RHBInvest Research

Saturday, September 10, 2011

Top Story: Hartalega – Expansion Plans Key To Capture Europe Market Market Perform (down from OP)

Visit Note

¨ Management targets FY12 revenue growth of 20-30%, driven by growing demand from markets in Europe and steady demand from the US.

¨ We believe the rapid growth in demand for nitrile gloves there is mainly due to customers shifting purchases from natural rubber gloves to nitrile gloves due to the higher volatility in latex prices (as compared to nitrile prices), leading to uncertainty and fluctuations in natural rubber glove ASPs.

Macro View

Trade: Exports moderated in July, on the back of slowing global demand

Economic Highlights (published 8 Sep 2011)

¨ Exports moderated to 7.1% yoy in Jul, after picking up to +9.6% in Jun, but higher than +5.4% in May. The slowdown was mainly due to a sharper decline in the exports of electronic & electrical (E&E) products, on the back of a slowing global demand as well as a moderation in the exports of non-electronic & electrical (E&E) manufactured goods.

Interest rates: Bank Negara kept the OPR unchanged at 3.0%

Economic Highlights (published 8 Sep 2011)

¨ This was the second time in a row that BNM held its OPR stable, suggesting that it has shifted its focus from containing inflation to sustain growth. Indeed, BNM highlighted that global growth has moderated in recent months as growth in advanced economies slowed by more than expected following the greater policy uncertainties, worsening of confidence and heightened financial market volatilities, amidst continued weaknesses in labour market conditions.

Corporate Highlights

DiGi: Fulfilling dividend promise Outperform (up from TB)

Briefing Note

¨ We are positive that DiGi intends to distribute excess cash of about RM509m (65 sen/share) to shareholders by 1HCY12. This would be done after utilising the share premium at its wholly-owned subsidiary, DiGiTel (DiGi Telecommunications Sdn Bhd). The entitlement date will be announced later.

¨ DiGi should be paying more dividends for FY11 (vs. FY10: RM1.63/share) totalling RM1.6bn (RM2.05/share) comprising: 1) FY11 DPS forecast of RM1.40 based on 100% payout of FY11 EPS; and 2) RM509m capital distribution (65/share). Based on core FY11 earnings (after stripping out accelerated depreciation), this implies a payout ratio of 114%.

Telecoms: 6% service tax no longer absorbed from 15 sep Overweight

Sector Update

¨ As anticipated, the telcos are passing on the 6% service tax to prepaid users effective 15 Sep. The move is positive given the positive earnings impact (already imputed into our earnings forecasts) as the telcos would no longer absorb the tax.

¨ We believe the telcos may want to preempt any further potential increase in the service tax, as Budget 2012 is due to be tabled by the Prime Minister on 7 Oct.


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