Bought Glomac on last Friday at RM1.12.
Top Glove – Easing latex prices to help drive recovery – Underperform call based on PER of 15x
Banking: Overweight
Loan growth slows in February
Loan growth assumptions maintained. While there is some tapering off in loan growth in Feb, this may be attributed in large part to lumpy loans in Jan. The moderation in household loan demand, meanwhile, was as expected. We maintain our system loan growth forecast of 11.5% for 2011 (12.8% in 2010), with expectation that non-household loans will grow at a faster clip of 12.7% (12.3% in 2010) to supplant a moderation in household loan growth (10.5% in 2011 vs 13.2% in 2010). We maintain our Overweight on the banking sector with Buys on RHB Capital and CIMB.
COMMENTS ON NEWS
Sunway REIT RM1.06: Buy
Buys Putra Place at a discounted price
Maiden acquisition post-listing. SunREIT has confirmed the purchase of RM514m Putra Place (PP). Despite the discounted purchase price and potential enhancement opportunities offered by PP, we are neutral on the deal given our concerns on the office market and huge capex and considerable timeline required before PP contributes significantly. No change to our earnings forecasts and RM1.15 target price pending further details from the management.
COMPANY UPDATE
Petronas Chemicals Group RM7.24: Buy
Panic buying drives March higher Shariah-compliant
Supply disruption boost. PCHEM's product margin in Mac 2011 was USD1,204/ton (+40.4% YoY, +7.3% MoM), we estimate. The year-to-date product margin of USD1,106/ton is 28.5% higher YoY, and above our 2011 estimate of USD1,027/ton. The supply disruptions in Japan have triggered panic buying and pushed prices up. Maintain Buy; there is no change to our earnings forecasts and RM8.00 target price.
Lafarge Malayan Cement RM7.40: Buy
Here comes the ASP hike Shariah-compliant
Coal cost inflation proof. LMC will raise its gross cement ASP to RM318-320/mt (+6%) today to offset the coal cost increase and defend margins. Though there is no impact on our earnings forecasts, we think this would remove the overhang on share price, which has fallen 8% YTD on concerns over high coal costs. Currently trading at 14.8x 2012 PER, valuation is undemanding as Lafarge had traded up to 17x in the previous 2007 peak cycle. Maintain Buy; RM8.50 TP (17x 2012 PER).
RESULTS REVIEW
Glomac RM1.79: Buy
Beats consensus forecasts Shariah-compliant
Maintain Buy. Glomac's RM48m 9MFY11 net profit (+70% YoY) was within our expectation but beats consensus estimates by 10%. Glomac is on track to record "record" profits as 9MFY11 net profit has already exceeded FY10's RM41m. We see sales picking up significantly in 4QFY11 (9MFY11: RM206m), given strong bookings from its RM285m Glomac Damansara (GD) Residences. We maintain our forecasts and RM2.38 target price (20% discount to RM2.97 RNAV).
Technicals
The FBM KLCI rose by 13.50 points to 1,545.13 yesterday. Due to the DJIA’s marginally weaker tone last night, we will see the FBM KLCI in a benign mode today, with some pre-weekend profit-taking activities. Its resistance areas of 1,547 and 1,558 will cap market gains, whilst the obvious support areas are located at 1,528 and 1,545.
Trading idea for today is a Buy call on TASCO.
Other Local News
CIMB: In quick U-turn on BLR. CIMB Bank and CIMB Islamic Bank Bhd will not raise their respective base lending rate and base financing rate. The two banks back tracked on their decisions in less than 24 hours after having announced a rise in lending rates on Wednesday. (Source: The Edge Financial Daily)
Maybank: Sets price of DRP shares. Malayan Banking Bhd (Maybank) has fixed the issue price of new shares under its dividend reinvestment plan (DRP) at RM7.70 each. (Source: Bursa Malaysia)
MAHB: Expects RM1b revenue from commercial services. Malaysia Airports Holdings Bhd expects one third of its expected revenue of RM3b to originate from commercial services by 2014. (Source: The Edge Financial Daily)
Time Dotcom: In IPTV deal with Measat. Time Dotcom Bhd’s wholly-owned subsidiary, TT Dotcom Sdn Bhd (TTdC), has entered into a collaboration agreement with Measat Broadcast Network Systems Sdn Bhd (MBNS) to provide Internet Protocol television (IPTV) and broadband services across the Klang Valley and Penang. (Source: Bursa Malaysia)
Perisai: Explains its proposed Garuda Energy deal. Perisai revealed that with the acquisition of Garuda Energy, it would assume a debt of RM120m of the latter. (Source: Bursa Malaysia)
HELP: Sees potential in Sri Lanka and Cambodia. HELP International Corp Bhd (HIC) is looking to expand into Sri Lanka, Cambodia, the Middle East and Africa to franchise its education programmes as well as offer professional niche courses for business continuity to rev up its revenue stream. (Source: The Star)
O&G: MOX-Linde upbeat on M'sian ops. MOX-Linde Gases Sdn Bhd, a local subsidiary of the Germany-based industrial gas company The Linde Group, is set to invest further in the country. The company planned to set up two production facilities in Iskandar Malaysia. (Source: The Star)
Corporate Highlights
Sunway REIT:
News Update
Buying Putra Place.It comprises a retail podium, an office tower, a five-star hotel, service apartments and penthouses as well as 1,323 car parking bays.
No change in forecasts, pending more details from management. Maintain Market Perform with a fair value of RM1.05.
Glomac:
Property:
Sector Update
Fundamentals intact despite weak market sentiment
We lower our fair value on Glomac and YNH. As for KSL, the stock is still largely undervalued.
We maintain our Overweight rating on the sector. Our top pick is Mah Sing.
Corporate Highlights
UMW Holdings:
Company Update
UMW Secures NAGA-3 Contract
We reiterate our Market Perform recommendation and fair value of RM7.85
SP Setia:
Results Note
As good as expected
Maintain our Outperform call with an unchanged fair value of RM7.30
Kencana Petroleum:
Results Note
Earnings Mainly Bumped Up By KM-1
We maintain our fair value at RM2.85/share and our Market Perform call on the stock.
ACQUISITIONS / DISPOSAL
Glomac RM1.72: Buy
Deep value, strong upside potential Shariah-compliant
Growth intact on strong sales. We expect 9MFY11 results, due on 31 Mar, to be in line (+70% YoY). Glomac will very likely beat its RM500m FY11 sales target thanks to strong take-up at Glomac Damansara (GD), lifting total unbilled sales above the RM1b mark this year. This excludes potential enbloc sales worth up to RM445m, some of which are at the advanced stage of negotiations. We raise earnings forecasts by 6-11% and RNAV by 11%. Our TP is upgraded to RM2.38 (20% discount to RM2.97 RNAV). Glomac is our top small-cap property pick.
ECONOMICS
Industrial Production Index (IPI), Jan '11
No surprise in the slow start to 2011...
Jan '11 industrial production growth decelerated further to +1.0% YoY (vs revised Dec '10: +4.5% YoY; Maybank IB: +1.7% YoY; Consensus: +1.2% YoY). Manufacturing and electricity output continued to post growth albeit at slower paces while mining output contracted for a fourth consecutive month. MoM, overall production grew by +0.4% from Dec '10.
Technicals
The FBM KLCI fell 6.78 points yesterday to close at 1,516.91. Its resistance areas of 1,516 and 1,530 will cap market gains, whilst the obvious support areas are located at 1,500 and 1,514.
Trading idea for today is a Buy call on SAPCRES.
Dayang: Outperform
Maintaining the edge
Our new fair value is RM3.54/share (from RM3.36/share).
We thus maintain our Outperform call on the stock.
Commodity Corner
Crude Oil:
WTI crude oil price fell to US$87.70/barrel
Dialog (OP, FV = RM2.82) remains our top pick for the sector
Corporate Highlights
Glomac:
Buying 90-acre land in Puchong
Our indicative fair value is hence revised up to RM2.19 from RM2.15.
Maintain Outperform.
SECTOR UPDATE
Property: Overweight
Buoyant outlook
Maintain Overweight. The Malaysian Property Summit 2011 on 18 January reinforced our bullish stance on the sector. We reiterate that the upcoming MRT project is a catalyst for a structural change in the Greater KL / Klang Valley property scene, resulting in a positive re-rating of property/land values. Glomac and Mah Sing offer higher upside to our target prices after strong share price performance by SP Setia, our top pick for 2011. For REITs exposure, we like SunREIT.
RESULTS REVIEW
Tenaga RM6.49: Sell
Still waiting for the silver bullet Shariah-compliant
Strong topline underpinned by commercial and domestic users. 1QFY11 revenue of RM7.7b (5.3% YoY, -1.8% QoQ) was better than our expectation driven by strong power demand. Reduced excess capacity payment of RM200m partially offsets the impact of higher coal price (+RM168.8m YoY). However, Tenaga is facing severe headwinds from rising coal prices, dwindling gas supply and its silver bullet solution (tariff increase) is opaque at best. No change to our earnings forecasts and DCF-based target price for now. Maintain Sell.
ECONOMICS
CPI, Dec 2010
Inflation rate creeping up...
Consumer price index (CPI) rose by 2.2% YoY in Dec '10 (Nov '10: +2.0% YoY), the fastest pace in 18 months, mainly reflecting the impact of another round of fuel and food (sugar) subsidy reduction. MoM, it gained for the third consecutive month (Dec '10: +0.4%; Nov '10: +0.3%; Oct '10 +0.3%). For the whole of 2010, inflation rate was 1.7%. No change to our 2011 inflation rate forecast of 2.5%, and we still expect the Overnight Policy Rate (OPR) to be hiked by 50bps to 3.25% in 2H2011.
Technicals
The FBM KLCI closed lower by 3.53 points at 1,566.51 yesterday. Its resistance areas of 1,566 and 1,576 may cap market gains, whilst the obvious support areas are located at 1,545 and 1,561.
Trading idea for today is a TAKE PROFIT call on FABER.
Other Local News
AirAsia: Weighs listing in US or HK, spurred by demand for its shares from foreign investors. Earlier reports stated the low-cost carrier was looking at Thailand as an option for a secondary listing, in an effort to become a full-fledged Asean airline. Now, however, the company has set its sights on more mature markets, considering the strong buying interest in AirAsia's shares from investors in the US and Europe. (Source: Business Times)
Auto: TIV to hit record high this year. New motor vehicle sales are expected to grow by a modest 2.1% this year as car ownership in the country is already high even by developed-country standards, said the Malaysian Automotive Association (MAA). (Source: The Sun)
Aviation: Algae have potential as biofuel for aviation industry. Professor Dr Nor Aieni Mokhtar, the national oceanography directorate at the Ministry of Science, Technology and Innovation said unlike other biofuels such as bioethanol from corn and biodiesel from soyabean, the lipids from micro-algae can be transformed into jet fuel. (Source: Business Times)
EPF: Buys RM720m building on London's Fleet Street. The Employees Provident Fund (EPF) acquired a third office building of 225,000 sq ft on Fleet Street for £148m (RM717.8m). The building has housed law firm Freshfields Bruckhaus Deringer since 1989 and has over 10 years left on its lease. (Source: The Edge Financial Daily)
F&N: Targets Brunei, Thailand expansion. Fraser & Neave Holdings Bhd (F&N) is seeking to become a regional food and beverage (F&B) giant and has secured rights to market, distribute and sell its products in Thailand and Brunei. (Source: Malaysian Reserve, Business Times)
MTD: Road blocks in privatization. The bid by joint offerors (holding a stake of more than 50% in MTD Capital Bhd) to take over the remaining shares in the group at RM9.50 per share may not materialize now that the stock has closed above the offer price. (Source: The Edge Financial Daily)
Pasdec: To launch RM252m projects. Kuantan-based property developer Pasdec Holdings Bhd plans to launch at least RM252m worth of properties in Pahang this year. These include integrated developments Pasdec Persona, Pasdec Perdana and Pasdec Idaman as well as upscale mixed commercial developments Pasdec Mahkota and Pasdec Avenue. (Source: The Edge Financial Daily)
Steel: Vale project may cost up to RM14b. Brazilian mining giant Vale International SA's construction costs in its iron-ore transshipment project will be between RM9b and RM14b over a five-year period, and the project will likely start in July or August this year. Perak government has no equity participation in the project while local companies will be subcontracted to participate in the trickle-down activities. They will include Malaysian companies involved in iron ore, steel, fabrication, shipbuilding, canning and tin. (Source: The Star)
Top Story
Government Measures:
Company Update
Lingkaran Trans
LITRAK's plus-es Shariah-compliant
Up target price. We reiterate our Buy call on LITRAK with a raised RM4.00 DCF-based target price (+5%) after rolling over our valuation period. We expect rising investors' interest on LITRAK for its dividend yield potential (>5% net), providing further upside to its share price (+25% YTD). The asset-liability route for the take-over of PLUS' concessions may be applied to LITRAK's but not immediate, we think. The proposed Kinrara-Damansara link is not an immediate threat.
Glomac RM1.62: Buy
Invests in Suria Stonor condominium Shariah-compliant
Buys investment assets. Glomac's re-purchase of Suria Stonor condominiums from two bulk purchasers is a surprise to us. Despite attractive pricing, we are neutral on the deal given huge new and existing condominium supply around the KLCC area. No change to our forecasts and RM1.84 TP (25% discount to RM2.45/sh). Glomac trades at single digit PERs for over 20% growth in 2011-12. Maintain Buy.
Petronas Gas RM11.26: Buy
PETRONAS' regas plant will be ready by end-2012, but LNG import from Glastone LNG will only start from 2014, according to
Technicals
The FBM KLCI was higher by just 0.80 points yesterday to close at 1,491.44 on some positive investor sentiment. Its resistance areas at 1,493 and 1,508 may cap market gains, whilst the support areas for the FBM KLCI are located at 1,476 and 1,491.
AirAsia: AirAsia X to gain from ministry programme. The Ministry of Transport's (MOT) plan to develop a transparent and liberalised air rights allocation framework could finally see AirAsia X getting the much sought after rights to fly to
Perwaja: To spend RM400m on pelletisation plant in Kemaman. In a bid to venture into upstream activities, Perwaja Holdings Bhd, a subsidiary of Kinsteel Bhd, is investing RM400m in an iron ore concentration and pelletisation plant in Kemaman, Terengganu, to meet its own raw materials demands. In order to gain access to the state's iron ore mines, Perwaja has invited the Terengganu state government to take an equity state in the venture. The new plant is expected to supply 80% to 90% of its internal demands and achieve a minimum production cost savings of 15%. (Source: The Edge Financial Daily)
Public Bank: Cambodian unit sets up securities business. Public Bank Bhd unit Cambodian Public Bank plc (CampuBank) has established a wholly-owned subsidiary, CampuBank Securities plc, in
SP Setia: To launch four residential projects. SP Setia Bhd plans to launch 4 new residential projects with an estimated gross sales value of RM546m in
Broadband: Two more companies offer 4G broadband. Two companies have started offering the 4G wireless broadband service on a trial basis, with eventual speed hitting 100Mbps (mega bytes per second) by the first quarter of next year. He declined to name the two companies but mentioned that they are among the nine companies that are offering the new 4G long term evolution (LTE) technology. These companies are currently undertaking trials to test the latest wireless broadband network. (Source: Business Times)
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