Maybank IB Views 19 Nov 2010

Friday, November 19, 2010


MARKET COMMENTS

  • FBMKLCI 30
  • Out with the old, in with the new

New kid on the block. Petronas Chemicals (PetChem), to be listed on 26 Nov (tentative), will immediately feature as a FBMKLCI 30 stock. At a market value of RM41.6b on listing, it will be the 5th largest stock on Bursa. Financials will remain the largest sector, followed by plantations and telcos. Nestle may find its way back into the index this year-end, replacing Malaysia Airlines - but we think the possibility is remote at this juncture. The revised FBMKLCI 30 line-up (with PetChem) will have a positive impact on our present 2011 YE KLCI target of 1,660.


COMPANY UPDATE
KNM Group RM0.435: Buy
Exceeds RM2b internal job win target Shariah-compliant

Buy, cheap, laggard. The RM680m new order from Lukoil will take KNM's job wins YTD to RM2.2b, surpassing its RM2b internal target for 2010. This order book trend is positive and suggests that business is recovering. We are Buyers of KNM for its improving fundamentals, inexpensive valuations and being a laggard play to the recovering sector. While interest in this stock may only return when KNM starts to deliver on its earnings, downside is limited as most of the negatives having been priced in.


RESULTS REVIEW
IOI Corporation RM5.90: Hold
1QFY11: Downstream disappoints Shariah-compliant

Results below expectations. 1QFY11 recurring net profit of RM408m (-10.5% QoQ, +1.1% YoY) was 20% of our FY11 forecast. Upstream and property were in line, but downstream saw significant margin pressure, possibly from unexpected spikes in CPO prices. No dividends were declared this quarter. We retain our earnings forecasts pending a corporate update and maintain our Hold call on the stock.


WCT RM3.02: Buy
Looking beyond 2010 Shariah-compliant

Below expectations. RM99m 9M10 net profit (-13% YoY) made up 66-67% of house 2010 forecast of RM151m and street RM148m. The shortfall came from slower construction works recognition in 3Q10, partially offset by unexpected profits after the final accounts sign-off for overseas jobs. We downgrade our 2010 net profit forecast by 9%, but retain our 2011-12 forecasts and target price (15x 2011 PER target, plus a 20sen enhancement from the new KLIA2 retail concession). Buy.


Kossan Rubber Industries RM3.14: Buy
Good results; bird flu may raise interest Shariah-compliant

Results in line. 9M10 ex-EI net profit of RM89m (+13% YoY) made up 71% of our full-year forecast and 76% of consensus. Results are good considering the bellwethers (i.e. Top Glove, Supermax) reported 17-30% YoY earnings contraction. We maintain our Buy rating on Kossan (TP: RM3.60) as its share price has underperformed its peers and it is the cheapest large cap glove-maker. The sector could see a positive knee-jerk reaction to the new bird flu case in Hong Kong.


CB Industrial Product Holding RM3.55: Hold
Plantations take centre stage in 3Q10 Shariah-compliant

Results above, upgrade to Buy. 3Q10 recurring net profit of RM20m (+55% QoQ, +97% YoY) takes 9M10 net profit to RM45m (+65% YoY), 82% of our previous 2010 forecast. We raise earnings to reflect latest operating trends. CBIP now trades at just 5.5x 2011 earnings and 1sd below its mean PER - compellingly attractive in our view. We raise our target price to RM4.50 and upgrade the stock from 'Hold' to 'Buy'.


Technicals
The FBM KLCI fell 6.89 points to 1,496.65 yesterday. Due to the firm tone in the USA last night, we may see the FBM KLCI in a "gap-up" mode today too - with initial nibbling activities being trimmed today by pre-weekend profit-taking. Its resistance areas at 1,496 and 1,531 will cap market gains, whilst its weaker support areas are located at 1,487 and 1,495.


Other Local News
AirAsia: To open new Paris-KL route next year. AirAsia is flying to Paris, its second European destination after London, via its long-haul low fare affiliate AirAsia X. The four-times weekly direct flight will commence on Feb 14, 2011 between Paris-Orly International Airport and Kuala Lumpur International Airport's Low Cost Carrier Terminal (LCCT). The new route will be serviced by the Airbus A340 aircraft with a 327 passenger capacity, including 18 premium seats. (Source: The Edge Financial Daily)

Leong Hup, Emivest: Receive Rm426m takeover offer. Leong Hup Holding Bhd and Emivest Bhd have received a takeover offer totaling RM426m from a major shareholder, Emerging Glory Sdn Bhd, to acquire all their assets and liabilities. Leong Hup is a poultry and farming breeding firm while Emivest manufactures animal feed and feed additive premix in Malaysia and Vietnam This comes after the acquisition of Lay Hong Bhd by QL Resources Bhd, and suggests the industry is moving into a merger and acquisition mode. (Source: The Edge Financial Daily)

Alliance: Alliance Financial unit & AIA in tie-up. Alliance Financial Group Bhd's subsidiary Alliance Bank Malaysia Bhd has entered into an agreement with American International Assurance Bhd (AIA) to set up a joint-venture company, AIA AFG Takaful Bhd. Alliance Bank had a 30% stake in the joint venture to carry out family takaful business while AIA had 70%. It said the joint-venture company would be formed with an authorised capital of RM200m and paid-up capital of RM100m. The family takaful business is expected to begin operation in the first quarter of 2011. (Source: The Star)

IPO: XOX awaiting call. XOX Bhd is planning to raise about RM40m in its initial public offering (IPO), to be Malaysia's first full-fledged mobile virtual network operator (MVNO) listed on the local stock exchange. XOX targets the urban Chinese market and offers services through Celcom Axiata Bhd’s network. XoX has more than 250,000 customers, with customers spending an average of RM27 a month. (Source: Business Times)

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