Maybank IB Views

COMPANY UPDATE
Lafarge Malayan Cement RM6.85: Buy
A strong proxy to construction sector

Maintain Buy. As the largest cement producer in the country, LMC is undoubtedly a proxy to, and a major beneficiary of, the high growth construction sector, which in itself, should see robust activity, once projects under Economic Transformation Programme (ETP) take off. Additionally, we expect its share price to be supported by its decent net dividend yield of 5%. Maintain Buy with a marginally lower TP of RM7.60 (RM7.85 previously) on 17x 2013 PER as we roll forward valuations after trimming earnings forecasts by 11% p.a..

UMW Holdings RM6.60: Hold
Bareboat charters Hakuryu-5 to PCSB

Maintain Hold. UMW's USD72m bareboat charter contract of Hakuryu-5 to PCSB, which yields low margin, is earnings neutral to Group earnings (<1%). As such, we are keeping our forecasts and RM6.60 target price unchanged, based on 11x 2012 EPS.

ECONOMICS
ETP Update
One year after

The latest ETP briefing (1 Nov 2011) by PEMANDU provided three key updates. First, of the 70 EPPs and 27 initiatives announced so far, 31% are fully operational, 50% have commenced implementation, and 17% are still work-in-progress. Second, of the RM171b investment announced to date, 9% or RM15b is implemented in 2011, including RM10b actualised in 1H 2011. Third, private investment in 1H 2011 was RM51.2b, meaning 19.5% of it came from ETP.

ETP Progress Updates 1-7
Implementation Update

Provided by PEMANDU on the official website.

RESULTS REVIEW
Sunway REIT RM1.14: Buy
Sequentially stronger

On track. SunREIT's RM44.2m 1QFY12 net profit tracked our and market expectations. Longer-term view is positive supported by Sunway Putra Place's (SPP) attractive est. 9% property yield. We maintain our earnings forecasts, RM1.18 DCF-based TP and Buy call, the latter premised on a 12-month total return of 10% based on our target price and forecast dividends.

Technicals
The FBM KLCI fell 16.25-points to close at 1,475.64 yesterday. Its resistance areas of 1,475 and 1,494 will cap market gains, whilst the weaker support areas may be located at 1,446 and 1,470. Due to the US markets’ much lower tone last night; we may see an initial drop for the index. Some later miniscule local bargain hunting activities cushion the local markets’ plungein the afternoon session. We expect a very volatile trading day.

Trading Idea is a take profit call on CBIP.

Other Local News
SapuraCrest: Wins RM4.4b Brazilian oil and gas job. SapuraCrest gas clinched a contract from Petroleo Brasileiro SA worth about USD1.4b (RM4.4b) to charter and operate three deepwater flexible pipe-laying supports vessels (PLSVs).Revenue from the award was expected to be generated by the fourth quarter of 2014. (Source: Bursa Malaysia)

Supermax: Declares 1 for 1 bonus. Supermax Corp has proposed a one-for-one bonus issue involving 340.1m new shares and a share buyback of up to 10% of its issued share capital. Both proposals are expected to be completed by the first quarter of 2012. (Source:Bursa Malaysia)

DiGi: Capital Management Initiative. DiGi is expected to distribute about RM509m to its shareholders by the first half of 2012 under the proposed capital distribution upon its redemption of the redeemable preference shares of about RM509m. (Source: Bursa Malaysia)

TNB: Gas shortage for 2-3 months more. TNB will have to deal with losses caused by having to substitute costly fuel oil for power generation as the government decides that electricity prices will remain unchanged. TNB has been buying fuel oil to replace natural gas for electricity generation, which will cost the company an additional RM2.1b for the second half of 2011. (Source: Business Times)

Telekom: Tough procurement policy saves RM1b. The massive RM11.3b high-speed broadband (HSBB) project may eventually cost Telekom Malaysia Bhd (TM) at least RM1b less in expenditure than its original costing because it has implemented a tough procurement policy. (Source: The Star)

Aviation: SIA targets mid-2012 Scoot takeoff. SIA new long-haul budget carrier will be renamed “Scoot” with takeoff set for mid-2012. The new carrier will fly to cities in China and Australia, operating a fleet of 200 second-hand Boeing 777 jets and charging up to 40% less than full-service airlines. (Source:The Edge Financial Daily)

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Maybank IB Views

Market Focus
IM New York: On the passage of transformation

Positive note. Prime Minister (PM) Najib sent a strong message on the government's determination for a high income economy by 2020 in his address to fund managers and investors at Invest Malaysia (IM) New York last week (17 May). The event, held for the first time at the New York Stock Exchange, saw a turnout of about 350 people. Present as well were 10 top Malaysian corporates comprising Maybank, AirAsia, Axiata, Bursa Malaysia, CIMB, Genting, Kencana Petroleum, Petronas Chemicals, SapuraCrest Petroleum and Sime Darby.

RESULTS REVIEW
RHB Capital RM9.24: Buy
Looking for a strategic partner Shariah-compliant

Buy maintained. For much of the uncertainty earlier this year caused by management changes, the new team appears to be settling in quite well and business is as usual at RHB Capital. Our forecasts are maintained and valuations are still decent, in our view, with the stock trading at a prospective 2011 P/BV of 1.8x and 2012 PER of just 10.9x.

Lafarge Malayan Cement RM7.47: Buy
Looking forward to demand rebound Shariah-compliant

Below expectations. 1Q11 net profit of RM52m (+8% YoY, -36% QoQ) was just 14% of our full-year forecast and 13% of consensus. However, we maintain our forecasts as we expect earnings in the sequential quarters to improve substantially on higher cement ASP (raised on 1 Apr) and a pickup in demand. Currently trading at 15x 2012 PER, there is still upside potential as LMC had traded up to 17x in the 2007 peak cycle. Maintain Buy and TP of RM8.50 (17x 2012 PER).

KFC Holdings RM3.85: Hold
On track Shariah-compliant

Results in line. KFC's RM36m 1Q11 net profit (+5.5% YoY; -25.8% QoQ) is in line, accounting for 21% of our and consensus full-year forecasts. We maintain our 2011 net profit forecast of RM172m given the fact that 1Q is seasonally weaker. Non-restaurant divisions again did not perform as expected, with its ancillary division making a pretax loss. We maintain our Hold call and target price of RM3.97.

MBM Resources RM2.97: Hold
Weakness ahead; downgrade to Hold Shariah-compliant

In line but weakness ahead. 1Q11 net profit of RM38m (+36% QoQ; -4% YoY) is within expectations, accounting for 25% of our initial full-year forecast of RM151m. With the next 9-month earnings poised to soften owing to the supply chain disruption from the Japan earthquake and tsunami, we have cut our 2011 earnings forecast by 17% and tactically lowered our target price to RM3.10. Share price is unlikely to perform until the supply chain flow returns to normalcy.

Technicals
The FBM KLCI rebounded 3.14 points to close at 1,532.12 yesterday. Its resistance areas of 1,532 and 1,550 will cap market gains, whilst the obvious support areas are located at 1,511 and 1,530.Due to the DJIA’s weaker tone last night, we will see some benign trading activities today.

Trading idea is a Take Profit call on MISC.

Other Local News
Aeon: To ink 9-year deal with 1Utama owner. Aeon Co (M) Bhd, which has managed the old wing of the 1Utama Shopping Complex for 15 years, is expected to sign a fixed nine-year lease agreement with mall's landlord, See Hoy Chan Holdings (SHC). (Source: Business Times)

Integrax: Forms committee. Port operator Integrax Bhd has formed a governance committee consisting of the company’s board of directors to oversee all current impending legal matters. (Source: The Star)

MFM: Plans RM140m expansion. Malayan Flour Mills (MFM) Bhd plans to invest about RM140m this year to increase its flour milling and raw material storage capacity in its Malaysia and Vietnam plants. (Source: The Edge Financial Daily)

Utilities: Acqua SPV makes ‘fair value’ bid for Selangor water bonds. Acqua SPV Bhd, a special-purpose vehicle set up by Pengurusan Aset Air Bhd (PAAB), has made a firm offer to take over Selangor water bonds. (Source: The Star)

Construction: RM30b worth of PPP projects to be developed this year. A total of RM30b worth of projects under the Public Private Partnership (PPP) are expected to be implemented this year from RM18b recorded last year. Among the projects to be implemented are the construction of new toll highways, hospitals and universities' campus branches. (Source: Business Times)

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RHBInvest Research

Top Story: DRB Hicom

• New Coverage
• Slumbering Giant
• DRB has solid financials with significant balance sheet capacity to fund new businesses.
• We initiate coverage on DRB with an Outperform recommendation.
• Our sum-of-parts derived valuation of its various businesses amounts to RM4.20/share. After ascribing a 25% holding company discount, we arrive at our fair value for the stock of RM3.15/share.

Corporate Highlights
Lafarge:

• Visit Note
• Increase in domestic sales to drive earnings growth in 2011
• Rising cost of production remains a key concern. Nevertheless, we believe Lafarge will be able to pass on the higher costs given that domestic cement demand is expected to be robust.
• No changes to our earnings forecasts. Indicative fair value is RM7.87

SP Setia: Outperform

• News update
• Making its foray to Singapore
• Our fair value is raised to RM7.20, Maintain Outperform.

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Maybank IB Views

Banking: Overweight
Loan growth slows in February

Loan growth assumptions maintained. While there is some tapering off in loan growth in Feb, this may be attributed in large part to lumpy loans in Jan. The moderation in household loan demand, meanwhile, was as expected. We maintain our system loan growth forecast of 11.5% for 2011 (12.8% in 2010), with expectation that non-household loans will grow at a faster clip of 12.7% (12.3% in 2010) to supplant a moderation in household loan growth (10.5% in 2011 vs 13.2% in 2010). We maintain our Overweight on the banking sector with Buys on RHB Capital and CIMB.

COMMENTS ON NEWS
Sunway REIT RM1.06: Buy
Buys Putra Place at a discounted price

Maiden acquisition post-listing. SunREIT has confirmed the purchase of RM514m Putra Place (PP). Despite the discounted purchase price and potential enhancement opportunities offered by PP, we are neutral on the deal given our concerns on the office market and huge capex and considerable timeline required before PP contributes significantly. No change to our earnings forecasts and RM1.15 target price pending further details from the management.

COMPANY UPDATE
Petronas Chemicals Group RM7.24: Buy
Panic buying drives March higher Shariah-compliant

Supply disruption boost. PCHEM's product margin in Mac 2011 was USD1,204/ton (+40.4% YoY, +7.3% MoM), we estimate. The year-to-date product margin of USD1,106/ton is 28.5% higher YoY, and above our 2011 estimate of USD1,027/ton. The supply disruptions in Japan have triggered panic buying and pushed prices up. Maintain Buy; there is no change to our earnings forecasts and RM8.00 target price.

Lafarge Malayan Cement RM7.40: Buy
Here comes the ASP hike Shariah-compliant

Coal cost inflation proof. LMC will raise its gross cement ASP to RM318-320/mt (+6%) today to offset the coal cost increase and defend margins. Though there is no impact on our earnings forecasts, we think this would remove the overhang on share price, which has fallen 8% YTD on concerns over high coal costs. Currently trading at 14.8x 2012 PER, valuation is undemanding as Lafarge had traded up to 17x in the previous 2007 peak cycle. Maintain Buy; RM8.50 TP (17x 2012 PER).

RESULTS REVIEW
Glomac RM1.79: Buy
Beats consensus forecasts Shariah-compliant

Maintain Buy. Glomac's RM48m 9MFY11 net profit (+70% YoY) was within our expectation but beats consensus estimates by 10%. Glomac is on track to record "record" profits as 9MFY11 net profit has already exceeded FY10's RM41m. We see sales picking up significantly in 4QFY11 (9MFY11: RM206m), given strong bookings from its RM285m Glomac Damansara (GD) Residences. We maintain our forecasts and RM2.38 target price (20% discount to RM2.97 RNAV).

Technicals
The FBM KLCI rose by 13.50 points to 1,545.13 yesterday. Due to the DJIA’s marginally weaker tone last night, we will see the FBM KLCI in a benign mode today, with some pre-weekend profit-taking activities. Its resistance areas of 1,547 and 1,558 will cap market gains, whilst the obvious support areas are located at 1,528 and 1,545.

Trading idea for today is a Buy call on TASCO.

Other Local News
CIMB: In quick U-turn on BLR. CIMB Bank and CIMB Islamic Bank Bhd will not raise their respective base lending rate and base financing rate. The two banks back tracked on their decisions in less than 24 hours after having announced a rise in lending rates on Wednesday. (Source: The Edge Financial Daily)

Maybank: Sets price of DRP shares. Malayan Banking Bhd (Maybank) has fixed the issue price of new shares under its dividend reinvestment plan (DRP) at RM7.70 each. (Source: Bursa Malaysia)

MAHB: Expects RM1b revenue from commercial services. Malaysia Airports Holdings Bhd expects one third of its expected revenue of RM3b to originate from commercial services by 2014. (Source: The Edge Financial Daily)

Time Dotcom: In IPTV deal with Measat. Time Dotcom Bhd’s wholly-owned subsidiary, TT Dotcom Sdn Bhd (TTdC), has entered into a collaboration agreement with Measat Broadcast Network Systems Sdn Bhd (MBNS) to provide Internet Protocol television (IPTV) and broadband services across the Klang Valley and Penang. (Source: Bursa Malaysia)

Perisai: Explains its proposed Garuda Energy deal. Perisai revealed that with the acquisition of Garuda Energy, it would assume a debt of RM120m of the latter. (Source: Bursa Malaysia)

HELP: Sees potential in Sri Lanka and Cambodia. HELP International Corp Bhd (HIC) is looking to expand into Sri Lanka, Cambodia, the Middle East and Africa to franchise its education programmes as well as offer professional niche courses for business continuity to rev up its revenue stream. (Source: The Star)

O&G: MOX-Linde upbeat on M'sian ops. MOX-Linde Gases Sdn Bhd, a local subsidiary of the Germany-based industrial gas company The Linde Group, is set to invest further in the country. The company planned to set up two production facilities in Iskandar Malaysia. (Source: The Star)

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Maybank IB Views

ACQUISITIONS / DISPOSAL
PLUS Expressways RM4.60: Buy
Sense and sensibility Shariah-compliant

Shareholders to decide. PLUS' EGM tomorrow will proceed and shareholders will vote to either accept UEM-EPF's offer or adjourn the passing of resolutions which will give PLUS more time to evaluate Jelas Ulung's offer. As we have written yesterday, we are not comfortable with Jelas Ulung's offer - we are concerned on financial implications or recourse later. After a 5.5% share price gain yesterday, PLUS is trading at UEM-EPF's offer price and just a tinge away from our RM4.70 DCF-based target price. Our Buy call is now under review.


COMPANY UPDATE
KNM Group RM2.69: Buy
Doing a double; raising target price Shariah-compliant

Double joy on orders. We are bullish on the fabricators and have raised KNM's target price by 40% to RM4.35 as it has started to exhibit strong new job wins. The latest RM2.2b EPCC project win instantly doubles its backlog to RM4.6b and the growing momentum is set to sustain into 2011. We opine delivering consistent earnings and margin recovery will supersede market skeptics. Maintain Buy.


Lafarge Malayan Cement RM7.68: Buy
Bright prospects; upgrade to Buy Shariah-compliant

Liquidity and scarcity. Share price has outperformed its cement and steel peers by 3% and 11% YTD respectively and the stock now trades at 15.4x 2012 earnings, which we expect to be a peak demand year for cement in view of major infrastructure projects in Greater KL starting in 2011. Nonetheless, 2012 could mark the start of sustained demand for cement driven by the LRT, MRT, and government land development projects. On that scenario, 15.4x 2012 valuation is not too demanding.


Technicals
The FBM KLCI surged 9.30 points to 1,505.18 yesterday. Its resistance areas at 1,507 and 1,525 may cap market gains, whilst its obvious support areas are located at 1,493 and 1,505.
Trading idea for today is a SHORT TERM BUY call on TWSPLNT.


Other Local News
DRB-Hicom: In RM1b tie up with VW, keen to be VW's distributor in Malaysia. DRB-Hicom Bhd and Volkswagen AG (VW)'s has officially tied up in a collaboration worth RM1b. DRB-Hicom will assemble the Passat, Polo and Jetta models in Pekan. DRB-Hicom has expressed an interest to distribute VW's vehicles in Malaysia. (Source: The Star)

Conglo: Ex-CEO explains why Johor Corp wanted him out. Former Johor Corp CEO Tan Sri Muhammad Ali Hashim said that the reason for his removal is for to facilitate the sale of Johor Corp's assets, including the fast-food businesses. (Source: Business Times)

Amanah Saham Nasional Bhd: Declares 22% higher income payout. ASNB, the subsidiary of Permodalan Nasional Bhd (PNB) has declared an income distribution of 7.5 sen per unit and a bonus of 1.25 sen per unit for ASNB for the financial year ending Dec 31, 2010. The total payout is 22% higher than last year, at RM5.93b while bonus portion payment is RM603.34m. (Source: The Star)

MTD: In JV for jobs in S. Arabia. MTD Capital Bhd has formed a joint-venture (JV) company with ANC Holdings Pte Ltd to target engineering and infrastructure projects in Saudi Arabia. MTD would hold 51% in the JV while ANC would have the remaining 49%. (Source: The Star)

Agriculture: Government negotiating to raise price of Kenaf. The Ministry of Plantation Industries and Commodities is negotiating with a Pahang-based Japanese company to raise the price of kenaf to more than RM750/t to enable the jute-like plant to be commercially cultivated by former tobacco planters. (Source: Bernama)

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RHBInvest Research Highlights 28th October 2010

Top Story

Property:

• Picking among the best – SPSB vs. IJMLD.
• Maintain Outperform call for both SPSB and IJMLD with a target price of RM5.94 and RM3.50

Sector Call

Building Materials:

• Cement sub-sector: Lafarge vs. YTL Cement.
• Lafarge: Fair Value is 7.42. Underperform.
• YTL Cement: Fair Value is 5.59. Outperform.
• Maintain Neutral stance on the cement sub-sector.

Corporate Highlights

KFC:

• Ayamas – Spreading its wings; Another RPT with JCorp.
• Target price is RM3.85, revise our recommendation to Trading Buy from outperforms.

Technical Highlights

Daily Trading Strategy:

• Pending clearance from the eventful week ahead.
• Profit-taking activities are expected to continue ahead of the next week’s US FOMC meeting and the two by-elections in Galas and Batu Sapi respectively.
• Nevertheless, the 10-day SMA near 1,491 should cap its near-term downside, while the 40-day SMA at 1,467 and critical support at 1,450
• For the index to resume its positive trend, it will need to recapture the 1,500 psychological hurdle and yesterday’s high of 1,504.37
• Meanwhile, we expect the market to trade rangebound pending more clearance from the eventful week ahead.

Daily Technical Watch: Cepatwawasan

• Heading lower to cover a technical gap near RM1.19-1.22 soon.
• Immediate Support at RM1.29
• Immediate Resistance at RM1.44

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