Stocks to watch: Coastal Contracts , Sanichi, Dialog, JCY

KUALA LUMPUR (Dec 16): Regional markets including Bursa Malaysia could trade on a cautious note on Friday as investors’ risk appetite for equities would be restrained by worries about the global economy and Europe's debt crisis.

Reuters reported major Southeast Asian stock markets fell on Thursday, extending the decline for the third day, led by banks and commodities as a decline in Chinese factory output added to worries about the global economy and Europe's debt crisis.

Concern over the situation in the euro zone rose after Fitch Ratings downgraded five big European banks on Wednesday.

At Bursa Malaysia, stocks which could see trading interest include COASTAL CONTRACTS BHD [], SANICHI TECHNOLOGY [] BHD [], DIALOG GROUP BHD [] and hard-disk drive manufacturer JCY International Bhd.

Coastal Contracts’s year-to-date order wins rose to RM690 million after the company secured new contracts worth RM233 million for the sale of three offshore support vessels, two landing crafts and two barges.

“With this latest batch of contracts, the value of Coastal Group’s secured vessel sales orders currently stood at about RM610 million, with deliveries through 2012,” it said.

Sanichi, whose shares inched up in very active trade on Thursday, could see continued trading action. It received a letter of intent from China’s Guangxi Huayin to purchase 150,000 tonnes of steam coal per month, totaling 1.80 million tonnes for a one-year period.

Sanichi said Guangxi Huayin is one of the largest and most advanced aluminium producers in China and the shareholders include the Aluminium Corporation of China with a 33% stake.

Meanwhile Dialog Group Bhd, which is undertaking a cash call to raise funds for more investments in the upstream oil and gas opportunities, has fixed the rights shares at RM1.20 each and the exercise price of the warrants at RM2.40 each.

The issue price would be a discount of about 46% to the theoretical ex-rights price of RM2.23 per share, based on the five-day volume-weighted average market price (VWAMP)up to Dec 14 of RM2.43.

As for the warrants, it said the exercise price was 8% above the theoretical ex-rights price of RM2.23 per share, based on the five-day VWAMP up to Dec 14 of RM2.43.

JCY could see continued trading interest as it was not impacted by the severe floods in Thailand unlike other hard-disk drive manufacturers which had major operations in Thailand.

CIMB Equities Research said believed a full restoration to pre-flood production was at least six to nine months away, but suppliers with strong balance sheets to invest could benefit from greater allocations in the near term.

“Improvements in average selling prices (ASP) for drive makers should also be positive for the industry,” it said. It advised investors to be selective as it believed volume would remain hindered by component shortages.

“Buy JCY as we expect strong near-term earnings on higher ASPs and allocations,” it said.

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Stocks to watch: Mudajaya, Fitters, Maybank, Supermax

KUALA LUMPUR: The markets may see some tentative recovery on Tuesday, Aug 23 after the selling on Monday, as investors scout for fundamentally strong companies despite the current uncertainties globally.

The fresh batch of results in the quarter ended June 30 should provide the data investors need to make their decisions, for instance companies like QL RESOURCES BHD [] and smaller cap stock like FITTERS DIVERSIFIED BHD [] which are beginning to reaping the benefits of their palm oil and renewable energy ventures.

MALAYAN BANKING BHD [] did not disappoint as its earnings rose 26.5% to RM1.15 billion in the fourth quarter ended June 30, 2011 from RM912.47 million a year ago.

However, glove maker Supermax Corp Bhd reported a decline in earnings due to continuously high volatility in latex prices and unfavourable exchange rates.

Stocks to watch are Mudajaya Corp Bhd, Fitters, Maybank and Supermax. Other companies with fresh corporate news are Prestariang Bhd, KNM GROUP BHD [] and Guocoland Bhd while JCY International continued to disappoint investors.

Mudajaya clinched a RM720 million contract for the design and civil works for part of the Manjung power plant.

Its unit had signed a subcontract with CMC Machipex Sdn Bhd for the detailed design and CONSTRUCTION [] of all civil works associated with the balance of plant component of Manjung No. 4 power plant project.

Fitters’s earnings were given a boost by its renewable energy and palm oil business in the second quarter ended June 30, with net profit at RM4.58 million, up 100.8% from RM2.28 million a year ago.

Its revenue surged 233.7% to RM116.70 million from RM34.96 million a year ago while earnings per share were 2.12 sen compared with 1.13 sen.

QL Resources Bhd’s earnings edged up 3.7% to RM27.79 million in the first quarter ended June 30, 2011 from RM26.79 million a year ago.

Its revenue increased 18.2% to RM454.56 million from RM384.51 million. Earnings per share were 3.34 sen compared with 3.43 sen.

It said the higher revenue was due to the marine product manufacturing at RM104.66 million, palm oil activities RM114.85 million and integrated livestock farming RM235.05 million.

Maybank's earnings rose 26.5% to RM1.15 billion in the fourth quarter ended June 30, 2011 from RM912.47 million a year ago.

It said the financial performance was boosted by income from its Islamic banking and also its insurance business also also lower allowance for losses on loans, advances and financing

Maybank’s revenue increased by 20.9% to RM5.72 billion from RM4.73 billion. Earnings per share were 15.54 sen versus 12.89 sen a year ago. Its board of directors proposed dividend of 32 sen per share compared with 44 sen a year ago.

Prestariang secured a RM28 million contract from the Ministry of Higher Education to implement the 1Citizen Certification provide “IC Citizen” training and certification in all public and selected private higher learning institutions.

The programme was expected to run for 24 months from its official start date and would cater to 80,000 students from 20 identified public institutes of higher learning including universities, polytechnics and community colleges in Malaysia, as well as selected private institutes of higher learning.

Supermax saw its earnings slip 50.6% to RM22.64 million in the second quarter ended June 30 from RM45.85 million a year ago as profit margins were eroded owing to continuously high volatility in latex prices and unfavourable exchange rates

Revenue dipped 1.3% to RM237.92 million from RM234.82 million while earnings per share were 6.66 sen compared with 13.51 sen. It did not declare any dividends unlike a year ago when it paid out 2.5 sen a share.

For the first half, its net profit slumped 51.7% to RM46.96 million from RM97.33 million in the previous corresponding period but its revenue was 5.2% higher at RM479.29 million compared with RM455.47 million.

KNM’s net profit for the second quarter ended June 30, 2011 fell 23.2% to RM10.86 million from RM14.14 million a year earlier, due to slower improvement in capacity utilisation in certain operating units. Revenue for the quarter rose to RM544.30 million from RM383.21 million in 2010 due to higher revenue recognition. Earnings per share was 1.11 sen while net assets per share was RM1.83.

For the six months ended June 30, KNM’s net profit fell 45.1% to RM29.87 million from RM54.48 million in 2010, on the back of revenue RM957.30 million.

Guocoland’s fourth quarter earnings rose 94.6% to RM22.34 million from RM11.47 million, boosted by higher share of results from associates and improved profit from its property development division.

Revenue increased by nearly 95% to RM58.48 million from RM30.02 million while earnings per share were 3.33 sen versus 1.71 sen. It proposed dividend payment of 2.0 sen a share.

For the financial year ended June 30, 2011, its net profit rose 42.9% to RM19.96 million from RM13.96 million while revenue declined 11% to RM142.77 million from RM160.52 million.

Hard-disk drive manufacturer JCY posted net loss RM31.86 million in the third quarter ended June 30, 2011 compared to net profit RM55.59 million a year earlier due mainly to higher raw material prices, inventory provision from depreciating US dollar and slow moving stocks.

Revenue for the quarter fell 17.8% to RM395.17 million from RM480.79 million a year ago. Loss per share was 1.56 sen compared with earnings per share of 2.72 sen.

For the six months ended June 30, JCY posted net loss RM11.89 million compared with net profit of RM198.94 million in 2010. Its revenue was RM1.23 billion compared with RM1.56 billion a year ago.

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RHBInvest Research - Sector Call

Sector Call



Timber: Temporary build-up in plywood inventory in Japan Overweight

Sector Update

¨ According to the latest Japan Lumber Report, there has been a build-up of imported plywood inventory in Japan (mainly in thick panel) due to the arrivals of orders placed after the March earthquake disaster. As a result, prices for CP and SP reported by timber companies have weakened recently from its peak of US $620/m3 in May/June to about US$540-560/m3 by July/August.



Semiconductor: No signs of a turning point yet Neutral

Unisem: Fair value RM1.76 Market Perform

Notion: Fair value RM2.10 Market Perform

JCY: Fair value RM0.53 Underperform

MPI: Fair value RM4.18 Underperform

¨ Jun 11 chips sales of US$24.7bn posted the first drop on yoy basis by -0.5% after chalking yoy growth since the Oct 09 when it dropped 2.4%. The weaker chip sales suggests that chip demand in certain segments remains weaker than expected but could not be fully offset by strong demand for mobile devices as well as corporate IT spending. On mom basis, chips sales fell by 1.4% after gaining 1.8% in May.

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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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RHBInvest Research

Top Story: Plantation – Production getting back on track
Neutral

Sector Update
Malaysia’s CPO production recovered in Mar, rising 29.4% mom, while exports rose by 10.8% mom, resulting in a 9.1% mom increase in closing stock levels to 1.61m tonnes (from 1.48m tonnes in Feb). While part of the mom increase could be attributed to the shorter month in Feb, we believe the bulk of the increase was due to recovering FFB yields in the country as the La Niña effect started wearing off and weather started normalising.

Macro View

IPI: Bounced back to 5.0% yoy in February

Economic Highlights (published 11 Apr 2011)
Industrial production bounced back to +5.0% yoy in Feb, after softening to +0.5% in Jan and compared with +4.5% in Dec, due to a rebound in manufacturing production and stronger electricity output as well as a smaller fall in mining output during the month.
The rebound in Feb’s industrial and manufacturing production will likely be temporary and it will likely weaken back in the months ahead. As a result, we expect real GDP growth to moderate to 4.6% yoy in the 1Q, from +4.8% in the 4Q of last year.

Sector Call


Semicon: More consolidation for the industry? Neutral

Sector Update

Unisem: Fair value at RM2.65 implies 32.5% upside Outperform

MPI: Fair value at RM5.96 Market Perform

Notion: Fair value maintained at RM2.25 Market Perform

JCY: Fair value unchanged at RM0.81 Market Perform

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Maybank IB Views

INITIATING COVERAGE
YTL Power International RM2.29: Buy
It's got the POWER Shariah-compliant

Good time to accumulate. We initiate coverage on YTL Power International (YTLP) with a Buy call and RM2.70 target price. We like its portfolio of steady concession businesses. While we are positive on YES, we expect it to incur start-up losses. That said, we postulate YTLP cash flows are strong enough to maintain net DPS at 13.1 sen or a 5.7% net dividend yield. More M&As may beckon.

The FBM KLCI rose by 11.54 points to 1,531.63 yesterday. Its resistance areas of 1,533 and 1,544 will cap market gains, whilst the obvious support areas are located at 1,515 and 1,531. We expect the index to remain in a minor rebound mode in the short term and to be bearish in the medium term.

Trading idea for today is a Buy call on PETDAG.

Other Local News
Tan Chong: To upsize MTN programme to RM2b. Tan Chong Motor Holdings Bhd has received approval from the Securities Commission to upsize its asset-backed medium term notes (MTN) programme to RM2b from RM600m. The approval would enhance the group's ability to tap the capital markets for future funding needs. (Source: The Star)

AirAsia: Unit awaits nod for Jeddah. AirAsia X, is in the final stages of getting the green light from the Government to fly to Jeddah, Saudi Arabia. (Source: The Star)

CIMB: Raises BLR/BFR rates. CIMB Bank Bhd and CIMB Islamic Bank Bhd have announced an increase in their base lending rate (BLR) and base financing rate (BFR) by five basis points from 6.3% to 6.35%, effective from April 4. The change in the rates followed Bank Negara's decision to increase the statutory reserve ratio requirement by 1% to 2% with effect from tomorrow. (Source: The Star)

JCY: Eyes major client from Japan. JCY International Bhd is in the midst of courting one of the world's leading electrical and electronic (E&E) companies from Japan as its new client. (Source: The Star)

Cypark: Proposes to take over 32 landfills. Cypark Resources Bhd has submitted proposals to the government to take over as many as 32 non-sanitary landfills and to design, build and manage integrated waste disposal sites. (Source: Business Times)

Property: Putra Place finally sold for RM514m. The Putra Place in Kuala Lumpur has finally been sold to OSK Trustee Bhd for RM514m, some three years after the property was first put up for auction. OSK Trustee may have bought the property on behalf of one of the real estate investment trusts (REIT). (Source: Business Times)

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RHBInvest Research

Regional Perspectives

• Top picks that are already regional champions (CIMB, Genting, KLK and MAHB) as well as those that have the potential to become so (SP Setia, Kencana and Dialog).

Sector Call


Semiconductor:

• Equipment orders continue to weaken
• Underweight

Unisem:

• Fair value maintained atRM2.31
• Market Perform

JCY:

• Fair value maintained at RM0.64 Underperform

MPI:

• Fair value unchanged at RM5.17 Underperform
  

Notion:

• Fair value unchanged at RM1.68 Underperform
• Maintain Underweight call on the sector.

KSL:

• A value pick
• Fair value is RM2.78.
• Outperform

Evergreen:

• Outperform
• To build a new glue resin plant in Gurun, Kedah
• Fair value is RM2.57

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RHBInvest Research

Top Story

Adventa:
Core FY10 Earnings Expected To Be Flat YoY
Upgrade to Outperform from Market Perform previously.
Fair value is RM2.47.

Sector Call


Semiconductor:

Oct chip sales flat mom

• Unisem: Fair Value RM2.31 OP
• JCY: Fair Value RM0.64 UP
• MPI: Fair Value RM5.17 UP
• Notion: Fair Value RM1.68 UP
• Maintain our Neutral call on the sector.

Corporate Highlights


Dayang:
Disposing Of Borcos For RM135m Cash
Fair value is reduced from RM3.86 to RM3.36.
Maintain Outperform.


Technical Highlights

Daily Trading Strategy:

• Sell Into Strength…
• Yesterday’s surprise jump on the bargain-hunting activities has led the FBM KLCI to close more positive.
• The buying momentum, if it continues, is likely to spur more buying, hence leading the index to retest the key resistance at 1,525 and the record level of 1,531.99 soon.
• However, on the regional markets sentiment that we think could still dampen the local trading behavior should the regional markets fall rapidly in the near term.
• Market sentiment will turn positive only if it moves into a higher trading zone from 1,531.99.

Daily Technical Watch: Petra Perdana

• Further rally possible if it removes the RM0.925 level soon.
• Immediate Support = RM0.74
• Immediate Resistance = RM0.925

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