RHBInvest Research

Malaysia Equities

Top Story

Top Glove – Expect Recovery In Margins Ahead                                                   Market Perform

Results / Briefing Note

-     3Q12 net profit of RM53.8m came in within our but above consensus expectations.

-     We expect Top Glove to benefit from the recent softening in latex prices and strengthening in US$/RM rate. We thus maintain our fair value of RM4.95 and Market Perform call on the stock.



Corporate Highlights

Axis REIT – Continuing On The Acquisition Track                                                    Market Perform

News Update

-     Axis REIT has proposed to acquire two properties in Petaling Jaya (the Wisma Academy Parcel and the Annex) for RM85m, and a placement of up to 90.8m new units, or about 20% of its existing 453.8m units.

-     Our fair value is raised to RM2.82 (from RM2.76). Maintain Market Perform.

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Malaysia Equities

Top Story

Taking Stock – Fundamentals Playing Catch-Up

Market Update

- Our expectations for the Dec 2011 quarter results are fairly neutral as we believe any bad news would have already been factored into earnings forecasts. However, we believe there is a possibility that some companies may use the market’s low expectations to delay booking in revenue (or provide for higher costs) in the 4QCY11 to boost the current year’s earnings.




Corporate Highlights




Digi – Looking Forward To LTE Outperform

Visit Note

- We remain positive on DiGi for potential to sustain future growth by monetising its 5.2m mobile Internet subscriber base through LTE.

- We understand that competition has been stable so far in 2012. While DiGi noted that U Mobile’s presence in the market has increased, since U Mobile is only a quasi-MVNO we do not expect competition to turn irrational anytime soon.

TH Plantation – Joining the ranks of the mid-cap plantation stocks Outperform

Visit Note

- Four key points: 1) Strong FFB production growth for FY11 achieved; 2) Production costs to rise in FY12, on higher labour and fertiliser costs; and 3) Work has started on THP’s new land acquisitions already; and 4) More acquisitions in 2012?

TRC Synergy – Defect liabilities weigh down on 4QFY12/11 performance Outperform

Results Preview

- We expect TRC’s FY11 net profit to miss expectations by 12-18% largely due to the recognition of additional defect liabilities in 4Q from certain recently completed projects.

BAT – BAT’s Market Share Grew In FY11 Market Perform (Upgraded)

Results/Briefing Note

- FY11 net profit (-1.6% yoy) was within expectations. BAT declared a fourth interim dividend of 66 sen, which brought its YTD dividend payout to 276 sen (including 30 sen special dividend paid in the 2QFY11).




Malaysia Equities




Top Story




Taking Stock – Fundamentals Playing Catch-Up

Market Update

- Our expectations for the Dec 2011 quarter results are fairly neutral as we believe any bad news would have already been factored into earnings forecasts. However, we believe there is a possibility that some companies may use the market’s low expectations to delay booking in revenue (or provide for higher costs) in the 4QCY11 to boost the current year’s earnings.




Corporate Highlights




Digi – Looking Forward To LTE Outperform

Visit Note

- We remain positive on DiGi for potential to sustain future growth by monetising its 5.2m mobile Internet subscriber base through LTE.

- We understand that competition has been stable so far in 2012. While DiGi noted that U Mobile’s presence in the market has increased, since U Mobile is only a quasi-MVNO we do not expect competition to turn irrational anytime soon.

TH Plantation – Joining the ranks of the mid-cap plantation stocks Outperform

Visit Note

- Four key points: 1) Strong FFB production growth for FY11 achieved; 2) Production costs to rise in FY12, on higher labour and fertiliser costs; and 3) Work has started on THP’s new land acquisitions already; and 4) More acquisitions in 2012?

TRC Synergy – Defect liabilities weigh down on 4QFY12/11 performance Outperform

Results Preview

- We expect TRC’s FY11 net profit to miss expectations by 12-18% largely due to the recognition of additional defect liabilities in 4Q from certain recently completed projects.

BAT – BAT’s Market Share Grew In FY11 Market Perform (Upgraded)

Results/Briefing Note

- FY11 net profit (-1.6% yoy) was within expectations. BAT declared a fourth interim dividend of 66 sen, which brought its YTD dividend payout to 276 sen (including 30 sen special dividend paid in the 2QFY11).

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Malaysia Equities

Top Story

KNM – Still gloomy skies ahead? Underperform

Visit Note

- We came away from our visit remaining quite cautious on the company’s outlook. Management guided that 2012 will be a year of cost, operation and plant rationalisation.

- Besides that we are concerned that a couple of its’ large contracts will continue to be deferred despite management’s best efforts. The company is tentatively looking to release its 4QFY11 results on 28 Feb, but we are not too optimistic on it reporting better numbers.



Corporate Highlights

MRCB – EDL Losses To Weigh Down On FY12/12 Performance Market Perform (Downgraded)

Briefing Note

- MRCB guided RM30-40m start-up losses in FY12/12 from the newly completed 100%-owned toll road Eastern Dispersal Link (EDL) in Johor. MRCB guided very thin margins of 1-4% from the RM1.4bn LRT line extension project secured in Aug 2011.



Sunway REIT – Sunway Pyramid Still Spurring Growth Market Perform

Results/Briefing Note

- Sunway REIT’s (SunREIT) 2QFY12 realised net profit of RM50.7m (+13.6% yoy; +14.7% qoq) came in slightly above ours and consensus estimates. The strong earnings growth was driven by: 1) the flow through of rental reversion from Sunway Pyramid (SP); and 2) the incremental contribution from Sunway Putra Place. A 1.99 sen DPU was declared during the quarter, up 13.7% yoy and qoq.



Macro

IPI – Despite a rebound in industrial prod. in Dec, real GDP growth is likely to have moderated in 4Q

Economic Highlights (published 8 Feb 2012)

- Industrial production unexpectedly rebounded to 3.0% yoy in Dec, the first bounce back in four months, after easing to a revised +2.4% in Nov, from +2.9% in Oct.

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Top Story

MBSB – Watch out for NIM and credit cost Market Perform

Results Preview

- MBSB is expected to release its 4QFY11 results early-Feb. Our full-year net profit estimate of RM316m may appear conservative relative to MBSB’s 3QFY11 results as it implies that 4Q net profit would contract about 20% qoq (+>480% yoy) mainly due to NIM compression and higher loan impairment charges.



Sector Update

Media – A Seasonal Boost In December Underweight

Sector Update

- Dec’s gross advertising expenditure (adex) for TV and print media was relatively stable with 2.9% yoy growth (Nov was the weakest in 2011 at +2.2% yoy). On mom basis, adex jumped 16% mainly due to festivities and seasonality.

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Notion Vtec: Hopes for quick recovery Underperform

Briefing Note

¨ Notion guided that 1Q12 revenue will decline 40-45% qoq and may fall into the red. This is mainly due to: 1) declining sales as the floods have affected two of its major customers and orders have stopped since Oct; and 2) provisioning of around RM5m for finished goods that were damaged and insurance shortfall for equipment in its Thailand plant.



TM: Pleasant uplift surprise in margins Trading Buy

3QFY11 Results / Briefing Note

¨ 3QFY11 core net profit of RM137m (+8.8% yoy; +1.6% qoq) was above our but below consensus expectations. The key variance in 3Q was better-than-expected ETBIDA margin due to lower other operating costs, as well as lower effective tax rates.

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Sector Call



Rubber Gloves: Falling Latex Prices = Improving Sentiment Towards Glove Manufacturers Neutral

Sector Update:

¨ Since hitting a peak of RM10.93/kg back in Apr ’11, latex prices have broadly been on a down trend and more recently, saw a significant decline from RM7.55/kg to around RM6.77/kg currently in over two weeks which we believe was due to: 1) concerns over slower global economic growth ahead, which could hamper demand for commodities; 2) the flooding in Thailand could lead to potential disruptions to automotive manufacturers’ operations there, leading to lower demand for rubber; and 3) easing concerns on latex supply issues over in Thailand given that the major tract of the country’s rubber plantation is located in the south.



Malaysia Corporate Highlights



Tan Chong Motor: A Disaster Hit 2011 Market Perform

3Q11 Results

¨ Tan Chong’s 3Q11 results were below our and consensus estimates.

¨ Net profit for the quarter of RM54.6m (-3.4% qoq and +10.6% yoy) brought cumulative 9M11 earnings to RM185.1m (+4.2% yoy) that reached 70.3% of our previous 2011 forecast.

¨ The main reasons for the weaker-than-expected earnings include start-up costs at Nissan Vietnam and othe costs incurred for regional expansion and upgrade of existing facilities.

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Top Story: Kencana – No signs of slowing down Market Perform

Visit Note

¨ For the EPCC division, the company is actively looking to beef up its fabrication capacity by increasing its overseas revenue contribution from countries like India and Australia as it is currently only operating at 50% utilisation. For its drilling division, the KM-2 and KM-3 rigs, which cost a cumulative US$290m (around RM870m), are expected to be completed by Mar 2013, and Jun/Jul 2013 respectively. The AME acquisition is also likely to exceed the RM40m profit guarantee.



Corporate Highlights



MBSB: Diversifying the loan book but high NIMs sustainable Outperform

Briefing Note

¨ MBSB plans to diversify the loan book mix to roughly equal contribution from personal finance, mortgage and corporate/wholesale segments over the next 12-18 months.



Hartalega: Core net profit up 1.7% qoq Market Perform

2QFY12 Results

¨ 2QFY03/12 core net profit of RM54.8m (+24.8% yoy; +1.7% qoq) came in within expectations with 6M net profit of RM107.9m (+24.0% yoy) accounting for 49.3% of our and consensus estimates respectively.



MPI: 1QFY06/12 falls into losses Underperform

1QFY12 Results

¨ MPI’s reported a 1Q net loss of RM9.6m, way below our full-year net profit forecasts of RM39.8m and consensus full-year net profit of RM54.5m. We believe this was mainly due to lower EBITDA margins as a result of lower utilisation rates and lower contribution from higher margin packages.

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Hektar REIT: No surprises Outperform

3QFY11 Results

¨ 3Q11 realised net profit (-1.2% yoy; +2.3% qoq) came within our and consensus estimates. Gross revenue grew 5.9% yoy and 3.3% qoq due to the improved rental contribution from its assets arising from the opening of earnings-accretive new retail space as well as the rental increase after asset refurbishment works. However, the higher interest expense incurred during the period has offset the higher revenue, causing the realised net profit margin in 3Q11 to contract slightly. A DPU of 2.5 sen was declared during the period, bringing total 9M11 DPU to 7.5 sen, on track to meet our forecast.



CSC Steel: 9MFY12/11 net profit declines by 49% yoy Underperform

3QFY11 Results

¨ 9MFY11 net profit came in below expectations. We believe the variance vs. our forecast largely came from worse-than-expected margin contraction in 3QFY11 as a result of lower selling prices of its steel products.

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Sector Call



Semiconductor: Moving to P/BV valuation methodology Underweight

Sector Update

Unisem: New fair value of RM0.92 Underperform

MPI: New fair value of RM2.19 Underperform

¨ With the poor earnings visibility on the back of weak guidance by major players in the industry, the outlook for 2012 remains in doubt amidst the bearish outlook in the global economy. Furthermore, post Unisem’s analyst briefing recently, there was lack of conviction as to whether the guided 4Q2011 revenue decline would be short-term, with a quick a recovery in 2012, although management appeared optimistic on such a scenario.

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Top Story : AirAsia – 9MFY12/11 results to trail consensus Underperform (down from MP)

Results Preview

- We expect AirAsia's 9MFY12/11 results to meet our forecast but trail the market expectations.





Corporate Highlights



Unisem : Weak 4Q ahead Underperform

Briefing Note

- Unisem expects revenue to decline 8-10% amidst the softening demand for electronics stemming from the slowdown in global economy. Nevertheless, despite the anticipation of a drop in revenue, Unisem still expects 4Q earnings to improve from the previous quarter on the back of cost-cutting measures.





Mah Sing : Adding a “Thai” flavour into Icon City Market Perform (up from UP)

News Update

- Mah Sing entered into a MOU with Central Pattana Public Company Ltd to study the potential investment of developing and managing a shopping mall in Icon City through a JV and/or partnership. The MOU takes effect on 2 Nov and is valid until formal agreements are entered into within six months time with an automatic extension of three months.

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Top Story: Media–Softer adex in Sep Underweight

Sector Update

¨ As expected, Sep’s gross adex for TV and print media combined showed a sequential monthly contraction of 18.1%, following the bumper Aug adex (due to Hari Raya and Merdeka festivities), according to Nielsen Media Research (NMR). On yoy basis, adex growth moderated to 5.1% in Sep (Aug: +9.7% yoy).

Corporate Highlights

Axiata: XL shows sequential improvement Market Perform

Company Update

- 67%-subsidiary, XL Axiata (XL), posted 9MFY11 core net profit of Rp2.14bn (+1.3% yoy), representing only 67% and 62% of our and consensus full-year estimates respectively.

- The key variance was a one-off severance payment amounting to Rp213bn in 3Q for outsourcing of XL’s managed network services. Excluding this one-off provision, XL would have recorded 9MFY11 net profit of Rp2.35bn (+11% yoy). This would have been in line with our but still lower than consensus expectations.

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Top Story: TNB – May have hit rock bottom in 4Q Underperform

Results Preview

¨ Due to gas shortage from maintenance at Petronas’ LNG plants and delays in the Bekok C bypass, TNB will likely record a 4Q loss, possibly close to that seen in 3Q (-RM460m). This is a result of TNB receiving only an average of 950 mmscfd of gas in 4Q, marginally higher than the average 940 mmscfd in 3Q.



Corporate Highlights



BAT: 3QFY11 TIV grew 1.6% yoy Underperform

3QFY11 Results / Briefing Note

¨ BAT’s 9MFY11 net profit of RM539m (-1.7% yoy) was above ours but within consensus estimates, accounting for 79% and 75% of full-year forecasts respectively. The main variance to our forecasts were the stronger-than-expected 3QFY11 TIV 3% yoy.



TH Plantations: Bumper profit year continues Outperform

3QFY11 Results

¨ 9MFY11 net profit was in line with both our and consensus expectations, coming in at 73-77% of our and consensus FY11 forecasts.



WCT: Acquiring 432-acre land in Serendah for RM38.4m Market Perform

News Update

¨ WCT is acquiring 431.7 acres of freehold agricultural land in Serendah, Selangor, for RM38.4m cash.



DRB-Hicom: Three CBU Volkswagen models launched Market Perform

News Update

¨ Volkswagen Malaysia (VWM) yesterday launched three new completely built-up (CBU) fully-imported models into the local market, the culmination of an intensive two-week newspaper advertising campaign. The three models are the Passat 1.8, Jetta 1.4 TSI and Cross Touran 1.4 TSI. The introduction of these new CBU models is a prelude to the launch of DRB-assembled CKD VWs by end-2011.

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Top Story: Evergreen Fibreboard – More headwinds Underperform

Visit Note

¨ After the global stock market rout in Aug, Evergreen stopped raising its product prices as its customers have generally turned cautious in their purchasing activities. Current orderbook visibility has dropped to about 1.5 months, compared to more than 2 months on average in the past.



Corporate Highlights



CMMT: No surprises Market Perform

3QFY11 Results / Briefing Note

¨ 3QFY11 realised net profit of RM27.6m (>100% yoy; +1.6% qoq) was in line with our and market expectations. A 1.98 sen DPU (+26.9% yoy) was declared. This brings 9MFY11 DPU to 5.88 sen, which is on track to meet our gross DPU forecast of 7.9 sen for FY11.

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Top Story: KFC – Earnings outlook not dampened by gloomy economic conditions Outperform

Visit Note

¨ Management estimates that for KFCH’s Indian operations to breakeven, it would need approximately 30-35 outlets, which we believe would be achieved by mid- to end-2013. KFCH currently has 10 outlets in India, which is expected to grow to 15-17 outlets by end FY11, in line with our estimates. KFCH is targeting to have 25 stores in India by end-2012, which means 8-10 more new outlets to be opened in 2012.



Regional Coverage



Indonesia Banks: Recessionary risks not fully priced in Neutral

Sector Update (Indonesia)

Bank Rakyat Indonesia: Fair value IDR6,300 Market Perform

Bank Mandiri: Fair value IDR6,500 Market Perform

Bank Central Asia: Fair value IDR6,100 Underperform

Bank Danamon: Fair value IDR4,700 Market Perform

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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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RHBInvest Research

Top Story: 4Q2011 Market Outlook & Strategy – Perilous crossroads; Challenging times ahead

Strategy Update

¨ The US economic recovery has slowed to a crawl, while Europe is not just lurching from one crisis to another, it is lurching into a new one before the previous one is solved. There is a growing risk that sustained weak confidence could exert downward pressure on demand and business activity worldwide. At this stage, both the US and Europe cannot withstand another shock and any further escalation of the crises could potentially tilt the global economy into a “double-dip” recession. Nevertheless, in our view, this can still be avoided if political leaders get their acts together fast enough to contain the debt crises and avert a contagion given that global trade has not fallen off the cliff.

Corporate Highlights

DRB Hicom: Cautious outlook Market Perform

Company Update

¨ We recently downgraded our call on the auto and banking sectors to Underweight (from Neutral) on the back of our increasingly bearish view on the outlook for the global economy.

Gamuda: FY07/11 net profit grows 32% yoy Outperform

4QFY11 Results / Briefing Note

¨ FY07/11 net profit came in within our forecast and the market consensus.

Jaya Tiasa: 1QFY12 net profit more than doubled yoy on higher CPO contribution Outperform

1QFY12 Results

¨ QFY04/12 net profit of RM55.9m came within expectations

Hiap Teck: FY07/11 net profit declines by 46% yoy Underperform

4QFY11 Results

¨ FY07/11 net profit came in above our and consensus expectations. The variance against our forecast came largely from a deferred tax adjustment in 4QFY07/11 of RM6.8m.

VS Industry: No surprises but earnings risks rising Market Perform (down from OP)

4QFY11 Results

¨ FY07/11 core net profit of RM39.1m was in line with expectations, at 102.6% of our full-year estimate.

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Top Story: TNB – Still no clarity on gas issue Underperform (down from MP)

Company Update

¨ Given the downside risk to GDP growth ahead, we lower our electricity demand growth assumptions for TNB to 1.8% p.a. for FY12-13 (previously 3.2%), based on lower GDP multiplier effect assumption of 0.5x (previously 0.7x) as we expect demand from industrial users to weaken further.



Property: Wind or smoke? Underweight

Sector Update

¨ Looking at the recent development (Sime/E&O, SP Setia, and Bandaraya selling assets) in the property sector, although it could provide some trading interest in certain property stocks on speculation of a privatisation exercise, we believe the slew of events is one-off. M&A wave will be short-lived and not widespread. Taking the past events as a clue, mega M&A interests died down for 9 months after the lapse of MRCB-IJMLD offer beginning of this year. Hence, the M&A angle is not a strong re-rating catalyst for the sector. Valuations of property stocks should continue to price in fundamentals at least six months ahead.



Education: Waning optimism Neutral (down from OW)

Sector Update

¨ We are turning cautious on the prospects for the education sector in the coming quarter given: 1) rising macroeconomic headwinds; 2) illiquidity of the stocks in the sector; 3) the relatively small market cap of the education stocks (less than RM1bn); and 4) high foreign shareholdings for HELP (12.5%) and Masterskill (49%), increasing their susceptibility to volatile portfolio flows.



Corporate Highlights



SP Setia: Giving you a second chance Market Perform (up from UP)

News Update

¨ SP Setia announced that it has received a takeover offer from PNB to acquire the remaining shares not already owned at an offer price of RM3.90 and warrants at RM0.91. However, SP Setia’s Board (excluding 2 members from PNB) has decided to seek a competing offer from other interested parties.



Axis REIT: New acquisition in Penang Market Perform

News Update

¨ Axis REIT proposed to acquire two land parcels in Seberang Perai with a GFA of approximately 408,250sq ft and is located within the Bukit Tengah Industrial Park. The land includes a single-storey warehouse with office and ancillary buildings. Total purchase consideration for the property is RM59m. With the inclusion of the property, total assets of Axis REIT will increase to around RM1.4bn.



HELP: Below expectations again Underperform (down from OP)

3QFY11 Results

¨ 9MFY10/11 net profit of RM9.4m (-25% yoy) missed our and consensus expectations by 33%. HELP’s 9MFY11 revenue of RM79.6m (+2.3% yoy) also missed our and consensus estimates by 12% and 10% respectively. No dividend was declared during the period.



Adventa: Below expectations Market Perform

3QFY11 Results

¨ 3QFY10/11 net profit (-51.0% yoy; -12.1% qoq), was below our and consensus expectations with 9MFY11 net profit (flat yoy) accounting for 65% and 64% of our and consensus full-year estimates respectively.

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Top Story: Petronas Gas – Dividend payout assured despite cash outflow Market Perform

Visit Note

¨ Management echoed market expectations that gas supply should return to normal once the bypass from the damaged Bekok-C platform is completed by end-Sep.



Sector Call



Motor: On the rebound Neutral

Sector Update

MBM Resources: Fair value maintained at RM3.25 Market Perform

Tan Chong: Fair value maintained at RM5.50 Outperform

DRB-HICOM: Fair value maintained at RM2.95 Outperform

UMW: Fair value maintained at RM7.35 Market Perform

APM: Fair value maintained at RM5.10 Market Perform

Proton: Fair value maintained at RM2.50 Underperform



Corporate Highlights



Evergreen Fibreboard: Diversifying into solid timber Underperform

News Update

¨ Evergreen has entered into a share subscription agreement with Craft Master Timber Products S/B (CMTP), Lau Yng Yng and Lim Sock Ling to subscribe for 7,012,500 new ordinary shares in CMTP (equivalent to 51% stake) for RM7m cash. CMTP is a newly-incorporated company to carry out the business in manufacturing of solid wooden furniture parts and finger jointing.

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RHBInvest Research

Top Story: Gamuda – FY07/11 results to meet expectations Outperform

Results Preview

¨ We expect Gamuda’s 4QFY07/11 results to come in within expectations at RM105-110m at the core net level, marginally weaker vis-à-vis RM116.6m recorded in 3QFY07/11 on slightly reduced construction margins sequentially as a result of the cycle of writebacks of cost over-provisions having already peaked 1-2 quarters ago.

Sector Call

Media: Aug adex rose 9.7% yoy Underweight

Sector Update

¨ According to Nielsen Media Research, Aug’s gross adex for TV and print media combined rose 9.7% yoy (+2.9% mom), led by the print media (+14.1% yoy).

¨ Aug’s adex growth was quite strong mainly due to: 1) Hari Raya and Merdeka adex; 2) ad rate hike; and 3) resilient consumer spending.

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RHBInvest Research

Top Story: Education – The bigger picture Overweight

Sector Update

¨ More students are choosing to pursue degree programmes vs. diploma programmes as degrees become more affordable and due to the increased employability of degree holders. Hence, around 41.5% of total tertiary students in Malaysia during 2010 were pursuing degrees (vs. 35.1% pursuing diplomas). SEGi and HELP will benefit from the shift in demand from diploma to degree programmes. However, we are cautious on Masterskill’s performance as it is mainly dependent on its diploma courses, with less than 10% of students enrolled in its degree courses.

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