Maybank IB Views

Market Strategy
Riding the high waves

Positives dominate. We expect Malaysian equities to scale new highs in 2011 supported by: (i) liquidity flows as funds continue to move into emerging markets, courtesy of the US’ 2nd dose of quantitative easing (QE2), (ii) the growing possibility of an early general election (GE), (iii) domestic investment upcycle from direct investments and the Economic Transformation Programme (ETP) implementation, and (iv) corporate exercises – M&As, privatisations and GLIC divestments – helped by low interest rates and ample liquidity.


ECONOMICS
2011 Outlook
Global Headwinds, Local Undercurrents

Volatile external environment amid “sustainability, solvency and stability” risks... Uncertainty remains over the strength and staying power of US recovery, hence the extension and expansion of monetary and fiscal stimulus. Eurozone sovereign debt turmoil persists amid concerns over the vulnerability of the peripheral economies and contagion to other countries, financial institutions’ exposure via intra-regional loans and holdings of government papers, as well as the public and banking sectors’ funding gaps. For emerging markets, namely Asia Pacific (ex-Japan) and BRIC, the issue is that of macroeconomic and financial stability as they grapple with “bubblenomy” risk arising from the combination of hot money inflows, excessive currency movements as well as general and asset price inflation.


SECTOR UPDATE
Banking: Overweight
Nov '10 statistics: Chugging along robustly

Remain Overweight. Bank Negara reported that loans to households continued to take the lead in Nov 2010, up +1.3% MoM and +13.9% YoY. Loans to businesses, which account for a smaller 44.5% of total system loans, was up +1.4% MoM but this translated into a comparatively slower +10.3% YoY. We remain Overweight on Banking as the over-riding theme in 2011 should be for project financing requirements under the ETP to spur loans growth further.


COMPANY UPDATE
IJM Corporation RM6.23: Buy
Property merger is off Shariah-compliant

Call under review. The aborted IJM Land-MRCB merger is a major disappointment as expectations have been built in for a much stronger outlook under an enlarged group. No change to our earnings forecasts which have yet to incorporate the merger potential. However, share price, which has been up 11% since the merger was proposed, is closing in to our RM6.40 RNAV. Our target price is under review pending an update with management to revisit its prospects.


Axis REIT RM2.37: Buy
Another yield accretive acquisition Shariah-compliant

Last acquisition for 2010. We are positive on the latest office purchase in Cyberjaya given its fair pricing as well as attractive 8% net property yield (vs. 6.9% funding cost). This yield-accretive acquisition is expected to enhance our 2011-12 EPS forecasts by 1.5-3.4%. We continue to like AXRB’s proven track record and hands-on management. Maintain Buy with a higher RM2.63 TP (+1.2%).


Dialog Group RM1.79: Buy
Bags ABF's EPCC job Shariah-compliant

We are bullish on fabricators. Dialog's ABF EPCC job win exhibits stronger orders and tender pipelines, and the momentum is set to sustain in 2011, especially for CTF-related EPCC works. We have raised Dialog's SOP target price to RM2.60, now incorporating part of its deepwater Pengerang centralized tankage facilities (CTF) project, which will feature prominently over the next few years. Buy.


Technicals
The FBM KLCI gained 7.33-points and closed at 1,518.91 last week, as some profit taking activities on stocks trimmed the market's initial advance. The obvious support areas for the FBM KLCI are located in the 1,474 to 1,518-zone. The key resistance areas of 1,520 and 1,531 may cap any rebound activity. we favour marginal chances of an upside break towards 1,531.99 in the medium-term.

Our weekly trading idea is a SHORT-TERM BUY call on TDM.


Other Local News
RHB, Pos Malaysia: To launch new banking service. RHB Banking Group, in a collaborative effort with Pos Malaysia Bhd, is launching the Pos Malaysia-RHB Shared Banking Services to enable banking services for its customers at selected Pos Malaysia outlets nationwide. The first phase would involve 21 selected Pos Malaysia outlets in the Klang Valley and Negri Sembilan. (Source: The Star)

Construction: RM144m allocated for infrastructure facilities in Kelantan. The Rural and Regional Development Ministry has allocated RM144m to provide infrastructure facilities in Kelantan during 2011. The projects include the provision of water and electricity supply, construction of roads, and building of houses for the poor. (Source: The Star)

Construction: RM1.46b island project revived. The RM1.46b Pulau Melaka twin reclaimed island project has been revived after a decade of financial and legal woes. The project, that involves the construction of some 400 commercial shop lots comprising a total of 1,534 units, would resume by September 2011. Most of the development work on the island has been completed with 521 units finished. (Source: The Star)

Mining: Advance SCT restarts Malaysian aluminium smelting plant. Advance SCT Ltd, one of Singapore's largest traders of aluminium, copper and stainless steel scraps, has restarted its aluminium smelting plant in Malaysia last month. The smelter would produce 200 to 400 tonnes of aluminium ingots monthly. It has also secured an exclusive contract to supply at least 1,000 tonnes a month of first grade copper scraps to China-based Qingyuan Shengli Copper Material Co Ltd. (Source: The Star)

Plantation: Oil palm dealers concerned about MPOB's new rule. The Malaysia Oil Palm Dealers Association (MOPDA) has expressed concern over Malaysian Palm Oil Board’s (MPOB) move to bar dealers from buying and selling oil palm fresh fruit bunches (FFB). The MPOB ruling, effective since 1st January 2011, allows estates, smallholders and dealers to sell directly to millers, preventing small dealers from being monopolised by big dealers, and enhancing the quality of oil palm fruits so that the oil extraction rate would exceed 25%. (Source: The Star)

Insurance: AXA Affin, BH Insurance to merge. AXA Affin General Insurance Bhd will merge with BH Insurance (M) Bhd and operate as single entity starting Jan 1. The combined turnover of the two entities puts them among the top five insurers in the country. (Source: The Star)