Maybank IB Views

Thursday, August 11, 2011

Plantation: Neutral
Short term fundamentals improved

Maintain Neutral, for now. Amidst the financial chaos in the past week which led to a 6% correction in CPO price to below RM3,000/t (3M Futures), we expect some short term relief as fundamentals improved on lower July inventory, rising exports over 1-10 Aug period, and lower production productivity during the fasting month. US' pledge to maintain interest rate at near-zero through mid-2013 would help to support commodity prices, CPO price inclusive. But do expect short term price volatility. Maintain Neutral on the sector. Our top Buys are SOP and TSH which offer single-digit valuations (for SOP) and strong +16 to +20% 3-year forward production CAGR.

Petronas Chemicals RM6.19: Buy
Maintenance shutdowns dampener Shariah-compliant

2Q11 will be beset by maintenance shutdowns. PCHEM is expected to release its 2Q11 results on 24 August. 2Q will be bogged down by major maintenance shutdowns and nationwide gas curtailment during the period. Product volumes will be lower but fortunately the higher product margin will help to offset this. Maintain Buy, with an unchanged TP of RM8.15 based on 13.5x 2012 PER, in line with global peers.

Industrial Production Index (IPI), Jun '11
Rebound after two months of declines

Industrial production index (IPI) rebounded in June '11 after two months of declines i.e. +1.0% YoY (revised May '11: -5.6% YoY) and +3.5% MoM (revised May '11: -1.4% MoM). Manufacturing output growth gained momentum as the Japan supply-chain effect diminished, but mining production - especially crude oil - remained a drag. Industrial output however shrank -1.6% YoY in 2Q 2011 (1Q 2011: +2.4% YoY) and -1.6% QoQ (1Q 2011: -0.3% QoQ), implying further deceleration in GDP growth. Our 2011-year real GDP growth forecast was revised downward to +5.1% at the start of 2H 2011 versus +5.5% at the start of the year. Our imputed 2Q 2011 growth was correspondingly trimmed to +3.9% YoY from +4.7% YoY. 2Q01 real GDP data will be out on 17 Aug.

The FBM KLCI rose 8.38 points to close at 1,480.52 yesterday. Its resistance areas of 1,480 and 1,530 will cap market gains, whilst the weaker support areas are located at 1,423 and 1,472.Due to the US markets’ plunge last night; we will see some volatile trading activities in the local bourse today. Some heavy profit-taking and liquidation activities on any rebound.

Trading idea is AIRASIA.

Other Local News
Mah Sing: To buy potential lands yielding RM7b GDV. Mah Sing Group Bhd is targeting land acquisitions which could potentially yield RM5b to RM7b in gross development value (GDV) compared to 10 landbanking transactions in 2010 with combined GDV of approximately RM4b. (Source: The Malaysian Reserve)

AirAsia: AirAsia X picks IPO adviser. AirAsia X has chosen Morgan Stanley as its adviser for its proposed initial public offering (IPO) for which listing plans, targeted for next year, were underway. Khazanah Nasional Bhd's proposed plan to take up a 10% stake in AirAsia X would be executed "very quickly" with issuance of new shares in AirAsia X. (Source: The Star)

Maxis: Partners Alcatel-Lucent to deploy first 100G core transmission network in Asia Pacific. Maxis Bhd, with Alcatel-Lucent as a strategic supplier, will be deploying the first 100G single carrier with optical coherent energy network solution commercially deployed in the Asia Pacific. With that, Maxis will be able to address growing bandwidth requirements and data usage driven by smartphones, tablets, modems and fiber-to-the-premises services. (Source:

Aviation: Airport tax hike. Malaysian Airports Holdings Bhd (MAHB) is raising tax to cover rising operating costs and finance airport expansion. The airport operator has proposed that the tax at the country's 39 airports it manages, excluding low cost carrier terminals (LCCT), be raised by RM14 for international travelers from Sept 15. The travelers will have to pay RM65 from RM51 (RM45 for airport tax and RM6 for security charge) now. (Source: The Sun)

Plantation: Planters see minimal impact by pay rise. The cost of production (COP) and profit margins among oil palm plantation companies will be minimally affected by the Malayan Agricultural Producers Association's (MAPA) decision to increase the wages of some 157,270 general plantation workers nationwide. (Source: The Star)

Construction: RM2b cable car link. The country's first proposed mainland-to-island cable car will be built in Port Dickson as part of the RM2b PD Waterfront project. The cable car project, spanning 750m, will link the new PD Waterfront township with Pulau Arang, an uninhabited island to boost tourism. (Source: The Star)


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