RHBInvest Research

Top Story: Media–Softer adex in Sep Underweight

Sector Update

¨ As expected, Sep’s gross adex for TV and print media combined showed a sequential monthly contraction of 18.1%, following the bumper Aug adex (due to Hari Raya and Merdeka festivities), according to Nielsen Media Research (NMR). On yoy basis, adex growth moderated to 5.1% in Sep (Aug: +9.7% yoy).

Corporate Highlights

Axiata: XL shows sequential improvement Market Perform

Company Update

- 67%-subsidiary, XL Axiata (XL), posted 9MFY11 core net profit of Rp2.14bn (+1.3% yoy), representing only 67% and 62% of our and consensus full-year estimates respectively.

- The key variance was a one-off severance payment amounting to Rp213bn in 3Q for outsourcing of XL’s managed network services. Excluding this one-off provision, XL would have recorded 9MFY11 net profit of Rp2.35bn (+11% yoy). This would have been in line with our but still lower than consensus expectations.

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Stocks to watch: Tenaga, Envair, SILK, MFM

KUALA LUMPUR: TENAGA NASIONAL BHD [] could be in focus on Monday, Oct 31 after it announced fourth quarter net loss of RM453.90 million, the second consecutive quarter of losses, last Friday, and expected the current financial year to be very challenging.

At the operating level, the power company reported operating losses of RM248.80 million due to higher fuel costs of coal and utilisation of oil and distillates after the gas curtailment by Petroliam Nasional Bhd.

Though investors anticipated Tenaga to reported losses, their concerns were whether it could work out the gas supply issue and a definite compensation from Petronas.

However, the lack of assurance from Petronas could weigh on the share price, especially after Tenaga president and chief executive officer Datuk Seri Che Khalib Mohamad Noh said on Friday no decision had been reached as yet.

OSK Research said barring a write-back of compensation from Petronas due to its failure to supply sufficient gas to Tenaga, the power company should still post losses over the next two quarters.

“A continued gas shortage coupled with outages in coal plants during 4QFY11 should have necessitated Tenaga to continue to generate substantial power from expensive oil and distillates. In addition, the weakening ringgit would give rise to translation losses,” it said.

OSK Research cautioned that Tenaga might be hopeful for compensation from Petronas amounting to 33% to 67% of its additional fuel bill.

“Investors may also hold out hopes of Tenaga securing a fuel cost pass through after the anticipated General Elections, which may be held soon. In any case, we still believe it would be risky to invest in Tenaga beyond current levels given such speculation,” it added.

However, the broader market could extend their gains, underpinned by the recent strong performance on Wall Street where stocks closed out a fourth week of gains in quiet fashion on Friday, edging higher as the market took a breather after rallying 3% on Europe's deal to stem its debt crisis.

Reuters reported though investors still have questions about implementing the deal, they appeared satisfied by Europe's progress as stocks ended their longest weekly winning streak of the year.

The Dow Jones industrial average gained 22.56 points, or 0.18%, to 12,231.11. The Standard & Poor's 500 Index added 0.49 point, or 0.04%, to 1,285.08. The Nasdaq Composite Index shed 1.48 points, or 0.05 percent, to 2,737.15.

As for the FBM KLCI, it is up 114.3 points from Oct 3’s 1,367.52 to end 1,481.82 last Friday. For last week, the KLCI was up 30.9 pts or 2.19%.

Affin Investment Bank head of retail research Dr Nazri Khan believes the KLCI is likely to trend higher next week on stronger global risk appetite following twin Europe-US catalysts last week.

The factors were the long awaited plan to resolve the European debt crisis and the stronger than expected US 3rd quarter economic growth (registering the fastest quarterly GDP in a year).

“Going forward next week, we expect investors to price in stronger US/European economy as well as the reduced banking crisis risk in both continents, pushing KLCI to a possible 1,524 level (which is the KLCI high made in 2008 before the subprime crisis),” said Nazri.

Other stocks to watch are Envair Holdings Bhd, SILK Holdings Bhd and MALAYAN FLOUR MILLS BHD [] (MFM). Also in focus could be TASEK CORPORATION BHD [] and Cycle & Carriage Bhd.

Envair has received a letter of intent from Zai Corporate Finance Ltd (ZAICF), an investment banking firm based in London, to subscribe for up to 30% of its new ordinary shares of 10 sen each at the market issue price.

The ACE Market listed company said the board would deliberate on this matter and announce its decision on the private placement.

SILK chairman Datuk Mohd Azlan Hashim has said he was confident the company would be able to return to profitability in a couple of years as traffic volume picks up for its tolled highway operations and an improvement in the marine support services.

"We expect with the continued increase in traffic flow in that area, these losses will eventually be wiped out and there will be a turnaround in profitability," he said.

Malayan Flour Mills could be getting ready for the next stage of growth, having announced a series of corporate exercises in May and signing an agreement in October that would see it step into the Indonesian market, according to The Edge weekly.

Tasek's earnings fell 32.9% to RM22.10 million in the third quarter ended Sept 30, 2011 (3QFY11) from RM32.90 million a year ago, due to lower sales. Its revenue fell 7.5% to RM132.99 million from RM143.78 million. Earnings per share were 17.82 sen compared with 20.63 sen.

Cycle & Carriage Bhd’s earnings for third quarter ended Sept 30, 2011 fell 38.37% to RM5.93 million from RM9.62 million a year ago, due to lower margins and reduced non-recurring income. Revenue rose 20.6% to RM188.21 million from RM156.03 million. EPS were 5.89 sen compared to 9.55 sen the previous year.

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Stocks to watch: DiGi, IOI, Supermax, YTL

KUALA LUMPUR: Stocks on Bursa Malaysia could extend their gains in light trade on Tuesday, Oct 25, in line with the firmer markets as investors pinned their hopes for a resolution to the euro debt crisis.

However, with the Deepavali holidays on Wednesday, there could be some profit taking later in the day.

The markets would also be seeking more clarity from the summit on Wednesday as the EU meeting over the weekend yielded no firm decisions, although the structure of the policy response has now begun to take shape.

A report from The Royal Bank of Scotland research said EU Finance Ministers agreed over the weekend that European banks could need to find 108 billion euros in fresh capital over the next six to nine months with an announcement reportedly set for Wednesday.

“However, this falls somewhat short of the IMF's 200 billion euros estimate. It was also confirmed that the ECB will not be utilised to increase the fire-power of the Euro-zone bailout fund.

“Instead, a special fund may be set up to attract global investors, possibly including the IMF, which would then buy bonds of struggling Euro-zone countries. This could run in parallel with another fund insuring against losses of up to 20% by bondholders,” it said.

Among the stocks to watch are DIGI.COM BHD [], IOI Corp Bhd, Supermax Corp Bhd and YTL Group.

DiGi.com’s earnings rose just a marginal 1.08% to RM292.44 million in the third quarter ended Sept 30, 2011 from RM289.31 million a year ago. The telco said the flat earnings were due to higher depreciation and amortisation while average revenue per user (ARPU) dipped.

An increase in data revenue pushed turnover up by 12.6% to RM1.52 billion from RM1.35 billion. Earnings per share were 37.6 sen compared with 37.20 sen a year ago.

DiGi declared an interim single-tier tax exempt dividend of 37 sen per share for financial year ending Dec 31, 2011 on Dec 8. Depreciation and amortisation was RM306.08 million in 3QFY11 compared with RM196.69 million a year ago.

IOI Corp expects its financial performance for the current financial year ending June 30, 2012 (FY2012) to be better than FY2011. The optimism was based on the improved profitability in its resources based manufacturing division, underpinned by lower crude palm oil prices.

The PLANTATION [] giant also expected crude palm oil (CPO) prices to rise above RM3,000 per tonne in the next three months due to the drop in production amid increasing overseas demand.

IOI chairman Tan Sri Lee Shin Cheng said the rainy season coupled with a labour shortage is expected to derail production of fresh fruit bunches in the next six months, despite increasing demand from China, India and Pakistan.

Supermax’s net profit fell 18.9% to RM30.91 million in the third quarter ended Sept 30, 2011 from RM38.11 million a year ago, affected by the higher natural rubber and nitrile latex prices.

However, it said although profitability is lower than last year, it is seeing positive signs for a rebound after recording a second consecutive quarter of core profit growth. Supermax’s revenue was however higher at RM271.42 million, up 15.4% from RM235.10 million.

For the nine-month period, earnings fell 42.5% to RM77.86 million from RM135.44 million. Revenue rose 8.7% to RM750.71 million from RM690.58 million.

YTL Communications Sdn Bhd (YTL Comms) has submitted its business plan to Malaysian Communications and Multimedia Commission (MCMC) to secure spectrum licences to roll out its Yes 4G mobile internet-with-voice service in Sabah and Sarawak.

Its chief executive officer, Wing K. Lee, said the company was currently awaiting feedback from MCMC. "MCMC will review the plan and give us the feedback," he added.

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Stocks to watch: Tenaga, Maxis, Tanjung, Daibochi

KUALA LUMPUR: Investors will sitting on their hands over the weekend as they focus on the summit of European leaders to resolve Europe’s debt crisis. A decisive framework to reach basic agreements over the weekend would bolster investor confidence.

On Wall Street, the S&P 500 posted its third straight week of gains on Friday Oct 21, lifted by optimism before this weekend's summit and strong earnings from blue-chip stocks.

The Dow Jones industrial average was up 267.01 points, or 2.31%, at 11,808.79. The Standard & Poor's 500 Index was up 22.86 points, or 1.88%, at 1,238.25. The Nasdaq Composite Index was up 38.84 points, or 1.49%, at 2,637.46.

Reuters reported important differences still separate major players France and Germany in solving Europe's debt crisis, but with two summits scheduled for next week, investors took an optimistic view that a resolution will soon be reached. Buying was also motivated by fear of missing a sharp move if basic agreements are reached over the weekend.

At Bursa Malaysia, stocks to watch are TENAGA NASIONAL BHD [], Maxis Bhd, TANJUNG OFFSHORE BHD [], Daibochi Plastic and Packaging Industry Bhd and SILK Holdings Bhd.

Tenaga will announce its financial results for the fourth quarter ended Aug 31, 2011 but analysts expect it to record another quarter of losses due to the shortage of gas supply from Petroliam Nasional Bhd, forcing it to burn the more expensive oil and distillate.

RHB Research Institute had maintained its Underperform call on the power company with an unchanged indicative fair value of RM4.74 based on unchanged target CY12 price-to-earnings ratio of 12 times.

“Due to ongoing gas shortage from maintenance at Petronas’ liquefied natural gas plants and delays for the Bekok C bypass, Tenaga will likely record a loss in 4Q, possibly close to that seen in 3Q (net loss RM460 million),” it said.

Tenaga, meanwhile, has proposed to issue RM5 billion in Islamic debt notes to finance the development of the 1,010 MW coal fired power plant in Manjung, Perak. The tenure is 28 years.

Meanwhile, Maxis expects significant gains from the provision of its 3G radio access network to U Mobile Sdn Bhd under the country’s first landmark network sharing and alliance agreement for an initial period of 10 years.

This arrangement also included long-term evolution (LTE) sharing, depending on the availability of the spectrum and TECHNOLOGY []. The collaboration was a milestone in the local telecommunications industry in the sharing of active telco systems and operating frequency spectrum.

Tanjung Offshore Bhd was awarded a RM27 million contract by Petronas Carigali Sdn Bhd to provide three offshore support vessels (OSVs) for up to two primary years.

Tanjung said its unit Offshore Services Sdn Bhd had been awarded the contract on Oct 20.

Daibochi Plastic and Packaging Industry Bhd’s net profit fell 5.8% to RM4.54 million in the third quarter ended Sept 30, 2011 from RM4.82 million a year ago mainly due to a lower contribution from the property segment.

Its revenue declined 5.2% to RM67.66 million from RM71.42 million mainly due to the reduction in the sales in the packaging segment. Earnings per share were lower at 6.04 sen compared with 6.40 sen. It declared an interim dividend of 3.0 sen per share.

SILK’s unit Jasa Merin (Malaysia) Sdn Bhd has been awarded a contract extension worth RM23.5 million by Petronas Carigali Sdn Bhd to provide one anchor handling tug supply vessel.

SILK said the primary three-year contract had been extended for another 12 months, which started on Oct 4. It expected the extension to contribute positively to its earnings for the financial year ending July 31, 2012.

PROTON HOLDINGS BHD [] plans to collaborate with China’s Hawtai Motor Group to set up a joint venture (JV) company there as part of Proton’s strategy to make China as one of its major manufacturing hub, especially for left-hand-drive vehicles.

MELEWAR INDUSTRIAL GROUP BHD [] has proposed a two-call rights issue of up to 151.17 million rights shares to raise RM27.46 million. The rights issue would be at an indicative issue price of RM1 per rights share on the basis of two rights shares for every three existing shares held on an entitlement date to be determined later.

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RHBInvest Research

Top Story: TNB – May have hit rock bottom in 4Q Underperform

Results Preview

¨ Due to gas shortage from maintenance at Petronas’ LNG plants and delays in the Bekok C bypass, TNB will likely record a 4Q loss, possibly close to that seen in 3Q (-RM460m). This is a result of TNB receiving only an average of 950 mmscfd of gas in 4Q, marginally higher than the average 940 mmscfd in 3Q.



Corporate Highlights



BAT: 3QFY11 TIV grew 1.6% yoy Underperform

3QFY11 Results / Briefing Note

¨ BAT’s 9MFY11 net profit of RM539m (-1.7% yoy) was above ours but within consensus estimates, accounting for 79% and 75% of full-year forecasts respectively. The main variance to our forecasts were the stronger-than-expected 3QFY11 TIV 3% yoy.



TH Plantations: Bumper profit year continues Outperform

3QFY11 Results

¨ 9MFY11 net profit was in line with both our and consensus expectations, coming in at 73-77% of our and consensus FY11 forecasts.



WCT: Acquiring 432-acre land in Serendah for RM38.4m Market Perform

News Update

¨ WCT is acquiring 431.7 acres of freehold agricultural land in Serendah, Selangor, for RM38.4m cash.



DRB-Hicom: Three CBU Volkswagen models launched Market Perform

News Update

¨ Volkswagen Malaysia (VWM) yesterday launched three new completely built-up (CBU) fully-imported models into the local market, the culmination of an intensive two-week newspaper advertising campaign. The three models are the Passat 1.8, Jetta 1.4 TSI and Cross Touran 1.4 TSI. The introduction of these new CBU models is a prelude to the launch of DRB-assembled CKD VWs by end-2011.

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Stocks to watch: TH Plantations, AirAsia, MAS, Kumpulan H&L

KUALA LUMPUR: Stocks on Bursa Malaysia could advance on Friday, Oct 21, following fresh positive economic data from the US while interest could continue to be focused on glove makers and selected stocks.

But overall market sentiment would be cautious, as sentiment always hinges on the volatile European and US economic data.

On Wall Street, stocks ended with modest gains on Thursday, shifting back and forth on incremental developments in Europe where leaders sought to reassure investors that a solution to the debt crisis would come soon.

Germany and France released a statement on Thursday saying leaders would now hold two summits to discuss the debt crisis, with a solution in place by Wednesday's second meeting.

The Dow Jones industrial average ended up 37.16 points, or 0.32 percent, at 11,541.78. The Standard & Poor's 500 Index was up 5.51 points, or 0.46 percent, at 1,215.39. The Nasdaq Composite Index was down 5.42 points, or 0.21 percent, at 2,598.62.

At Bursa Malaysia, among the stocks to watch are TH PLANTATION []s Bhd, AIRASIA BHD [] and MALAYSIAN AIRLINE SYSTEM BHD [] (MAS)and Kumpulan H&L High-Tech Bhd.

TH Plantations’ earnings rose 53.8% to RM33.12 million in the third quarter ended Sept 30, 2011 from RM21.53 million a year ago as it benefited from higher prices for crude palm oil, palm kernel and fresh fruit bunches. Its revenue increased 37.7% to RM115.97 million from RM84.22 million. Earnings per share were 6.51 sen compared with 4.41 sen.

For the nine-month period, its earnings jumped 85.6% to RM87.12 million from RM46.93 million while revenue increased by 27.9% to RM303.73 million from RM237.44 million.

AirAsia and MAS have appointed their own independent advisers to advise the non-interested directors and the non-interested shareholders of each airline on the proposed warrants exchange.

Kumpulan H&L High-Tech’s 70% owned subsidiary in Thailand has temporarily ceased its operations there due to the severe floods.

H&L High-Tech Mould (Thailand) Co. Ltd. (H&LM) located at Bangpa-In Industrial Estate, Ayutthaya had halted its operations. H&LM manufactures metal parts for electronic and metal surface treatment.

BRITISH AMERICAN TOBACCO (M) [] Bhd’s earnings rose 3.3% to RM176.27 million in the third quarter ended Sept 30 from RM179.65 million. Its revenue increased by to RM1.104 billion from RM993.59 million, earnings per share were 61.70 sen compared with 59.80 sen. It declared an interim dividend tax exempt of 60 sen a share compared with 64 sen a year ago.

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Stocks to watch: Kencana, Bursa, Hua Yang, Hai-O, Bonia

KUALA LUMPUR: Trading on Bursa Malaysia on Thursday, Oct 20 could see some downside pressure after stocks on Wall Street fell overnight on worries that Europe remains far from a solution to its debt crisis.

The Dow Jones industrial average shed 75.49 points, or 0.65 percent, at 11,501.56. The Standard & Poor's 500 Index fell 15.63 points, or 1.28 percent, at 1,209.75. The Nasdaq Composite Index was down 54.41 points, or 2.05 percent, at 2,603.02.

On Wednesday, several Asian markets slipped into the red yesterday after Hong Kong's government said it expects economic growth in the territory to be affected by weaker exports, with gross domestic product anticipated to grow at lower end of its own forecast range.

On Bursa Malaysia, among the stocks that could be in focus are KENCANA PETROLEUM BHD [], JCY International Bhd, BURSA MALAYSIA BHD [], HUA YANG BHD [], HAI-O ENTERPRISE BHD [], BONIA CORPORATION BHD [] and AT SYSTEMATIZATION BHD [].

The Edge FinancialDaily reports Kencana is in talks to acquire more than 130 acres (52ha) of land adjacent to its fabrication yard in Lumut, Perak, sources said.

It also reported Malaysia’s country's largest listed hard disk drive component maker by market capitalisation, JCY International Bhd, chalked up impressive gains on Bursa Malaysia yesterday with its share price rising 12.5 sen or 27.5% to close at 58 sen.

Bursa Malaysia’s net profit for the third quarter ended Sept 30, 2011 rose 39.37% to RM38.61 million from RM27.71 million a year earlier, driven mainly by higher revenue, but it was cautious on the outlook on concerns of further downside risk.

Revenue for the quarter increased by 23.68% to RM107.31 million from RM86.76 million in 2010. Earnings per share were 7.30 sen compared to 5.20 sen in 2010, while net assets per share was RM1.56.

For the nine months ended Sept 30, Bursa’s net profit rose to RM114.82 million from RM83.26 million in 2010, on the back of a 25% increase in revenue to RM324.47 million from RM259.14 million a year earlier.

Hua Yang’s net profit for the second quarter ended Sept 30, 2011 surged to RM13.89 million from RM4.31 million a year earlier, due mainly to steady CONSTRUCTION [] progress and better sales.

Its revenue for the quarter more than doubled to RM76.13 million from RM35.63 million in 2010.

Reviewing its performance, Hua Yang said the sales achieved during the quarter under revised was 119% higher year-on-year with total unbilled sales of RM395.24 million, giving it improved earnings visibility in the remaining period of FY2012.

Meanwhile, Hai-O Enterprise is expecting to see higher profits for FY2012, on the back of improving sales for its consumable products, said its co-founder and group managing director Tan Kai Hee.

He said the multi-level marketing (MLM) group was now focusing on marketing its consumable products such as health supplements and herbs which had higher margins and ensure repeated sales for recurring income.

He said Hai-O’s profit for FY2011 ended April 30 had fallen 60% due to the implementation of the new Direct Sales Act by the government in April 2010.

Bonia is acquiring PROPERTIES [] in Cheras for RM44.29 million for its expansion plans and to reduce rental expense.

Its unit Luxury Parade Sdn Bhd had entered into 15 sale and purchase agreements with Platinum Starhill Sdn Bhd to acquire freehold units in two blocks in Cheras.

ACE Market-listed AT Systematization became the latest casualty of Thailand’s flood casualty, after its wholly-owned subsidiary, Automation TECHNOLOGY [] Systematization Industries Limited (ATSi) temporarily closed its operations there.

ATSi procures design and assembles automatic machines according to purchase orders.

AT Systematization said ATSi had shut down the manufacturing operations from Oct 13 due to the unexpected severe floods in Thailand.

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Maybank IB Views

COMPANY UPDATE
Malaysia Marine and Heavy Engineering Holdings RM5.95: Buy
Bags Telok Gas job, more to follow Shariah-compliant

A direct proxy play to PETRONAS' domestic capex programmes. We are positive on MMHE's latest Telok Gas project job win. We expect more contract wins to follow, foreseeing strong orderbook visibility extending beyond 2013. The FLNG, TLP and RAPID projects are among the high-ticket items that would propel orders and earnings growth. MMHE is among our top picks in the sector. Maintain Buy with a RM8.00 target price, based on 20x 2013 EPS.

RHB Capital RM7.20: Hold
The alternative scenario

Hold maintained. Our RHB Cap-OSK analysis thus far has assumed a merger scenario involving a share exchange at the listed entity levels of RHB Cap and OSK Holdings. If RHB Cap exchanges shares for OSK Investment Bank (OSK IB) instead, the overall cost is theoretically lower, by our estimates, subject to final pricing. Our Hold call on RHB Cap is maintained, with an unchanged RM7.60 TP (2012 P/BV target of 1.3x, ROE: 13.3%). At this juncture, we do not foresee an immediate upward re-rating of the enlarged RHB Cap if the merger goes through.

ECONOMICS
China: 3Q 2011 GDP
Soft landing so far...

3Q 2011 real GDP marked the third consecutive quarter of mild moderation in growth… China's economy continued to grow YoY by more than +9% in 3Q 2011, but the pace slowed to +9.1% from +9.5% in 2Q 2011. Consensus estimate was +9.2%. QoQ growth remained at 2% or more so far this year i.e. 3Q 2011: +2.3%; 2Q 2011: +2.4%; 1Q 2011: +2%; 4Q 2010: +2.4%. YTD, the economy expanded by +9.4% (Jan-Sep 2010: +10.6%; 2010: +10.4%).

Technicals
The FBM KLCI plunged 25.41-points to close at 1,439.94 yesterday. Its resistance areas of 1,439 and 1,465 will cap market gains, whilst the obvious support areas are located at 1,403 and 1,433.

Trading Idea is ENG

Other Local News
Proton: Looks to commercialise electric vehicles by 2013. Proton Holdings Bhd is looking to commercialise its electric vehicles in 2013. The Proton Saga EV is expected to be priced at RM70,000 and Proton Exora Range Extender at about RM100,000. Proton and government are also working on a mechanism to build the infrastructure for electric vehicle charging centres. (Source: The Edge Financial Daily)

MAS: Takes over Firefly's jet services. Malaysian Airline Systems Bhd (MAS) has embarked on a network rationalization programme in which its subsidiary, Fly Firefly Sdn Bhd, will concentrate on serving short-haul turboprop operations and Malaysia Airlines focus on enhancing its premium full-service offering. The takeover of Firefly's jet services on Dec 4 is part of the service separation plans under the business realignment exercise which addresses the continuing heavy losses being incurred by Firefly's jet operations. (Source: The Edge Financial Daily)

UEM: To build hospital? UEM Group Bhd and its joint venture partner Najcom Sdn Bhd are understood to have bagged the contract to build a women and children's hospital in Kuala Lumpur costing between RM700m and RM900m. (Source: The Edge Financial Daily)

Top Glove: To spend RM100m on plant upgrades. Top Glove Corp Bhd has allocated RM100m to upgrade and expand its factories at Sadao in Thailand. It is also looking at making more value-added variants at its Banting and Ipoh facilities. Currently, Top Glove has 21 factories and 395 production lines with a total production capacity of 35.3b pairs of gloves per annum. By May 2012, Top Glove targets to produce 41.6b pieces of gloves per annum.

Healthcare: Parkway Pantai's international push. Parkway Pantai Ltd aims to triple the revenue contribution from its international operations to 33% by expanding in Asia. It is already one of the region's biggest healthcare groups, operating more than 3,000 beds under 16 hospitals currently, and is in the process of adding another 2,300 beds in eight new hospitals from 2013 onwards. Apart from three new hospitals in Malaysia, Parkway Pantai is also building five other hospitals in Singapore, Vietnam, China, India and the United Arab Emirates. (Source: Business Times)

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Stocks to watch: MMHE, Boustead, CIMB, Pharmaniaga

KUALA LUMPUR: The selldown on Bursa Malaysia on Tuesday, Oct 18, in line with the regional markets, saw RM21.9 billion erased from the Malaysian stock market capitalisation, according to the stock market data.

The sharp pullback was expected to push investors to the sidelines on Wednesday, unless there was strong economic data from the US or Europe to restore confidence.

Analysts expect trading to be volatile on Wednesday with more downside pressure, if Wall Street extends its losses on Tuesday.

At Bursa Malaysia, the FBM KLCI fell 1.73% or 25.41 points to 1,439.94, weighed by losses including at PLANTATION []s and blue chip stocks. Losers hammered gainers 705 to 145 while volume was 1.36 billion shares valued at RM1.37 billion.

Sime Darby’s 25 sen decline to RM8.65, dragged the 30-stock index down by 3.47 points while CIMB’s loss of 18 sen to RM7.19 erased 3.10 points from the index. Tenaga fell 22 sen to RM5.35, giving up most of Monday’s gains, reduced the index by another 2.75 points.

On the regional front, Hong Kong’s Hang Seng Index tumbled 4.23% to 18,076.46, the Shanghai Composite Index lost 2.33% to 2,383.49, Singapore’s Straits Times Index fell 1.95% to 2,724.69, Japan’s Nikkei 225 was down 1.55% to 8,741.91, South Korea’s Kospi lost 1.41% to 1,838.90 and Taiwan’s Taiex shed 1.36% to 7,359.48.

At Bursa, stocks to watch on Wednesday are BOUSTEAD HOLDINGS BHD [], Pharmaniaga, Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) and CIMB Group Holdings Bhd.

Boustead Holdings Bhd is seeking RM20.80 million in compensation after the Penang government decided not to approve the reclamation plans.

Boustead said the compensation amount was verified by independent consultants and it “is still in negotiation with the Penang Chief Minister and state government on the form of compensation to be paid to Boustead Holdings”.

In a separate announcement, Boustead reduced the offer price for PHARMANIAGA BHD [] shares by 5% from RM5.75 to RM5.46 under the restricted offer due to the prevailing market conditions.

It said the price of RM5.46 per Pharmaniaga share represented an attractive entry level cost into Pharmaniaga.

Boustead cited the relatively stable income stream for Pharmaniaga from the concession held by Pharmaniaga for the distribution of selected medical products to government owned hospitals and the growth prospects of the pharmaceutical industry in Malaysia.

MMHE’s unit has secured a contract for the Teluk gas development project by ExxonMobil Exploration and Production Malaysia Inc.

It saidthe scope of work included the CONSTRUCTION [] to commissioning of two top sides and two jackets to support the platforms.

CIMB Group Holdings Bhd’s subsidiary CIMB Thai posted net profit of 856.1 million baht (RM87.26 million) in the nine-months ended Sept 30, 2011, down 4.2% from 893.6 million baht in the previous corresponding period.

CIMB Thai, a 93.15% of CIMB Bank Bhd, reported on Tuesday, Oct 18 this was mainly due to one-off gains from the disposal of Sathorn building and certain subsidiaries in the corresponding period in 2010. “Should these items be excluded, the profit would have increased 149.2% year-on-year,” it said.

Read more...

Maybank IB Views

ECONOMICS
Singapore: Trade, Sep 2011
Bumpy ride...

Worse-than-expected... Singapore's non-oil domestic exports (NODX) fell by -4.5% YoY as opposed to the expected +3.5% YoY gain. At the same time, Aug 2011's growth was revised downward to +3.9% YoY (previous: +5.1% YoY). YoY figures have been swinging between growth and contraction in the past seven months, resulting in sluggish 2011 YTD growth of +3.9% (Jan-Sep 2010: +24.8%; 2011: +22.8%). Next year's NODX growth is expected to remain equally sluggish at 3.8%, according to the forecast by Maybank FX Research.

RESULTS REVIEW
Public Bank RM12.50: Hold
Decent growth but priced in

Hold maintained. 3Q11 RM899m net profit, while up a commendable 15% YoY, is broadly within expectations, with 9M11 RM2.61b net profit (+18% YoY) at 77% of our full-year forecast and consensus. Positive surprises on margins were offset by lower-than-expected non-interest income (NII). Our forecasts are maintained along with our TP of RM12.30 (2012 P/BV of 2.5x, ROE: 21.8%).

Axis REIT RM2.45: Buy
On track; better 4Q ahead

Maintain Buy. AXRB's RM48m 9M11 core net profit (+32% YoY) came in as expected. The proposed acquisition of warehouses in Seberang Perai is expected to be completed by end-11, lifting AXRB’s total assets to RM1.32b (+4.8%; from RM1.26b). AXRB aims to grow its total asset size to RM2.0b by 2012. We maintain our earnings forecasts and RM2.70 DCF-based TP. The trust's proven track record in growing its asset portfolio and dividend income will remain the pull factors.

SECTOR UPDATE
Automotive: Underweight
Cool down in September sales

Post raya and Merdeka sales dampen September TIV. The MoM contraction in Sep's vehicle sales was widely anticipated following the rush of deliveries in Aug and shorter working month. Overall, we expect a seasonally softer sales trend in 4Q from 3Q TIV sales of 153,041 units and continue to be bearish on the sector, on softer consumer spending in light of a potential global economic slowdown. The sector remains an Underweight and we retain our Hold calls on UMW and MBM while Proton and TCM remain as Sells.

Technicals
The FBM KLCI surged 22.92-points to close at 1,465.35 yesterday. Its resistance areas of 1,467 and 1,487 may cap market gains, whilst the obvious support areas are located at 1,445 and 1,465.

Trading Idea is MFLOUR

Other Local News
Mah Sing Group: RM2.5b sales target next year. In order to achieve its sales target of RM2.5b, Mah Sing Group plans to adjust their product mix in line with today's sentiment and needs. Mah Sing Group will focus on lower-priced and smaller units of serviced apartments in the next two years to cater to demand of the young population. (Source: The Star)

PacificMas: OCBC bids RM450m for PacificMas units. OCBC Capital Malaysia planned to acquire 100% of Pac Lease Bhd, PB Pacific Sdn Bhd, PacificMas Fidelity Sdn Bhd and PacificMas Capital Sdn Bhd as well as an 85% stake in Pacific Mutual Fund Bhd with aggregate purchase consideration of RM450m. (Source: Bursa Malaysia)

Leader Universal: Controlling shareholders offer buyout. The controlling shareholders of Leader Universal Holdings Bhd, through HNG Capital Sdn Bhd (HNGC), have made a RM480.1m offer to acquire the entire assets and liabilities of the company for RM1.10 per share. The purchase shall be satisfied via RM410.9m in cash and RM69.2m as an amount remaining due and owing by HNGC as a debt due to Leader. (Source: The Star)

Proton: Offers lifetime warranty on power windows. Proton has once and for all moved to erase any doubt over defective power windows by offering a lifetime warranty for all new Proton models registered from Sept 1, 2011 and vehicles that are still under the manufacturer’s warranty as at Sept 1. (Source: The Star)

Construction: Second Penang Bridge ahead of schedule. Construction of the second Penang bridge is likely to be completed two months ahead of its projected November 2013 schedule. It is likely that work on the new bridge will achieve 70% progress by the end of this year. (Source: Business Times)

Transportation: Better KTM Komuter service by Jan 2012. KTM Komuter users can look forward to better commuting experience this January when the first of the 38 six-car electrical multiple unit (EMU) is put into service. To complement the new trains, an automatic fare collection system was being implemented and full refund will be given for trips that are delayed by more than 30 minutes. (Source: The Sun, The Star)

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Stocks to watch: PacMas, Leader, Public Bank, LFE Corp

KUALA LUMPUR: The fresh flow of corporate news on Bursa Malaysia, with a proposed takeover of LEADER UNIVERSAL HOLDINGS BHD [], the windfall for PACIFICMAS BHD [] shareholders and strong earnings from PUBLIC BANK BHD [] will underpin market sentiment.

Other stocks to watch are LFE Corp Bhd, TENAGA NASIONAL BHD [], GADANG HOLDINGS BHD [], Malayan Flour Mills and Nadayu PROPERTIES [] Bhd,.

OCBC Capital (Malaysia) Sdn Bhd (OCSB) has made offer to acquire all of PacificMas’s stakes in five companies for RM450 million of which RM164.23 million be in cash and RM285.76 million due and owing by OCSB to PacificMas.

After the completion of the corporate exercise, PacificMas’ assets would comprise mainly cash, available-for-sale/trading securities and the deferred amount. PacificMas will promptly distribute its remaining cash via the declaration of special dividend(s) and/or the implementation of a capital repayment exercise.

Leader Universal’s top officials, via HNG Capital Sdn Bhd, have made a takeover offer for the company for RM480.10 million or RM1.10 per share. This is 26 sen above the last traded price of 84 sen. Leader said the purchase consideration would be RM410.94 million in cash and RM69.16 million as an amount remaining due and owing by HNGC as a debt due to Leader.

Public Bank Bhd’s earnings rose 14.8% to RM898.79 million in the third quarter ended Sept 30, 2011 from RM782.7 million a year ago. Revenue increased by 13.7% to RM3.27 billion from RM2.87 billion. Earnings per share were 25.66 sen compared with 22.35 sen a year ago.

For the nine-months ended Sept 30, 2011, its earnings rose 18.3% to RM2.606 billion from RM2.202 billion. Revenue increased 16.9% to RM9.434 billion from RM8.064 billion. Pre-tax profit grew by 16.6% to RM3.447 billion from RM2.955 billion.

LFE CORPORATION BHD [] has been awarded RM26.35 million in its suit against its major shareholder and former director, Alan Rajendram A/L Jeya Rajendram.

LFE said the Kuala Lumpur Regional Centre for Arbitration had awarded RM26.35 million, interest at the rate of 8% per annum from Dec 21, 2008, legal costs of RM200,000 and costs of the arbitration of RM104,352.

Tenaga Nasional’s share price rallied 37 sen to RM5.57 on expectations of a resolution over its gas supply issue. Market talk was that Tenaga might get a writeback from Petronas.

Gadang said Messrs Ernst & Young was not seeking reappointment as auditors of the company for the financial year ending May 13, 2012 at its AGM.

It said Meloria Sdn Bhd, a substantial shareholder, had in its Oct 3 letter, nominated Messrs PKF as auditors in place of Ernst & Young and to hold office until the conclusion of the next AGM.

Malayan Flour Mills’ proposed EGM fixed for Wednesday, Oct 19 will go ahead after the application for an injunction to restrain or prevent the meeting had been dismissed.

Nadayu Properties Bhd, a medium sized property developer, aims to hit a sales target of at least some RM300 million next year.

Its executive chairman Hamidon Abdullah said on Monday, Oct 17 the sales target was based on its upcoming property launches.

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Maybank IB Views

RHB Capital RM7.48: Hold
Merger talks begin

Hold maintained. While we see possible synergistic benefits to a merger with OSK, the success and financial impact of the deal will depend on the structure and pricing of the merger itself, in our view. Our Hold call on RHB Cap is maintained, with an unchanged RM7.60 TP (2012 P/BV target of 1.3x, ROE: 13.3%). At this juncture, we do not foresee an immediate upward re-rating of the enlarged RHB Cap if the merger goes through, with potential dilution in EPS and ROE, we estimate.

Padiberas Nasional RM3.22: Buy
Things are under control

No shortage of rice. Bernas has secured 800,000 tons of rice over the next 12-months via a MOU signed with the Vietnamese government. This consignment is more than enough to allay any supply disruptions due to the current Thai floods. Bernas should have no problems to supply rice at reasonable price in the next 6-12 months. We maintain our Buy call and target price of RM3.90/shr based on 8.1x 2011 PER.

SECTOR UPDATE
Property (M-REITs): Overweight
Defensive in nature

Overweight maintained. M-REITs undoubtedly provide some level of comfort in a time of volatility and we remain positive on the sector primarily for its solid fundamentals and defensive yields, which average 8.1% (gross) across the board. Our preference is for REITs in industrial properties and strategically-located malls. A re-rating catalyst could be the upcoming large-cap Pavilion REIT listing which would improve the breadth and depth of the M-REIT market. Our top pick is Axis REIT.

Technicals
The FBM KLCI rose 42.38-points and closed at 1,442.43 last Friday. The obvious support areas for the FBM KLCI are in the 1,392 to 1,442-zone. The next resistance levels of 1,453 and 1,500 will see heavy liquidation activities.

Trading Idea is MALTON.

Other Local News
Bintulu Port Holdings: Set to benefit from construction of Samalaju Port. Company will be the sole logistics play to support the Samalaju Industrial Park and is set to benefit from the soon to be constructed RM1.2b Samalaju Port. It is estimated that beginning 2013, once the port is ready, there could be at least 5m tones of raw material to be required by 10 out of the 17 confirmed investors in the Samalaju Industrial Park. (Source: Malaysian Reserve)

Nestle: Price-rise report not verified. News that Nestle is considering a price hike for certain dairy products may have sent chills down local households but the company has clarified that the reported information is not verified. (Source: The Star)

F&N: PJ plant to raise dairy product output to cover Thai shortfall. F&N confirms that it would increase dairy product production at its Petaling Jaya plant by 20% in the interim to help cater to demand in Thailand. (Source: The Star)

Uzma Bhd: Fuels growth through technological upper hand. The Intergrated oil and gas provides is confident of winning more jobs as it is the only local firm with the technology and equipment to carry out enhanced oil recovery (EOR). (Source: Business Times)

Semiconductor: Manufacturer says a recession has hit the semiconductor industry. The inventory of global chip suppliers and a low book-to-bill ratio have reached an alarming level that will have severe worldwide repercussions and impact on chip producers and semiconductor equipment manufacturers in Malaysia. (Source: The Star)

Sunway REIT: Gets SC nod for RM3b debt note issuance. Sunway Real Estate Investment Trust (Sunway REIT) has received the Securities Commission's approval for the proposed medium term note programme of RM3.0b in nominal value. (The Edge Financial Daily)

Nagamas: To develop 2,500ha in Nanning. Nagamas International Bhd has been allocated about 2,500ha near Nanning, China, to be developed as a green residential and industrial park. Energy, Green Technology and Water Minister Datuk Seri Peter Chin said Nagamas would undertake the development of the park on a long-term basis under a RM300b contract. (Source: The Star)

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Floods may affect Mudajaya’s earnings

PETALING JAYA: Mudajaya Group Bhd's earnings could be impacted by the floods in India which have affected its independent power producer (IPP) project, analysts said.

According to OSK Research, the floods have caused delays to Mudajaya's RM3.4bil IPP equipment procurement contract.

“While heavy rainfall during the monsoon season is common, the rain this year has been unusually intense.

“Earlier this year, Mudajaya announced that its IPP job had experienced delays because of protests by villagers at its project site but the issue was eventually resolved,” it said in a report.

Overall, the protests and flooding have caused Mudajaya's project to be delayed by an estimated eight to nine months, it pointed out.

It added the contract delay involved mainly civil works, which were estimated at 10% to 15% of the contract value.

The Chhattisgarh plant in India is a coal-based power plant with four 360 MW units of modular form equipment.

“Further delays to the plant may affect the group's earnings for next year, but with the plant to be completed by 2013, the group will have a stable recurring income from the project as they also co-own it,” said a local research house analyst.

It was reported that the plant, when fully operational, might provide a minimum income of between RM60mil and RM70mil to the group.

On the local front, an analyst said the group, with its expertise in power plant design and construction, has a good chance to participate in the 1,000 MW Tanjung Bin extension, which is expected to be worth RM675mil to RM900mil.

OSK Research said there was still jobs flow for Mudajaya and it was targeting some contracts from the West Coast Expressway.

thestar

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Stocks to watch: Plantations, TRC, RHB, OSK, SP Setia

KUALA LUMPUR: PLANTATION []s could continue to be in focus in the week ahead, starting Monday, Oct 17, as sentiment would be underpinned by a positive export outlook which saw CPO futures closing at a two-week high on Friday.

The CPO for December delivery closed RM62 higher at RM2,906 a tonne. Reuters reported a positive export outlook and expectations of Chinese soy re-stocking, offset economic uncertainty.

“Supporting prices this week has been strong export data, which came at a time of positive demand expectations ahead of re-stocking efforts in Pakistan and Indian buying ahead of Diwali at the end of the month,” it said.

UOB Kay Hian Malaysia Research upgraded the plantation sectors to market weight as the production peak is over and it expects better CPO price support once the supply risk eases.

“We also see value emerging in selected stocks after the recent sell-down,” it said, maintaining its CPO assumption for 2012 and 2013 at RM2.700 per tonne. “But we think CPO prices for 2012 could be higher because of lower supply, depending on the severity of the coming La Nina and potential return of El Nino is late 2012 or 2013,” it said.

UOB Kay Hian Research said it preferred upstream players with younger age profit and larger immature areas coming on stream as they would benefit the most in a rising trend,” it said.

Hence, it preferred Singapore and Indonesia-listed plantations which had relatively cheaper valuations than their Malaysian-listed peers.

Other stocks to watch would be TRC SYNERGY BHD [], RHB CAPITAL BHD [], OSK HOLDINGS BHD [], S P Setia Bhd and BOON KOON GROUP BHD [].

TRC and its partner have clinched a RM318.90-million contract from the Brunei authorities to modernise the Brunei International Airport terminal.

TRC’s unit Trans Resources Corporation Sdn Bhd had received the letter of acceptance from the Brunei Economic Development Board for the project. The project was tendered by the unit and partner Swee Sdn Bhd.

RHB Capital and OSK are expected to see strong continued interest, with more upside after both financial institutions received the central bank’s approval for them to start talks for a possible merger.

As for S P Setia, the Securities Commission has approved Permodalan Nasional Bhd’s (PNB) takeover offer for S P Setia.

The property developer said on Friday it had received the notice that the SC “has approved the offer under the equity requirement for public companies vide its letter dated Oct 13”.

PNB had on Sept 28 served a takeover notice on S P Setia after its shareholding reached 33.16% or 590.502 million shares..

Most importantly, UOB Kay Hian Malaysia Research said the market was awaiting S P Setia's Tan Sri Liew Kee Sin’s decision on PNB’s general offer proposal.

“The upcoming two weeks are crucial as the decision could be made anytime from now till Oct 28 when SP Setia’s independent adviser (IA) is expected to release its recommendation to shareholders on whether they should accept PNB’s GO,” it said.

S P Setia and PNB had recently issued a joint statement that it was PNB’s desire to retain Liew and S P Setia’s management, while PNB’s involvement would only be through board representation.

“We explore two outcomes: a) Liew stays on and does not sell any shares, and b) he stays on but sells part/all of his entire 11.3% stake. We reckon the market would be pricing a steeper discount to the share price if the second outcome materialises,” it said.

Meanwhile, RAM Rating Services had said should PNB continue to leave the strategic planning and daily operations in the capable hands of SP Setia’s present management, the group’s strategic lineage may pave the way for additional business opportunities through PNB’s vast land bank, or put it in the running for more attractive government projects.

However, the ratings services said S P Setia’s longer term business profile may face negative implications if Liew decides to sell his entire stake or if PNB’s involvement and control over the group extends beyond board representation, thus inhibiting the agility of the management team.

Meanwhile, Boon Koon resumes trading on Monday after selling selling a 75% stake in its hire purchase financing unit First Peninsula Credit Sdn Bhd to Japan’s Hitachi Capital Corp for RM9 million cash.

Boon Koon said the price tag was equivalent to RM4 per sale share and it was a premium of RM1.84 or 85.18% above the audited net asset per share of RM2.16 as at March 31, 2011 and a net price earnings multiple of 36.8 times .

More importantly for Boon Koon, the partnership will enable it to leverage on the partnership to expand the existing market and venture into new markets.

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RHBInvest Research

Top Story: Evergreen Fibreboard – More headwinds Underperform

Visit Note

¨ After the global stock market rout in Aug, Evergreen stopped raising its product prices as its customers have generally turned cautious in their purchasing activities. Current orderbook visibility has dropped to about 1.5 months, compared to more than 2 months on average in the past.



Corporate Highlights



CMMT: No surprises Market Perform

3QFY11 Results / Briefing Note

¨ 3QFY11 realised net profit of RM27.6m (>100% yoy; +1.6% qoq) was in line with our and market expectations. A 1.98 sen DPU (+26.9% yoy) was declared. This brings 9MFY11 DPU to 5.88 sen, which is on track to meet our gross DPU forecast of 7.9 sen for FY11.

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Maybank IB Views

YTL Power International RM1.69: Buy
Strike while the iron is hot

Deep value emerging. YTL Power International's (YTLP) share price has slipped to attractive levels implying net dividend yields of 5.5% or more than 10% above the historical average and only 1.3x 1-year forward P/BV which is an 8½ year low and even below the Global Financial Crisis (GFC) trough of 1.6x in Oct 2008. This devaluation is despite its relatively resilient earnings base. Therefore, we maintain our DCF based TP of RM2.02 but upgrade our call from Hold to Buy.
Click here for full report »
CIMB Group Holdings RM7.30: Hold
Lower interest rates in Indonesia

Hold. We see minimal financial impact to CIMB's earnings from lower interest rates in Indonesia and do not expect further rate reductions. We have nevertheless already factored in lower net interest margins (NIM) this year and next from competitive pressure. Our forecasts for CIMB are unchanged, while our TP of RM7.10 (1.9x 2012 P/BV) is maintained.
Click here for full report »
Technicals
The FBM KLCI surged 16.85-points to close at 1,428.50 yesterday. Its resistance areas of 1,432 and 1,453 may cap market gains, whilst the obvious support areas are located at 1,401 and 1,428.

Trading Idea is IOICORP
Click here for full report »
Other Local News
Berjaya Land: Berjaya Air JV scrapped. The proposed JV to run Berjaya Air in Indonesia was terminated as both parties could not finalise the terms of the shareholders' agreement and other related arrangements. (Source: Bursa Malaysia)

F&N Holdings: To boost Malaysia Operation amid Thai flood. The new RM42m production line procured from KRONES would boost F&N beverages' carbonated soft drinks (CSD) polyethylene terephthalate (PET) output by 30% from 672,000 bottles per day or 139.2m bottles a year. (Source: Malaysian Reserve)

Brewery: Fake liquor is pouring into the country. Fake liquor is targeting restaurants, pubs and karaoke lounges in the country. Malaysia is ranked among the top 5 countries affected by the problem of counterfeit liquor and the authority has seized RM671,000 worth of fake liquor during the first eight months of the year, compared to RM790,000 seized in last year. (Source: The Star)

Prasarana: Hands over KVMRT project to MRT Co. Syarikat Prasarana Negara Bhd officially handed over the Klang Valley My Rapid Transit (KVMRT) Project to MRT Co yesterday and is expected to begin in 2Q or 3Q of next year. SPAD will be the project’s supervising agency while MMC-Gamuda has been appointed as the project delivery partner. (Source: The Edge Financial Daily)

Media: Adex expected to see double digit growth. Minister of International Trade and Industry Datuk Seri Mustapa Mohamed says Malaysia's advertising expenditure (Adex) is expected to record a double digit growth this year, based on the Adex for the first 5 months of this year which has already reached RM4b, 16% higher than last year. (Source: The Sun)

Banking: HSBC Amanah to add 16 new branches by 2013. HSBC Amanah Malaysia Bhd plans to open 16 new branches by 2013 to tap the increasing demand for Islamic financial services. Currently, the bank has 10 branches nationwide. (Source: The Sun)

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RHBInvest Research

Top Story: KFC – Earnings outlook not dampened by gloomy economic conditions Outperform

Visit Note

¨ Management estimates that for KFCH’s Indian operations to breakeven, it would need approximately 30-35 outlets, which we believe would be achieved by mid- to end-2013. KFCH currently has 10 outlets in India, which is expected to grow to 15-17 outlets by end FY11, in line with our estimates. KFCH is targeting to have 25 stores in India by end-2012, which means 8-10 more new outlets to be opened in 2012.



Regional Coverage



Indonesia Banks: Recessionary risks not fully priced in Neutral

Sector Update (Indonesia)

Bank Rakyat Indonesia: Fair value IDR6,300 Market Perform

Bank Mandiri: Fair value IDR6,500 Market Perform

Bank Central Asia: Fair value IDR6,100 Underperform

Bank Danamon: Fair value IDR4,700 Market Perform

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Stocks to watch: Gadang, KNM, Top Glove, AirAsia

KUALA LUMPUR: Stocks which could see trading interest on Wednesday, Oct 12 include GADANG HOLDINGS BHD [], KNM GROUP BHD [], TOP GLOVE CORPORATION BHD [] and AIRASIA BHD [] following the recent corporate developments.

Gadang secured a RM410.87 million contract from the Public Works Department to complete the abandoned works at the Shah Alam Hospital. Its unit Gadang Engineering (M) Sdn Bhd had accepted the letter of acceptance for the project at the 300-bed hospital.

KNM Group Bhd has secured a conditional US$200 million (RM638 million) contract to build a waste to energy plant in Sri Lanka from OCTAGON CONSOLIDATED BHD []’s subsidiary Orizon Renewable Energy (Private) Ltd.

KNM Process Systems Sdn Bhd was awarded the contract to build the plant which would have the capacity to process up to 1,000 tons per day of municipal solid waste to generate a minimum of 40 MW of gross electrical energy in Colombo.

Top Glove’s net profit for the fourth quarter ended Aug 31, 2011 fell 42% to RM26.09 million from RM45.01 million a year earlier, due mainly to high latex prices, weaker US dollar and oversupply situation.

Revenue for the quarter edged up to RM541.84 million from RM541.39 million in 2010. Earnings per share fell to 4.22 sen from 7.30 sen in 2010, while net assets per share was RM1.85.

For the financial year ended Aug 31, Top Glove’s net profit fell 53.86% to RM113.14 million from RM245.23 million in 2010, on the back of revenue RM2.05 billion.

AirAsia scrapped the proposed joint venture with Vietjet Aviation Joint Stock Company after some of the conditions were still not fulfilled despite the joint venture agreements were signed in February 2010.

The low-cost carrier said some of the conditions under the JV agreements remained outstanding include regulatory approval for Vietjet to employ the AirAsia brand across its commercial operations.

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RHBInvest Research

Top Story: Plantation – Back in La Niña territory Overweight

Sector Update

¨ Despite the festive Hari Raya season, Malaysia’s CPO production rose by a surprisingly strong 12.1% mom in Sept, while exports fell by 8.8% mom. On a yoy basis, production rose by 19.6% yoy, while exports rose by 5.1% yoy. As a result of the larger mom increase in production vis-a-vis exports, closing CPO stock levels rose by 12.4% mom to 2.12m tonnes in Sep (from 1.89m tonnes in Aug). We believe the strong production numbers seen in Sep despite the festive period may indicate that production in Malaysia could have reached its peak earlier than expected, and that production may not necessarily surpass these levels in the remaining months of the year. Should production continue to be strong and exports weak, we believe price weakness for CPO could remain for the short term. As a result of the higher CPO stock levels, the stock/usage ratio in Sep rose to 11.1% (from 9.96% in Aug), above the 9-year average of 9.1%.



Corporate Highlights



Parkson: PRA listing aims to raise S$115m Market Perform

Company Update

¨ In its circular to shareholders, we highlight: 1) PRA will issue new shares of up to 18.9% of its enlarged share capital and expects to raise a minimum of SG$115m or RM281m in proceeds; and 2) PHB will offer up to 13.1% of the enlarged share capital and expects to raise a minimum of SG$56m or RM137m.



SP Setia: Some clarity on management’s direction Market Perform

News Update

¨ A joint statement was issued by Tan Sri Hamad Kama Piah Che Othman (President and Group Chief Executive of PNB) and Tan Sri Liew that PNB has given its reassurance that it wants to work with the existing management of SP Setia. Tan Sri Liew will continue to lead the company as CEO. PNB’s involvement in its investee companies is mainly through board representation.



Proton: Sale of Lotus Stake? Market Perform (up from UP)

News Update

¨ According to Autosport UK, speculation was circulating during last weekend’s Japanese Grand Prix, that Genii Capital could be buying a stake in Group Lotus.

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RHBInvest Research

Top Story: Timber – Uncertainty in Japan’s housing starts recovery Neutral (down from OW)

Sector Update

¨ We believe that there is now increased uncertainty regarding the recovery of Japan housing starts going forward due to heightened risk of the global economy slipping into a double-dip recession. Bearing in mind that the recovery in Japan’s normal housing starts could stall, we now view that the reconstruction activities of the earthquake disaster area would likely just help to sustain Japan’s housing starts over the next two years, leading to relatively flat growth.



Corporate Highlights



Dialog: Kick-starting Langsat Terminal Three Outperform

News Update

¨ Yesterday, Dialog announced that its JV with MISC, Centralised Terminals S/B (CTSB), has entered into a shareholders agreement with China Aviation Oil (Singapore) Corporation (CAO) to establish a JV known as Langsat Terminal Three (LgT-3). The JV will undertake the development of a 380,000m3 oil storage tank terminal facility, which is estimated to cost RM371m. The project is targeted to commence by early-CY12 and be completed by end-CY13. Dialog will have an effective 41% stake in LgT-3.



CIMB: Eyeing Bank of Commerce? Underperform

News Update

¨ CIMB confirmed yesterday that it is in early discussions with San Miguel Corp with regards to a possible acquisition of a stake in Bank of Commerce (BoC) in the Philippines.



LPI Capital: Weaker-than-expected investment income Underperform (down from MP)

3QFY11 Results

¨ LPI recorded 3QFY11 net profit of RM41.5m (+24.6% yoy) which brought its 9MFY11 earnings to RM115.2m (+14.1% yoy). This accounted for 71% of our and consensus full-year expectations.

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Maybank IB Views

COMPANY UPDATE
Mah Sing Group RM1.80: Buy
New township to sustain growth

3rd land purchase in 2011.We are positive on MSGB's latest land purchase in Rawang. Apart from attractive pricing, the new land would provide resilient bread-and-butter sales and sustain MSGB's long-term growth. We raise our 2012-13 forecasts by 1-3% to factor in this project but lower our RNAV estimate by 21 sen to RM2.95 on higher WACC assumption of 9.4-11.4% (from 7.5-9.4%). Our new TP is RM2.36 based on a 20% discount to RNAV. Maintain Buy.

KFC Holdings (Malaysia) RM3.20: Hold
More time for India's operation Shariah-compliant

Hold maintained. With slower economic growth likely to have some dampening effect on consumption demand, we have lowered our same-store-sales growth assumption by 0.5%-pts for 2012 and 2013 to 1.3% and 1.5% respectively and trimmed our profit forecasts for 2012 and 2013 by 5% each year. Our DCF-based TP is correspondingly cut to RM3.37 from RM3.97 on lower earnings and a higher cost of equity of 8.6% from 7.9% previously, on account of higher economic risks. Valuations are still not appealing at this stage, with KFC trading at a prospective 2012 PER of 14.2x and dividend yields of just 2.1%.

Technicals
The FBM KLCI rose 14.29-points to close at 1,375.67 yesterday. Its resistance areas of 1,376 and 1,410 will cap market gains, whilst the obvious support areas are located at 1,353 and 1,374.

Trading ideas are IJM, IGB and MHB.

Other Local News
Perodua, Proton: To ink deal. Perusahaan Otomobil Kedua (Perodua) expects to ink a collaborative agreement with Proton Holdings Bhd on certain aspects this year or early next year. (Source: The Star)

AirAsia: To take off for Da Nang. AirAsia Bhd is flying to Da Nang, Vietnam, from December 16 and the low-cost airline is confident of achieving a load factor of more than 80% based on the good load factor for its flights to Hanoi and Ho Chi Minh City. (Source: Business Times)

UEM Land: Unit appeals to IRB. UEM Land’s wholly owned subsidiary, Bandar Nusajaya Development Sdn Bhd (BND), received a notice of additional assessment from the Inland Revenue Board for additional tax and penalty in respect of the year of assessment 2006, resulting in an additional tax payable of RM73.8m . BND has commenced the appeal process against the additional assessment. (Source: Bursa Malaysia)

Malayan Flour Mills: Plans Indonesia venture. Malayan Flour Mills Bhd (MFM) has signed a shareholders' agreement with Indonesian company PT FKS Capital, Japan's Toyota Tsusho (Singapore) Pte Ltd (TTS) and PT Toyota Tsusho Indonesia (TTI) to establish a joint venture company named PT Bunga Sari Flour Mills Indonesia. MFM will own 30% stake in Bunga Sari for the purpose of carrying out the business of flour milling and distribution of flour products and by-products. The joint venture is expected to contribute positively to the profitability and growth of MFM Group in the future. (Source: Bursa Malaysia)

Plantation: MPOA will not quit RSPO. The Malaysian Palm Oil Association (MPOA) will not quit the Roundtable on Sustainable Palm Oil (RSPO) grouping but it is advising its members to stop seeking new RSPO certification for the production of certified sustainable palm oil (CSPO). Of the total RSPO-certified palm production, MPOA claimed that only 40% was taken up while the CSPO premium had plunged to only 30 US cents compared with USD50 per tonne in 2008. (Source: The Star)

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RHB Invest Research

Top Story: Plantation – Looking for a “safe haven” Overweight (up from N)

Sector Update

¨ We believe one sector that would hold up relatively better during times of economic uncertainty would be the plantation sector. While we acknowledge that commodity prices are likely to come under pressure during this period amidst the strengthening US$, we have already imputed this risk into our CPO price forecasts of RM3,100/tonne for 2011 (YTD RM3,400/t) and RM2,900/t for 2012



Corporate Highlights



Mah Sing: Strategic switch to affordable housing Underperform

News Update

¨ Mah Sing announced that it has entered into an agreement to acquire 100% of Semai Meranti for RM92m. Semai Meranti is the owner of 225.7m acres of freehold development land in Rawang. Land cost of RM9.36 psf is reasonable for a large tract of residential land in a suburb 30-40km away from KL city.

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Maybank IB Views

RESULTS PREVIEW
Top Glove RM4.26: Sell
Short term rally, but fundamentals weak Shariah-compliant

Maintain Sell. Upcoming 4QFY11 results is likely to disappoint by 33%. Though share price has rebounded on the weaker Ringgit vis-à-vis US dollar (still down 30% from its low in Aug '11), we would continue to avoid Top Glove as the negative impact of lower demand for its latex glove (70% of capacity) outweighs the positive impact of a stronger US dollar, and do not foresee latex cost to come off significantly. Additionally, its CY12 PER valuation is expensive at 19x. We cut FY11-13 EPS forecasts by 9-19% and lower DCF-derived TP to RM3.40 (-23%), indicating 15x CY12 PER.

Technicals
The FBM KLCI fell 6.14-points to close at 1,361.38 yesterday. Its resistance areas of 1,361 and 1,403 will cap market gains, whilst the weaker support areas are located at 1,310 and 1,339. Despite the US markets’ rebound tone last night, we may see a volatile tone for the index today. Some persistent foreign liquidation activities will depress the markets’ today.

Trading Idea is a Take Profit call on AIRPORT.

Other Local News
SP Setia: MSWG disagrees with SP Setia. SP Setia Bhd will need to get approval from shareholder for its recent proposed Semenyih land purchase in line with the current takeover and merger ruling. This is because the land transaction coincides with a conditional takeover offer. (Source: The Edge Financial Daily)

YTLP: Yusli appointed to YTL Power board. Former Bursa Malaysia Bhd CEO Datuk Yusli Mohamed Yusoff has been appointed to the BOD of YTL Power International Bhd. He was appointed to the boards of Mulpha International Bhd and listed associate Mudajaya Group Bhd in mid-July. (Source: The Star)

DiGi: Teams up with McAfee to offer security software. DiGi Telecommunications Sdn Bhd has collaborated with software security company, McAfee, to offer McAfee Internet Security and McAfee® Family Protection software. Currently, DiGi has over 5.5m mobile Internet users, of which 300k uses mobile broadband. Digi expect a double-digit growth in our mobile Internet users by year-end. (Source: The Star)

Rubber: Thailand to cut rubber supply. Thailand, the world's biggest rubber producer and exporter, plans to cut annual rubber supply by 120,000 tonnes and would ask other major producers to take action to prop up prices, senior government and industry officials said. Thailand aim to cut rubber supply to push up prices by encouraging farmers to cut down and replant rubber trees on 400,000 rai (64,000ha), starting from now, and would ask for cooperation from Indonesia and Malaysia to take similar action. (Source: The Star)

E&E: Japanese investments in E&E sector keep flowing in. There has been no let-up in interest among Japanese investors in Malaysia's electrical and electronics (E&E) sector. There continues to be interest either by way of reinvestments or interest by those companies which intends to relocate their businesses here. (Source: Business Times)

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Maybank IB Views

COMPANY UPDATE
Public Bank RM12.16: Hold
Resilience on a relative basis

Hold maintained. Our earnings are lowered by 6-7% for 2012/13, while our TP is lowered to RM12.30 from RM14.10 on a lower 2012 P/B target of 2.5x vs. 2.8x, in line with lower peer valuations. On a relative basis, nevertheless, we expect Public Bank's earnings to be resilient due to strong asset quality, while share price should be supported by a) decent gross dividend yields of 5+% and b) low foreign shareholding.

SECTOR UPDATE
Banking: Neutral
Cautious expectations

Maintain Neutral. While loan growth continues to be robust, there is approximately a 6-month lag between loan growth and GDP growth, by our estimates. In light of slower economic momentum ahead, our loan growth forecast of 12.4% this year is maintained, but lowered to 9.4% from 10.4% for 2012. Forward earnings for the banks in our coverage have been trimmed also on the back of lower non-interest income (NII) assumptions. We now project slower aggregate net profit growth of 4.3% in 2012 for banks in our universe (+9.9% previously).

Technicals
The FBM KLCI fell 19.61-points to close at 1,367.52 yesterday. Its resistance areas of 1,367 and 1,403 will cap market gains, whilst the weaker support areas are located at 1,310 and 1,353. Due to the US markets’ weaker tone last night, we may see a volatile tone for the index today.

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Other Local News
SP Setia: Buys land for RM381m. SP Setia Bhd has proposed to acquire land for RM381.2m to replicate its successful township development in Setia Alam and Setia Eco Park. The new land in Rinching, which is 673.3 acres and situated mid-way between Semenyih and Bangi old town, is forecast to have a gross development value (GDV) of RM4b. (Source: Bursa Malaysia)

KNM: Octagon awards contract to KNM. Octagon Consolidated Bhd has awarded a USD22m (RM70.2m) contract to KNM Group Bhd to manufacture an advanced thermal gasification reactor in Sri Lanka. KNM has also been shortlisted as one of the contractors for the engineering, procurement, construction and commissioning (EPCC) contract for the waste to energy plant in Colombo, Sri Lanka. (Source: Bursa Malaysia)

SapCrest: Wins RM99.5m contract. SapuraCrest Petroleum Berhad's 50%-owned associate company, Labuan Shipyard & Engineering Sdn Bhd (LSE) had been awarded a shipbuilding contract by Tanjung Offshore Berhad to engineer, construct, test and deliver one unit 77m platform supply vessel (PSV) worth RM99.5m. (Source: Bursa Malaysia)

Huat Lai, Lonbisco, TPC: Huat Lai launches GO for TPC after buying 34%. Huat Lai Resources Bhd has signed a sale and purchase agreement with London Biscuit Bhd to acquire 26.9m shares or 33.7% of TPC Plus Bhd for RM8.1m and will launch a general offer for TPC. London Biscuits said the disposal of its shares in its poultry company would enable the group to focus on its core business of cakes, candies, wafers and snack confectionery. (Source: Bursa Malaysia)

Wijaya Baru: To buy Indonesia land for RM255m. Wijaya Baru Global Bhd has entered into two agreements to buy 80,000ha in Indonesia for RM255.2m to replenish its timber extraction business. The agreements were with Suffolk Pte Ltd and Wealthgate Pte Ltd for USD40m cash each in total. Wijaya Baru said its last timber licence expired on July 9, 2010, and the acquisition was done in view of the loss of revenue from the timber division and the intention to maintain its core business of timber extraction. The proposed acquisition will provide an immediate and stable income stream for its core business and, at the same, time allow the group to expand its business regionally (Source: The Star)

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Stocks to watch: S P Setia, TPC, Huat Lai, Wijaya Baru

KUALA LUMPUR: The Malaysian stock market was battered on the first trading day in October, sending the FBM KLCI down 1.41% or 19.61 points to close at 1,367.52.

All key regional markets and European bourses fell after Greece's admission that it will miss its deficit targets for this year. Hong Kong’s Hang Seng Index tumbled 4.38%, Thailand’s SET Index down 5.12% and Jakarta’s Composite 5.64%.

OSK Research said “there is downside to the KLCI although with non-GLICs supposedly close to maximum cash levels and GLICs supposedly not aggressively supporting the market up till now, further downside maybe somewhat less than our recession market bottom of 1,086”.

The research house said it did not see any clear market moving catalyst from the Budget 2012 proposals, which would be announced on Friday.

Instead, it would focus on the 1,300 level, beyond which it would recommend more aggressive bottom fishing.

“Sticking to defensives for now and our September Top Buys which have outperformed the KLCI. Bottom fishing stocks such as Genting, Parkson and Dialog which will be attractive if the KLCI falls below 1,300,” it said.

Among the stocks to watch on Tuesday, Oct 4 following the fresh corporate developments are S P Setia Bhd, TPC PLUS BHD [], HUAT LAI RESOURCES BHD [] and WIJAYA BARU GLOBAL BHD [].

S P Setia Bhd plans to undertake a mixed township project with a gross development value of RM4 billion in Semenyih, Selangor.

Tthe development would be carried out on 673 acres of land which it is acquiring from Spektrum Megah (M) Sdn Bhd.

S P Setia said it had entered into a sale and purchase agreement with Spektrum Megah to acquire the 673.27 acres of freehold land out of the 737.87 acres in Semenyih, Ulu Langat, for RM381.259 million or RM13 per square foot.

Huat Lai Resources Bhd plans to launch a takeover offer of poultry company TPC Plus Bhd after it acquires a 33.65% stake in TPC from London Biscuit Bhd.

Huat Lai had signed a sale and purchase agreement with London Biscuit to acquire the stake, comprising 26.91 million TPC shares, for RM8.075 million or an average 30 sen a share. The share price rose 2.5 sen to close at 27 sen.

Wijaya Baru is making its foray into Indonesia’s logging sector with the proposed acquisition of two companies for US$80 million or RM255.2 million which have logging rights in Papua, which it planned to later venture into oil palm cultivation.

OCTAGON CONSOLIDATED BHD [] has awarded a US$22 million (RM70.18 million) contract to KNM GROUP BHD [] to build an advanced thermal gasification reactor.

Octagon said its unit Green Energy and TECHNOLOGY [] Sdn Bhd (GreenTech) had sealed a contract with KNM Process Systems Sdn Bhd for the reactor. The contractor would undertake the manufacturing, engineering, installation and pre-commission of the reactor.

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Stocks to watch: Bumi Armada, Tanjung, Muhibbah, Kim Loong

KUALA LUMPUR: After a horrendous September, which saw the FBM KLCI closing down 5.89% and RM88.76 billion wiped out from the market capitalisation in that month, investors will be bracing for another difficult October in the absence of fresh positive external news from Europe and the US.

For September, the KLCI fell 86.96 points to end at 1,387.13 on Sept 30 while the market capitalisation was reduced to RM1.172 trillion. Year-to-date the KLCI has lost 8.68%.

The outlook is gloomier for Europe and the US. As RHB Research Institute aptly puts it: “The US economic recovery has slowed to a crawl, while Europe is not just lurching from one crisis to another, it is lurching into a new one before the previous one is solved.”

The research house added there is a growing risk that sustained weak confidence could exert downward pressure on demand and business activity worldwide.

On Wall Street, stocks ended their worst quarter since the depths of the 2008 credit crisis, crippled by Europe's debt debacle, a U.S. credit downgrade and a sputtering global economy.

Reuters reported a steep slide on Friday, Sept 30 closed out a fifth month of losses as weak economic data from China sparked fears of a global economic slowdown while investment bank Morgan Stanley plummeted on concerns about its exposure to European banks.

The S&P 500 index has lost more than 14% in 3Q and over 7% in September alone. As of Thursday, Wall Street's deep downturn in the third quarter wiped out US$2.2 trillion of the Wiltshire 5000 index -- the broadest measure of U.S. stocks.

The weaker US and Europe economies would continue to impact Malaysia, especially its exporters.

RHB Research pointed out with a still cloudy global economic outlook, it believed it was "still too early to 'bottom fish' at this stage".

“As global headwinds remain strong and situations could get worse, we will continue to advocate a defensive investment strategy for investors. Under such circumstances, we believe that high dividend yielding stocks with reasonably good growth potential would be more resilient and likely outperform the overall market,” it added.

Meanwhile, on the home front, investors would focus on the Budget 2012 proposals to be unveiled by Prime Minister Datuk Seri Najib Tun Razak on Friday, Oct 7.

Economists expect Budget 2012 will be mildly expansionary. However, a mounting domestic pressures and market aversion to a heftier public debt load would curb any increase in expenditure without a concomitant rise in revenue.

Stocks to watch on Monday are companies with fresh corporate news include Bumi Armada Bhd, TANJUNG OFFSHORE BHD [], Muhibbah Engineering Bhd and KIM LOONG RESOURCES BHD [].

Bumi Armada’s order backlog has increased to more than RM7 billion after it sealed a RM1.46 billion contract to supply and operate a floating production, storage and offloading (FPSO) system in Australia.

Bumi Armada had signed the contract with Apache Energy Ltd, a major Australian oil and gas producer, for the FPSO to be located in block WA-49-L of the Balnaves Field, north-west Australia. The contract was for an initial four-year fixed term time charter with an option of a further four year annual extension period thereafter.

Tanjung Offshore awarded two contracts with a total value of RM200 million for the CONSTRUCTION [] of two platform supply vessels (PSV). It awarded a contract to MUHIBBAH ENGINEERING (M) BHD [] and to Labuan Shipyard & Engineering Sdn Bhd. The PSVs would be used to supply and support deepwater operations of oil majors in operational waters of Southeast Asia region on long term basis.

Kim Loong’s net profit for the second quarter ended July 31, 2011 surged 178% to RM33.29 million from RM11.94 million, due mainly to higher production of crude palm oil (CPO) and palm kernel oil (PKO). Its revenue for the quarter rose to RM227.53 million from RM139.02 million in 2010. The company also announced a single tier interim dividend of 6% in respect of the year ending Jan 31, 2012.

For the six months ended July 31, Kim Loong’s net profit rose to RM53.19 million from RM25.3 million in 2010, on the back of an increase in revenue to RM402.68 million from RM266.02 million.

UOA Development Bhd is to collaborate with Vietnam-based construction firm Hoa Binh Construction and Real Estate Corporation to develop its proposed Sri Petaling residential project with a gross development value of RM400 million.

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