Maybank IB Views

BNM Monetary Policy
No change in key policy instruments...

Bank Negara Malaysia (BNM) kept the Overnight Policy Rate (OPR) at 3.00% and the Statutory Reserve Requirement (SRR) at 4% following its Monetary Policy Committee (MPC) meeting yesterday. BNM’s decision to leave both OPR and SRR unchanged sent a strong signal that the central bank’s monetary policy bias has shifted to supporting growth. We see the OPR staying at current 3% level at least until mid-2012, although it is possible that this could be extended into 3Q 2012. The same goes for SRR, as BNM's monetary policy now seek to not only maintain accommodative cost of financing, but also to ensure availability of liquidity to support growth.

Economic Transformation Programme (ETP)
Update #7

PM announced 8 new entry point projects (EPP) under the Economic Transformation Programme (ETP) involving RM1.43b investments in six National Key Economic Areas (NKEAs). The biggest investment was in the palm oil NKEA where KL Kepong will invest RM706m in four downstream projects. Cumulatively, over half of EPPs and over one-fifth of investment targets have been announced. On progress of earlier announced EPPs, 26% are fully operational, 57% have commenced implementation, and 16% are still work-in-progress.

External Trade, Jul 2011
A mixed bag of data...

Exports growth of +7.1% YoY in Jul '11 was better than expected (revised Jun '11: +9.6% YoY, Maybank-IB: +4.6% YoY; Consensus: +6.6% YoY). But import growth came in below estimates at +2.9% YoY (revised Jun '11: +6.9% YoY, Maybank-IB: +4.1% YoY; Consensus: +6.5% YoY). As export growth outpaced import growth, the trade surplus was a larger-than-expected RM9.45b (revised Jun '11: +RM7.88b, Maybank-IB: +RM7.6b; Consensus: +RM7.8b). MoM, exports gained by +2.4% while imports fell by -0.4%. YTD, exports rose by +6.9% while imports increased by +8.7% giving a RM68.6b trade surplus. Our full-year forecasts for export growth, import growth and trade surplus are +8.4%, +10.8% and RM106.9b respectively.
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SECTOR UPDATE
Telcos: Neutral
6% service tax passed through

A pleasant surprise. That the 6% service tax will be passed through from the telcos to prepaid customers is a pleasant surprise. While this move has been talked about for awhile, the timing of it is earlier than expected. Biggest beneficiary of this is Digi, with its larger prepaid customer base. The telco sector remains defensive for its domestic focus and decent yields - Telekom remains our top pick.

COMPANY UPDATE
Digi.Com RM31.12: Hold
Capital management plans Shariah-compliant

Marginally positive, Hold maintained. Digi's proposals ensure that as much is returned to shareholders out of reserves as possible. In addition to the expected nominal DPS of RM1.63/share in 2011, investors could possibly see another 30sen in special DPS next year. Separately, we have raised 2012/2013 earnings by 8% and 6% respectively and our DCF-derived TP has been lifted to RM31.50 with the pass-through in the 6% service tax (see separate writeup today).

Kuala Lumpur Kepong RM21.60: Hold
Seeking downstream growth Shariah-compliant

Rain or shine, expansion goes on. KLK will invest RM706m capex in 4 downstream projects in Malaysia, PM Najib announced during the Economic Transformation Programme update session yesterday. While the impact may only be felt three years later, we are nonetheless positive on this development especially as it comes along with RM134m of approved MPOB grants to reduce costs and enhance returns. No earnings impact for now; funding is not an issue. Maintain Hold with an unchanged TP of RM21.60 based on 16x FY12 EPS.

Technicals
The FBM KLCI ended 5.22-points higher to close at 1,469.83 yesterday. Its resistance areas of 1,471 and 1,497 will cap market gains, whilst the obvious support areas are located at 1,443 and 1,469. Due to the US markets’ weaker tone last night, we may see a steady tone for the local bourse today. Some further profit-taking activities may persist to depress the markets’ rebound from its recent 1,423.47 low.

Trading idea is a Short-term Buy call on MALTON

Other Local News
TNB: Sees delay in gas recovery. Tenaga Nasional Bhd (TNB) gas supply curtailment issues are likely to continue as the key Bekok field is only expected to commence operations by another month. The expected delay is paired with another negative surprise TNB might not get back the full 150-200m standard cu ft per day (mmscfd) as it has to share the capacity with the industrial sector. (Source: The Star)

DRB-HICOM: Going for more M&As. DRB-HICOM Bhd is still hungry for more mergers and acquisitions (M&A) to add synergy to its core businesses and to expand its operating profit. It is allocating RM700m to RM1b as capital expenditure. This comprises investments for its Volkswagen assembly, the design and manufacturing of BAE System's 8x8 armoured wheel vehicles, and property development along with its automotive university college in Pekan. (Source: The Star)

Puncak Niaga: Syabas files RM1.05b suit against Selangor Government. Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), a subsidiary of Puncak Niaga Holdings Bhd, has filed a RM1.05b claim against the Selangor Government. The claim, filed at the Kuala Lumpur High Court, was for compensation for the period from Jan 1, 2009 to March 31, 2011 from the state government under the 2004 concession agreement between Syabas, the Federal Government and the Selangor Government. (Source: Bursa Malaysia)

Consumer: McD Malaysia to open 87 new restaurants by 2014. McDonald's Malaysia will invest RM348m to open another 87 restaurants by 2014, spending RM4m on each new restaurant. The company aims to have 100 franchised stores by 2014. Currently, it has 13 local franchisees in Malaysia and 27 franchised restaurants. (Source: The Edge Financial Daily)

Utilities: 1MDB evaluating plan to privatise Indah Water. 1Malaysia Development Bhd (1MDB) is evaluating a plan to privatise Indah Water Konsortium Sdn Bhd (IWK), the national sewerage company. It is believed that 1MDB is part of a consortium that intends to take over IWK. The other member of the consortium is believed to be either Puncak Niaga Holdings Bhd or controlling shareholders of the company. (Source: Business Times)