts Mudajaya’s jobs secured YTD to RM1.82bn. Going into 2H12, it has already exceeded our expectations and we expect no new job wins for the remainder of the year. Assuming a quarterly burn rate of RM400m-RM500m, the company’s outstanding orderbook of approximately RM4.4bn should last it well into 2HFY14. We make no change to our core assumptions for now with our FY12 forecasts left unchanged while our FY13 net profit estimates are revised up by a marginal 3.7% to incorporate maiden contribution from this v3 viaduct package.

NEUTRAL. Overall, while we are positively surprised by Mudajaya’s strong job wins YTD, we continue to take a cautious stance on the company pending finalization of the fuel supply agreement between its 26%-owned associate RKM Powergen and Coal India Ltd. Maintain our NEUTRAL call for now, with unchanged FV of RM2.88, pegged at a 50% discount to our SOP valuation. The steep discount to the entire SOP value is due to a sizeable 80% of its earnings coming from the Chhattisgarh project.

Source: Kenanga

Gamuda - Shifting to High Gear

Gamuda’s 9MFY12 net profit of RM406.8m (+36.0% y-o-y) was above both our and consensus forecasts, at 81.6% and 81.3% of the full-year estimates respectively. This was due to the recognition of higher-than-expected margins in its construction and property divisions. While its property sales are likely to slow down amidst a cautious outlook, we continue to see strength in its construction earnings as works on the KV MRT go into full swing. Maintain BUY, with our FV revised marginally down to RM4.46.

Above expectations. Gamuda’s 3QFY11 revenue stood at RM705.9m (+13.6% y-o-y, -8.2% q-o-q) while net profit came in at RM138.0m (+18.3% y-o-y, +1.1% q-o-q). Cumulatively, 9MFY12 revenue totaled RM2.11bn, up 13.7% y-o-y driven by its property division, which saw revenue surge 66.0% y-o-y to RM799.1m. By the same token, PBT climbed 40.2% y-o-y to RM551.5m, lifted by higher-than-expected margins from ongoing works on the Electrified Double Tracking (EDT) project as well as from its property division. Overall, the 9MFY12 net profit of RM406.8m (+36.0% y-o-y) beat our and consensus’ expectations. A second interim DPS of 6.0 sen was declared, bringing the YTD payout to 12.0 sen, implying a payout ratio of 60%.

Update on underground portion of SBK line. Management expects its tunnel boring machines (TBMs) to commence boring in 2QCY13, having placed orders for 10 TBMs worth some RM1.2bn. Meanwhile, works are ongoing at its launching shafts at Semantan and Jalan Cochrane, and demolition works are being carried out at Pasar Seni. Initial works have also commenced on 5 out of the 7 underground stations. All in, management reassured us that work progress is largely on track, with activities to gradually pick up at all sites.

Controversy over site acquisitions. According to press reports on the proposed demolition of Bukit Bintang Plaza to make way for the Bukit Bintang underground station, mall owner UDA Holdings has given its tenants notice to vacate the premises by the end of the year. Nonetheless, Gamuda’s management hopes that the site could be vacated to allow it to take possession by 3QCY12, or risk potential delays in completing the SBK line. Meanwhile, negotiations with landowners are ongoing in respect of the Jalan Sultan site, with all except 3 landlords having given their consent for the MRT plan to proceed.

More contracts from KV MRT. The remaining v8 package and four out of the eight station packages will be progressively dished out in Aug this year. To date, 31 works packages worth RM13.8bn have been awarded, with the remaining 54 work packages worth RM6.2bn to be contracted by 4QCY12. Overall, we are encouraged by the positive progress made, with the SBK line remaining on track to be completed by mid-2017.

Quantum of EOT still not known. Previous media reports speculated that MMC-Gamuda will seek a variation order of as much as RM1.5bn from the Government due to cost overruns in the RM12.5bn Ipoh-Padang Besar EDT project. Recall that the project was previously granted an Extension of Time (EOT) by the government from 2013 to 2014 due to the late handover of land by the authorities. Management admitted that a claim for EOT will likely be filed. The exact quantum has yet to be specified but the amount is likely to be significantly lower than the RM1.5bn reported. Progress on the EDT is now largely on track, with 81% of the works completed. The Padang Besar-Ipoh section will be completed by mid-2014 and the Bukit Mertajam-Butterworth section by end-2014.

Potential jobs ahead. Management conceded that official award of the southern portion of the EDT running from Gemas to Johor Bahru worth a total of RM8bn is likely to take place after the general election, which is now rumored to be held in Sept this year. Its share of works and equity stake in the partnership with China Railway Construction Co has not been determined but management is confident of bagging at least half of the jobs available. Meanwhile, the remaining two lines of the KV MRT are currently undergoing evaluation by independent consultants and we understand that the exact alignment will be determined by 1QCY13 and potentially awarded in 2HCY13.We continue to like Gamuda’s chances of bagging the underground portion of the remaining two KV MRT lines, which we estimate to be worth at least RM15bn given the Government’s preference for local contractors and the fact that Gamuda has already procured the necessary equipment for the SBK line and which are ready for redeployment. 

Nothing concrete on Litrak yet. Talks with PLUS on the potential disposal of Gamuda’s toll concessionaires in the country are ongoing but nothing concrete has emerged so far. Should this materialize, management does not discount the possibility that it might plough back some cash to its existing shareholders.

Property segment may slow down. The company’s 9MFY12 property sales totaled RM1.2bn (of which RM920m was recorded in Malaysia and RM270m from Vietnam) vis-à-vis its full-year target of RM2.0bn, with unbilled sales now totaling RM1.3bn. In light of the weaker sentiment amid a cautious property market outlook, management said that sales, especially in the higher end segment, are slowing. We are forecasting property sales of RM1.5bn for FY12, RM1.8bn for FY13 and RM2.0bn for FY14. Elsewhere, the group is beefing up its landbank with the latest acquisition of a 5-acre site in Kelana Jaya for RM95m cash. It has been earmarked as the site for a mixed SOHO and retail development with an estimated GDV of RM600m.

BUY. We are encouraged by the decent results and believe that earnings would come in even stronger once the KV MRT project shifts into high gear. While we make no major changes to our core assumptions for now as we understand from management that the margins recognized from EDT are likely to normalize in 4QFY12 as the project approaches its tail-end, our FY12-FY14 net profit estimates are revised upwards by a marginal 0.2%-1.6% for housekeeping purposes. Maintain BUY, with our SOP-based FV now revised to RM4.46 (from RM4.58 previously), due to slight tweaks to our earnings forecasts as well as an enlarged share base following the exercise of some ESOS shares.

Source: Kenanga