Maybank IB Views

MARKET STRATEGY
GLC divestments
Market friendly "strategic reforms"

Long-term positive. Prime Minister Najib yesterday unveiled six Strategic Reform Initiatives (SRI), being the core enablers to 12 existing National Key Economic Areas (NKEA) under the Economic Transformation Programme (ETP). Of particular interest to the equity market is the divestment and listing plan relating to government-linked companies (GLC) which, in our view, is positive in raising liquidity, the quality of listed companies and attractiveness of the Malaysian bourse.

ECONOMICS
Malaysia: Strategic Reform Initiatives
Another key ingredient the "change" recipe...

SRIs - a commitment to reforms… Prime Minister unveiled the Strategic Reform Initiatives (SRIs) on 5th July 2011 which serves as the enablers to boost the country's competitiveness, on top of complementing the twin transformation programmes i.e. Government Transformation Programme (GTP) and Economic Transformation Programme (ETP). Essentially, SRIs are the other half of ETP i.e. in addition to the 12 National Key Economic Areas (NKEAs).

External Trade, May 2011
Lower than expected export growth

Exports growth in May '11 came in below expectations as it moderated to +5.4% YoY (Apr '11: +11.1% YoY; Maybank IB: +9.0% YoY; Consensus: +11.0% YoY) while imports growth eased to +5.6% YoY (Apr '11: +9.4% YoY; Maybank IB: +5.3% YoY; Consensus: +8.6% YoY) bringing in a trade surplus of RM 8.5b. MoM, both exports and imported contracted by -4.7% and -0.4% respectively. Our forecast for 2011 is for exports to grow by +8.4% YoY (YTD May'11: +6.2%; 2010: +15.6%) and imports to gain by +10.8% YoY (YTD May'11: +10.3%; 2010: +21.7%) with a trade surplus of RM106.9b (YTDMay'11: +RM51.3b; 2010: +RM110.2b).

Technicals
The FBM KLCI closed lower by 0.50 points at 1,581.85 yesterday. Its resistance areas of 1,581 and 1,589 may cap market gains, whilst the firm support areas are located at 1,566 and 1,579.

Trading idea is a Short-Term Buy on LBS

Other Local News
MBM Resources: On expansion drive. MBM Resources Bhd plans to build several showrooms and service centres in Johor Baru, Perak and Penang by 2015 to expand its automotive business. The Johor Baru project will be completed in the next 12 months and will be similar to the company's showroom in Glenmarie, Shah Alam. (Source: Business Times)

MRCB: Unit gets KL land for 3 projects in Brickfields. Country Annexe Sdn Bhd (CASB), a 70% subsidiary of Malaysian Resources Corp Bhd (MRCB), will be given land in Kuala Lumpur with a potential RM1b gross development value, in consideration for undertaking three projects in the city's Brickfields area. The projects consist of Little India, Pines Bazaar and Ang Seng Development. (Source: The Star)

Guan Chong: To double capacity by 2Q12. Guan Chong Bhd plans to double the capacity at its Batam plant by 2Q12, which will boost its annual cocoa grinding capacity to 200,000t. It has fully sold for the entire 2011 due to rising demand for its cocoa ingredients of butter and powder. (Source: The Edge Financial Daily)

Yinson: Eyes RM800m worth of jobs. Yinson Holdings Bhd is set to bid for more contracts worth RM800m. It is currently bidding for FSO, PSV and AHTS jobs locally and abroad particularly in Vietnam. Yinson's current orderbook stands at RM1.2b. (Source: The Edge Financial Daily)

Plantation: Sarawak palm oil industry earmarked for major expansion.. Sarawak's plans to double the land earmarked for oil palm plantations to two million hectares will act as a key driver for the state's economic development. (Source: The Edge Financial Daily)

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Maybank IB Views

RESULTS REVIEW
Tenaga Nasional RM6.03: Sell
Hot gas and coal sweat Shariah-compliant

"Oh my God" scenario. RM1,299m 1HFY11 core net income (-18.8% YoY) was 61% of our full-year forecast and 49% of consensus. 1H was very tough, but business conditions will be even more challenging in 2H due to higher coal prices, a shortage of natural gas supply and possibility of a tariff hike. Maintain Sell with a lower price target of RM5.40, based on 4.6x FY12 EV/EBITDA – a 20% discount to its long-term average to reflect the challenging operating environment.

Maintain Sell. RM179m 1Q11 net profit (-7% YoY, -2% QoQ) is in line, at 23.6% of our forecasts and 24% of consensus. We think BAT is pricey at 18x 2011 PER given its lackluster growth in earnings (2.5% 3-year forward net profit CAGR) and unattractive dividend yield (5%). Maintain Sell with a target price of RM42.50 based on DCF valuation. Our earnings forecasts are unchanged.

TH Plantations RM2.18: Buy
1Q11: Strengthening ASPs Shariah-compliant

Results within expectation. 1Q11 results accounted for 19% of our full-year net profit, in line with its seasonal trend of a slower 1Q. Our target price is marginally adjusted upwards by 2% to RM2.50 after tweaking our assumptions on mature areas and FFB yields. We maintain our Buy call on THP for its undemanding valuation of 9.6x 2011 PER, below its 2-year mean of 11x.

Technicals
The FBM KLCI fell 4.69 points to close at 1,526.33 yesterday. Its resistance areas of 1,526 and 1,541 will cap market gains, whilst the obvious support areas are located at 1,514 and 1,524. Due to the DJIA’s positive tone last night, we may see the FBM KLCI remain steady today.

Trading idea for today is a Buy call on GUANCHG.

Other Local News
JTI: Will consider paying special dividend this year. Chairman Datuk Seri Mohd Nadzmi Mohd Salleh said that JTI is exploring the possibility of investments but if it doesn't need the money, it will look into what are the best ways to give back in terms of dividends. This is in response to intense speculation that JTI may declare a special dividend this year to help out its Japanese parent. (Source: Business Times)

IPO: Quake delays IPO of world's largest syariah REIT. The listing of Malaysia's Axis Global Industrial real estate investment trust (REIT), has been pushed back by about a month after 2 of its Japanese assets were damaged by the March earthquake. The 2 assets have been removed from its initial asset composition and the size of the REIT has been slightly reduced. (Source: The Edge Daily)

Oil & Gas: Petronas signs unitization agreement with Malaysia-Thailand Joint Authority for the gas field straddling across Block PM 301 in the northeast coast of Peninsular Malaysia and Block A-18 in the Malaysia-Thailand Joint Development Area. The unitisation agreement gives Petronas rights to the reserves in the unitised area, which has an estimated ultimate recovery of 1.25t standard cubic feet of gas. (Source: The Edge)

Oil & Gas: RM7.2b helicopter deals inked. Weststar Aviation will provide 9 helicopters in a deal worth RM4.2b to Petronas Carigali Sdn Bhd, ExxonMobil Exploration and Production Malaysia Inc, Newfield (Malaysia) Incorporated, Petrofac (Malaysia-PM304) Ltd and Talisman (Malaysia) Ltd. MHS Aviation Bhd, meanwhile, sealed the remaining RM3b contract to provide 5 choppers to Petronas Carigali, ExxonMobil Exploration and Newfield. (Source: Business Times)

Transocean: BP sues for $40b over oil spill in Gulf of Mexico. BP Plc sued Transocean, seeking at least $40b (RM120.3b) in damages and other costs from the owner of the Deepwater Horizon rig. BP said on 20 April 2010, every single safety system and device and well control procedure on the Deepwater Horizon failed, resulting in the casualty. (Source: The Sun)

Jerneh Asia: Eyes Sabah developer. After hiving off its core insurance business in Malaysia, Jerneh Asia Bhd has now set its sights on acquiring Sabah based property developer Sagajuta (Sabah) Sdn Bhd, whose flagship project is the massive RM1.2b 1Borneo mixed development in Kota Kinabalu. (Source: The Edge Daily)

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Lower cocoa prices to benefit food stocks

PETALING JAYA: The easing of the civil war in Ivory Coast, the largest cocoa-producing country in the world, has sent prices of cocoa beans falling, favouring foodstuff manufacturers which will see some recovery in their profit margins.

After several months of armed clashes, the political crisis in Ivory Coast has started to dissipate, as forces loyal to democratically elected President Alassane Ouattara managed to wrest control over much of the country, including the capital city, Abidjan.

Ouattara won the presidential election in November last year, but his rule was contested as his predecessor Laurent Gbagbo refused to hand over power, resulting in clashes between both sides for almost four months.

Upon winning the presidential election, Ouattara banned the export of the country’s major commodity, cocoa beans, causing the price of the commodity to shoot up from US$3,000 (RM9,090) in mid-2010 to US$3,775 per tonne on March 4 this year.

But now that the political standoff in Ivory Coast has started to cool down, analysts said cocoa prices would continue to fall in anticipation of Ouattara lifting the export ban on the commodity.

Already, the prices of cocoa beans, now at US$2,969 per tonne, have slumped as much as 20% from the high of US$3,733 recorded in March. Analysts predicted that another 12% fall in prices is possible when the export ban is lifted.

“Once the ban is lifted, the market would be flooded with cocoa beans from Ivory Coast and this would press prices down further,” an analyst told The Edge Financial Daily, citing that Ivory Coast is the largest cocoa producer in the world accounting for 60% of the world’s production.”.

The fall in cocoa bean prices would help foodstuff manufacturers such as Nestle (M) Bhd, Cocoaland Holdings Bhd, London Biscuits Bhd and Apollo Food Holdings Bhd to recover some of their profit margins, which had been burdened by the high price.

Note that Nestle’s net profit for 4QFY10 ended Dec 31, plunged 54% to RM39.3 million from RM86.2 million in the corresponding period a year ago, despite a slightly higher revenue of RM963.9 million versus RM950.6 million in FY09. The company attributed the profit contraction to the sharp increase in cocoa and milk prices that dented its gross margins.

An analyst said that the fallback in cocoa prices would benefit Nestle as it has a range of products which use cocoa as the main ingredient such as Milo products and cereals like Koko Krunch.

He predicted that there would be no price adjustments in these Nestle products even though cocoa prices had gone down, as the company may leverage on the lower input cost of cocoa to hedge against the price hikes of other ingredients, such as milk and sugar.

With cocoa bean prices falling, Nestle’s stock continues to climb, closing at RM47.86 yesterday, nearing its 52-week high of RM48 recorded on March 25.

According to analysts, lower cocoa prices may also benefit Guan Chong Bhd, which grinds cocoa for sale to foodstuff manufacturers such as Nestle.

They said while the increase in price had enabled Guan Chong to value its inventory higher, the recent decline in cocoa prices could also provide the company with an opportunity to buy more cocoa beans to replenish or increase its stocks.

Guan Chong’s balance sheet as at Dec 31, 2010, showed that the company’s inventory had been reduced to RM154.9 million from RM207.2 million as at June 30, as it used up some of the stocks. Most of the company’s current inventories of cocoa beans were purchased in bulk when prices were low.

Guan Chong’s share price fell to a low of RM1.75 on March 3, during the peak of the political crisis in Ivory Coast and the spike in cocoa price then. Since the fall in cocoa prices, the stock has recovered some lost ground to close at RM2.45 yesterday.

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Maybank IB Flyer

1. Guan Chong Berhad (GUANCHG)

Guan Chong Berhad, Malaysia’s largest cocoa processor, has commissioned its cocoa grinding plant in Batam, Indonesia, which is expected to improve earnings significantly. The plant boasts of an initial annual grinding capacity of 60,000 tonnes, increasing the group’s total production by 75 per cent to 140,000 tonnes a year. This makes Guan Chong one of the largest cocoa processors in Asia.

2. Subur Tiasa Holdings Berhad (SUBUR)

Subur is a Malaysia-based company engaged in extraction and sale of logs and manufacturing of sawn timber. The Company, along with its subsidiaries, operates in three segments: logs trading, which includes the extraction and sale of logs; manufacturing, which includes the manufacturing and trading of plywood, veneer, raw and laminated particleboard, sawn timber, finger joint molding and supply of electricity, and others, which includes tree planting (reforestation) and oil palm plantation, sales of grocery, provision of towage and transportation services, property holding and development.

Subur Tiasa Holding Berhad’ pre-tax profit for the second quarter ended Jan 31, 2011 fell to RM7.53 million from RM8.32 million in the same quarter of 2010. It revenue fell to RM183.29 million from RM184.25 million previously.

The group said the slight decrease in revenue was mainly due to weakening of US dollar against the ringgit as the group’s export proceeds were denominated in US dollar. The group expected the operating performance for the remaining quarter to be satisfactory. With the tsunami and earthquake in Japan recently, there were some movements on listed wood-based companies on Bursa Malaysia and Subur might be one of the companies that could benefit from Japan's woes. (Bernama News, March 23, 2011)

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Higher cocoa prices boost Guan Chong’s profit

Guan Chong Strong Uptrend Chart

PETALING JAYA: Cocoa processor Guan Chong's net profit received a boost from higher raw material prices with net profit for the quarter ended Dec 31, 2010 climbing to RM42.90 million from RM6.67 million in the previous corresponding quarter.

Revenue for the quarter under review surged 52.56% to RM332.30 million due to higher sales volume and market price of cocoa products.

The company said in an announcement to Bursa Malaysia on Monday that net profit was also supported by net gains arising from foreign exchange due to stronger ringgit, gain on commodity futures contracts and net fair value gains on foreign exchange derivatives.

Guan Chong also announced a first interim dividend of 2.25 sen net per ordinary share.

source: thestar

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Maybank IB Views

Dear All,

This week, we would like to highlight four companies.

1. CB Industrial Product Holdings Berhad, the Company that has been equipping palm oil mills in Malaysia and around the world with high quality processing equipment and replacement parts since 1979. (Target price : RM5.18)

2. DRB-Hicom Berhad, the Company that assembles foreign cars from Mercedes Benz and Honda. (Target price : RM2.64)

3. Kumpulan Fima Berhad, manufacturer of among others, sardines, canned fruits, packed fruits, cordials, cheque books and stamps. (Target price : RM2.17)

4. Guan Chong Berhad, one of the largest cocoa processor in Asia , having agencies and partnership in most of the countries that require importing cocoa product. (Target price : 3.25)

Happy reading!

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