Stocks to watch: Coastal Contracts , Sanichi, Dialog, JCY

KUALA LUMPUR (Dec 16): Regional markets including Bursa Malaysia could trade on a cautious note on Friday as investors’ risk appetite for equities would be restrained by worries about the global economy and Europe's debt crisis.

Reuters reported major Southeast Asian stock markets fell on Thursday, extending the decline for the third day, led by banks and commodities as a decline in Chinese factory output added to worries about the global economy and Europe's debt crisis.

Concern over the situation in the euro zone rose after Fitch Ratings downgraded five big European banks on Wednesday.

At Bursa Malaysia, stocks which could see trading interest include COASTAL CONTRACTS BHD [], SANICHI TECHNOLOGY [] BHD [], DIALOG GROUP BHD [] and hard-disk drive manufacturer JCY International Bhd.

Coastal Contracts’s year-to-date order wins rose to RM690 million after the company secured new contracts worth RM233 million for the sale of three offshore support vessels, two landing crafts and two barges.

“With this latest batch of contracts, the value of Coastal Group’s secured vessel sales orders currently stood at about RM610 million, with deliveries through 2012,” it said.

Sanichi, whose shares inched up in very active trade on Thursday, could see continued trading action. It received a letter of intent from China’s Guangxi Huayin to purchase 150,000 tonnes of steam coal per month, totaling 1.80 million tonnes for a one-year period.

Sanichi said Guangxi Huayin is one of the largest and most advanced aluminium producers in China and the shareholders include the Aluminium Corporation of China with a 33% stake.

Meanwhile Dialog Group Bhd, which is undertaking a cash call to raise funds for more investments in the upstream oil and gas opportunities, has fixed the rights shares at RM1.20 each and the exercise price of the warrants at RM2.40 each.

The issue price would be a discount of about 46% to the theoretical ex-rights price of RM2.23 per share, based on the five-day volume-weighted average market price (VWAMP)up to Dec 14 of RM2.43.

As for the warrants, it said the exercise price was 8% above the theoretical ex-rights price of RM2.23 per share, based on the five-day VWAMP up to Dec 14 of RM2.43.

JCY could see continued trading interest as it was not impacted by the severe floods in Thailand unlike other hard-disk drive manufacturers which had major operations in Thailand.

CIMB Equities Research said believed a full restoration to pre-flood production was at least six to nine months away, but suppliers with strong balance sheets to invest could benefit from greater allocations in the near term.

“Improvements in average selling prices (ASP) for drive makers should also be positive for the industry,” it said. It advised investors to be selective as it believed volume would remain hindered by component shortages.

“Buy JCY as we expect strong near-term earnings on higher ASPs and allocations,” it said.

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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

Construction: Overweight
LRT final packages go to Sunway, MRCB

Maintain Overweight. Sunway's RM569m win is a pleasant surprise after press reports of the Kelana Jaya Line Package B going to TRC Synergy. MRCB's RM1.33b win is also above the RM800m-RM900m estimates for the Ampang Line Package B. The LRT chapter, in terms of awards for the civil works portion, is coming to an end, with all eyes now to focus on the MRT which will enter the tendering stage for the elevated works portion – to be called in stages over Sept-Dec 2011. Our fair value for Sunway is RM3.85 while we are Not Rated on MRCB.

COMPANY UPDATE
Dialog Group RM2.67: Buy
New leg, new growth, new perspective Shariah-compliant

Bagging the Balai RSC is sentiment positive. Dialog is in good hands. RoC Oil and PCSB are reputable partners. Funding is not an issue. While Balai is expected to be more challenging than the Berantai project, the risk is mitigated as capex is fully recoverable under the RSC. We opine that the consortium will likely bag the next RSC (i.e. Belantara) to make it a more economical investment. Maintain Buy with an unchanged RM3.35 target price, based on sum-of-part valuations.

RESULTS REVIEW
Kuala Lumpur Kepong RM21.10: Hold
Big boost from FFB output recovery Shariah-compliant

Downgrade to Hold. 3QFY11 RM420m recurring net profit (+72% YoY,+85% QoQ) brings 9MFY11 recurring net profit to RM1,047m (+49% YoY), which met 78% and 74% of our and consensus full-year forecasts. The results were marginally above our forecast on a lower tax rate. We tweak up our 2011 forecast. The stock has outperformed the KLCI since we first upgraded our call on 24 Jun 2010, chalking up 29% in capital gain. We change our valuation methodology to PER (from SOP) pegging the stock to 16x FY12 based on an unchanged 2012 RM3,000/t CPO ASP assumption for the sector. Given limited upside to our new TP of RM21.60, we downgrade the stock to a Hold.

WCT RM2.87: Buy
Impacted by forex Shariah-compliant

Below forecasts. RM75m 1H11 net profit (+9% YoY) made up 41% of our full-year forecast of RM184m due to an unexpected RM13m forex loss from the stronger Ringgit. We have lowered our 2011-12 forecasts by 8-9%. Our new target price is RM3.50 based on SOP (unchanged 15x 2012 PER + 20sen value increment from KLIA2 retail concession). Share price has consolidated along the broader market with the stock trading at 12.9x one-year forward earnings. Maintain Buy.

JT International RM6.90: Buy
Momentarily weaker

Below expectations. JTI's 1H11 net profit of RM65m (-8.9% YoY) accounts for 45% and 47% of our and consensus full-year forecasts. The shortfall in earnings was due to higher than expected marketing costs and lower sales volumes, implying downside risk to our 2011 estimates. We maintain our earnings forecasts pending an analyst briefing today. Valuations are still low with the stock trading at 11.1x 2012 PER. Our DCF-based TP implies 13x 2012 PER.

Technicals
The FBM KLCI inched down by 1.50 points to close at 1,498.24 yesterday. Its resistance areas of 1,498 and 1,515 will cap market gains, whilst the weaker support areas are located at 1,454 and 1,486.Due to the US markets’ fall last night; we will see some volatile trading activities in the local bourse today. Some heavy profit-taking and liquidation activities will persist to depress the markets’ rebound from its recent 1,423.47 low. We see a longer-term decline for the local and foreign indices.

Trading Idea is a Take Profit call on TENAGA.

Other Local News
MPHB: Confirms talks to dispose of Menara Multi-Purpose. Multi-Purpose Holdings Bhd (MPHB) said it is in talks with various parties to dispose off its non-core assets including Menara Multi-Purpose. (Source: The Edge Financial Daily)

MAHB: Revises charges for airlines, passengers. Malaysia Airports Holdings Bhd (MAHB) would be implementing new international passenger service charges (PSC) as well as aircraft landing and parking charges at airports operated by the group on September 15. The government has given its approval and that it was in line with the Operating Agreement signed between the government and MAHB in February 2009. (Source: Business Times)

O&G: Gas Malaysia listing slated for 4Q. MMC Corp Bhd plans to list Gas Malaysia Sdn Bhd on the Main Board of Bursa Malaysia by the fourth quarter of this year. The company has appointed Maybank Investment to advise on the initial public offer exercise. (Source: Business Times)

Bina Puri: Wins RM470.3m contract. Bina Puri Holdings Bhd, via its wholly-owned unit Bina Puri Construction Sdn Bhd, has been awarded a contract worth RM470.3m for the proposed development of a tourist recreational and commercial development at KK Times Square (Phase II) in Kota Kinabalu, Sabah. (Source: Bursa Malaysia)

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RHBInvest Research

Top Story: Top Glove – Latex prices set to ease further Underperform

Visit Note

¨ Latex prices have corrected sharply, in tandem with other commodity prices (excluding precious metals) amid concerns of weaker-than-expected economic growth. As such, we have reduced our latex price assumption to RM8.59/kg for FY11 (from RM8.69/kg earlier). Our latex price assumptions of RM7.75-7.90/kg for FY12-13 remain intact.



Sector Call



Property: Vietnam – Good prospect but not an easy market Neutral

Sector Update

¨ Vietnam has been a tough market. This is well known to many investors. The high inflation and lending rate imply that the required rate of return/IRR of any development projects must be at least 30% to make it profitable. The unfavourable economic indicators and the under-developed mortgage market have largely explained why many Malaysian developers have not been aggressive in pushing their launches in Vietnam during the recent property upcycle, when regional property markets are booming.



Corporate Highlights


no
Gamuda: Give me your best shot, comrades! Outperform

Visit Note

¨ MMC-Gamuda JV may have to settle for a low price for the tunnelling works if they have to match the ultra low winning bid from one of the two Chinese contractors, but we believe Gamuda could still optimise to improve profitability.



Notion Vtec: Shifting focus to camera and auto Underperform

Briefing Note

¨ Management appeared to have a more cautious tone on the industry outlook given the weaker-than-expected global economic growth. We understand although management has not witnessed any cut back in orders yet, the current environment poses a risk which could lead to slower-than-expected orders from customers. The HDD industry is not only facing weaker-than-expected IT spending for desktop PCs, it is also facing stiffer competition from tablets. Hence, we understand Notion will focus on the camera and automotive segments going forward.



SP Setia: Beranang? It’s far, but they will make it nearer Market Perform

News Update

¨ SP Setia entered into a SPA for the proposed purchase of a piece of 1,011-acre freehold land in Beranang for RM330m, or RM7.50 psf. The site is estimated to yield a GDV of RM3.5bn.The land is located midway between Semenyih, Bangi Old Town and Beranang. Travelling time is said to be about 40min to KL.



Evergreen Fibreboard: Going upstream into rubber plantation Underperform

News Update

¨ Evergreen has entered into a Mou with four individuals to purchase a 4,410-acre of land for RM37.8m. The land consists of tropical timber and approximately 1,730 acres of the area has been logged.



Dialog: On the mark Outperform

4QFY11 Results

¨ FY11 net earnings of RM152.4m were in line with expectations, rising 29% due to increased contribution from associate earnings (+23%) and better margins from core divisions of 13.4% (vs. 10.2% in FY10).



CSC Steel: 2QFY11 results dragged down by higher raw material costs Underperform

2QFY11 Results

¨ 1HFY11 net profit came in below expectations. We believe the variance against our forecast largely came from worse-than-expected margin contraction in 2QFY11 as a result of weak demand and significantly higher raw material costs.

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Maybank IB Views

S P Setia RM3.85: Buy
"Setia Alam" in the making Shariah-compliant

Leading the new trend. SPSB is spearheading a new relatively untapped trend i.e. affordable housing via its latest sizeable land acquisition in Semenyih (south of KL CBD). The 1,011-acre land, which has been earmarked for affordable housing, would provide steady bread-and-butter sales and support SPSB’s long-term growth. The land could turn out to be another highly successful "Setia Alam" given SPSB's expertise and track record in township development. No change to our earnings forecasts and RM5.00 TP (10% premium to RM4.53 RNAV). Reiterate Buy.

Dialog Group RM2.52: Buy
Above par performance, optimism remains Shariah-compliant

Buy for earnings and dividends potential. Results were ahead of our expectation, on the back of a strong 4Q. We have raised our FY12-13 earnings forecasts by up to 28% (with further upside potential) and we remain optimistic on its long term growth prospect. Dialog remains among our preferred Buys in O&G with an unchanged RM3.35 target price (sum-of-part valuations). We continue to like its business model, focused management and steady dividend payments.

Technicals
The FBM KLCI tumbled 40.76-points and closed at 1,483.67 last Friday. The local market remained very weak due to the global equity indices’ malaise. The volatile global equity rout last week also adversely affected the local market. The weaker support areas for the FBM KLCI are located in the 1,423 to 1,480-zone. The next resistance levels of 1,483 and 1,597 will see heavy selling and liquidation activities.

Trading Idea is a Take Profit call on BURSA.

Other Local News
Aviation: Airlines to pay higher landing, parking charges. Malaysia Airports Holdings Bhd is looking at a possible 30% hike in landing and a 64% increase in parking charges. MAHB is still holding discussions with airlines on whether the increase should be done on a staggered basis or at one go. In a dialogue with foreign airlines last Wednesday, MAHB said it had received the go ahead to raise airport tax for passengers as well as parking and landing charges for airlines. Minister of Transport Datuk Seri Kong Cho Ha has since confirmed the hike in passenger service charge. (Source: Business Times)

HLB: May sell MIMB Investment Bank licence. Hong Leong Bank Bhd (HLB) may sell MIMB Investment Bank Bhd's investment licence which it got following the acquisition of EON Capital's assets and liabilities. HLB has a choice of selling it to Hong Leong Investment Bank or other suitors who might be interested. (Source: The Star)

MISC: May bid for Maersk's LNG vessels. MISC Bhd may put in a bid for a fleet of eight liquefied natural gas (LNG) ships owned by AP Moller Maersk. The bids are understood to be due by end-August, with initial estimates valuing the fleet at USD1.3b (RM3.9b) to USD1.7b. (Source: The Edge Financial Daily)

MPHB: MCA in talks to buy Menara Multi-Purpose. The Malaysian Chinese Association (MCA) is said to be keen on buying Multi-Purpose Holdings Bhd's (MPHB) Menara Multi-Purpose, located near Dang Wangi in Kuala Lumpur. The price tag could in the range of RM350m to RM400m. (Source: The Edge Financial Weekly)

Biotech: ECER gets RM2b boost. South Korea's CJ CheilJedang Corp and France's Arkema SA have announced a RM2b joint venture (JV) to build the world's first bio-methionine plant to produce animal feed in Malaysia. Both companies would commit the amount to be invested over a 10-year period. The plant together with Asia's first thiochemical platform would be located in Terengganu's Kertih Polymer Park in the East Coast Economic Region's (ECER) special economic zone. (Source: The Star)

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Stocks to watch: SP Setia, Dialog, BHIC, Dataprep

KUALA LUMPUR: Markets would continue to be cautious in the week ahead, starting Monday, Aug 15, after the volatile week which saw RM42.18 billion erased from the local market.

The FBM KLCI is down 40.78 points or 2.67% from 1,524.43 on Aug 5 to close at 1,483.67 on Friday, Aug 12. However, the FBM 100 sustained greater losses, declining 304.17 points or 2.96% from 10,267.75 to 9,963.58.

Selling pressure on Bursa Malaysia eased on Friday but buying was still cautious due to external worries from the US and Europe. Analysts said investors were not ready to go on bargain hunting for battered stocks, but there was some evidence of local fund support for the 30-stock KLCI.

On Wall Street, the Dow Jones Industrial Average had on Friday closed 125.71 points, or 1.13% higher, to 11,269.02. The Standard & Poor's 500 Index added 6.17 points, or 0.53%, to 1,178.81. The Nasdaq Composite Index rose 15.30 points, or 0.61%, to 2,507.98.

According to Reuters, it was the first two-day rally on the broader S&P 500 since July 21-22. For the week, the Dow fell 1.5% and the Nasdaq lost 1%. The S&P 500 fell on 11 of the past 15 days, dropping 12.4% in three weeks.

At Bursa Malaysia, stocks to watch include SP SETIA BHD [], DIALOG GROUP BHD [], BOUSTEAD HEAVY INDUSTRIES CORP []oration Bhd (BHIC), DATAPREP HOLDINGS BHD [] and Sarawak Cable Bhd.

SP Setia Bhd plans to undertake a mixed residential township development project in Ulu Langat with an estimated gross development value of RM3.5 billion.

It said the project would be carried out on 1,010.5 acres of freehold land which it is purchasing from Ban Guan Hin Realty Sdn Bhd for RM330.13 million or RM7.50 per square foot.

Dialog Group Bhd’s earnings rose 45.2% to RM44.87 million in the fourth quarter ended June 30 from RM30.89 million a year ago, boosted by its engineering and CONSTRUCTION [] and also plant maintenance services.

Revenue increased by 37.8% to RM374.88million from RM271.95 million. Earnings per share were 2.28 sen compared with 1.56 sen. It proposed a final single tier dividend of 18% or 1.8 sen per 10 sen share.

For the FY ended June 30, its earnings rose 24.2% to RM152.29 million from RM118.29 million while revenue increased by 6% to RM1.208 billion from RM1.139 billion. Its cash pile increased to RM274.32 million as at June 30 fromRM258.07 million a year ago.

BHIC’s net profit for the second quarter ended June 30, 2011 fell to RM1.39 million from RM15.8 million earlier due to escalation in costs to complete its current projects.

Its revenue for the quarter rose to RM120.76 million from RM104.47 million. Earnings per share were 0.56 sen while net assets per share was RM1.71.

For the six months ended June 30, BHIC’s net profit fell to RM11.47 million from RM31.47 million, on the back of revenue RM237.45 million.

The Edge weekly highlights Dataprep which is reinventing its business model. Newly-appointed CEO Ahmad Rizan Ibrahim fully expects the company to be back in the black this year, premised on its healthy order book of over RM100 million in projects from government-linked entities and the fact that it has paid off most of its debts and has some RM31 million in cash

The weekly also reported that electricity jobs are expected to boost Sarawak Cable Bhd.

The power cable maker's shares could be worth watching, considering its improving earnings prospects with the Sarawak government spending more on infrastructure projects, including electricity transmission.

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Maybank IB Views

Star Publications (Malaysia) RM3.41: Hold
Seeking inspiration in Life Inspired Shariah-compliant

Another lukewarm investment. Star will invest RM35m for 51% of Li TV Holdings Limited. Li TV owns and operates Li, Life Inspired, a pan-Asian lifestyle TV channel. It is loss making but is not expected to materially impact Star's earnings. While we are encouraged that Star is continuing to diversify its media assets, it remains to be seen if Li TV can contribute meaningfully going forward. Maintain Hold.

Technicals
The FBM KLCI fell 6.94 points to close at 1,555.64 yesterday. Its resistance areas of 1,555 and 1,574 will cap market gains, whilst the much weaker support areas are located at 1,540 and 1,552. The FBM KLCI stalled at its previous all-time high of 1,576.95 on 6 Jan 2011.

Trading idea today is Dialog

Other Local News
Maybank: Islamic signs MoU with Bank Syariah Mandiri. Maybank Islamic has signed a MoU with Bank Syariah Mandiri (BSM), Indonesia, to establish cross-border collaboration in all Islamic treasury and trade finance matters. The collaboration would enhance cross-border liquidity flows and increase and diversify the application of Islamic financial solutions. (Source: The Edge Financial Daily)

Inari: Gains 6.5 sen on debut. Inari Bhd made its debut on the ACE Market of Bursa Malaysia yesterday, closing 6.5 sen higher than its issue price of 38 sen. Inari expects its fourth new plant, costing RM25m in the Free Industrial Zone in Bayan Lepas, Penang, to increase its revenue by 25% to 30% when the plant is operational by March next year. (Source: The Star)

Iskandar: Another British varsity. Britain's University of Reading Business School is setting up a branch campus in EduCity in Iskandar Malaysia, Johor, for between RM150m and RM200m. To be known as University of Reading Iskandar, construction is due to start next year. (Source: Business Times)

Property: Sagajuta eyes year-end listing. Sagajuta (Sabah) Sdn Bhd hopes to complete its backdoor listing by year-end, to turn the company into a bigger real estate firm. Sagajuta is behind the RM1.2b 1Borneo project in Kota Kinabalu. Sagajuta is planning to buy more land in Sabah, Klang Valley, Penang and Johor to enable it to undertake development projects worth more than RM3b at any one time. (Source: Business Times)

Property: Sapura Resources in KLCC development. Sapura Resources Bhd has proposed a joint venture with KLCC (Holdings) Sdn Bhd (KLCCH), a wholly owned subsidiary of Petronas, to establish a commercial development on a piece of land in KL. The land measuring 7,605sqm will comprise an office tower, convention centre and retail podium. (Source: The Edge Financial Daily)

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RHBInvest Research

Top Story: Oils & Gas - Overweight

Sector Update

Highlights From 16th Asia Oil And Gas Conference (AOGC)


Petronas Chemicals Outperform (FV: RM8.92)

Dialog Outperform (FV: RM3.50)

P Gas Outperform (FV: RM13.95)


Energy demand fundamentals have recovered and global crude oil prices are set to remain in positive territory above US$75/bbl which will support our view that capex for conventional developments (both shallow and deepwater) will continue and drive contract awards. Only beyond US$125/bbl will there be potential demand destruction.

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Maybank IB Views

Oil & Gas: Overweight
PETRONAS FY11 report card: Quest and request

Balancing aspiration and obligation. We laud PETRONAS' request for a fairer dividend distribution in its quest for growth while keeping its financial discipline. O&G is a capital intensive business and much of the retained earnings is to be essentially set out for new hydrocarbon resources. Higher capex simply translates into higher growth opportunities for the local O&G players. We continue to Overweight the sector. Dialog, Kencana, PGas and SapCrest are our choiced picks.

Technicals
The FBM KLCI closed marginally lower by 0.10 points and ended at 1,551.79 yesterday. Its resistance areas of 1,554 and 1,568 will cap market gains, whilst the obvious support areas are located at 1,537 and 1,551. We expect the FBM KLCI to remain quiet today, as it there may be a spill over of the boring US and regional markets.

Daily trading idea is a Short-Term BUY call on YINSON

Other Local News
TNB: Buys power from Singapore to ensure supply security. Tenaga Nasional Bhd (TNB) is buying power from Singapore-based PowerSeraya Ltd, a unit of YTL Power International Bhd, due to a shutdown of Petroliam Nasional Bhd-owned gas production platforms for maintenance and dwindling gas supply. (Source: The Star)

BJTOTO: May roll out new game on this weekend. Berjaya Sports Toto Berhad is expected to introduce a new game which is believed to be something similar to the 4D Jackpot introduced by Magnum 4D in September 2009. It is likely to help the company to grow its sales and expand its market share. (Source: Business Times)

Latexx: Accepts revised offer from YTY. Rubber gloves maker Latexx Partners Bhd's board has accepted a revised offer of RM1.25b (initially RM1.35b) on its proposed merger with YTY Industry Sdn Bhd. (Source: Bursa Malaysia)

Dijaya: Buys land for RM385m. Dijaya Corp Bhd has acquired 88.5 acres of freehold land in Pekan Country Heights, Selangor, from Chunghwa Picture Tubes (Malaysia) Sdn Bhd for RM385.5m. The land would be transformed into a mixed development comprising residential and commercial elements with an expected gross development value (GDV) of RM2.5b. (Source: The Edge Financial Daily)

MYEG: Set for Kazakh e-services venture. MY E.G. Services Bhd (MYEG) is set to collaborate with Kazakhstan company National Information Technologies JSC (NIT) to introduce e-government services to the republic this year in its first overseas venture. (Source: The Star)

AmFirst: To buy 2 Cyberjaya buildings. AmFirst Real Estate Investment Trust is expected to sign a deal to buy two commercial buildings in Cyberjaya with a combined estimated value of over RM130m. It currently has 6 assets worth RM1.02b. The properties, which are a couple of years old, were identified as Prima 9 and Prima 10. They are both located within the Prima Avenue II development in Cyberjaya. (Source: Business Times)

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Maybank IB Views

1Q11 report card
Growth momentum tapering off

Fewer positive surprises. 1Q11 earnings reporting season saw fewer positive surprises (13:65:22 in earnings above:within:below expectations vs. 4Q10's 21:59:20). 1Q11 combined recurring net profit of our research universe contracted 5.3% QoQ but maintained its YoY climb (+8.4%). The YoY uptrend momentum is slowing down however, vis-a-vis double-digit growth in the past 5 consecutive quarters. This is not unexpected as we have forecasted slower corporate earnings growth in 2011, after a high base in 2010.

COMPANY UPDATE
Dialog Group RM2.82: Buy
Pengerang project takes off, target price raised Shariah-compliant

Two is better than one. Securing the EPCC job for the Pengerang CTF project denotes progress. We expect the Pengerang CTF project on a full-scale commercial operation by 2017 to be the main driver to Dialog's earnings with dividends to boot. Notwithstanding that, Dialog is also highly tipped to bag the next few marginal field projects (i.e. Balai and Bentara), a positive to sentiment and price performance. Buy.

CB Industrial Product Holding RM4.26: Buy
Unlocking value Shariah-compliant

A re-rating catalyst. CBIP's proposed plantation disposal is positive as it unlocks value of its below-average plantation yielding estates; raising RM1.95/sh (RM268m) in cash and making RM1.02/sh (RM141m) in disposal gain. Post disposal, with potential net cash at 95sen/sh, CBIP is looking for expansion opportunities, failing which it may return part of its cash as special dividends to shareholders. We maintain our earnings forecasts and TP of RM4.75 based on 7x 2011 EPS for now.

Technicals
The FBM KLCI closed lower by 1.87 points to close at 1,556.42 yesterday. Its resistance areas of 1,559 and 1,576 will cap market gains, whilst the support areas are located at 1,539 and 1,556. Due to the world markets’ very poor tone last night; we will see some great volatility in the local bourse today. We expect the FBM KLCI to remain volatile today, as it may be adversely affected by the US and regional markets.

Other Local News
EonCap: Primus to pay RM1.9m in court costs following dismissal. Following the dismissal of Primus (M) Sdn Bhd's petition against the sale of EON Capital Bhd (EON Cap) to Hong Leong Bank Bhd (HLB), Primus now has to pay RM1.9m in court costs. (Source: The Star)

SapCrest: Acquires shipyard stake. SapuraCrest Petroleum Bhd (SapCrest) has signed an agreement with Real Mild Sdn Bhd and Labuan Shipyard and Engineering Sdn Bhd (LSE) for the subscription of 25m new shares in LSE, representing 50% stake in LSE. (Source: Bursa Malaysia)

Benalec: Monetises reclaimed land in Melaka. Benalec Holdings Bhd entered into two separate deals, one on land disposal while another on a JV property development with Melaka based developer Vista Selesa Development Sdn Bhd. (Source: The Edge Financial Daily)

Paramount: Has ambitious RM4b projects in pipeline. Paramount Corp Bhd will embark on several projects with a total GDV of RM4b over the next 12 years and will invest RM250m to set up its new university campus in Glenmarie, Shah Alam. (Source: The Malaysian Reserve)

Energy: Sarawak to pay 6.25 sen per kWh for Bakun power. Sarawak will pay federal government 6.25 sen kWh for the purchase of electricity generated by the Bakun hydro power plant under a power purchase agreement (PPA). The basic tariff of 6.25 sen comes with an annual increase of 1.5%. (Source: The Edge Financial Daily)

Autos: Honda Malaysia to resume full production in August. Honda Malaysia Sdn Bhd’s Alor Gajah plant will resume full production on Aug 1, and will try to increase production by operating additional hours to catch up with shortage of supply from April through July. (Source: The Edge Financial Daily)

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Maybank IB Views

Sunway Holdings RM2.57: Hold
Results as expected; merger completion next Shariah-compliant

Tactical downgrade to Hold. Results were in line. RM31m 1Q11 core net profit (-13% YoY, -42% QoQ) made up 19% of our full year estimate. We maintain our 2011-12 earnings forecasts. The merger with SunCity is into its final stage with shareholders to vote on 15 Jun. An enlarged entity under the new Sunway Bhd is expected to be listed in 3Q11. With the share price closing in to the implied take-over price (+14.7% YTD), we downgrade the stock to Hold.
Maxis RM5.42: Hold
A seasonally slower quarter Shariah-compliant

Hold maintained. RM540m net profit was down 2% YoY and 12% QoQ. With 1Q11 being a seasonally slower quarter, net profit was within expectation at 22% of our full-year forecast and our numbers are maintained. Guidance remains for margins to come under further pressure with the roll-out of new wireless/fixed broadband services. Dividend yields aside, we see little share price catalyst and maintain our Hold call on the stock. Our DCF-derived TP of RM5.50 is maintained on WACC of 7.5% and 1% terminal growth assumptions.
Axiata Group RM5.00: Buy
Stable growth in regional ops Shariah-compliant

Buy call maintained. Some weakness from Dialog and Robi during the quarter but positively, Celcom continues to register stable earnings growth while XL continues to fare well despite aggressive price competition. Overall, nevertheless, Axiata’s regional operations continue to fare well and remain very much cash generating entities with growth potential. Our Buy call is maintained with an unchanged SOP-based target price of RM5.60.
Malaysia Airports Holdings RM6.37: Buy
Jumpstart to 2011

Within expectation. 1Q11 core net profit number reveals a healthy business that is flourishing on the back of strong traffic numbers and healthy retail business. We look forward to a promising 2011 as air travel momentum remains strong in the Asia Pacific region. Maintain Buy, with an unchanged target price of RM7.12/share DCF-based.

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RHBInvest Research

Top Story: IJM Plantation – Short-term pain for long-term gain Market Perform

Visit Note
Key takeaways from our visit to IJMP’s estates and operations in Sandakan: 1) Heavy rainfall affected FFB production and OER; 2) Sold part of FY03/12 production forward; 3) Locked in 80% of fertiliser requirement for FY03/12; 4) Labour shortage of 10% currently; 5) Planted close to 9,000ha in FY03/11; and 6) Efficient facility, impressive long-term planning.



MMHE: Fair value unchanged at RM5.75 Underperform

Petronas unveiled plans for a US$20bn (RM61bn) refinery and petrochemicals complex in Pengerang, Johor last week.



Corporate Highlights

Dialog: Starting up the “Pengerang” engine Outperform

News Update
Dialog announced last week that the Johor state government had given the go ahead for the company to begin reclamation work for the proposed independent deepwater terminal in Pengerang. The total investment for the project is estimated at RM5bn over a 7-year period.

Kencana: Proposed acquisition to enter the subsea market Outperform

News Update
Kencana announced last week that it is looking to acquire Allied Marine & Equipment (AME), a company that specialises in subsea services for the oil and gas industry. The acquisition will cost RM400m, to be satisfied via the issue of 149.3m new shares at RM2.68 each.



DRB-Hicom: Keen to explore Bank Muamalat – Bank Islam merger Outperform

News Update
DRB-HICOM (DRB) issued a press release in a response to media reports that BIMB Holdings (BIMBH) had been approached to consider buying Bank Muamalat (BM).


CSC Steel: 1QFY11 net profit more than doubled qoq to RM24.0m Outperform

1QFY11 Results
1QFY11 net profit came in at 31% of our full-year forecast and 30% of the full-year market consensus. However, we consider the results within expectations as we expect lower margins in the next few quarters due to higher raw material cost.

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Stocks to watch: O&G, Kencana, Dialog, Sealink, Supermax, DRB-Hicom

KUALA LUMPUR: Stocks on Bursa Malaysia, especially oil and gas (O&G) counters and related industries are expected to continue see strong trading interest in the week ahead, starting on Monday, May 16.

The interest would be underpinned by Petroliam Nasional Bhd’s RM60 billion investments in the refinery and petrochemicals integrated development (RAPID) project in Pengerang, south Johor.

However, overall marketing trading could be slower due to the holiday-shortened week and the cautious overnight close on Wall Street.

US stocks ended a second week of losses on a down note Friday, May 13 reflecting growing worries that stocks are on the precipice of a pullback.

Concern about slowed growth worldwide, the coming end of a supportive Federal Reserve policy and the fear of a worsening euro-zone debt crisis are undermining the stock market's ability to maintain an upward direction.

The Dow Jones industrial average ended down 100.17 points, or 0.79 percent, at 12,595.75. The Standard & Poor's 500 Index finished down 10.88 points, or 0.81 percent, at 1,337.77. The Nasdaq Composite Index fell 34.57 points, or 1.21 percent, at 2,828.47.

For the week, the Dow was down 0.3 percent, the S&P 500 was off 0.2 percent and the Nasdaq was barely up at 0.03 percent.

Meanwhile, Petronas’ refinery and petrochemicals integrated development (RAPID) project will comprise a crude oil refinery with capacity of 300,000 barrels per day, a naptha cracker that will produce about three million tonnes of ethylene, propylene, C4 and C5 olefins annually, and a petrochemicals and polymer complex that will produce differentiated and highly specialised chemicals. The capacity of the project will be bigger than the current combined production in Kertih and Gebeng.

Stocks in focus would include DIALOG GROUP BHD [] which had received the Johor government’s approval to reclaim and use the site in Pengarang for the proposed RM5-billion independent deepwater petroleum terminal. It said the combined investment in the project is estimated at RM5 billion over a seven-year period.

KENCANA PETROLEUM BHD is buying Allied Marine & Equipment Sdn Bhd (AME) for RM400 million in its move to become a fully integrated offshore services player.

The company said the purchase of AME would be a share swap, where it would issue 149.25 million new Kencana shares at RM2.68 a share. The vendors of AME are Worldclass Inspiration Sdn Bhd and Allied Asset Holdings Sdn Bhd.

Kencana’s total order book increased to RM2.44 billion after it was recently awarded a RM250 million contract from Sarawak Shell Bhd

The Edge weekly reports that offshore vessel builder and charterer SEALINK INTERNATIONAL BHD is looking to raise at least RM30 million from a placement exercise as it plans to expand its chartering vessel fleet and increase shipbuilding activities.

Glove maker Supermax Corp Bhd’s earnings fell 52.6% to RM24.40 million in the first quarter ended March 31, 2011 from RM51.47 million a year ago as its margins were eroded by high latex prices and the weaker US dollar. Revenue rose 9.4% to RM241.37 million from RM220.65 million a year ago while earnings per share declined to 7.18 sen from 18.97 sen.

DRB-HICOM BHD is exploring a potential merger of its 70%-owned Bank Muamalat Malaysia Bhd and Bank Islam Malaysia Bhd but there are no plans to sell its Bank Muamalat stake.

The company submitted a letter of expression of interest to BIMB HOLDINGS BHD (BIMB) to explore a potential merger of the two banks and “has yet to commence any exploratory discussions with BIMB”.

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Maybank IB Views

Banking: Overweight
Bouncing back in March

Loan growth stronger than expected. System loan growth in March was stronger than expected and on an annualized basis, is up 12.9% YTD (13.2% YoY). On a YTD basis, non-household loan growth was higher at 13.6% versus 12.3% YTD for consumer loan growth. We raise our system loan growth forecast, and maintain our Overweight stance on the banking sector, with Buys on RHB Capital and CIMB.

COMPANY UPDATE
Petronas Chemicals Group RM7.22: Buy
April high to take a breather Shariah-compliant

Supply disruption boost. PCHEM's product margin in April 2011 was USD1,243/ton (+44.7% YoY, +3.2% MoM), we estimate. The year-to-date product margin of USD1,138/ton is 32.2% higher YoY, and above our 2011 estimate of USD1,027/ton. The advance of chemical prices has stagnated in certain segments but overall it has been a mixed bag with gainers and losers almost neutralizing each other. Maintain Buy; there is no change to our earnings forecasts and RM8.00 target price.

RESULTS REVIEW
Sunway REIT RM1.09: Buy
On track Shariah-compliant

Maintain Buy. SunREIT's RM126.2m 9MFY11 realised net profit was within expectations. Its proposed 1.7 sen DPU for 3QFY11 was also in line. We continue to like SunREIT as we believe it will benefit from the 5-6% p.a. growth in the local retail market and rising consumerism. We see a potential upside from its recently-acquired Putra Place, though a major makeover may be required for the building before it starts contributing to the trust. We maintain our earnings forecasts with an unchanged RM1.15 DCF-based target price.

Eastern Pacific Industrial Corp RM2.40: Hold
No surprises, no catalyst Shariah-compliant

No catalyst in sight. 1Q11 results were in line, on stronger YoY performance. EPIC remains a Hold. We see no immediate catalyst to warrant a re-rating. Moreover, the development of Tanjong Agas in Pahang will pose a challenge to its competitiveness in the long term. Our RM2.55 target price remains unchanged, based on 8x 2011 PER.

Technicals
The FBM KLCI closed 3.48 points lower at 1,531.47 yesterday. Its resistance areas of 1,531 and 1,548 will cap market gains, whilst the obvious support areas are located at 1,514 and 1,529. We expect further range trading for the FBM KLCI. As such, invest with a short-term time horizon.

Trading idea for today is a Buy call on E&O.

Other Local News
Axiata: Dialog, Firstsource in JV. Sri Lanka-based Dialog Axiata, a subsidiary of Axiata, announced a business process outsourcing (BPO) joint venture with India's Firstsource Solutions. Firstsource Solutions and Dialog will hold a 74% and a 26% stake respectively in Dialog Business Services (DBS). The JV will manage Dialog's customer contact management operations across its mobile, fixed line, pay television and broadband businesses. (Source: Business Times)

RHBCap: ADCB eyes 2 times book value for RHB stake. Abu Dhabi Commercial Bank is looking at two times book value, or about RM10 per share, for its 25% stake in RHB Capital Bhd. (Source: The Star)

EonCap: Restraining order unlikely by Primus as such move may result in legal suit by HLB. Primus Pacific Partners Ltd, which last week lost its legal case against EON Capital Bhd's (EON Cap) directors and shareholders, is unlikely to file a restraining order or injunction to stop the sale of EON Cap's assets to Hong Leong Bank Bhd (HLB) for fear of opening itself up to a legal suit. (Source: The Star)

KPJ: To raise RM500m for projects. KPJ Healthcare Bhd has launched its Islamic commercial papers/Islamic medium-term notes (ICP/IMTN) programme to raise RM500m to finance hospital and healthcare projects. (Source: The Star)

Ramunia: Unveils plan to bring the group out of PN17 status. Ramunia Holdings Bhd has unveiled a regularisation plan to address its PN17 status that involved a proposed capital reconstruction, rights issue and business rejuvenation plan. (Source: The Star)

TRC Synergy: Bags RM45m contract. TRC Synergy Bhd's unit, Trans Resources Corp Sdn Bhd has won a RM45m job from Boustead Penang Shipyard Sdn Bhd to build submarine safety conditioning facilities. (Source: Business Times)

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Maybank IB Views

SECTOR UPDATE
Oil & Gas: Overweight
ODS-Petrodata's perspective

Broad-based views. ODS-Petrodata expects an improved outlook for the offshore fabricators and shipyard operators in 2011. The vessel market remains in an overbuilt state but charter rates have hit rock bottom. Management believes the overall recovery is progressing but the volatile oil price is a concern. We are of the same opinion. We remain Buyers of Dialog, KNM, Kencana, PGas, SapCrest and Wah Seong. We are placing Alam, Petra Perdana and TOFF (all presently Sell calls) under review as we re-assess the vessel market outlook.

ECONOMICS
External Trade, February 2011
Exports beat street but "Japan factor" looms on the road ahead...

Exports growth in Feb' 11 surprised on the upside as it grew by +10.7% YoY (revised Jan ‘11: +4.6 YoY; Maybank IB: +1.8%) while imports sustained double-digit growth as it rose by +11.5% YoY (Jan ’11: +13.5% YoY; Maybank IB: +13.7% YoY). MoM, exports and imports contracted by -5.5% and -12.6% respectively as the short working month effect was amplified by Chinese New Year holidays. For the first two months of 2011, exports and imports gained by +7.5% YoY and +12.6% YoY respectively vs. 27.6% YoY and 29.5% YoY in Jan-Feb 2010. No change in our full-year forecasts i.e. 8.3% export growth, 8.9% import growth and RM122.6b trade surplus.

Technicals
The FBM KLCI closed lower by 2.41 points to 1,553.07 yesterday. Its resistance areas of 1,556 and 1,576 will cap market gains, whilst the obvious support areas are located at 1,529 and 1,554.

Trading idea for today is a Buy call on MHC.

Other Local News
Maxis: To raise non-voice revenue to 50% by 2012. Maxis Bhd aims to raise its non-voice revenue to 50% next year from 41.5% currently boosted by the launch of the Maxis Integrated Partner in Education (MIPE) programme. (Source: The Edge Financial Daily)

TM: Gets SC nod to raise up to RM2b. Telekom Malaysia Bhd (TM) has received approval from the SC to raise up to RM2b via commercial papers and medium term note programmes to meet capital expenditure requirements. (Source: Bursa Malaysia)

Pos: Khazanah board to meet this week on Pos. Khazanah Nasional Bhd's nine-member board is scheduled to meet this week to finalise bids made for Pos Malaysia. (Source: Business Times)

Press Metal: Plans expansion. Press Metal Bhd proposed the phase-2 expansion of its aluminium smelting operation that would be located at the new Samalaju Industrial Park, Bintulu, Sarawak. (Source: Bursa Malaysia)

Iskandar: Two probes into Iskandar Investment last year. There were two separate probes done within Iskandar Investment Bhd (IIB) last year following complaints of how contracts were awarded. The investigations found cases of mismanagement, criminal breach of trust, procedures that were not followed and leaks of confidential information. (Source: Business Times)

Banking: Market to dictate number of banks. The market will determine the number of banks in the country, which are currently well-capitalised. Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz said banks have reached a "minimum size and are well-capitalised with quality capital that has enabled them to take advantage of economies of scale". (Source: The Star)

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RHBInvest Research Sector Call

Sector Call

Oil & Gas: Petronas 3QFY11 Results
Overweight

Petronas Chemicals: Fair value at RM7.27
Outperform

Dialog: Fair value at RM2.82
Outperform

Petronas Gas: Fair value at RM13.76 Outperform

SapuraCrest: Fair value at RM4.37 Outperform

KNM: Fair value at RM3.45 Outperform
RH Petrogas: Fair value at S$1.55
Outperform

Dayang: Fair value at RM2.60 Outperform

Petra Perdana: Fair value at RM1.16

• Outperform

Kencana: Fair value at RM2.85

• Market Perform
  

Wah Seong: Fair value at RM2.0

• Underperform
• Maintain Overweight as we expect the domestic sector to remain vibrant.

Corporate Highlights

SP Setia: Outperform

• Showing presence in Cyberjaya
• Maintain Outperform. However, in view of the prevailing weakening equity market sentiment, we take a more prudent valuation and lower our fair value to RM7.30.

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RHBInvest Research

Top Story

Digi:

• Briefing Note
• Looking forward to growth.
• Maintain Outperform call on the stock and fair value at RM29.10.

Corporate Highlights

IOI Corp:

• 2QFY11 Results
• IOIC recorded an estimated net EI loss of RM3.7m in 2QFY11, which included RM73m fair value loss on derivatives in the manufacturing division.
• Dampened by the weather
• We cut our SOP-based target price to RM6.70 (from RM7.65). We believe IOIC’s earnings may continue to disappoint for the rest of FY11, stemming from the weather-affected crop and potentially lower CPO prices achieved vis-à-vis current market prices.
• We downgrade the stock to Market Perform (from outperform).

Dialog:

• 2QFY11 Results
• 2Q results broadly in line
• No change to forecasts at this juncture, as we expect earnings to accelerate in the 2HFY11.
• Maintain Outperform call on the stock and RM2.82/share SOP-based fair value.

Amway:

4QFY10 Results
Amway’s FY12/10 net profit of RM78.3m (+7.9% yoy) was below expectations.
The main variance to our forecasts was the higher-than-expected selling and distribution expenses during the year, which was 14% higher than our estimates.
Our fair value is maintained at RM10.23 based on unchanged WACC of 8.9%. Maintain Outperform.

MAHB:

4QFY10 Results/Briefing Note

• A soft patch in FY10, growth to resume in FY11
• We have cut our FY11-12 earnings forecast by 3.6% and 6.1% respectively mainly due to reflect 1) higher effective tax rate; 2) lower non-airport revenue; and 3) Higher operating costs and depreciation.
• Correspondingly, our fair value is reduced to RM7.80 based on “sum-of-parts”. Maintain Outperform.

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Dialog 2Q net profit up 25.7pct to RM35.99m

KUALA LUMPUR: DIALOG GROUP BHD []’s earnings rose 25.7% to RM35.99 million in the second quarter ended Dec 31, 2010 from RM28.63 million a year ago, due mainly to higher contribution from its engineering and CONSTRUCTION and plant maintenance activities in Malaysia and Singapore.

It said on Wednesday, Feb 16 that revenue slipped 2.5% to RM268.53 million from RM275.57 million in 2009. Earnings per share were 1.84 sen while net assets per share was 26.3 sen.

For the six months, earnings rose 24.3% to RM69.09 million from RM55.56 million. Revenue declined 8.9% to RM532.33 million from RM584.42 million.

Reviewing its performance for the quarter, Dialog said its specialist products and services for international operation also performed better in the current financial quarter.

Dialog added the Langsat Terminal (One) Sdn Bhd in Tanjung Langsat, Johor, where its phase one started operations in September 2009 and phase two in April 2010 had contributed positively to the group’s financial results in the current quarter.

On its prospects, Dialog said it would continue to grow its core businesses with recurring income, such as, its specialist products and services, and plant maintenance services while at the same time focusing resources on the expansion of its logistics and upstream businesses.

“The group will continue to expand its scope and capability for provision of expertise services to the upstream sector of the domestic oil and gas industry.

“We will continue to expand our geographic footprint and widen our presence in existing markets while penetrating new ones internationally. In line with a strengthening global oil and gas market, we will continue to focus on growing and developing our human capital and talent pool to cater for our rapid expansion.”

Barring any unforeseen circumstances, Dialog said it was optimistic that its performance would be favourable for the financial year ending June 30, 2011.

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Eye On Stocks

THE oil and gas sector has seen a flurry of activity, stoked by newsflow from the Economic Transformation Plan and Petronas' high capital expenditure, which may hit RM40bil this year. On the back of this, analysts are expecting Dialog Group Bhd to turn in record net profits for its year ending June 30, 2011.

The announcement of Dialog's RM5bil Pengerang terminal project in partnership with the Johor government and Vopak in January indicates that the construction of the 5 million cu m terminal is set to commence in mid-2011 as scheduled.

Also, the entire southern Johor region is expected to add up to 10 million cu m of tank terminal capacity, including Tanjung Bin and the Port of Tanjung Pelepas.

“With Dialog's excellent track record in constructing and delivering the past two projects in Kertih and Tanjung Langsat, we expect the group to be a strong contender for orders of up to RM10bil,” said AmResearch.

CIMB has raised its target price from RM2.20 to RM2.70 to include concession earnings from the terminals in Kertih, Tanjung Langsat and Pengerang, and recurring income from the Jubail supply base.

Dialog's recent contract included a RM65mil contract to provide EPCC works for a new Bintulu cooling tower for Asean Bintulu Fertilizer Sdn Bhd could raise the group's existing secured orders by 13% to RM600mil.

CIMB has a profit forecast of RM149.5mil, while AmResearch is forecasting the company to turn in RM143.5mil in net earnings. - By Tee Lin Say

source:thestar

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RHBInvest Research

Dayang: Outperform
Maintaining the edge
Our new fair value is RM3.54/share (from RM3.36/share).
We thus maintain our Outperform call on the stock.


Commodity Corner


Crude Oil:
WTI crude oil price fell to US$87.70/barrel
Dialog (OP, FV = RM2.82) remains our top pick for the sector


Corporate Highlights


Glomac:
Buying 90-acre land in Puchong
Our indicative fair value is hence revised up to RM2.19 from RM2.15.
Maintain Outperform.

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