Maybank IB Views

Tuesday, May 31, 2011

Malaysia: Subsidy Rationalisation
"Gas-powered: rationalisation...

The Government announced 17.3%-28% increase in gas prices and an average 7.12% hike in electricity tariffs effective 1 June. Together with the earlier announcement on 15 May of the removal of super-subsidy on diesel to nine categories of commercial vehicles that is also effective 1 June which will raise the logistic costs, we revised upwards our inflation rate forecasts to 3.4% for 2011 (3% previously) and 3.3% for 2012 (2.9% previously). Maintained our view that the Overnight Policy Rate (OPR) will be raised further by 25bps each in Jul and Sep after the 25bps increase to 3% on 5 May.

Gas & electricity tariff hikes
Finally, after much anticipation

Long awaited, but manageable. The simultaneous rise in gas price and electricity tariff is long awaited, but the impact is manageable on industries and end-consumers. Unlike July 2008 when natural gas price jumped 111-135% and electricity tariff rose 24%, the increase this time round is more "subdued". Also, a gradual RM3/mmbtu rise in gas price every 6 months allows for planning. Tenaga will gain with a positive on earnings from higher tariffs which more than offset a higher gas bill. Gloves, steel and cement will see a mildly negative impact. The net effect is a 0.82-ppt rise in our 2011 market earnings growth forecast.

Tenaga Nasional RM6.52: Hold
Dark clouds have subsided Shariah-compliant

Finally. The energy minister, Dato' Sri Peter Lim through the blessing of the Cabinet announced the much awaited gas and electricity tariff hike. In a nutshell, Tenaga's base tariff will increase by 2% which equals roughly RM600m of additional revenue per annum and there will be a fuel cost pass-through mechanism, which is reviewed every six months beginning Dec 2011. With the overhang noose off, Tenaga is now an investable company and we have upgraded it to a Hold from a Sell, with a TP of RM7.05/share based on 13x FY12 PER.

Lingkaran Trans Kota Holdings RM3.75: Buy
Cash flows intact Shariah-compliant

Below expectations. RM98m FY11 net profit made up 92% of our RM106m estimate on higher losses at associate, SPRINT. This loss is accounting in nature, affecting only the P&L but not cash flows. We tweak our FY12-13 earnings forecasts, and raise DCF-based target price slightly (+5sen) as we roll forward our valuations. Maintain Buy.
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Media Chinese International Limited RM1.30: Hold
Time for a tea break Shariah-compliant

Tactical downgrade to Hold. MCIL recorded FY11 results which were within expectations. Dividends surprised with 60% net DPR or 10 ppt above expectations. We maintain our earnings estimates but raise our net DPR assumption to 60%, yielding decent net dividend yield of 4.7% for FY12. The higher dividends for FY11 will shore up MCIL's share price after tomorrow's hike in electricity prices. With only 8% upside potential to our new target price, MCIL is now a Hold.

CB Industrial Product Holding RM4.30: Buy
Beats consensus Shariah-compliant

Maintain Buy. CBIP's RM22m 1Q11 net profit (+81% YoY; -1% QoQ) was within our expectations but beat consensus. We maintain our earnings forecasts and TP of RM4.75 based on 7x 2011 EPS. Potential upside surprises could come from: 1) a better-than-expected CPO ASP of RM3,100/t, 2) a higher-than-expected new order book of RM180m, and 3) the disposal of non-performing Sarawak plantations, which could result in a windfall gain.
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The FBM KLCI fell 5.85 points to close at 1,542.84 on Friday. Its resistance areas of 1,542 and 1,555 will cap market gains, whilst the obvious support areas are located at 1,524 and 1,540. Market breadth was again negative, with a poor gainer-to-loser ratio of 242 to 518 while 272 counters were unchanged.

Daily trading idea is Short-Term Buy call on RSAWIT.

Other Local News
Telecommunication: To pass service tax to prepaid users. Prepaid mobile phone users may have to pay more for airtime from July as telecommunication companies (telcos) work out a plan to pass down to consumers the 6% service tax imposed by the government. Most telcos are currently absorbing the tax, which had been increased from 5% to 6% from 1 Jan 2011 due to competitive reasons. (Source: The Sun)

Boustead Heavy Industries Corp: In a propellant plant deal with Prokhas. BHIC will set up a RM58m plant in Bentong to make propellants for the country's armed forces sector as well as the Asean market in future. BHIC's subsidiary Boustead Defence Technologies Sdn Bhd wil own 49% of the joint venture while Pyrotechnical Ordnance Malaysia Bhd, a Finance Minister Incorporated company, will own the 51%. (Source: Business Times)

Broadband: Measat In broadband deal with Thaicom. Measat Global Berhad has signed a 10-year deal with Thailand's sole private satellite operator, Thiacom Public Company Ltd, to provide bandwidth capacity and related broadband services in Malaysia, to be called Measat 5. This project will allow Measat to expand its support to local telecommunication companies in providing connectivity to all areas of Malaysia. (Source: The Star)

IPO: Old Town to be listed with a market cap of RM413m. Coffee shop chain operator Old Town Bhd, which has seen substantial growth in recent years, is seeking to list on Bursa Malaysia's Main Market on July 11 at an offer price of RM1.25 per share. (Source: The Edge Financial Daily)


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