Puncak Niaga currently trading at RM3.47.
BNM Monetary Policy
No change in key policy instruments...
Bank Negara Malaysia (BNM) kept the Overnight Policy Rate (OPR) at 3.00% and the Statutory Reserve Requirement (SRR) at 4% following its Monetary Policy Committee (MPC) meeting yesterday. BNM’s decision to leave both OPR and SRR unchanged sent a strong signal that the central bank’s monetary policy bias has shifted to supporting growth. We see the OPR staying at current 3% level at least until mid-2012, although it is possible that this could be extended into 3Q 2012. The same goes for SRR, as BNM's monetary policy now seek to not only maintain accommodative cost of financing, but also to ensure availability of liquidity to support growth.
Economic Transformation Programme (ETP)
Update #7
PM announced 8 new entry point projects (EPP) under the Economic Transformation Programme (ETP) involving RM1.43b investments in six National Key Economic Areas (NKEAs). The biggest investment was in the palm oil NKEA where KL Kepong will invest RM706m in four downstream projects. Cumulatively, over half of EPPs and over one-fifth of investment targets have been announced. On progress of earlier announced EPPs, 26% are fully operational, 57% have commenced implementation, and 16% are still work-in-progress.
External Trade, Jul 2011
A mixed bag of data...
Exports growth of +7.1% YoY in Jul '11 was better than expected (revised Jun '11: +9.6% YoY, Maybank-IB: +4.6% YoY; Consensus: +6.6% YoY). But import growth came in below estimates at +2.9% YoY (revised Jun '11: +6.9% YoY, Maybank-IB: +4.1% YoY; Consensus: +6.5% YoY). As export growth outpaced import growth, the trade surplus was a larger-than-expected RM9.45b (revised Jun '11: +RM7.88b, Maybank-IB: +RM7.6b; Consensus: +RM7.8b). MoM, exports gained by +2.4% while imports fell by -0.4%. YTD, exports rose by +6.9% while imports increased by +8.7% giving a RM68.6b trade surplus. Our full-year forecasts for export growth, import growth and trade surplus are +8.4%, +10.8% and RM106.9b respectively.
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SECTOR UPDATE
Telcos: Neutral
6% service tax passed through
A pleasant surprise. That the 6% service tax will be passed through from the telcos to prepaid customers is a pleasant surprise. While this move has been talked about for awhile, the timing of it is earlier than expected. Biggest beneficiary of this is Digi, with its larger prepaid customer base. The telco sector remains defensive for its domestic focus and decent yields - Telekom remains our top pick.
COMPANY UPDATE
Digi.Com RM31.12: Hold
Capital management plans Shariah-compliant
Marginally positive, Hold maintained. Digi's proposals ensure that as much is returned to shareholders out of reserves as possible. In addition to the expected nominal DPS of RM1.63/share in 2011, investors could possibly see another 30sen in special DPS next year. Separately, we have raised 2012/2013 earnings by 8% and 6% respectively and our DCF-derived TP has been lifted to RM31.50 with the pass-through in the 6% service tax (see separate writeup today).
Kuala Lumpur Kepong RM21.60: Hold
Seeking downstream growth Shariah-compliant
Rain or shine, expansion goes on. KLK will invest RM706m capex in 4 downstream projects in Malaysia, PM Najib announced during the Economic Transformation Programme update session yesterday. While the impact may only be felt three years later, we are nonetheless positive on this development especially as it comes along with RM134m of approved MPOB grants to reduce costs and enhance returns. No earnings impact for now; funding is not an issue. Maintain Hold with an unchanged TP of RM21.60 based on 16x FY12 EPS.
Technicals
The FBM KLCI ended 5.22-points higher to close at 1,469.83 yesterday. Its resistance areas of 1,471 and 1,497 will cap market gains, whilst the obvious support areas are located at 1,443 and 1,469. Due to the US markets’ weaker tone last night, we may see a steady tone for the local bourse today. Some further profit-taking activities may persist to depress the markets’ rebound from its recent 1,423.47 low.
Trading idea is a Short-term Buy call on MALTON
Other Local News
TNB: Sees delay in gas recovery. Tenaga Nasional Bhd (TNB) gas supply curtailment issues are likely to continue as the key Bekok field is only expected to commence operations by another month. The expected delay is paired with another negative surprise TNB might not get back the full 150-200m standard cu ft per day (mmscfd) as it has to share the capacity with the industrial sector. (Source: The Star)
DRB-HICOM: Going for more M&As. DRB-HICOM Bhd is still hungry for more mergers and acquisitions (M&A) to add synergy to its core businesses and to expand its operating profit. It is allocating RM700m to RM1b as capital expenditure. This comprises investments for its Volkswagen assembly, the design and manufacturing of BAE System's 8x8 armoured wheel vehicles, and property development along with its automotive university college in Pekan. (Source: The Star)
Puncak Niaga: Syabas files RM1.05b suit against Selangor Government. Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), a subsidiary of Puncak Niaga Holdings Bhd, has filed a RM1.05b claim against the Selangor Government. The claim, filed at the Kuala Lumpur High Court, was for compensation for the period from Jan 1, 2009 to March 31, 2011 from the state government under the 2004 concession agreement between Syabas, the Federal Government and the Selangor Government. (Source: Bursa Malaysia)
Consumer: McD Malaysia to open 87 new restaurants by 2014. McDonald's Malaysia will invest RM348m to open another 87 restaurants by 2014, spending RM4m on each new restaurant. The company aims to have 100 franchised stores by 2014. Currently, it has 13 local franchisees in Malaysia and 27 franchised restaurants. (Source: The Edge Financial Daily)
Utilities: 1MDB evaluating plan to privatise Indah Water. 1Malaysia Development Bhd (1MDB) is evaluating a plan to privatise Indah Water Konsortium Sdn Bhd (IWK), the national sewerage company. It is believed that 1MDB is part of a consortium that intends to take over IWK. The other member of the consortium is believed to be either Puncak Niaga Holdings Bhd or controlling shareholders of the company. (Source: Business Times)
Top Story: Axiata - Celcom still holding firm Outperform
Briefing Note
Celcom managed to register healthy prepaid net adds of 177k (4QFY10: +52k) thanks to greater focus on the prepaid segment over postpaid.
Sector Call
Semiconductor – Apr chip sales weaken to 3.9% yoy Neutral
Sector Update
Unisem: Fair value at RM1.99 Market Perform
Notion: Fair value at RM2.25 Market Perform
Apr chip sales fell 2.2% mom after rebounding 2.3% in Mar 11. We reckon this was partly due to the abrupt decline in chip demand due to the Japan disaster that occurred in Mar. On the other hand, Apr chip sales appeared weak with yoy growth of 3.9% compared to Mar 11 growth of 8.4% yoy.
Corporate Highlights
Puncak Niaga: Cash flows intact despite IC 12 Trading Buy
Briefing Note Management clarified that there is essentially no impact to the underlying business and cash flows despite adopting IC 12.
Puncak however conceded that it will record losses in FY11, but will return profitable in FY12 with the scheduled 25% water tariff hike in Jan 2012.
IJM: Raising Stakes In Two Indian Units Underperform
News Update
IJM has proposed to raise its stakes in CIDB Inventures and Swarna Tollway by 16.9% and 17% to 95% and 98.5% for RM46.4m.
CBIP: Sells plantation subsidiaries, RM1.07/share gain on sale Outperform (upgraded)
News Update
CBIP entered into two share sale agreements to dispose of its 100%-owned subsidiaries, Sachiew and Empresa for RM108.12m and RM159.94m cash, respectively. Sachiew is the holder of a provisional 60-year lease for 3,720ha of land in Suai, Miri, which also has a 30t/hr CPO mill. Empresa is the holder of a provisional 99-year lease for 5,936ha of land in Bok, Miri, which also has a 45t/hr CPO mill.
QL Resources RM3.34: Buy
Good start for the 2nd decade of listing Shariah-compliant
Another good year. 4QFY11 net profit of RM31.6m (-4.8% YoY; +19.3% QoQ) took QL's FY11 net profit to RM124.5m (+16.5% YoY), which was within our forecast and consensus. FY11 marks the 10th straight year of double-digit net profit growth since its listing in FY00. We expect another year of strong earnings growth (+30%) premised on the new surimi lines in Surabaya, maturing plantation in Eastern Kalimantan and its palm pellet project. We maintain our Buy call and target price of RM3.75.
Technicals
The FBM KLCI tumbled 12.05 points to close at 1,528.98 yesterday. Its resistance areas of 1,528 and 1,550 will cap market gains, whilst the weaker support areas are located at 1,510 and 1,526.Due to the DJIA’s much weaker tone last night, we will see some heavy liquidation activities today. We expect the FBM KLCI to remain under heavy selling today, as the global market malaise takes hold.
Trading idea is a Take profit call on HAPSENG.
Other Local News
AirAsia: To go bigger and may place big order for Airbus. Datuk Seri Tony Fernandes signalled ambitious plans for AirAsia as he closed in on a potentially massive deal to buy Airbus aircraft, which could rival a recent USD16b, 180-plane deal as one of the world's largest. (Source: The Star)
TM: VADS partners Cisco in telepresence service. VADS Bhd, a subsidiary of Telekom Malaysia Bhd (TM), is hopeful of double-digit growth over the next few years for its upcoming telepresence service. (Source: Business Times)
Puncak Niaga: Forays into oil and gas, secure water supply project. Puncak Niaga Holdings Bhd has acquired 40% equity in Global Offshore (Malaysia) Sdn Bhd (GOM) and KGL Ltd (KGL) respectively for a cash consideration of USD8.4m (RM25.2m) and USD15.2m (RM5.6m) respectively. Separately, a consortium consisting of a 40:60 unincorporated JV between Quality Concrete and Puncak Niaga has secured a RM667.3m contract for a rural water supply project in Sarawak. (Source: Bursa Malaysia)
TNB: Cabinet to decide on Wednesday on tariff increase for TNB. The Cabinet is expected to decide on Wednesday, May 25 if there should be a tariff increase for Tenaga Nasional Bhd. (Source: The Edge Financial Daily)
E&U: First block of Kimanis 100MW Plant to be completed in 2013. The first generation block of 100 MW of the proposed 300MW Combined Cycle Gas Turbine Power Plant in Kimanis is expected to be completed in Dec 2013. The power plant and its related projects, costing about RM1.6b is expected to supplement Sabah’s increasing demand for electricity. (Source: Bernama News)
Top Story: Faber
Visit Note
Timing remains the issue
Fair value is raised to RM2.77 from RM2.59. We reiterate our Outperform call on the stock.
Sector Call
Utilities:
Sector Update
Federal government yet to buy out water bonds
Puncak would be a potential beneficiary, given our view that the company has been holding out for the federal government (with deeper pockets) to make a better offer.
Unless the federal government subsequently makes a good offer, the water sector restructuring may drag on with no clear outcome in sight.
Corporate Highlights
KPJ:
1QFY11 Results
Although KPJ’s 1Q11 net profit of RM27.5m (flat yoy; +13.1% qoq) accounted for 20% of our and consensus full-year forecasts respectivel.y
We maintain our fair value of RM4.94/share. We reiterate our Outperform call on the stock.
ILB:
1QFY11 Results
Weak 1QFY12/11, but stronger 2H ahead
Fair value is RM1.55. Maintain Outperform.
ECONOMICS
Economic Transformation Programme (ETP)
From "message" to "passage"...
On the progress of Economic Transformation Programme (ETP), 37 EPPs and at least RM80.6b of investment has been announced so far, accounting for 28.2% of the total 131 EPPs identified in ETP and 10.1% of the targeted investment value of RM794.5b. These confirmed EPPs are also "active" as they are in various implementation stages, and benefited from fast-tracking of approvals as well as targeted and specific tax and non-tax incentives. The progress in ETP jives with our view on Malaysia's 2011 economic outlook where business spendig upcycle is the key story.
RESULTS REVIEW
CapitaMalls Malaysia Trust
Rides on strong retail growth
Maintain Buy. CapitaMalls Malaysia Trust's (CMMT) RM45.9m 2010 distributable income (which reflected 5½ months of earnings since listing on 16 July) was within expectations. We expect a stronger 2011 supported by better rental and occupancy rates driven by strong retail growth. The recent proposed acquisition of Gurney Plaza Extension (GPE) could boost DPU by another 3-5% (post-placement). Currently, CMMT offers 7.1% yield compared to 7.8% for M-REIT and 6.7% for SunREIT. Maintain forecasts and RM1.20 DDM-based TP.
Quill Capita Trust
Challenging outlook
No surprises. Quill Capita (QCT) RM32.6m 2010 normalised net profit was within expectations. In our view, QCT needs a appealing story to regain investors' interest given its below average 7.1% yield (vs. 7.8% average M-REIT) on a back of over-supply outlook for the industry. We fine-tune our forecasts by +0.1-0.2% for a higher 95% payout (previously 92%) and change in balance sheet assumptions. Our DCF-based TP is raised to RM1.20 (+2 sen).
SECTOR UPDATE
Automotive
Caught in Neutral
No near-term catalyst. We expect 2011 TIV growth to slow to 2-3% as domestic demand drives towards saturation. Corporate earnings growth remains challenging. Margins will come under pressure on rising A&P expenses. The currency impact which aided 2010 earnings is unlikely to repeat. We are Neutral on the sector with Buys on Proton and MBM on undemanding valuations. We upgrade Tan Chong to Hold following a 15% correction in the share price since our Sell call on 23 Sept 2010. UMW remains a Hold.
Technicals
The FBM KLCI plunged 22.46-points and closed at 1,547.43 last week as some heavy profit-taking and liquidation activities caused the market’s large fall after the Thaipusam holiday on 20 January. The weaker support areas for the FBM KLCI are located in the 1,497 to 1,537-zone. The key resistance zone of 1,547 and 1,576 will offer major selling and liquidation activities.
Other Local News
Axiata: M1 gains traction. M1 recently announced a special dividend payout of 3.5cents per share, brings the total dividend per share for FY10 to 17.5 cents per share which translates into a dividend income of SGD46.6m (RM110.9m) to the Malaysian telco. (Source: The Edge Financial Daily)
F&N: Sells Fraser Business Park Phase II development project. F&NHB has accepted the call option notice from Tenggara Muhibbah Sdn Bhd to acquire the entire interest in Brampton for a total cash consideration of RM63m and realising a gain of RM29.6m in the process. (Source: Bursa Malaysia).
GUH: Seeks more land for property projects. While GUH Holdings Bhd continues to look at its printed circuit board (PCB) division as the primary driver of growth this year and in years to come, the firm continues to expand its landbank for other activities. GUH's Taman Bukit Kepayang development in Seremban, has so far seen development of 120 ha and there was a balance of about 108 ha left to be developed over the next six to seven years. (Source: Business Times)
MISC: Bidding for Brass LNG job. MISC Bhd is believed to have submitted a technical bid early this month to provide up to 14 vessels for Brass Liquefied Natural Gas (LNG) in West Africa. The vessels are required to have a carrying capacity of about 145,000 cu m each. However, details of the tender, which has attracted nine bids, have yet to surface. (Source: The Edge Weekly)
Malaysia Smelting: Singapore IPO shares priced at SGD1.75. Malaysia Smelting Corp Bhd's (MSC) public offering shares for a secondary listing on the Singapore Exchange Securities Trading Ltd (SGX) has been fixed at SGD1.75 or RM4.17 a share. MSC said it expected to raise about SGD40.1m (RM96m) from the public offer, with about SGD8.3m (RM20m) to be used for the expansion of mining and smelting operations through the acquisitions of plant and machinery. (Source: The Star)
Utilities: No change in Selangor water consolidation matrix. The consolidation of the water sector in Selangor seems unlikely to take place even with the latest offer from the state government to acquire all the four concessionaires- Puncak Niaga (M) Sdn Bhd (PNSB), Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), Konsortium Abass Sdn Bhd and Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (SPLASH) for RM9b. (Source: The Edge Weekly)
KUALA LUMPUR: Stocks on Bursa Malaysia may see some downside pressure on Friday, Jan 21 after China key stocks index fell 2.9% on Thursday on concerns of more monetary tightening.
At Bursa, the FBM KLCI fell on Wednesday, weighed down by losses in CIMB but the losses were relatively limited across the broader market, despite the firmer regional markets.
Companies with fresh corporate news including TENAGA NASIONAL BHD [], Fraser & Neave Holdings Bhd, Malaysia Steel Works (KL) Bhd (Masteel) and KUB MALAYSIA BHD (KUB) and PUNCAK NIAGA HOLDINGS BHD could see trading interest.
TNB’s board of directors expects the group's prospects to be very challenging for the current financial year due to the rising coal prices in the absence of a tariff review.
It reported earnings of RM712.9 million in the first quarter ended Nov 30, 2010, just a marginal 1% increase from the RM706.3 million a year ago as it was impacted by higher coal prices. The power giant said on Wednesday, Jan 19 there was an increase in forex translation loss of RM104.8 million as compared to RM45.4 million a year ago due to the strengthening of the yen and US dollar against the ringgit.
Puncak Niaga could see some selling pressure after the company and its joint venture partner have failed in their tenders for the two water supply and drainage projects in India. Puncak said that its partner P&C CONSTRUCTION s (P) Ltd had dissolved the joint venture agreements following the unsuccessful bids.
Fraser & Neave will allocate up to RM500 million as it seeks to take on a more regional and full fledged group from its current form as a tightly controlled food and beverage firm into a more regional and full fledged group.
It has also received the approval to market its isotonic drink 100PLUS and carbonated soft drinks in Thailand and Brunei, a move which will enhance its beverages business in Thailand especially.
Masteel and KUB have proposed to build and operate a 100km inter-city rail transit system in Iskandar Malaysia, which will connect to the MRT line from Singapore. The companies said the project could cost over RM1 billion, and consists of up to 25 commuter stations in major towns in the Iskandar Malaysia region in the initial stage.
Other stocks in the news would be OSK HOLDINGS BHD after its investment bank, which is seeking opportunities to expand into Thailand, has received the go-ahead from the potential securities company for a due diligence to be carried out.
In UMW HOLDINGS BHD, the automotive and oil and gas player is allocating about RM800 million for expansion, of which RM500 million would to be expand its local operations including the automotive business.
Top Story
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Macro View
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Sector Call
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Corporate Highlights
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