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)

Read more...

Stocks to watch: DiGi, IOI, Supermax, YTL

KUALA LUMPUR: Stocks on Bursa Malaysia could extend their gains in light trade on Tuesday, Oct 25, in line with the firmer markets as investors pinned their hopes for a resolution to the euro debt crisis.

However, with the Deepavali holidays on Wednesday, there could be some profit taking later in the day.

The markets would also be seeking more clarity from the summit on Wednesday as the EU meeting over the weekend yielded no firm decisions, although the structure of the policy response has now begun to take shape.

A report from The Royal Bank of Scotland research said EU Finance Ministers agreed over the weekend that European banks could need to find 108 billion euros in fresh capital over the next six to nine months with an announcement reportedly set for Wednesday.

“However, this falls somewhat short of the IMF's 200 billion euros estimate. It was also confirmed that the ECB will not be utilised to increase the fire-power of the Euro-zone bailout fund.

“Instead, a special fund may be set up to attract global investors, possibly including the IMF, which would then buy bonds of struggling Euro-zone countries. This could run in parallel with another fund insuring against losses of up to 20% by bondholders,” it said.

Among the stocks to watch are DIGI.COM BHD [], IOI Corp Bhd, Supermax Corp Bhd and YTL Group.

DiGi.com’s earnings rose just a marginal 1.08% to RM292.44 million in the third quarter ended Sept 30, 2011 from RM289.31 million a year ago. The telco said the flat earnings were due to higher depreciation and amortisation while average revenue per user (ARPU) dipped.

An increase in data revenue pushed turnover up by 12.6% to RM1.52 billion from RM1.35 billion. Earnings per share were 37.6 sen compared with 37.20 sen a year ago.

DiGi declared an interim single-tier tax exempt dividend of 37 sen per share for financial year ending Dec 31, 2011 on Dec 8. Depreciation and amortisation was RM306.08 million in 3QFY11 compared with RM196.69 million a year ago.

IOI Corp expects its financial performance for the current financial year ending June 30, 2012 (FY2012) to be better than FY2011. The optimism was based on the improved profitability in its resources based manufacturing division, underpinned by lower crude palm oil prices.

The PLANTATION [] giant also expected crude palm oil (CPO) prices to rise above RM3,000 per tonne in the next three months due to the drop in production amid increasing overseas demand.

IOI chairman Tan Sri Lee Shin Cheng said the rainy season coupled with a labour shortage is expected to derail production of fresh fruit bunches in the next six months, despite increasing demand from China, India and Pakistan.

Supermax’s net profit fell 18.9% to RM30.91 million in the third quarter ended Sept 30, 2011 from RM38.11 million a year ago, affected by the higher natural rubber and nitrile latex prices.

However, it said although profitability is lower than last year, it is seeing positive signs for a rebound after recording a second consecutive quarter of core profit growth. Supermax’s revenue was however higher at RM271.42 million, up 15.4% from RM235.10 million.

For the nine-month period, earnings fell 42.5% to RM77.86 million from RM135.44 million. Revenue rose 8.7% to RM750.71 million from RM690.58 million.

YTL Communications Sdn Bhd (YTL Comms) has submitted its business plan to Malaysian Communications and Multimedia Commission (MCMC) to secure spectrum licences to roll out its Yes 4G mobile internet-with-voice service in Sabah and Sarawak.

Its chief executive officer, Wing K. Lee, said the company was currently awaiting feedback from MCMC. "MCMC will review the plan and give us the feedback," he added.

Read more...

RHBInvest Research

Top Story: Hartalega – Expansion Plans Key To Capture Europe Market Market Perform (down from OP)

Visit Note

¨ Management targets FY12 revenue growth of 20-30%, driven by growing demand from markets in Europe and steady demand from the US.

¨ We believe the rapid growth in demand for nitrile gloves there is mainly due to customers shifting purchases from natural rubber gloves to nitrile gloves due to the higher volatility in latex prices (as compared to nitrile prices), leading to uncertainty and fluctuations in natural rubber glove ASPs.



Macro View



Trade: Exports moderated in July, on the back of slowing global demand

Economic Highlights (published 8 Sep 2011)

¨ Exports moderated to 7.1% yoy in Jul, after picking up to +9.6% in Jun, but higher than +5.4% in May. The slowdown was mainly due to a sharper decline in the exports of electronic & electrical (E&E) products, on the back of a slowing global demand as well as a moderation in the exports of non-electronic & electrical (E&E) manufactured goods.



Interest rates: Bank Negara kept the OPR unchanged at 3.0%

Economic Highlights (published 8 Sep 2011)

¨ This was the second time in a row that BNM held its OPR stable, suggesting that it has shifted its focus from containing inflation to sustain growth. Indeed, BNM highlighted that global growth has moderated in recent months as growth in advanced economies slowed by more than expected following the greater policy uncertainties, worsening of confidence and heightened financial market volatilities, amidst continued weaknesses in labour market conditions.



Corporate Highlights



DiGi: Fulfilling dividend promise Outperform (up from TB)

Briefing Note

¨ We are positive that DiGi intends to distribute excess cash of about RM509m (65 sen/share) to shareholders by 1HCY12. This would be done after utilising the share premium at its wholly-owned subsidiary, DiGiTel (DiGi Telecommunications Sdn Bhd). The entitlement date will be announced later.

¨ DiGi should be paying more dividends for FY11 (vs. FY10: RM1.63/share) totalling RM1.6bn (RM2.05/share) comprising: 1) FY11 DPS forecast of RM1.40 based on 100% payout of FY11 EPS; and 2) RM509m capital distribution (65/share). Based on core FY11 earnings (after stripping out accelerated depreciation), this implies a payout ratio of 114%.



Telecoms: 6% service tax no longer absorbed from 15 sep Overweight

Sector Update

¨ As anticipated, the telcos are passing on the 6% service tax to prepaid users effective 15 Sep. The move is positive given the positive earnings impact (already imputed into our earnings forecasts) as the telcos would no longer absorb the tax.

¨ We believe the telcos may want to preempt any further potential increase in the service tax, as Budget 2012 is due to be tabled by the Prime Minister on 7 Oct.

Read more...

Maybank IB Views

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)

Read more...

RHBInvest Research

Digi: Benefits from rebound in voice Trading Buy

2QFY11 Results / Briefing Note

¨ 1HFY11 net profit of RM567.7m (+2% yoy) was in line with expectations, accounting for 50-52% of our and consensus full-year estimates.

¨ QoQ, revenue grew 2.6% due to stronger data (+6.1%), as well as a rebound in prepaid (+2.9%) and postpaid (+2.2%) voice. EBITDA margin was stable at 45.8% (1QFY11: 45.9%). Net profit, however, dropped 28.7% qoq mainly due to the RM145.5m accelerated depreciation booked in 2Q (if stripped out, net profit grew 15.2% qoq).

¨ DiGi declared its 2nd interim single-tier DPS of 30 sen, i.e. payout ratio of 99% (in line with net payout ratio assumption of 100% in FY11, as guided by management).

Read more...

Maybank IB Views

Malaysia: MIER Quarterly Indices
"Circumspect" is the word...

MIER releases 2Q2011 Consumer Sentiment Index (CSI) and Business Conditions Index (BCI). CSI recorded another quarter of decline (-0.3pt QoQ to 107.9), BCI posted another quarter of rise (+0.7pt QoQ to 114.0) as inflation dampen consumers amid external risks and domestic opportunities facing businesses. In addition, the expectations sub-index for both CSI and BCI were down 0.5pt and 16.1pts respectively. Overall, the indices point to further moderation in 2Q 2011 real GDP growth, with continued caution ahead.

SECTOR UPDATE
Oil & Gas: Overweight
Tide is turning

Domestic OSV market entering calmer waters. We upgrade the Offshore Service Vessels (OSV) segment to Neutral following a 8-37% correction in share price YTD. Operationally, we opine the worst is over for the sector and prospects are set to improve, albeit at a gradual pace over the next 24 months. Stocks wise, we have upgraded Alam, TOFF and Perdana Petroleum to a Hold (from Sell previously).

Technicals
The FBM KLCI inched lower by 0.83 points to close at 1,579.84 yesterday. Its resistance areas of 1,579 and 1,597 will cap market gains, whilst the weaker support areas are located at 1,560 and 1,574.

Trading Idea is a Take Profit call on Muhibah

Other Local News
Dialog: Buys 51% stake in Indian Company. Dialog Group’s unit is paying RM7.88m for a 51% stake in India-based outsourcing company Anewa Engineering Pte Ltd to further boost its engineering capabilities and talent pool. The investment provides access to new customers, including those in the Middle East and India. (Source: The Edge Financial Daily)

AirAsia: Tie-up with ANA likely. AirAsia is likely to have a joint venture with Japan's largest carrier - All Nippon Airways (ANA) - to set up a low cost airline likely to be called AirAsia Japan. The LCC will serve the domestic market and eventually regional markets. (Source: The Star)

DiGi: Set to seal two MVNO deals. DiGi.Com Bhd is expected to announce two mobile virtual network operator (MVNO) deals in the second half of the year. (Source: Business Times)

Tradewinds Plantation: Gets nod to buy Mardec for RM140m. Tradewinds Plantation Bhd has received the green light from its shareholders to acquire rubber processor Mardec Bhd for RM140m cash. The acquisition was part of Tradewinds Plantations' strategy to expand its rubber business into downstream activities, complementing its existing rubber plantation operations. (Source: The Star)

Oriental Pearl Harbour: Close to RM4.5b UAE port deal. Oriental Pearl Harbour Sdn Bhd (OPH), which is bidding for the privatisation of the Penang Port, is on the verge of concluding a contract to manage and operate a port in the Middle East in a deal estimated to be worth more than USD1.5b (about RM4.5b). (Source: The Malaysian Reserve)

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RHBInvest Research

Sector Call



Telecom: Assessing upside on the 6% service tax issue Overweight (up from N)

Axiata: Fair value raised to RM6.00 (from RM5.75) Outperform

Digi: Fair value raised to RM34.00 (from RM30.00) Trading Buy (up from MP)

Read more...

Maybank IB Views

Malayan Banking: Not Rated
On track; to surpass internal targets

Within expectations. Maybank's results were within expectations, with 9MFY11 net profit of RM3.3b (+13.4% YoY) at 76% of consensus. 3QFY11 net profit growth of 10.9% YoY was largely the product of lower provisions (-68% YoY), as operating profit was flat (+0.3% YoY). FY11 should close above management's targeted ROE of 14% based on 9M's annualized ROE of 15%.

Genting RM11.20: Buy
Another royal flush from Singapore subsidiary

Large positive swing in GENS' earnings. We expect Genting's share price to perform well today after 52%-owned Genting Singapore's (GENS SP) 1Q11 results exceeded expectations (house and street) on above theoretical VIP win rate of 3.8%. GENS should continue to take the lion's share of VIP volume thanks to its generous credit policy. Maintain Buy on Genting with a fine-tuned SOP-based TP of RM12.76.

Media Prima RM2.68: Buy
A flawless quarter

Still recording YoY growth. Despite a relatively high base in the preceding quarter, Media Prima (MPR) still managed to record 1Q11 core net profit growth of 25% YoY. QoQ net profit contracted by 43% on seasonally lower ad spend but we expect ad spend to pick up as the year progresses. We maintain our Buy call and RM3.06 target price on 17x 1-year forward PER.

JT International RM7.16: Buy
Special dividend "coming soon"

Maintain Buy. JTI's 1Q11 net profit of RM34.5m (-8.6% YoY, +26.2% QoQ) formed 24% of our and 25% of consensus full-year forecasts. We see a further upside in the share price, to be boosted by a potential special dividend payout. Maintain Buy with an unchanged DCF-based target price of RM8.10 which implies 13x 2012 PER.

Technicals
The FBM KLCI fell 3.74 points to close at 1,532.29 yesterday. Its resistance areas of 1,534 and 1,550 will cap market gains, whilst the obvious support areas are located at 1,516 and 1,532. Due to the DJIA’s rebound tone last night, we will see the FBM KLCI with steady price action today.

Daily trading idea is a Short-Term Buy call on MHC.

Other Local News
MAS: Escalating fuel costs may affect target. Higher fuel costs will make it harder for Malaysia Airlines (MAS) to achieve its profit target this year but is unlikely to make a downward revision. (Source: Business Times)

Digi: Mulls higher dividend payout to offset lower net profit. DiGi.com Bhd is planning to increase dividend payout ratio to offset the expected lower net profit in future of its network modernizing plan. (Source: Bernama.com)

IGB: Allocates RM3b for overseas assets. IGB Corp Bhd has allocated up to RM3b for various assets acquisitions overseas this year, comprising mixed developments and hotels in Europe and the United States. (Source: The Star)

BIMB: May buy Bank Mualamat. BIMB Holdings Bhd has confirmed that both Khazanah Nasional Bhd and DRB-Hicom Bhd have offered to sell Bank Mualamat Malaysia Bhd to it. (Source: The Edge Financial Daily)

E&U: Main terms agreed for Bakun dam power purchase agreement. Sarawak Energy Bhd (SEB) and Sarawak Hidro Sdn Bhd have reached an agreement on the main terms of the power purchase agreement (PPA) for electricity produced by Bakun hydro dam, including the tariff that SEB would have to pay to Sarawak Hidro. (Source: The Star)

FDI: Tokuyama Corp to invest a further RM3.72b in Sarawak. Tokuyama Corp of Japan will invest a further JPY100b (RM3.72b) to build a second polycrystalline silicon plant in the Samalaju Industrial Park in Bintulu, Sarawak. The second-phase plant will produce polycrystalline silicon for solar cells, with an annual production capacity of 13,800 t. (Source: The Star)

Read more...

Maybank IB Views

RESULTS REVIEW
Digi.Com RM29.08: Hold
Positioning for the future Shariah-compliant

Positive surprise. 1Q11 RM331m net profit (+19% YoY, -0.3% QoQ) made up 26.4% of our previous full-year forecast of RM1.25b and 25.5% of consensus. We however cut our 2011-12 earnings forecasts by 20% and 22% respectively on accelerated depreciation charges, while our 2013 net profit is raised by 4% to incorporate higher margin assumptions. Our Hold call is maintained, with a raised EV/EBITDA target price of RM30.00 (RM26.70 previously).

Technicals
The FBM KLCI inched up 12.20-points and closed at 1,534.95 last Friday. The local market again remained lacklustre in quiet trading despite the DJIA’s firm upward performance. The obvious support areas for the FBM KLCI are located in the 1,498 to 1,534-zone. The firm resistance zone of 1,540 and 1,576 will see heavy liquidation activities.

Trading Idea is a Short-Term Buy call on F&N

Other Local News
AirAsia: To re-impose fuel surcharge. AirAsia Bhd has finally succumbed to the pressure of persisting high fuel prices and will re-introduce fuel surcharge ranging from RM10 to RM30 per flight after having abolished its fuel surcharge policy in late 2008. (Source: The Star)

Sime Darby: Motors to expand further in China. Sime Darby Motors is planning to expand the number of its vehicle outlets from 14 to 20 in the short term within both first and second-tier cities in China this year. (Source: The Star)

EonCap: Closure of deal. The board of EON Capital Bhd (EON Cap) has accepted the RM5.1b takeover bid by Hong Leong Bank Bhd (HLB), capping a 16-month battle to create the country's fourth-largest bank by assets. It also proposed a surprise net interim dividend of RM312m, or 45 sen per share, in addition to the offer price. (Source: The Star)

Utilities: Selangor confident of solving water issue. The Selangor government is confident that it will be able to solve issues pertaining the restructuring of the state's water industry through discussions with the Federal government as stipulated under the Water Services Industry Act 2006. (Source: The Star)

Iskandar: To attract RM73b new investment, Italian firm Galperti to set up plant. Iskandar Malaysia aims to attract RM73b new investments to the country's first economic growth corridor starting from January 2011 until December 2015. Separately, an Italian-based group is set to open a manufacturing plant in the Setia Business Park (SBP) in Iskandar Malaysia as part of the company's expansion plan into Asia. Galperti Manufacturing Malaysia Sdn Bhd is a subsidiary of the Galperti Group Italy, a market leader in the manufacturing of forged components for the oil and gas industries, in addition to chemical and petrochemical plants. (Source: The Star, Business Times)

Property: Residential property boom in Johor Baru. The prices of residential properties have risen by an average of 40% since 2006, in a city which used to suffer from an overhang of properties. Property owners and buyers can expect property prices in Johor Baru to rise by a further 10-20% by end of 2011, on increased costs alone. (Source: Business Times)

Construction: Three names submitted for Gemas-JB rail job. The Chinese government is understood to have nominated three companies to partner local outfits in bidding for the RM7b Gemas-Johor Baru double-tracking project. The companies include China Railway Engineering Corp (CREC) and China Raiway Construction Corp Ltd. The 3rd company is understood to be partnering Tan Sri Tan Kay Hock, who controls Johan Holdings Bhd and George Kent (M) Bhd. (Source: The Edge Financial Weekly)

Read more...

RHBInvest Research

Top Story: Fajarbaru

Visit Note
Upbeat on new contract wins
The new contract wins could potentially come from: (1) Package B of the Ampang and Kelana Jaya LRT line extension project; (2) Building jobs for schools, colleges and university campuses; and (3) Infrastructure works in the East Coast.
FY06/11 net profit forecast is reduced by 10% as we now assume the RM150m contract for the five new LRT stations to only start contributing in FY06/12 (vis-à-vis FY06/11 we assumed previously).
Fair value is trimmed from RM1.65 to RM1.57 but maintain Outperform.

Sector Call

Banks: Mar ‘11 system data

Sector Update
Leading indicators charting new heights
No change to our Overweight stance on the sector. CIMB, AMMB and Affin are our top picks for the sector.

Semicon: March chip sales still up yoy Neutral

Sector Update

Unisem: Fair value at RM1.99 Market Perform

MPI: Fair value at RM4.95 Underperform

Notion: Fair value RM2.25 Market Perform

JCY: Fair value at RM0.74 Underperform (down from MP)


Corporate Highlights

JCY:

Visit Note

• Labour issues to affect margins in FY11
• Also, management highlighted there could be potential component shortages mainly for the motor controller chips that could affect the global supply chain of the HDD industry.
• We are reducing our FY11 net profit by 11.3% mainly to input higher operating expenses. However, we are raising our FY13 net profit by 7.6% to reflect margin improvement on the back of its expansion to China .
• Thus, we downgrade our call to Underperform (from market perform) and a lower fair value of RM0.74/share based on unchanged 10x CY11 EPS.

AirAsia:

Briefing Note

• Growth story and IPO of overseas units not without caveat
• Fair value is RM2.10. Maintain Underperform.

Digi:

1QFY11 Results/Briefing Note

• 1 Network modernisation will not affect dividends
• We have fine-tuned our earnings forecasts by 0.2-0.7% for FY11-13 due to marginally lower depreciation charges from lower capex assumptions.
• Fair value raised to RM30.00 from RM29.10 due to lower capex assumptions of RM650m p.a. (previously RM720-750m). Although we like the stock as a decent dividend yield play with data-led revenue growth, we believe the stock is almost fully valued at this juncture. Downgrade to Market Perform.

Axiata:

Company Update

• A fairly strong start to 2011 for XL
• The strong 1QFY11 growth in XL reinforces our Outperform call on Axiata, which offers good growth prospects albeit moderating this year. Maintain our SOP fair value of RM5.75.

Paramount:

News Update

• Acquiring land in Klang. Total cash consideration is RM110m, to be funded by internal funds and/or borrowings.
• We are positive on this acquisition, as Klang is the 2nd largest city in Klang Valley after KL, with a population of close to 750k. A well-planned commercial development is hence marketable.
• No change in our earnings estimates pending guidance from the management on GDV of the project.
• Maintain Market Perform with an unchanged fair value of RM5.92.

EON Capital:

News Update

• Eon Cap announced last Friday that the Board had accepted HL Bank’s offer, subject to and conditional upon: 1) the payment of an interim net dividend amounting to RM311.9m by Eon Bank (Proposed Interim Dividend); 2) the Proposed Interim Dividend received by Eon Cap shall not form part of the assets of Eon Cap to be disposed to HL Bank; and 3) the offer price of RM5.06bn remains unchanged and shall not be adjusted for the payment of the Proposed Interim Dividend. HL Bank has since confirmed that it is agreeable to the above conditions.
• The Proposed Interim Dividend is subject to the approval from BNM. In addition, an application will be made to the SC for the proposed change in control of MIMB Investment Bank. Once BNM’s and SC’s approvals are obtained, both parties shall proceed and complete the transaction.
• No change to our fair value of RM7.30 (based on HL Bank’s offer price) and Underperform call.

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Stocks to Watch: EON Bank, EON Capital, DiGi, Masterskill, construction, O&G

KUALA LUMPUR: The FBM KLCI is likely to kick-off May on a cautious note as historically the market drifts lower in this month.

With few fresh leads coming from the regional markets after the extended weekend, as well as a three-day break starting in Japan on Tuesday, investors will likely look for domestic news flow to decide on how best to allocate their funds.

Meanwhile, US stocks rose last Friday on strength from Caterpillar and other industrials, lifting the Dow and Nasdaq to their best monthly performance since December, according to Reuters.

The advance at Wall Street on Friday was also due to Federal Reserve chairman Ben Bernanke's pledge to keep cheap money flowing through the economy pushed the Nasdaq to a 10-year high, and gold and silver broke records.

MIDF Research head Zulkifli Hamzah said the FBM KLCI closed 0.7% lower in April, the first time in seven years that the market ended the month on a negative note.

He said it was not a reassuring development moving into May as the market tended to drift lower for the month, adding that in seven out of the last 10 years, the KLCI closed May lower.

Zulkifli said he expects a continuation of positive news flow particularly with regards to the ETP-related initiatives in May.

The oil and gas sector was likely to remain upbeat with expectations of more contract announcement on upstream E&P projects both in the deepwater and marginal field developments, he said.

"Stocks of major offshore oil and gas fabricators such as MMHE and Kencana may attract buying interests in view of the pending announcements," he said.

He also said the government had announced its intention to begin CONSTRUCTION of the MRT project in July this year, the exact date being July 8, 2011, adding that tender pre-qualifications for some sections of the project were expected to be undertaken as soon as the month of May.

"Hence we may see some excitements in big construction players such as Gamuda and IJM Corp in anticipation of the tender exercises," he said.

On Bursa Malaysia, stocks to watch include EON Bank Bhd and EON CAPITAL BHD, DIGI.COM BHD, Masterskill Education Group Bhd, construction, and, oil and gas counters.

EON Bank has proposed a dividend of RM311.94 million, translating into 44.9 sen per share, but to be paid to its parent EON Capital Bhd.

The proposed interim dividend was a surprise when EONCap announced on Friday, it had accepted HONG LEONG BANK BHD's offer of RM5.06 billion or RM7.30 per share.

DiGi posted net profit of RM331.39 million in the first quarter ended March 31, 2011, up 19% from RM278.25 million a year ago. Revenue rose 10.8% to RM1.43 billion from RM1.29 billion. It declared an interim dividend of 43 sen.

Masterskill won its suit against Sistem Televisyen Malaysia Bhd (STMB) over the visuals of its college on a TV3 news report about 60 colleges which had been deregistered.

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RHBInvest Research

Sector Call

Telecom:

Sector Update

• Cheaper broadband on the horizon?
• We like Axiata (OP, FV = RM5.75) for strong growth prospects albeit moderating this year. Our main concern is the uncertainty of the 2G spectrum renewal fee in Bangladesh.
• While we favour DiGi (OP, FV = RM29.10) for decent growth prospects and dividend yields, we believe valuations may no longer look very attractive and are reviewing our call pending its results on 29 Apr.

Corporate Highlights

Sime Darby :
News Update

• Awarded RM1.15bn contract
• With this award, we uphold our view that there is a greater chance of Sime being able to dispose its O&G division at a more reasonable price, given the vote of confidence from Petronas.
• Given the minimal impact, we are leaving our forecasts unchanged for now, pending further details on the contract. We maintain our Outperform call with RM10.70 fair value.

CBIP:

News Update

• Awarded RM38.35m contract from Ministry of Health
• Our target price is maintained at RM4.65.Maintain Market Perform.

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RHBInvest Research

Top Story: Faber

Briefing Note

Moving Along Into 2011
Currently, the company has unbilled sales of RM140.8m and is on track to launch two property projects with an estimated GDV of RM509m.

No change to our earnings projections.

Our fair value remained unchanged at RM2.22 and we reiterate our Market Perform call on the stock.



Sector Call



Telecommunications:

Sector Update

Yes’ new pricing unlikely to disrupt market
Our top pick is DiGi, for decent earnings growth (mid-teens) and high dividend yield (c.6%).

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Maybank IB Views

COMPANY UPDATE
Gamuda RM3.83: Buy
NO to Selangor's water offer Shariah-compliant

As expected. SPLASH's rejection of the Selangor Government's latest offer was expected, for the offer values SPLASH at just 0.63x book, we estimate. We had anticipated the action by SPLASH's shareholders, including Gamuda which holds a 40% stake. We foresee the water consolidation exercise in Selangor to be another long drawn affair. No change to our earnings forecasts and target price for Gamuda.


S P Setia RM6.42: Buy
Strengthening its foothold in JB Shariah-compliant

New Tebrau land boosts EPS by 2.4%. We are positive on the recent land purchase in Tebrau given its fair pricing. The land is expected to enhance our FY13 earnings by 2.4%, whilst leaving negligible impact to our RM6.50 RNAV. We continue to like SP Setia (SPSB) and see the recent correction in the share price as an excellent opportunity to accumulate the shares. No change to earnings forecasts and RM7.15 TP (10% premium to RNAV). Reiterate Buy.


RESULTS REVIEW
CIMB Group Holdings RM8.45: Buy
Pipeline remains healthy

Pipeline healthy, regional operations contributing well. CIMB's pre-results briefing last Friday (2010 results will be announced 23rd Feb) largely steered clear of specifics. The overall tone nevertheless remains upbeat into 2011, for CIMB enters the year with a healthy business pipeline and strong growth in regional operations. No change to our earnings forecasts. Buy maintained with an unchanged DDM-based target price of RM10.30.


Digi.Com RM25.30: Hold
Results above, dividends below Shariah-compliant

Mixed surprises. RM1.18b 2010 net profit (+18% YoY) was above our expectation at 108% as ongoing operational efficiency initiatives continue to bring results. We upgrade our 2011-12 earnings forecasts by 6-7% p.a., and DCF based target price to RM26.70 (+7%), which implies 16.6x 2011 PER. A fourth 43sen single-tier DPS brings 2010 DPS to 163sen, representing 107% net profit payout (2009: 138%), below our 130% forecast. No change to our 105% payout forecast for 2011 which implies 6.7% net yield at current levels. Maintain Hold.


Guinness Anchor RM9.63: Hold
The second part of a perfect pint pour

Above expectations. RM103m 1HFY11 net profit (+46.5% YoY) made up 61% of our full-year forecast due to unexpected cost write-back. We maintain our earnings forecasts, pending details on the write-back which should be a one-off. No change to our RM10.60 DCF-based target price which implies 16x 2011 PER. Guinness remains a Hold.


SECTOR UPDATE
Banking: Overweight
Dec '10 statistics: Loans Up 12.8% YoY

2011 loan growth of 10-11%. The positive of 2010 is that household and corporate loan demand kept pace to support economic momentum, with growth rates of 13.2% and 12.3% respectively. Overall system loans ended the year up 12.8% YoY, marginally above our full-year forecast of 12%. We look to lending momentum of 10%-11% for 2011 and maintain an Overweight on the banking sector.


Technicals
The FBM KLCI plunged 25.54-points and closed at 1,521.89 last week as some further heavy profit-taking and liquidation activities caused the market’s large fall for the second consecutive week. The weaker support areas for the FBM KLCI are located in the 1,474 to 1,505-zone. The key resistance zone of 1,521 and 1,576 will offer major selling and liquidation activities.

Weekly trading idea is an ACCUMUALTE call on SAPCRES


Other Local News
Alam Maritim: Bidding for RM400m jobs. Alam Maritim Resources Bhd is bidding for RM400m worth of jobs this year to ride on the recovering sector which was subdued last year due to the global economic crisis. The offshore marine transportation service provider will submit bids in Indonesia, Brunei and Sabah as part of the group's long-term growth plan. (Source: Business Times)

Gaming: Genting said to be keen on Pan Malaysian Pools. The Genting group is making a bid for Pan Malaysian Pools Sdn Bhd (PMP), the number forecast operator (NFO) owned by Tanjong plc. Its bid is in the higher end among bids that have been submitted. The other bids are believed to be between RM1.8b to RM2.5b. (Source: The Edge Financial Daily)

Infrastructure: No rates hike on two highways. The Prime Minister announced that the toll rates for the Kuala Lumpur-Karak Expressway and East Coast Expressway Phase One would not be increased for the next five years. The decision was made following a review of transportation costs, including restructuring of the toll charges and to ease the people's burden. Furthermore, no compensation would be paid to the concessionaires of the two highways. (Source: The Star)

Infrastructure: All eyes and ears on second MRT line. The second mass rapid transit (MRT) line, which circles the Kuala Lumpur city centre (KLCC) orbital and known as the "circle line", is already in the final planning stage. The details are expected to be announced in March. The circle line is expected to cover the hotspots surrounding the KLCC, Jalan Bukit Bintang, the new Kuala Lumpur International Financial District in Dataran Perdana, KL Ecocity, Pusat Bandar Damansara and Sentul, among others. (Source: The Star)

Regulations: Changes in takeover rules. The Securities Commission (SC) and Bursa Malaysia raised the minimum shareholder approval threshold for takeovers via asset and liabilities route to 75% from the previous simple majority minimum. Other significant changes include the need for companies undergoing privatisation to obtain independent advice to ascertain if the offer is fair and reasonable and to ensure high net-worth investors are well informed of any structured products being offered to them. (Source: The Star)

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RHBInvest Research

Banks:
Dec ’10 system data – Ending on a strong note.
No change to our Overweight rating on the sector.
For an exposure to large cap banking stocks, our top pick is CIMB while Affin is our top pick within the small-mid cap space.

Corporate Highlights

Digi:
Ends on a high.
Fair value raise to RM29.10 from RM26.35. Maintain Outperform.

SP Setia:
Buying more land in Johor.
Maintain Outperform and fair value of RM7.39

Hiap Teck:
Proposes rights issue and convertible bond issue.
Fair value is maintained at RM1.18. Underperform.

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Maybank IB Views

COMPANY UPDATE
Hartalega Holdings RM5.44: Buy
The nitrile wave keeps rolling Shariah-compliant

Upgrade to Buy with a RM6.80 DCF-based TP. Hartalega is set to profit from the structural demand switch to nitrile gloves, at the expense of latex gloves. Demand for nitrile gloves will continue to encroach into the latex gloves market as nitrile gloves ASP discount to latex widens (atypical in the past). Top Glove's M&A search for nitrile glove-makers and latex gloves' declining earnings are some of the recent developments that support our Buy call for Hartalega.


Technicals
The FBM KLCI closed lower by 4.45 points at 1,570.04 yesterday. Its resistance areas of 1,570 & 1,576 may cap market gains, whilst its firmer support areas are located at 1,558 and 1,568.

Trading idea for today is a SHORT TERM BUY call on TM.


Other Local News
Axiata, DiGi: To save RM2.2b with network deal. Celcom Axiata Bhd and DiGi Telecommunication Sdn Bhd have signed a Network Collaboration Agreement. The scope of the tie-up will initially focus on the sharing of telecommunication sites, access transmission (microwave links), aggregation transmission and trunk fibre transmission. Full realization of cash savings is estimated to be about RM2.2b over 10 years. They expect to see incremental savings as early as 2012 and gradually ramping up to an average annual savings of RM150m to RM250m after 2015. (Source: Bursa Malaysia)

Pos: Khazanah to invite bids for Pos stake. Khazanah Nasional Bhd will invite bids this week through its advisor CIMB Investment Bank Bhd for the divestment of its 32.2% stake in Pos Malaysia Bhd. Pos Malaysia's stake divestment would be a two-stage process, with the first stage addressing regulatory aspects such as the increase in postage tariff rates and rise in salaries and allowances for most of Pos Malaysia's staff. While stage one has not been fully completed as other regulatory aspects such as the Postal Bill have yet to be addressed, Khazanah will proceed with stage two, where it will draw up a bidding and evaluation process to select a new shareholder for Pos Malaysia. (Source: The Star)

Proton: Seeks RM2.35b funding to revive Lotus. Proton Holdings Bhd is in talks with CIMB Bank and several others to secure loans and investments totaling GBP480m (RM2.35b) needed to turn around Group Lotus. The funds will mainly come from loans and the rest will be from Proton's additional investments and revenue from Group Lotus. (Source: The Star)

KPJ: To acquire two medical centres. KPJ Healthcare Bhd’s wholly owned subsidiary, Kumpulan Perubatan (Johor) Sdn Bhd (KPJSB) is buying a 100% stake in Sibu Medical Centre Corp Sdn Bhd (SMCC) and Sibu Geriatric Health & Nursing Centre Sdn Bhd (SGHNC). KPJSB will pay RM26.9m for SMCC and RM1.24m for SGHNC. (Source: Bursa Malaysia)

Jetson: Buys lands in Penang for Rm14m. Kumpulan Jetson Berhad's 51% owned subsidiary, Jetson Development Sdn Bhd has acquired 48,290 sq ft of lands in Penang for RM14m from Malaysian Building Society Bhd (MBSB). The three pieces of land are located in Georgetown. (Source: Bursa Malaysia)

Property: Transactions may hit RM100b. A total of 342,179 property transactions worth RM96.8b were recorded between January and November last year, which means the full year's transactions could reach the RM100b mark. This is the first time transactions value has reached this figure. (Source: The Star)

Manufacturing: To attract over RM50b. Malaysia expects investments in the manufacturing sector to surge to more than RM50b this year. The manufacturing sector, which was the fastest growing sector last year, attracted RM47.2b in approved investments in 910 projects, a 44.8% jump compared with RM32.6b received in 2009. The US was the largest source with investments totaling RM11.7b, mainly in electrical and electronics (E&E), machinery and equipment and scientific and measuring equipment. Other top investors were Japan, Hong Kong, Singapore and Germany. (Source: Business Times)

Khazanah: Portfolio at record RM75b. Khazanah Nasional Bhd saw the net worth of its portfolio rise 39.4%, or RM21.2b, to a record RM75b as at Dec 31, 2010 from RM53.8b in 2009. Total shareholders' return on Khazanah's portfolio of listed companies in 2010 stood at 33.4%, outperforming the FTSE Bursa Malaysia KL Composite Index's total return of 23.3% over the same period. (Source: The Star)

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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

COMPANY UPDATE
S P Setia RM6.70: Buy
Swap for prime Bangsar land Shariah-compliant

Maintain Buy. We are positive on the potential 40-acre land in Bangsar under a land swap agreement with the government. The development could boost our RNAV/sh estimate for S P Setia (SPSB) by 19sen to RM6.47. We retain our RM6.28 RNAV estimate and RM6.90 TP (10% premium to RNAV) for now, which have upside potential. During peak times, SPSB had traded up to a 20% premium to its RNAV which implies RM7.54 potential target based on our existing RNAV estimate.


Malaysia Marine and Heavy Engineering Holdings RM6.37: Buy
New year, new head, new direction Shariah-compliant

We are positive. Dominique's appointment as MHB's MD signals the Group's commitment to: (i) enhance and internationalise its franchise values, (ii) improve collaborations between MHB and Technip, and (iii) capitalise on Technip's strength in subsea structures, offshore platforms and onshore mega complexes areas.


Technicals
The FBM KLCI lost 2.32-points and closed at 1,569.89 last week as some profit-taking activities caused the market’s small decline after the previous week’s surge. The firm support areas for the FBM KLCI are located in the 1,531 to 1,569-zone. The key resistance zone of 1,571 and 1,576 may offer some token selling only.

Weekly trading idea is a technical ACCUMULATE call for AIRASIA.


Other Local News
TNB: Considers additional capex of RM300m. Tenaga Nasional Bhd (TNB) is considering an additional capital expenditure (capex) of RM300m over the next two years, aimed at improving supply reliability in the Iskandar region of Johor. Under a special project called "Iskandar 10", TNB aims to reduce the level of interruption in the critical area to 10 minutes within the next three years. (Source: The Star).

DiGi: Unit applies for spectrum. DiGi Telecommunications Sdn Bhd, a wholly-owned subsidiary of DiGi.Com Bhd, has submitted its application to the Malaysian Communications and Multimedia Commission (SKMM) for spectrum in the 2600MHz band. This is pursuant to SKMM's offer to award 20MHz of this spectrum via apparatus assignment subject to DiGi submitting a suitable business plan. (Source: Bursa Malaysia)

MUI: More parties eye MUI insurance unit. Malayan United Industries Bhd (MUI) has received Bank Negara Malaysia's approval to commence preliminary negotiations with Liberty International Holding Inc to sell its entire 52.2% equity stake in MUI Continental Insurance Bhd. Liberty is a unit of Boston-based Liberty Mutual Group, the sixth largest property and casualty insurer in the US. (Source: The Edge Financial Daily)

Finance: Government's RM10b strategy to build police quarters, facilities. The Minister of Finance Inc's 99.99%-owned Pembinaan BLT Sdn Bhd (PBLT) will raise up to RM10b to finance the construction of 74 police quarters and facilities. CIMB Investment Bank Bhd is the principal adviser and lead arranger for the Islamic medium term notes (IMTN) programme whereas Bank Islam Malaysia Bhd is the syariah adviser and the consultant to PBLT would be Prokhas Sdn Bhd. The joint lead managers are AmInvestment Bank Bhd, Bank Islam, CIMB, Maybank Investment Bank Bhd and RHB Investment Bank Bhd. (Source: The Edge)

E&U: First power line from Bakun to Bintulu completed. The first line to transmit power from Bakun dam to Similajau, Bintulu, has been completed while Sarawak Energy Bhd's (SEB) Similajau power sub-station in Bintulu is expected to be ready by March. Works are now underway to construct a power sub-station within the proposed Samalaju Industrial Park to supply electricity to energy-intensive industries such as the aluminium smelting and solar panel plants. (Source: The Star)

Construction: MRT may cost over RM36.6b. The cost of building the mass rapid transit (MRT) transport system, which is scheduled to begin construction in six months, may swell beyond the projected RM36.6b as developers and residents have begun lobbying on the proposed locations and types of stations. Business leaders want the MRT stations to be located close to the centre of commercial activity, in some cases where they have projects or plan to build one, but residents living near or adjacent to the proposed lines have voiced objection against the MRT tracks being built above ground and want the lines and stations to be underground so as to avoid congestion and noise pollution issues. (Source: The Star)

Plantation: Severe labour shortage in Sarawak estates. Sarawak oil palm companies want the state government to allow the recruitment of foreign workers other than Indonesians to address the worsening labour shortage issue. They have also asked the authorities to extend work permits to 10 years from the present six years for selected skilled foreign workers. (Source: The Star)

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DiGi to spend RM700mil to improve services next year

SHAH ALAM: The robust growth in data/broadband/Internet is forcing telcos and celcos to invest more to upgrade and expand their networks and DiGi.Com Bhd says it will invest RM700mil in 2011 in capital expenditure.

Although the amount is similar to what it has spent this year, a lot more will go towards enhancing data and Internet rather than voice services next year.

“We are in the new era of data and Internet. We know where our growth is going to come from and we will invest RM700mil to grow our coverage and capacity,'' DiGi chief executive officer Henrik Clausen told StarBiz in an interview.

“We can still grow our voice (business) but it would not be as big; the potential is limited for we see a turning point in voice,'' he said.
Interview with CEO of DiGi Henrik Clausen. - M. Azhar Arif/The Star.

Last week, DiGi awarded a RM139mil contract to Time dotCom Bhd to plug the holes in its data network. The contract is for a 10-year period and also covers support and maintenance works.

Voice coverage for DiGi has reached 95% in populated areas and 50% for data.

“We are well on track to increase it next year and the capex will be internally funded,'' Clausen said.

Revenue growth in 2011 is expected to be in the “high single digit to 10%''. Contribution from the data and Internet business was expanding, he said.

For the nine months ended Sept 30, 2010, DiGi earned RM3.9bil in revenue and reported net profit of RM846mil which was a 12.2% increase year-on-year (y-o-y). Earnings before interest, taxes, depreciation and mortisation (EBITDA) margins stood at 44%, up from 43.5% a year earlier.

Data (including SMS) revenue for the period rose 16% to RM838mil from RM721mil a year ago.

DiGi had 8.2 million users as at end-September, which is a 10% jump from 7.4 million reported a year earlier. DiGi's rivals Maxis Bhd and Celcom Axiata Bhd have 13.5 million and 11.09 million users respectively.

Maxis controls with 45% market share, followed by Celcom at about 29%, DiGi at over 25% and the rest is held by other players.

“We have been good at taking our fair share of growth in the market and this year we added 1% market share. In the telecoms industry, size matters,'' Clausen said.

He said that over 30% of its users were on some data packages and he expected all DiGi users to be data/Internet users in a few years.

DiGi is a latecomer in the data business compared with Maxis and Celcom but the former's strategy of being transparent about broadband speeds on top of its reasonable pricing will see it through the year with about 5.7% market share of broadband subscribers from 1.9% in 2009, according to an analyst.

For next year, the analyst expects DiGi's share to rise to 7.2%. Maxis and Celcom's market share of broadband subscribers should be about 19.5% and 24.5% for 2010 and 21.5% and 24.4% in 2011 respectively.

The analyst said the broadband industry revenue should double in three years and the key driver would be wireless broadband, which would also triple in three years' time.

The data and broadband market may be booming but it is not without challenges and intense competition. With customers also more demanding, wanting quality service at more affordable prices, can DiGi fight its rivals?

“We want data to be an integral part of DiGi and (to do that) we will leverage on our distribution network, innovate and enhance the product offering. We will ride on our branding as that is where our stronghold is,'' he said. Clausen is fully aware of the need for the company to be more customer centric.

“We want to grow, and grow faster than the industry. We also want to be part of the growth story in Malaysia. The market is maturing and so is our company. We believe we need to stay smart all the time. We have managed thus far and will do that again in 2011,'' he said.

Plans are also in place to cut cost, set new targets, re-invent and equip the team so that they can better serve customers and be ready for the challenges ahead. Clausen is working for the organisation to be far more efficient, effective and leaner.

With the industry maturing, he foresees a lot more sharing and partnerships between the players to reduce costs. DiGi is gearing to sign a collaborative agreement with Celcom in that respect in January.

On Friday, DiGi shares fell 26 sen or 1% to RM24.60. The company has been actively paying out dividends the past few years and an analyst in his report said that even though DiGi and Maxis were high-yield telco picks, Maxis' net dividend yields are slightly higher at 7.4% versus DiGi's 7.2%.

source: thestar

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Maybank IB Views

RESULTS REVIEW
Gamuda RM3.83: Buy
No surprises in 1Q, MRT in the bag ! Shariah-compliant

Positive big win. RM88.5m 1QFY11 net profit (+11% YoY) is 25% of our full-year forecast and 23% of consensus. Construction and property drove earnings uptrend. The award of the Greater KL MRT project delivery partner (PDP) role to MMC-Gamuda is positive, to potentially drive mid term earnings. No change to our earnings forecasts for now, while we have already imputed a 50sen impact from the MRT project in our RM4.45 RNAV-based target price. Maintain Buy.


COMPANY UPDATE
IJM Corporation RM6.27: Buy
Another major win; MRT, LRT jobs ahead? Shariah-compliant

Replenishing nicely. A new RM461m building works contract has lifted IJM's FY11-YTD job wins to RM1.61b, closing in to our RM2b estimate for FY11. No change to our earnings forecasts. Last Friday's Greater KL MRT project go-ahead and the remaining packages of the LRT extension works may benefit IJM, based on its works experience. The stock remains a Buy with a RM6.40 RNAV-based TP.


Technicals
The FBM KLCI lost 7.40-points and closed at 1,499.28 last week. The obvious support areas for the FBM KLCI are located in the 1,474 to 1,495-zone. The key resistance areas of 1,499 and 1,531 may cap any rebound activity.


Other Local News
EPIC: Ambitious plans for Tasik Kenyir. Eastern Pacific Industrial Corp Bhd (EPIC) has been granted the project to transform Terengganu's Tasik Kenyir, the largest man-made lake in Southeast Asia, into a duty-free shopper's paradise. This is part of the redevelopment plan to turn Tasik Kenyir, which will attain a duty-free status by the end of 2012, into a major tourist spot. (Source: The Star)

Genting Group: Gets nod for Vietnam venture, eyes Sri Lanka. The JV between Genting Group and a Vietnam fund manger VinaCapital has obtained approval from the central government for a USD4b (RM12.5b) casino resort project in Hoi An city, Vietnam. The large scale project features a five-star hotel, resort villas and a casino. Genting Group is also exploring the setting up of a casino in Sri Lanka, as its parliament recently passed the Gambling (Special Provision) Bill to legalise gaming. (Source: The Edge Financial Weekly)

Sime Darby: Culprits in Sime's RM2.1b losses to face full brunt of the law. The Malaysian Anti-Corruption Commission (MACC) has found several "elements of fraud" in Sime Darby Berhad and has shared its findings with police and the Companies Commission (SSM) for them to initiate action. Sime Darby was found to have breached several provisions under the Penal Code, the Companies Act and the Anti-Corruption Act 2009. (Source: The Star)

DiGi: Plans to spend RM700m in capex next year. DiGi.com Bhd will invest RM700m in 2011 in capital expenditure, focusing on enhancing data and internet rather than voice services. Revenue growth is expected to be a high single digit to 10% with the expanding contribution from data and Internet business. (Source: The Star)

RHBCap: EPF may sell 9% in RHBCap. The Employees Provident Fund (EPF) is planning to sell another 9% stake in RHB Capital Bhd to a diverse group of institutional fund managers. The senior management of RHB Banking Group participated in roadshows in the region and in London and New York to meet foreign investors, mostly institutional fund, for the divestment. (Source: The Edge Financial Weekly)

Kencana: JV with Petrofac may bag Berantai job. Kencana Petroleum Bhd and its technical partner London-based Petrofac Ltd have emerged as the front runners to bag the exploration of the Berantai oil and gas field at PM309, off the coast of Peninsular Malaysia. Kencana and Petrofac may opt for either a processing platform or a standalone development, utilizing a floating production, storage and offloading (FSPO) vessel. (Source: The Edge Financial Weekly)

Conglo: JCorp seeks to remove Muhammad Ali. Johor Corp (JCorp) is seeking to remove Tan Sri Muhammad Ali Hashim, its previous head for 18 years, from the boards of three listed companies it has direct stakes in. JCorp has called for EGMs at Kulim (M) Bhd, KPJ Healthcare Bhd and Damansara Realty Bhd (DRealty) for this purpose. (Source: The Star)

Scomi Marine: Unit to sell foooour logistic firms. Scomi Marine Bhd (SMB) unit Scomi Marine Services Pte Ltd has proposed to sell four companies to its 80.5%-owned subsidiary PT Rig Tenders Indonesia Tbk for IDR323.1b (RM538.3m) in a group-related corporate exercise. The four companies Scomi Marine Services is disposing of (its entire equity interest) are CH Logistics Pte Ltd, CH Ship Management Pte Ltd, Grundtvig Marine Pte Ltd and Goldship Private Ltd. (Source: The Star)

KPJ: Shareholders approve hospitals sale. KPJ Healthcare Bhd's shareholders have approved the disposal of three hospitals to the company's associate Al-Aqar KPJ Real Estate Investment Trust (REIT) for RM138.8m. KPJ, a 48.4% associate of Johor Corp, has a 43% stake in Al-Aqar KPJ REIT. The three hospitals being sold were the Bandar Baru Klang Specialist Hospital and the Kluang Utama Specialist Hospital in Malaysia as well as the Rumah Sakit Bumi Serpong Damai hospital in Jakarta. (Source: The Star)

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