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

Monday, October 17, 2011

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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