Maybank IB Views

SECTOR UPDATE
Banking: Overweight
2010 in perspective, divining 2011

Overweight. The sector's value proposition lies in (i) stable economic growth which lends support to our aggregate net profit growth forecast of 11.6% in 2011 and 11.8% in 2012, (ii) benign inflation and bottoming margins, (iii) steady loan growth momentum, (iv) potential ETP upside surprises, (v) cross-synergies and burgeoning contribution from regional operations to group earnings, (vi) healthy capital ratios and (vii) decent valuations and dividend yields. RHB Capital and CIMB continue to be our top picks.


ECONOMICS
External Trade, January 2011
Slow start to 2011...

Exports got off to a slow start this year as it grew by +3.0% YoY in Jan '11 (Dec '10: +4.6 YoY). Sustaining the growth were commodity shipments amid declines in E&E. In contrast, imports growth accelerated to +13.5% YoY (Dec'10: +11.5 YoY) mainly due to intermediate goods, reflecting inventory management ahead of the Chinese New Year holidays. No change in our external trade growth for 2011(exports: +8.7%; imports: +10.4%; trade balance: +RM111.1b) amid steady global economic growth momentum so far in 2011 and the benefits of firm commodity prices to Malaysia.


Malaysia: Balance of Payment (BoP)
Capital flows the highlights in 2010 amid steady trade flows

Trends in capital accounts remained the highlights as current account surplus was sustained via surpluses in goods and services trades. Key points are: 1) Inward FDI bounced last year after the plunge in 2009; 2) Fourth consecutive year net FDI outflows as direct investment abroad (DIA) by Malaysians also rebounded; 3) Net inflows of portfolio funds in 2010 after net outflows in 2008-2009; 4) Record errors and omissions: which raised the issue of "disintermediation" of capital/money flows outside the formal financial/banking system.


Oil Trade
Sweet spot for Malaysia

We compare some key oil trade statistics as well as the trade balance impact analysis from crude oil price increases between major, large emerging and regional economies i.e. US, EU, China, India, South Korea, Taiwan, Singapore, Malaysia and Indonesia. Notwithstanding the risk to growth and inflation from crude oil price increase, being a net oil exporter puts Malaysia at a significant advantage in terms of positive trade balance effect from - and low vulnerabillity to - crude oil price increase.


COMPANY UPDATE
Sunway Holdings RM2.18: Buy
Wins Legoland works Shariah-compliant

Maintain Buy. RM258m job win in Johor has lifted outstanding order book to RM2.7b (+11%). We maintain our earnings forecasts which have imputed RM1.2b job wins for 2011 (2010: RM0.9m). Our fair value is RM2.85 based on 11x 2011 PER, while its merger with Sunway City, at RM2.60 offer price, offers a 19% upside. At current levels, the stock trades at a deep discount to its peers, at 8.4x 2011 PER.


The FBM KLCI rose 33.34-points and closed at 1,522.61 last week. The obvious support areas for the FBM KLCI are located in the 1,474 to 1,520-zone. The very firm resistance zone of 1,522 and 1,576 will see heavy liquidation activities.

Trading idea for today is a Buy call on PETDAG.


Other Local News
AirAsia: Indonesia IPO to raise USD200m, Sarawak offers land to AirAsia for LCCT. AirAsia Indonesia, a unit of AirAsia Bhd, aims to raise USD150m to USD200m via an initial public offering (IPO) in 4Q11. Separately, the Sarawak government has offered a piece of land next to the Kuching International Airport to AirAsia Bhd to build a dedicated low-cost carrier terminal (LCCT). (Source: The Star)

Maxis: In final stages to wrap deal with Barak Telecom. Maxis Bhd is close to securing a three-year deal to provide telecommunication services to Kuwait's Baraka Telecom Sdn Bhd in Malaysia. The agreement would mark Baraka's return to the mobile virtual network operator (MVNO) business in Malaysia. (Source: The Malaysian Reserve)

DRB-HICOM: To win RM7.5b project. DRB-Hicom Bhd is poised to receive a letter of award to supply 257 units of armoured personnel carriers (APCs) worth up to RM7.5b from the government. A group of banks led by Maybank, RHB Bank and AmBank are helping to arrange the syndicated loan and other financing, which could be worth as much as RM3.5b. (Source: Business Times)

Fajarbaru: Unit wins LRT jobs. Fajarbaru Builder Group Bhd's wholly owned subsidiary Fajarbaru Builder Sdn Bhd (FBSB) has received a letter of acceptance worth RM62.6m from Bina Puri Holdings Bhd-TIM Sekata joint venture for part of the light rail transit extension. Separately, FBSB has also received a contract worth RM87.3m from Trans Resources Corp Sdn Bhd to construct, complete, testing and commissioning of Station 1, 2 and 3 for Kelana Jaya line extension. (Source: Bursa Malaysia)

TRC Synergy: Expects new contracts. TRC Synergy Bhd (TRC) is expected to increase its order book this year with more contract wins, mainly from road projects in East Malaysia and also potential involvement in MRT (mass rapid transit) project. (Source: Malaysian Reserve)

Banking: Further tightening by Bank Negara in mortgage lending sector. Bank Negara would be taking pre-emptive measures in the mortgage lending sector to reduce risks. Banks will have to hold more capital for mortgage loans. Mortgages with loan-to-value (LTV) ratio of more than 90% will have to carry weightage of 100%, compared with 75% previously. The risk weightage for LTVs that are less than 80% remains 35% and for those between 80% and 90% remains at 50%. (Source: The Edge Financial Weekly)

Manufacturing: Investments hit RM4.6b. The manufacturing sector saw approved investments totalling RM4.6b in 67 projects in January. The largest domestic investment came from the oil and gas sector, led by Malaysia Marine and Heavy Engineering Bhd with a total investment of RM2.3b. Foreign investments approved totalled RM600m with Singapore, France, Japan, United Kingdom and India accounting for the major source of investments. (Source: The Star)

Economic: Malaysia's growth target remains despite Mideast turmoil. The Government is firm in achieving its 6% annual growth target this year despite the civil unrest in some Middle Eastern countries. The target was attainable by ensuring investments committed to Malaysia were implemented efficiently. (Source: The Star)