RHBInvest Research

Sector Call


Telecom:

• DiGi-Celcom collaboration to yield big cash savings

• Estimate potential upside of 96 sen (+3.6%) and 9 sen (+1.6%) to DiGi’s and Axiata’s fair value respectively

Corporate Highlights

Axis REIT:

• More acquisitions in the pipeline
• Post the completion of the acquisition of Axis Eureka and PTP D8 before 1Q2011 as well as the disposal of Axis North Port LC1
• Six potential assets in the pipeline, worth about RM400m
• Maintain Outperform with indicative fair value at RM2.71

KPJ:

• Expanding its foothold to Sibu, Sarawak
• New acquisition would be able to contribute RM3m to its total earnings in FY11
• Outperform with fair value of RM4.39

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Maybank IB Views

Market Strategy
Riding the high waves

Positives dominate. We expect Malaysian equities to scale new highs in 2011 supported by: (i) liquidity flows as funds continue to move into emerging markets, courtesy of the US’ 2nd dose of quantitative easing (QE2), (ii) the growing possibility of an early general election (GE), (iii) domestic investment upcycle from direct investments and the Economic Transformation Programme (ETP) implementation, and (iv) corporate exercises – M&As, privatisations and GLIC divestments – helped by low interest rates and ample liquidity.


ECONOMICS
2011 Outlook
Global Headwinds, Local Undercurrents

Volatile external environment amid “sustainability, solvency and stability” risks... Uncertainty remains over the strength and staying power of US recovery, hence the extension and expansion of monetary and fiscal stimulus. Eurozone sovereign debt turmoil persists amid concerns over the vulnerability of the peripheral economies and contagion to other countries, financial institutions’ exposure via intra-regional loans and holdings of government papers, as well as the public and banking sectors’ funding gaps. For emerging markets, namely Asia Pacific (ex-Japan) and BRIC, the issue is that of macroeconomic and financial stability as they grapple with “bubblenomy” risk arising from the combination of hot money inflows, excessive currency movements as well as general and asset price inflation.


SECTOR UPDATE
Banking: Overweight
Nov '10 statistics: Chugging along robustly

Remain Overweight. Bank Negara reported that loans to households continued to take the lead in Nov 2010, up +1.3% MoM and +13.9% YoY. Loans to businesses, which account for a smaller 44.5% of total system loans, was up +1.4% MoM but this translated into a comparatively slower +10.3% YoY. We remain Overweight on Banking as the over-riding theme in 2011 should be for project financing requirements under the ETP to spur loans growth further.


COMPANY UPDATE
IJM Corporation RM6.23: Buy
Property merger is off Shariah-compliant

Call under review. The aborted IJM Land-MRCB merger is a major disappointment as expectations have been built in for a much stronger outlook under an enlarged group. No change to our earnings forecasts which have yet to incorporate the merger potential. However, share price, which has been up 11% since the merger was proposed, is closing in to our RM6.40 RNAV. Our target price is under review pending an update with management to revisit its prospects.


Axis REIT RM2.37: Buy
Another yield accretive acquisition Shariah-compliant

Last acquisition for 2010. We are positive on the latest office purchase in Cyberjaya given its fair pricing as well as attractive 8% net property yield (vs. 6.9% funding cost). This yield-accretive acquisition is expected to enhance our 2011-12 EPS forecasts by 1.5-3.4%. We continue to like AXRB’s proven track record and hands-on management. Maintain Buy with a higher RM2.63 TP (+1.2%).


Dialog Group RM1.79: Buy
Bags ABF's EPCC job Shariah-compliant

We are bullish on fabricators. Dialog's ABF EPCC job win exhibits stronger orders and tender pipelines, and the momentum is set to sustain in 2011, especially for CTF-related EPCC works. We have raised Dialog's SOP target price to RM2.60, now incorporating part of its deepwater Pengerang centralized tankage facilities (CTF) project, which will feature prominently over the next few years. Buy.


Technicals
The FBM KLCI gained 7.33-points and closed at 1,518.91 last week, as some profit taking activities on stocks trimmed the market's initial advance. The obvious support areas for the FBM KLCI are located in the 1,474 to 1,518-zone. The key resistance areas of 1,520 and 1,531 may cap any rebound activity. we favour marginal chances of an upside break towards 1,531.99 in the medium-term.

Our weekly trading idea is a SHORT-TERM BUY call on TDM.


Other Local News
RHB, Pos Malaysia: To launch new banking service. RHB Banking Group, in a collaborative effort with Pos Malaysia Bhd, is launching the Pos Malaysia-RHB Shared Banking Services to enable banking services for its customers at selected Pos Malaysia outlets nationwide. The first phase would involve 21 selected Pos Malaysia outlets in the Klang Valley and Negri Sembilan. (Source: The Star)

Construction: RM144m allocated for infrastructure facilities in Kelantan. The Rural and Regional Development Ministry has allocated RM144m to provide infrastructure facilities in Kelantan during 2011. The projects include the provision of water and electricity supply, construction of roads, and building of houses for the poor. (Source: The Star)

Construction: RM1.46b island project revived. The RM1.46b Pulau Melaka twin reclaimed island project has been revived after a decade of financial and legal woes. The project, that involves the construction of some 400 commercial shop lots comprising a total of 1,534 units, would resume by September 2011. Most of the development work on the island has been completed with 521 units finished. (Source: The Star)

Mining: Advance SCT restarts Malaysian aluminium smelting plant. Advance SCT Ltd, one of Singapore's largest traders of aluminium, copper and stainless steel scraps, has restarted its aluminium smelting plant in Malaysia last month. The smelter would produce 200 to 400 tonnes of aluminium ingots monthly. It has also secured an exclusive contract to supply at least 1,000 tonnes a month of first grade copper scraps to China-based Qingyuan Shengli Copper Material Co Ltd. (Source: The Star)

Plantation: Oil palm dealers concerned about MPOB's new rule. The Malaysia Oil Palm Dealers Association (MOPDA) has expressed concern over Malaysian Palm Oil Board’s (MPOB) move to bar dealers from buying and selling oil palm fresh fruit bunches (FFB). The MPOB ruling, effective since 1st January 2011, allows estates, smallholders and dealers to sell directly to millers, preventing small dealers from being monopolised by big dealers, and enhancing the quality of oil palm fruits so that the oil extraction rate would exceed 25%. (Source: The Star)

Insurance: AXA Affin, BH Insurance to merge. AXA Affin General Insurance Bhd will merge with BH Insurance (M) Bhd and operate as single entity starting Jan 1. The combined turnover of the two entities puts them among the top five insurers in the country. (Source: The Star)

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RHBInvest Research

Banks:

• Nov ‘10 System Data – YoY Loan Growth Surges
• Overweight stance on the sector maintained.
• CIMB is our top pick for large-cap banks while Affin is our pick for the mid-small sized banks.

Corporate Highlights

IJM Land:

• Still good on its own.
• Revise our fair value to RM3.50 (from RM3.65)
• Maintain Outperform.

MRCB:

• Merger With IJM Land Aborted
• We remain positive on MRCB
• Fair value is reverted to RM2.48 from RM2.30 previously
• Maintain Trading Buy.

Dialog:

• Won a new contract worth RM64.6m for the EPCC works of a new cooling tower at Bintulu
• Fair value for the stock is RM2.11/share (versus RM1.94/share previously)
• Outperform call on the stock.

Axis REIT:

• Acquiring a piece of freehold land in Cyberjaya from FSBM Holdings Bhd.
• Total purchase consideration is RM51.25m.
• Our fair value is revised up to RM2.78 from RM2.67.
• Maintain Outperform.

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RHBInvest Research Highlights 21st October 2010

Top Story

Media:

• 9M10 print and tv adex up by 18.2% yoy
• Our Top pick is Media Prima (FV=RM2.75)
• We maintain Outperform call on Media Chinese (FV=RM1.21)
• Trading Buy call on Star (FV=RM4.34).
• Maintain Overweight for the sector.

Macro View

Economy:

• Leading index bounced back in Aug
• Pointing to resilient economic activities ahead.

Sector Call

Rubber Gloves:

• Still cautious on near-term outlook.
• Maintain Underperform call on Top Glove (FV=RM5.40)
• Market Perform call on Adventa (FV=RM2.47).
• As for Hartalega (FV=RM5.64), we downgrade our call to Market Perform.
• No change to our Neutral call on the sector.

Corporate Highlights

Puncak Niaga:

• Eyeing Hogenakkal water project in India .
• Fair value is RM3.01. Maintain Market Perform.

WCT:

• Secures RM1.36bn building job in Qatar and RM128m hospital project in Sabah .Fair value is raised to RM2.56 from RM2.30. Maintain Underperform.

Axis REIT:

• Quattro West started to contribute.
• Maintain Outperform call on Axis REIT with fair value of RM2.67.

BAT:

• Impact of less than 20’s ban cushioned by relaunch of Peter Stuyvesant.
• Fair value is thus raised to RM42.92 (from RM42.90 previously). Underperform.

Technical Highlights

Daily Trading Strategy:

• Recapturing the 10-day sma will renew upbeat sentiment.
• Further recovery to above the 10-day SMA today will attract further follow-through buying support in the near term.
• And once the recent high of 1,503.82 can be cleared, the short-term technical scenario will return to positive.
• On the downside, the solid medium-term support at 1,450 level and the 40-day SMA of 1,458 are expected to keep sellers at bay.

Daily Technical Watch: Alliance Financial Group

• Medium- to long-term uptrend remains largely intact.
• Immediate Support at RM3.10
• Immediate Resistance at RM3.30

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Views & News, Maybank IB (2010-10-21)

WCT RM3.11: Buy

Lands RM1.5b contracts Shariah-compliant

A much anticipated wait. Two newly secured jobs have lifted job wins for 2010-YTD to almost RM2.2b, and outstanding order book to RM4.3b, we estimate. The RM1.36b job in Qatar , one of the two wins, has been much anticipated. We retain our earnings forecasts for now, having imputed RM2b job wins for 2010. We remain positive on WCT benefiting further from major domestic infrastructure / construction spend. The stock remains our top pick in the construction sector.

Axis REIT RM2.18: Buy

Targets RM1.5b asset size by 2011 Shariah-compliant

Still a Buy. Axis REIT's (AXRB) 9M10 results were within expectations. Total asset size will increase to c.RM1.3b (+50% YoY) after 6 asset injections and revaluation gains. AXRB targets to hit a RM1.5b asset size by end-2011, which could enhance its earnings by 11%. We are raising our earnings forecasts by 6-32% to factor in the new assets worth RM260m. DCF-based TP is raised to RM2.60/sh.

The FBM KLCI was lower marginally by 1.87 points yesterday. Its resistance areas at 1,490 and 1,503 will cap market gains, whilst the support areas for the FBM KLCI are located at 1,469 and 1,486.

Local News

Construction: Contractors for LRT project to be shortlisted next month. Contractors shortlisted for the first phase of the RM7b light rail transit (LRT) extension will be announced by early next month said an industry source. The first phase of the extension or package A for both Kelana Jaya and Ampang Lines involved 9.2km and 7.39km of construction length respective. Syarikat Prasarana Negara Bhd held a pre-bid briefing with the pre-qualified contractors for package A on June 22. The contractors were requested to submit their tenders in August. It is understood the briefing was attended by 15 construction companies that included Sunway Construction Sdn Bhd, IJM Construction Sdn Bhd, Muhibbah Engineering Sdn Bhd, Gamuda Bhd, Bina Puri Holdings Bhd, Loh & Loh Corp Bhd and MRCB Engineering Sdn Bhd. (Source: The Star)

YTL Corp: Proposes gas-saving power technology. Power-giant YTL Corp Bhd hopes to submit a proposal to the Malaysian government to use a new technology which will save up to 20% of the gas used to generate power. MD Tan Sri Francis Yeoh said the use of the co-generation combined cycle technology at power plants would save government millions of ringgit spent on gas. "We have tried and tested this technology at our plant in Singapore and are more than willing to share this knowledge with Malaysia as well." "This 20% savings can translate to about RM400m in savings annually". (Source: The Star)

Property: PNB defends Warisan Merdeka project. Permodalan Nasional Bhd's (PNB) RM5b plan to redevelop the tract of land near Stadium Merdeka, which includes a 100-storey office block, is a move to diversify the investment group's asset portfolio, said its group CEO Tan Sri Hamad Kama Piah. He said PNB expects an annual return of 8% to 10% from the project, which he stressed was a well-thought investment decision. He also reiterated that PNB could finance the mega project solely from its profits. "We are not taking the government?s money (for the project)," he said. The new tower will cost RM2.5b to RM3b and is expected to be completed by 2015. (Source: The Edge Financial Daily)

Berjaya Corp: Granted vehicle manufacturing plant license. Berjaya Corp Bhd (BCorp) has been granted a manufacturing plant license by the International Trade and Industry Ministry (Miti) for the assembly of commercial vehicles, hybrid cars, electric cars and luxury passenger vehicles in Malaysia . The 100-acre plant would be based at Bukit Tagar, Selangor, the company told Bursa Malaysia yesterday. BCorp chairman and CEO Tan Sri Vincent Tan said in a statement that the manufacturing licence would provide the company with the opportunity to assemble commercial and passenger vehicles locally, giving it more flexibility and control in terms of quality and pricing of its vehicles. (Source: The Star)

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