Maybank IB Views

SECTOR UPDATE
Automotive: Neutral
On course, no pick-up ...

Maintain Neutral; in search of catalysts. Tepid sales in the Jan-Feb period concurs with our and market's assessment of Malaysia's auto growth trend for 2011. We remain Neutral on the sector, anticipating a mere 2-3% TIV growth as market reaches saturation. Stock-wise, we have upgraded Proton to a Hold following a 15% fall in share price post-our Sell call downgrade in Feb. MBM and TCM remain a Buy on inexpensive valuations whilst UMW is still a Hold.

COMPANY UPDATE
Petronas Chemicals Group RM6.74: Buy
Strong February Shariah-compliant

It only gets better. PCHEM's product margin in Feb 2011 was USD1,122/ton (+27.8% YoY, +10.5% MoM), we estimate. The year-to-date product margin of USD1,062/ton is 23.1% higher YoY and above our 2011 estimate of USD1,027/ton. Things are looking very positive for PCHEM to deliver record profits in 2011. Maintain Buy; there is no change to our earnings forecasts and target price of RM8.00.

S P Setia RM6.15: Buy
A golden opportunity to buy Shariah-compliant

FY11 to be a record year. The recent sell down on S P Setia (SPSB) shares represents a golden opportunity to buy the stock given SPSB's excellent sales performance and earnings growth prospects. SPSB will very likely exceed its RM3b sales target for FY11, a new record, given strong bookings and responses to its KL Eco City (KLEC) offices and residential tower. We fine-tune our earnings forecasts and tweak down our TP to RM7.10 (-1%) based on unchanged 10% premium to our new RM6.47 RNAV post-placement. SPSB stays our top buy for the sector.

ECONOMICS
Japan: Aftermath of 3/11
Hope vs Fear...

The casualties and damages of the Tohoku quake-tsunami on 11 Mar make it teh worst in Japan's modern history. Still, the hope is that of a localised and transitory effect, affecting growth in 1Q and/or 1H before recovery in 2H on rebuilding and resumption of business and industrial activities. The fear is that of a broader and prolonged impact due to the additional dimension of the disaster arising from the damaged nuclear power plant, risking radtioan leaks and contamination. Japan is Malaysia key trading partner and major source of FDI. Most immediate and visible impact is likely on commodities such as natural gas, timber and oil, and on manufacturing industries such as automotive and E&E.

Technicals
The FBM KLCI was marginally higher by 0.22 points to 1,509.10 yesterday. Its resistance areas of 1,510 and 1,529 will cap market gains, whilst the obvious support areas are located at 1,490 and 1,508. Due to the DJIA’s softer tone last night, we will see the FBM KLCI in lack lustre mode today.

Trading Idea for today is a Short-Term Buy call on PETDAG

Other Local News
TNB: To build gas-fired power plant in Sabah. Tenaga Nasional Bhd (TNB) plans to build a 300MW gas-fired power plant in Sabah. TNB has received in-principle approval to build the plant. The plan to build a gas-based plant comes after Malaysia's federal and Sabah state governments scrapped a plan to build a coal-fired power plant. (Source: Business Times)

Genting Plantations: ACGT Aims to Reduce Oil Palm Breeding cycle by 50%. ACGT Sdn Bhd, a unit of Genting Plantations Bhd, aims to reduce oil palm long breeding cycle by 50% to six years from 12 years via its genomics-based marker-assisted selection technology. The breakthrough would accelerate development and commercial release of oil palm seeds without any genetic modification. (Source: Bernama.com)

MAHB: Penang airport upgrade going smoothly. The RM250m upgrade of the Penang International Airport is 15.7% complete, while the target date for the whole project to be completed remains June next year. (Source: Business Times)

Benalec: Beachfront land for sale. Benalec Holdings Bhd is shaping up to be a major landowner and developer, as it will receive some 177.3 acres of land in Melaka in exchange for reclamation works. (Source: The Edge Financial Daily)

Ta Ann, Jaya Tiasa: To increase plywood output. Ta Ann Holdings Bhd and Jaya Tiasa Holdings Bhd, will increase plywood production by 15% and 50% respectively after winning orders from Japan to help with the country's reconstruction following its earthquake and tsunami. (Source: Business Times)

Utilities: Syabas invests in new pipe network. Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) has invested around RM115m in the alternative pipe network system to cope with rising demand for water supply. The new network would connect the water distribution system to the Sungai Semenyih and Sungai Langat water treatment plants and the first, second and third phases of the Selangor water distribution plant. (Source: The Star)

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RHBInvest Research

Top Story: ILB

• Visit Note
• Full-steam ahead in China, Dubai warehouse opens for business in 2012
• Fair value is RM1.40. Maintain Outperform.

Market View

Government Measures:

Market Update

• Fourth ETP update.
• The nine EPP projects are under six NKEAs including tourism, healthcare, agriculture, palm oil & rubber, electronics & electrical, and oil, gas & energy.
• We believe the Government and Pemandu will have a difficult time keeping the momentum going on the ETP
• Longer-term positive outlook is likely to prevail and in our view, ETP projects related to the Greater KL and oil, gas and energy NKEAs will continue to draw attention from investors.

Sector Call


Plantation:

Sector Update

• Day 1 of POC: Most in agreement for weaker second half
• Maintain Overweight on the plantation sector.
• We reiterate our Outperform calls on KLK, Sime Darby, TH Plantations and on SGX-listed First Resources, and our Market Perform call on IOIC, Genting Plantations and IJMP.

Oil & Gas:

Sector Update

• Another oil & gas project under the ETP.RG
• Gas and Chemicals will invest RM1bn over three years in an integrated oil and gas hub on Pulau Daat, Labuan.
• Maintain our Overweight stance.
• Our top pick for the East Malaysia space is Dayang Enterprise.

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Maybank IB Views

COMPANY UPDATE
KNM Group RM2.40: Buy
Job wins on the rise Shariah-compliant

Orders are coming in. KNM's latest RM693m new orders account for 35% of our RM2b forecast for 2011. While the company does need to prove its ability to deliver on earnings given volatility in recent results, we do believe that these new orders, which are high margin in nature, bode well for the build-up in KNM's orderbook and signal margin recovery ahead as well. Meanwhile, current high oil prices would support O&G activity and demand for process equipment, of which KNM is a major global supplier, via Borsig. Our Buy call is maintained.


Tan Chong Motor Holdings RM4.74: Buy
Same genetics, different look Shariah-compliant

Maintain Buy; RM5.75 TP. The Proton-Nissan tie-up will not affect TCM's franchise as the collaboration is on specific areas with zero product cannibalization. TCM is taking a strategic stand not to compete in the A-segment but aims to make headway in the B-segment. TCM's domestic presence is sound but its growth prospects, in our view, lie in the regional market. Growth will be solid if it successfully capitalizes on the Indo-China market, which is still in its infancy.


Petronas Chemicals RM6.21: Buy
Sector re-rating imminent Shariah-compliant

Upgrade on industry re-rating. We believe the fundamentals for the petrochemical industry have never been better, buoyed by recovery in demand, strong product margins and an increasing price divergence between natural products and synthetic alternatives. Furthermore, high oil prices are beneficial as PCG’s products generally track oil price increases. We raise our target price to RM8.00 (from RM6.70) based on 14.4x 2011 – which is the long-term industry mean PER.


Technicals
The FBM KLCI closed higher by 7.60 points at 1,506.88. Its resistance areas of 1,507 and 1,527 will cap market gains, whilst the obvious support areas are located at 1,490 and 1,505.
Trading idea for today is a Take Profit call on GENP.


Other Local News
RHB Cap: EPF can't own more than 45% of RHB Cap. Bank Negara has not allowed the Employees Provident Fund (EPF) board to hold more than 45% of the paid-up share capital of RHB Capital Bhd. As at Feb 25, EPF had 45.68% interest in RHBCap. (Source: Bursa Malaysia)

Tanjung Offshore: Bursa reprimands Tanjung Offshore. Tanjung Offshore Bhd received a public reprimand from Bursa Malaysia after reporting a 37% deviation between its audited and unaudited account for 4QFY09. Tanjung Offshore is also required to carry out limited review on its quarterly report submissions, to be performed by its external auditors for four quarterly reports. (Source: The Edge Financial Daily)

PPB: Plans to expand flour mills and cinema. PPB Group Bhd plans to spend RM140m to expand its flour mills in Indonesia and Vietnam over the next two years. The group plans to double its Indonesian mill capacity to 2,000t daily with an investment of USD30m (RM91.5m). As for its Vietnam plant, the group plans to double capacity to 800t a day with an investment of RM50m. PPB has also allocated about RM190m to expand and upgrade its cinema business, among others, of which about 60% will be utilised this year. (Source: Business Times)

Q&G: Johor to announce big multi-billion O&G investment soon. Johor's plan to transform into a new regional oil and gas (O&G) hub will get another shot in the arm with the announcement of a new multi-billion ringgit investment soon. The project will be led by a local company that has been all over the world and is now coming back to Malaysia. The government will help fund the development of infrastructure for the project. (Source: The Star)

Property: Prasarana to get part of RRIM land for development. Syarikat Prasarana Negara Bhd will be allocated a parcel of land in the proposed Sungai Buloh Rubber Research Institute Malaysia (RRIM) development project for commercial development as part of the "rail plus property" model being used to offset the cost of building the mass rapid transit (MRT). The parcel of land will be used to build the MRT's main depot but it will also include commercial development above and possibly around the depot, in the form of retail and office space. (Source: The Star)

E&U: Renewable Energy Bill goes for 3rd reading. The Renewable Energy Bill will go for its 2nd and 3rd reading at the end of the month. The Energy, Water, and Green Technology Minister said that while electricity rates may not increase with the new Act, a revision on energy tariffs cannot be ruled out. The feed-in tariff mechanism is expected to be implemented in mid-2011. (Source: The Edge Financial Daily)

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RHBInvest Research

Mutiara Goodyear:

• Visit Note
• A turnaround story
• New projects to be launched in 2011-2012 amounted to RM1.9bn. We expect earnings to leap frog with a growth of 67% in FY11 from FY10 annualised net profit of RM20.3m.
• Our fair value on the stock is RM1.60. At the current price, the stock is trading at 9x PE, which is reasonable for a small cap developer.

Macro View

Inflation:

• Economic Highlights (published 22 Feb 2011)
• Rising inflationary pressure and policy options
• We expect inflation to rise at a much faster pace of an average rate of 2.8% in 2011, compared with +1.7% in 2010.
• OPR to be raised by 50-75 basis points in 2H to bring it to a more neutral level of 3.25-3.50%.

Sector Call

Telecom: Overweight

Sector Update

• Celcom Axiata and TM have entered into MOU for strategic collaboration to provide fixed/mobile solutions.
• Another step towards convergence We maintain our earnings forecasts for now. Maintain Overweight. The sector is defensive against the growing unrest in the Middle East which may hurt market sentiment in the short term.
• Building Materials: Higher cement price effective 1st Mar
• Neutral

Sector Update

• YTL Cement: Fair value is raised to RM5.85
• Outperform
• Lafarge: Fair value is raised to RM7.87
• Market Perform (up from UP)

Corporate Highlights


MBM:

• Briefing Note
• Daihatsu winds back commercial vehicle franchise
• We maintain our Outperform call on valuation grounds. Our fair value of RM3.95 is unchanged.

Daibochi:

• Outperform (up from MP)
• Briefing Note
• Raw material prices stabilised
• Our fair value is raised to RM3.50 (from RM2.95). Upgrade to Outperform.

Amway:

• Briefing Note
• Forex to boost earnings
• Fair value is revised to RM9.35. We maintain our Outperform call on the stock.

Genting Plantation: Market Perform

• 4QFY10 Results/Briefing Note
• Optimistic management outlook on prices and production prospects .
• Fair value has been reduced to RM9.20 (from RM9.65), based.
• Maintain Market Perform.

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RHBInvest Research

Plantation:

• Raise forecasts by RM200/tonne for CY2011 and 2012 to RM3,100 and RM2,900 respectively, while maintaining our RM2,700 assumption for CY2010.
• Upgrade call on Genting Plant to Market Perform (from underperform)
• Upgrade our sector call to Overweight (from neutral).
• Sime Darby remains a Market Perform,

Corporate Highlights

PLUS:

• Received a takeover offer from Jelas Ulung Sdn Bhd (JU) at RM5.20/share, a 13% premium over UEM-EPF’s RM4.60/share offer.
• Revise fair value from RM4.60 to RM5.20 to match the latest offer.
• Upgrade from underperform to Trading Buy.

Hai-O:

• Fair value has been cut to RM1.35 (RM1.71 previously) based on unchanged 10x CY11 EPS.
• Maintain Underperform.

Jaya Tiasa:

• 2QFY04/11 net profit boosted by higher FFB and CPO prices Indicative fair value is revised to RM5.78 (from RM4.83).

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Views & News, Maybank IB (2010-11-03)

SECTOR UPDATE

Plantations: Neutral

US Dollar takes centre stage
The Fed meets tonight, commodity prices could trend higher. Depending on what transpires at the Fed meeting tonight, further USD weakness is a possibility. This could push devastating rot diseases infected on oil palm trees. ACGT was targeting to come out with a diagnostic tool that could detect early-stage ganoderma infection on oil palm trees by 2015. (Source: The Star).

RESULTS REVIEW

TH Plantations RM1.68: Hold
3Q10: Pricing issue persists Shariah-compliant
Raising earnings. We raise our 2010-11 earnings by 12.1% and 2.2% respectively after incorporating 1) higher ASP's (2010: RM2,300 to RM2,550, 2011: RM2,400 to RM2,600) and 2) higher minority contribution. While THP is attractively valued relative to peers, we believe the discount is merited given the company's almost perennial pricing issues. Maintain Hold with a higher target price of RM1.75.


Technicals
The FBM KLCI dropped slightly by 3.09 points yesterday to end at 1,506.57. Its resistance areas at 1,509 and 1,524 may cap market gains, whilst its support areas are located at 1,490 and 1,506. Due to the firm tone in the USA last night, we may see the FBM KLCI in a strong mode today - with blue chip and mid-cap buying that might be curtailed by some later profit-taking activities.

Daily trading Idea is a SHORT-TERM BUY call on TASCO.

Other Local News

Genting Plantation: Beefing up R&D activities. Genting Plantation's subsidiary, ACGT Sdn Bhd, yesterday announced it had completed the sequencing, assembly and annotation of ganoderma, a white fungus known for its devastating rot diseases infected on oil palm trees. ACGT was targeting to come out with a diagnostic tool that could detect early-stage ganoderma infection on oil palm trees by 2015. (Source: The Star).

Proton: To offer hybrid car priced below RM100,000. Proton Holdings Bhd is looking to offer its first hybrid car at a competitive price of below RM100,000. Proton is said to be developing hybrid as well as electric engines with British company Frazer-Nash Research, South Korea's LG and its Britain based subsidiary Lotus that are expected to launch commercially next year. (Source: The Malaysian Reserve)

TNB: Inks energy purchase deal with KUB-Berjaya. Tenaga Nasional Bhd (TNB) signed an agreement for the purchase of electricity generated by a small renewable energy (RE) power project developed by KUB-Berjaya Energy Sdn BHd (KUBBE) for RM1.84m annually for a period of 21 years. The RE power plant which utilizes landfill gas (methane gas) as fuel, is located in Bukit Tagar, Selangor and will have an export capacity of 1MW to TNB. (Source: The Malaysian Reserve)

Boustead: RM1b bond bid to buy Pharmaniaga. Boustead Holdings Bhd, plans to raise up to RM1b from a bank guaranteed medium term notes (MTN) programme. Proceeds from the seven year MTN would be used mainly to part finance the acquisition of Pharmaniaga Bhd and expand its landbank as well as pare down short-term borrowings. Malaysian Rating Corp Bhd has assigned an indicative long-term rating of AAA for the proposed MTN with a stable outlook. (Source: The Malaysian Reserve)

Communications: MCMC introduces new 11-digit mobile phone number format. The Malaysian Communications and Multimedia Commission (MCMC) will introduce a new mobile phone number format with 11 digits effective Dec 15 this year. The new format would use the 3+8 structure compared to existing 3+7 and all service providers would use a similar "011" prefix, for example, 011 1234 5678. The existing structure that involves 31m numbers are not required to migrate to the new 3+8, as both will co-exist after the roll-out. The new shared prefix "011" could accommodate 900m numbers compared to the 60m numbers with 3+7 structure. (Source: Bernama)

Steel: Association members to invest RM5b. The nine members of the newly formed Malaysia Steel Association (MSA) will invest RM5b in the next three years to boost their cumulative capacity by 3.2m tonnes a year, making Malaysia one of the biggest steel manufacturers in Asean. The nine founding members are Amsteel Mills Sdn Bhd, Ann Joo Steel Bhd, Ann Joo Integrated Steel Sdn Bhd, Antara Steel Mills Sdn Bhd, Kinsteel Bhd, Malaysia Steel Works (KL) Bhd, Megasteel Sdn Bhd, Perfect Channel Sdn Bhd, and Perwaja Holdings Bhd. (Source: The Star)

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