RHBInvest Research

Top Story:

• Over 2011, we expect to see more innovation (in terms of technology, communications and multimedia, energy and engineering).
• We anticipate the healthcare sector to regain attention as superbugs re-emerge, and weather disruptions and macroeconomic concerns bring commodity prices to new highs.
• As for corporate Malaysia , we believe the (potentially lack of) execution of Government initiatives will drive sentiment as compared to the positive anticipation built up during 2010.
• News flow will thus remain the primary catalyst in the near term, but reversal of short-term capital will cause volatility.
• Our top picks thus reflect a mixture of both value and growth plays within their respective industries and markets.

Sector Call

Telecom:

• As a defensive play, telco stocks are the best bet to ride out any unpleasant volatility that may arise amid a record-breaking FBM KLCI and global economic uncertainties.
• We believe competition should remain rational in 2011, as a price war, particularly in the broadband segment will not really benefit anyone except YTL Communications (YTL Comms).
• Top pick is A
  
• for strong regional growth prospects and cheaper valuations against domestic peers.
• For capital management, we like TM and thus upgrade the stock from market perform to Trading Buy, for the high likelihood of significant special dividends, which may result in total dividend yield of 20.9% in 2011.

Corporate Highlights

TM:

• Caught in a storm.
• The media reported yesterday that TM is probing an international bribery scandal which led to a US$85m (RM263m) contract for Alcatel Lucent (Alcatel).
• In the short-term, we expect sentiment on the stock to be hurt by the news but we still like TM for potential active capital management.
• Upgrade TM to Trading Buy and view any dips as opportunity to accumulate the stock, for the high likelihood of significant special dividends, which may result in total dividend yield of 20.9% in 2011.
• Our fair value of RM3.55 is maintained.
  

VS Industry:

• 1QFY07/11 net profit was in line with expectations, accounting for 26.2% of our full-year estimate.
• The company is considering a quarterly dividend policy going forward.
• Fair value has been raised to RM2.30/share based on unchanged 7.5x CY11.
• Due to limited upside to the share price, we downgrade the stock to Market Perform (from outperform).