RHBInvest Research

Malaysia Equities

Top Story

KNM – Still gloomy skies ahead? Underperform

Visit Note

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

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



Corporate Highlights

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

Briefing Note

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



Sunway REIT – Sunway Pyramid Still Spurring Growth Market Perform

Results/Briefing Note

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



Macro

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

Economic Highlights (published 8 Feb 2012)

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

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Maybank IB Research

COMPANY UPDATE
SapuraCrest Petroleum RM4.58: Buy
Orders 2 pipelay vessels Shariah-compliant

Maintain Buy with a RM5.60 TP. SapCrest's rapid expansion of its marine fleet to capitalise on the boom in the installation of pipelines and facilities (IPF) markets is positive, in keeping with its aspiration to be a regional player. This strategy will be rewarding, if executed well. However, contributions will only be realised from FY15. We remain positive on its strong ability to grow and pursue new jobs for medium term growth, and continue to rate SapCrest a Buy.


KNM Group RM0.96: Sell
Riding through a transition phase Shariah-compliant

Target price cut to RM0.88 (-19%) following a 10-19% downgrade in FY12-13F earnings forecasts on lower revenue recognition. While margin pressure has abated on improving order flows, we are cautious of KNM's cost management abilities and so retain a conservative stance on our estimates. KNM needs to deliver a consistent set of quarterly results to warrant a re-rating. Sell maintained.


Technicals
The FBM KLCI closed 3.27 points higher at 1,525.56 yesterday. Its resistance areas of 1,530 and 1,545 may cap market gains, whilst obvious support areas may be located at 1,505 and 1,525.

Trading idea is an ACCUMULATE call for UNISEM.

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Stocks to watch: Gadang, KNM, Top Glove, AirAsia

KUALA LUMPUR: Stocks which could see trading interest on Wednesday, Oct 12 include GADANG HOLDINGS BHD [], KNM GROUP BHD [], TOP GLOVE CORPORATION BHD [] and AIRASIA BHD [] following the recent corporate developments.

Gadang secured a RM410.87 million contract from the Public Works Department to complete the abandoned works at the Shah Alam Hospital. Its unit Gadang Engineering (M) Sdn Bhd had accepted the letter of acceptance for the project at the 300-bed hospital.

KNM Group Bhd has secured a conditional US$200 million (RM638 million) contract to build a waste to energy plant in Sri Lanka from OCTAGON CONSOLIDATED BHD []’s subsidiary Orizon Renewable Energy (Private) Ltd.

KNM Process Systems Sdn Bhd was awarded the contract to build the plant which would have the capacity to process up to 1,000 tons per day of municipal solid waste to generate a minimum of 40 MW of gross electrical energy in Colombo.

Top Glove’s net profit for the fourth quarter ended Aug 31, 2011 fell 42% to RM26.09 million from RM45.01 million a year earlier, due mainly to high latex prices, weaker US dollar and oversupply situation.

Revenue for the quarter edged up to RM541.84 million from RM541.39 million in 2010. Earnings per share fell to 4.22 sen from 7.30 sen in 2010, while net assets per share was RM1.85.

For the financial year ended Aug 31, Top Glove’s net profit fell 53.86% to RM113.14 million from RM245.23 million in 2010, on the back of revenue RM2.05 billion.

AirAsia scrapped the proposed joint venture with Vietjet Aviation Joint Stock Company after some of the conditions were still not fulfilled despite the joint venture agreements were signed in February 2010.

The low-cost carrier said some of the conditions under the JV agreements remained outstanding include regulatory approval for Vietjet to employ the AirAsia brand across its commercial operations.

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Maybank IB Views

COMPANY UPDATE
Public Bank RM12.16: Hold
Resilience on a relative basis

Hold maintained. Our earnings are lowered by 6-7% for 2012/13, while our TP is lowered to RM12.30 from RM14.10 on a lower 2012 P/B target of 2.5x vs. 2.8x, in line with lower peer valuations. On a relative basis, nevertheless, we expect Public Bank's earnings to be resilient due to strong asset quality, while share price should be supported by a) decent gross dividend yields of 5+% and b) low foreign shareholding.

SECTOR UPDATE
Banking: Neutral
Cautious expectations

Maintain Neutral. While loan growth continues to be robust, there is approximately a 6-month lag between loan growth and GDP growth, by our estimates. In light of slower economic momentum ahead, our loan growth forecast of 12.4% this year is maintained, but lowered to 9.4% from 10.4% for 2012. Forward earnings for the banks in our coverage have been trimmed also on the back of lower non-interest income (NII) assumptions. We now project slower aggregate net profit growth of 4.3% in 2012 for banks in our universe (+9.9% previously).

Technicals
The FBM KLCI fell 19.61-points to close at 1,367.52 yesterday. Its resistance areas of 1,367 and 1,403 will cap market gains, whilst the weaker support areas are located at 1,310 and 1,353. Due to the US markets’ weaker tone last night, we may see a volatile tone for the index today.

Trading idea is a Take Profit call on RHBCAP
Click here for full report »
Other Local News
SP Setia: Buys land for RM381m. SP Setia Bhd has proposed to acquire land for RM381.2m to replicate its successful township development in Setia Alam and Setia Eco Park. The new land in Rinching, which is 673.3 acres and situated mid-way between Semenyih and Bangi old town, is forecast to have a gross development value (GDV) of RM4b. (Source: Bursa Malaysia)

KNM: Octagon awards contract to KNM. Octagon Consolidated Bhd has awarded a USD22m (RM70.2m) contract to KNM Group Bhd to manufacture an advanced thermal gasification reactor in Sri Lanka. KNM has also been shortlisted as one of the contractors for the engineering, procurement, construction and commissioning (EPCC) contract for the waste to energy plant in Colombo, Sri Lanka. (Source: Bursa Malaysia)

SapCrest: Wins RM99.5m contract. SapuraCrest Petroleum Berhad's 50%-owned associate company, Labuan Shipyard & Engineering Sdn Bhd (LSE) had been awarded a shipbuilding contract by Tanjung Offshore Berhad to engineer, construct, test and deliver one unit 77m platform supply vessel (PSV) worth RM99.5m. (Source: Bursa Malaysia)

Huat Lai, Lonbisco, TPC: Huat Lai launches GO for TPC after buying 34%. Huat Lai Resources Bhd has signed a sale and purchase agreement with London Biscuit Bhd to acquire 26.9m shares or 33.7% of TPC Plus Bhd for RM8.1m and will launch a general offer for TPC. London Biscuits said the disposal of its shares in its poultry company would enable the group to focus on its core business of cakes, candies, wafers and snack confectionery. (Source: Bursa Malaysia)

Wijaya Baru: To buy Indonesia land for RM255m. Wijaya Baru Global Bhd has entered into two agreements to buy 80,000ha in Indonesia for RM255.2m to replenish its timber extraction business. The agreements were with Suffolk Pte Ltd and Wealthgate Pte Ltd for USD40m cash each in total. Wijaya Baru said its last timber licence expired on July 9, 2010, and the acquisition was done in view of the loss of revenue from the timber division and the intention to maintain its core business of timber extraction. The proposed acquisition will provide an immediate and stable income stream for its core business and, at the same, time allow the group to expand its business regionally (Source: The Star)

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Maybank IB Views

KNM Group RM1.48: Sell
Poor delivery, Sell Shariah-compliant

Downgrade to Sell, target price cut to RM1.19 (-41%). 1H results were a letdown, prompting us to cut 2011-13 earnings by up to 64% p.a.. While KNM delivered on topline, bottomline was a disappointment, felled by cost overruns and high operating expenses. While the share price has underperformed by 48% YTD, we expect performance to be further suppressed. There is no sign of an operating recovery and cost control is absent. Further, valuations are expensive now.

Alam Maritim Resources RM0.78: Hold
Results improve but recovery lingers Shariah-compliant

Pacing but not running. Alam returned to profitability in 2Q but overall, 1H results still missed expectations. Operationally, Alam is showing signs of a turnaround but the catalyst to warrant an upgrade remains elusive. Its stretched balance remains a concern, debilitating its ability to grow. Maintain Hold with a lower target price of RM0.85, based on a reduced 9x 2012 EPS (versus 12x previously).

QL Resources RM2.98: Buy
Margin erosion Shariah-compliant

Below expectations. 1QFY12 results were below consensus and our full-year numbers, with margin contraction seen in the 2 main divisions. Total net profit of RM27.8m (+3.7% YoY, -11.9% QoQ) made up 17% and 19% of our forecast and consensus for FY12. We do expect stronger earnings in the coming quarters and QL remains a Buy. Our forecasts are nevertheless revised down on lower margin expectations and our target price is lowered to RM3.39.

Technicals
The FBM KLCI fell 11.82 points to close at the 1,472.16 yesterday in persistent selling activities. Its resistance areas of 1,472 and 1,500 will cap market gains, whilst the weaker support areas are located at 1,423 and 1,467.


Other Local News
Aeon: Upbeat on 'new' Jusco at 1Utama. Aeon Co (M) Bhd expects the newly renovated and relocated Jusco store in 1Utama Shopping Centre to ring in more sales than previously. The Japan-based retailer is optimistic that it will make RM300m within a year from yesterday. It had made over RM200m in a year previously. (Source: Business Times)

CIMB: Among banks hired for planned MU listing. English football club Manchester United has hired a slew of banks including Malaysia's CIMB Group for its planned listing on the Singapore stock exchange. The US-based Glazer family hired Hong Kong-based BOC International, Malaysia's CIMB, Singapore's DBS and pan-Asian investment bank CLSA as joint lead managers, in a move that suggested the owners are keen to get a well-diversified regional spread of investors. (Source: Business Times)

Maxis: In cloud computing connection with MDeC. Maxis Bhd aims to work closely with the Multimedia Development Corp (MDeC) to establish joint programmes to promote adoption of cloud computing services for independent software vendors. The collaboration will accelerate the adoption of cloud technology by software vendors and businesses. It will also pave the way for an array of enterprise-grade cloud solutions to become available to Malaysian businesses. (Source: Business Times)

IJMP: To invest over RM1b to double up Indonesian venture. IJM Plantations Bhd is investing more than RM1b to double its total planted area in Indonesia to 40,000ha and expects to see substantial earnings contribution from the venture from 2014 onwards. IJM Plantations expects Indonesia to contribute one third of its earnings when planting is completed in Indonesia by 2014 and eventually its contribution is expected to be bigger than the earnings from its Malaysian plantation. (Source: The Malaysian Reserve)

Transportation: Prasarana to manage MRT issues till handover. Syarikat Prasarana Negara Berhad (Prasarana) will continue to manage all issues related to the My Rapid Transit (MRT) project until the establishment of MRT Co. Prasarana would carry on with all works and programmes that has been decided before it officially hands it over to the new MRT Co. (Source: The Edge Financial Daily)

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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

Top Story: MRCB – A little patience for RRI land Trading Buy

Visit Note

¨ MRCB expects Kwasa Land Sdn Bhd to make some decisions with regards to the RRI land re-development project by the end of the year, with physical works only expected to commence in 2012.

¨ The flow of new construction jobs should improve in 2H2011 and into 2012, underpinned by potential jobs from the LRT line extension project, Penang Sentral and the River of Life project.



Corporate Highlights



TH Plantation: Planting for posterity Outperform

Briefing Note

¨ An interesting point to note from the briefing is that THP achieved an admirable FFB yield at its newly-matured Sarawak estates. Where most other oil palm plantations only achieve an FFB yield of 8-9t/ha in its first full year of maturity, THP managed an FFB yield of 7.6t/ha in just half a year in one of its Sarawak estates. Annualised, this estate could yield about 16t/ha, double that of other oil palm estates in its first year of maturity. This is in line with management’s own targets of achieving an FFB yield of at least 15t/ha for its plantations in the first year of maturity.



Sime Darby: RM43.4m writeback for marine project Outperform

News Update

¨ Sime Darby’s subsidiary has, on 20 Jul, entered into a yard settlement agreement and release agreement with its JV partners for the refund of a cash amount of US$21.63m (RM63.6m) in return for the release of its claims, rights and interests over the Marine Project (involving the construction of two tug boats and a derrick lay barge for the Maersk Oil Qatar (MOQ) project). Of this amount, US$16.63m (RM48.9m) has been received, with the balance US$5m (RM14.7m) payable on 17 Nov, if there are no further claims made. Based on Sime’s announcement, of the refund total of US$21.6m, it will receive up to US$14.75m (RM43.4m), based on its stake.



SP Setia: Full equity interest in KL EcoCity Market Perform

News Update

¨ SP Setia announced that its proposed acquisition of the remaining 40% equity interest in KL Eco City S/B (KLEC) from Yayasan Gerakbakti Kebangsaan (YGK) for a total consideration of RM75m is to be satisfied through the issue of 19.38m new SP Setia shares at RM3.87 per share. KLEC was previously the JV company for the RM6bn KL EcoCity project.



KNM: HOA with GAP for petrochemical facility in Teluk Ramunia Underperform

News Update

¨ KNM announced yesterday that it, together with Zecon has entered into a Heads Of Agreement (HOA) with Gulf Asian Petroleum to undertake EPCC contracts for projects worth around USD5.7bn (RM17bn) in Teluk Ramunia, Johor. The two projects involve a petroleum refinery, a polypropylene unit and petroleum product storage terminal facility with capacity of 2.3m cubic meters).

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Maybank IB Views

Public Bank RM13.36: Hold
Competitive pressures remain

Little excitement. 1H11 results were broadly within expectations, with net profit of RM1.71b (+20% YoY) accounting for 51% of our full-year forecast and 50% of consensus. Our forecasts are maintained with higher NIM contraction estimates offset by lower provisions. Consumer loan demand continues to show resilience at the group but we do expect this to taper off from 2H11 onwards. Pricing is fair at this stage ( (prospective 2012 P/BV of 2.7x, ROE: 23.5%). Hold call and TP of RM14.10 maintained, pegged to a 2012 P/BV of 2.8x.

Axis REIT RM2.62: Buy
Results in line; more acquisitions soon Shariah-compliant

Maintain Buy. AXRB’s RM31.8m 1H11 core net profit (+33% YoY) came in as expected. Its 4.5 sen 2Q11 DPU was also in line. Share price has performed well thanks to a switch in preference to defensive stocks. No change in our earnings forecasts but we raise our TP to RM2.75 (+15 sen) as we roll over our base year to 2012. A lower beta assumption has also contributed to the upgrade in TP. With a 12% total return, AXRB remains as our top pick for the M-REITs sector.

COMPANY UPDATE
S P Setia RM3.92: Buy
Reaping full benefit of KL Eco City Shariah-compliant

An attractive booster to earnings and RNAV. We are excited on SP Setia's purchase of the remaining 40% stake in KL Eco City (KLEC). This non-cash acquisition will immediately boost SPSB's earnings by 0.6-1% and RNAV/sh by 8 sen. All it would cost SP Setia is 19.4m new shares, which is a mere 1.1% increase of its existing share base. We upgrade our forecasts by 0.3-1.9%. Reiterate Buy with a higher RM5.00 target price (+24 sen; 10% premium to RM4.53 RNAV).

RESULTS PREVIEW
Malaysia Airports Holdings RM6.50: Buy
2Q11: Expect good result

Strong momentum continues. MAHB will release its 2Q11 results on 28 July. 2Q is seasonally the weakest quarter for the year. Based on the operating statistics published, we expect a core net profit (less forex translation and all other non-cash items) of RM110.5m (+24.5% YoY, -1.4% QoQ). Maintain Buy, with a higher DCF-based target price of RM7.55, after imputing for a higher passenger growth of 10% in 2011 (previously 8%). Our new TP offers undemanding 15.2x 2012 earnings.

Technicals
The FBM KLCI fell 5.46 points to close at 1,559.60 yesterday. Its resistance areas of 1,559 and 1,574 will cap market gains, whilst the obvious support areas are located at 1,543 and 1,552.

Trading idea today is YTL

Other Local News
KNM: Secure RM17b project with Zecon. KNM Group Bhd and Zecon Bhd have entered into two heads of agreement with Gulf Asian Petroluem Sdn Bhd (GAP) to construct a petroleum refinery and a petroleum product storage terminal facility for a combined contract of RM17b in Teluk Ramunia. (Source: The Edge Financial Daily)

Tan Chong: Sets 20% sales target for Sabah, Sarawak. Edaran Tan Chong Motor Sdn Bhd (ETCM) is eyeing to raise the sales contribution from Sabah and Sarawak to 20% of that nationwide in three years time. Sales in the two states at the moment represented 10 percent of the national total for Nissan vehicles. (Source: The Star)

KPJ: To triple education revenue. KPJ Healthcare Bhd's education arm has been granted university college status by the Higher Education Ministry. KPJ plans to invest RM120m in the physical expansion of its education facilities and hopes to triple revenue from its education unit to RM100m annually from RM30m in 2010. (Source: The Edge Financial Daily)

Ivory: Wins Penang land rights. Ivory Properties Group Berhad (IVORY) won the rights to develop 102.56 acres of land located at Bayan Mutiara, North East District, Penang of which approximately 67.56 acres are existing land and 35 acres are to be reclaimed for a proposed mixed development. (Source: Bursa Malaysia)

Perwaja: Makes cash call to Kinsteel. Debt-laden Perwaja Holdings Bhd is making cash call to its major shareholder Kinsteel Bhd to raise RM280m under a planned restricted issue of redeemable convertible unsecured loan stocks (RCULs). Perwaja is also proposing an issue of free warrants on the basis of one free warrant for every two existing shares held. The gross proceeds will be used to finance the working capital needs of Perwaja. (Source: The Edge Financial Daily)

O&G: Qatar to sell liquefied natural gas to Malaysia. Qatar's state-run Qatargas says it has agreed to sell 1.5m tons of liquefied natural gas annually to Malaysia, locking in its first major customer in Southeast Asia. The company says it signed a preliminary agreement with Malaysia's Petronas LNG on Sunday in the Qatari capital, Doha. The supply deal is expected to start in 2013 and last for two decades. (Source: The Star)

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Maybank IB Views

COMPANY UPDATE
KNM Group RM1.90: Hold
Brace for further headwinds Shariah-compliant

Cut forecasts, downgrade to Hold. Our initial forecasts are too optimistic and management is guiding for lower profits as earnings could remain weak over the next few quarters. This is disappointing for we had expected earnings to rebound on the new orders secured in the past 12 months. The financing for the Peterborough project is still unresolved. We lower our target price to RM2.00 based on reduced PE multiple target of 10x (previously 14x) as we also cut earnings forecasts.

Petronas Chemicals RM7.06: Buy
Missed the first party, but there is another one coming Shariah-compliant

Power tariff hike impact negligible. We have imputed the impact of the electricity tariff hike by Tenaga Nasional which is rather negligible at only ±RM20m p.a. This does not change the Company fundamentals at all and we remain bullish with the high product prices and strong demand. Our concern lies with the uncertainty of gas supply due to the on-going maintenance work from its supplier. We rollover valuations to 2012 earnings and maintain BUY with a higher TP of RM8.15 (+2%), based on 13.5x PER - in line with industry's historical average PER.

ECONOMICS
Economic Transformation Programme (ETP)
Update #6…

PM announced additional 15 projects, initiatives and enablers in the sixth ETP update, involving RM63.38b investments under 11 Entry Point Projects (EPPs) in seven National Key Economic Areas (NKEAs) that will generate RM66.31b in gross national income (GNI) and create 63,531 new jobs. The biggest project is the RM60b Refinery And Petrochemical Integrated Development (RAPID) in Pengerang, Johor. So far, execution of ETP has seen confirmation of 65 EPPs (49.6% of the targeted 131) under 11 NKEAs with investment value of RM169.78b (21.4% of the targeted RM794.5b EPP investments) that are expected to raise RM220.15b in GNI (49.6% of the targeted RM1.1tr) and create 362,396 jobs (11% of the targeted 3.3m). ETP rollout is having visible positive impact on actual investment as per the data on business loans growth, PDS issuance and FDI int he first three to four months of 2011.

Technicals
The FBM KLCI fell 10.31 points and ended at 1,545.88 yesterday. Its resistance areas of 1,545 and 1,565 will cap market gains, whilst the weaker support areas are located at 1,527 and 1,540. Due to the world markets' quiet tone last night, we will see some boring and low volume-trading activities in the local bourse today. We expect the FBM KLCI to remain benign today, as the local market could remain lacklustre.

Trading Idea for today is a Take Profit call on MPHB

Other Local News
Banking: Maybank's proposal for RHB stake soon. Malayan Banking Bhd (Maybank) will be making a proposal to acquire RHB Capital Bhd before the end of this month, according to Maybank's chairman Tan Sri Megat Zaharuddin Megat Mohd Nor. (Source: The Star)

RHBCap: ADCB in need of cash. Abu Dhabi Commercial Bank's (ADCB) plans to hive off its 25% stake in RHBCap to Aabar Investments could be due to need of cash to settle some of its debts that will be due soon. (Source: The Star)

Alam Maritim: Wins RM52m job. Alam Maritim Resources Bhd (AMRB) has been awarded a contract valued at RM52m from Samsung Engineering Malaysia Sdn Bhd to supply engineering work, supply of materials, fabrication, load-out and commissioning of two units of single point mooring buoy for Sabah Oil and Gas Terminal project. (Source: Bursa Malaysia)

KFC: RM23m for 25 new outlets in the country. KFC Holdings (Malaysia) Bhd will spend around RM23m to open 25 new outlets in Malaysia by year-end. Around 10 outlets will be in the form of "drive-thru", and the balance will be normal outlets. (Source: Business Times)

Sime: To invest RM280m in two new hospitals. Sime Darby Bhd's healthcare unit will invest RM280m in two new hospitals in the Klang Valley under the government's Economic Transformation Programme (ETP). The segment is expected to contribute about 20% of the company's revenue in next three to five years. (Source: Business Times)

MMC: Malakoff Clinches 1,000MW tender. Malakoff Corp Bhd which is 51% owned by MMC has won the tender to build a 1,000MW coal-fired facility at its existing site in Tanjung Bin, Johor. (Source: Bursa Malaysia)

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Tenaga powers KLCI higher, KNM slumps

KUALA LUMPUR: Tenaga Nasional helped power the FBM KLCI to a higher close at midday on Friday, May 27 on hopes of revised tariff by government during the National Economic Council meeting scheduled for Friday.

Key regional markets were also higher in the morning session, with Reuters reporting that investors were on a bargain hunting after the recent falls while the euro advanced.

At 12.30pm, the FBM KLCI was up 7.49 points to 1,548.43. Turnover was 447.13 million shares valued at RM692.33 million. There broader market was weaker with losers beating gainers 395 to 246 while 279 stocks were unchanged.

Tenaga up 22c to RM6.52 midday, on hopes of revised tariff by government. Among PLANTATION []s, KLK rose 30 sen to RM22.18, PPB 18 sen to RM17.70 and Batu Kawan 18 sen also to RM16.44.

Genting’s strong set of earnings saw the shares climb 12 sen to RM11.22 while among the banks, HLFG rose 20 sen to RM11.70 and HL Bank 18 sen to RM12.08.

Among the losers, KNM fell 30 sen to RM2.23, the biggest one day loss in recent months after a poor set of first quarter earnings as investors ignored news of its RM217 million Uzbek contract.

MIDF Research maintained a Buy on KNM with a target price of RM3.20 while Maybank Investment Bank Research was more optimistic, keeping NMN as Buy with an unchanged target price of RM3.20.

Perstima was the top loser, down 47 sen to RM4.70 after its fourth quarter net profit fell sharply to RM6.49 million from RM26.62 million a year ago.

Other decliners were F&N, down 22 sen to RM19.28 in thin trade, Cypark shed 14 sen to RM2.06 and MSC 10 sen to RM5.39.

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Maybank IB Views

YTL Power International RM2.22: Buy
Great results tempered by poor dividends Shariah-compliant

Mixed signals. We are impressed that YTLP recorded earnings growth YoY despite start up losses at YES but disappointed that third interim net DPS remain subdued at 1.875 sen. We believe that this maybe due to it conserving cash ahead of its joint bid for the 2,000MW Pemalang IPP in Central Java. Maintain Buy call and RM2.70 DCF based target price pending a meeting with management.

KNM Group RM2.53: Buy
Soft 1Q, expects stronger quarters ahead Shariah-compliant

Weak results but hopes stay afloat. 1Q11 results were sub-par, underlying the margin compression effect from the low-yielding projects secured in the past. We maintain our forecasts for now. Top line recovery is visible but KNM needs to deliver its normalised margins and on bottom line to rerate. KNM remains a prospective long-term Buy.

Star Publications (Malaysia) RM3.35: Hold
Catalyst in M&As Shariah-compliant

Results delivered, M&As next. Star's 1Q11 results were within expectations. Our earnings estimates are marginally tweaked for higher adex growth assumption, offset by creeping staff costs. Maintain Hold with a marginally lower SOP-based target price of RM3.69 (-1%). The focus is now on further M&A activities enabled by the RM200m it recently drew down from its CP/MTN facility.

WCT RM3.04: Buy
No surprises Shariah-compliant

Reiterate Buy. 1Q11 net profit of RM37m made up 20% of our full-year forecast. The results were in line with house and street expectations. We maintain our earnings forecasts, expecting stronger quarters ahead to meet our 31% net profit growth projection for 2011. Target price is unchanged at RM3.75 based on sum-of-parts (15x 2012 PER plus 20sen value enhancement for KLIA2 retail concession).

Sunway City RM5.05: Hold
On track; expect stronger 2H Shariah-compliant

Accept offer. RM35m 1Q11 core net profit was in line. We maintain our earnings forecasts and RM5.10 TP (offer price for merger with Sunway Holdings). However, we downgrade SunCity to a Hold since its share price is approaching the offer price. We advocate shareholders to accept the SunCity-SunHoldings merger offer, which would result in a bigger entity with an e.RM3.6b market capitalisation and better liquidity. We estimate RNAV for the merged entity to be around RM3.70.

AEON Co RM6.45: Buy
2H has to catch up Shariah-compliant

Results in line. 1Q11 core net profit of RM35.7m (-13.3% YoY, -18.9% QoQ) was 20% of our and street estimates, after stripping off RM10.9m of insurance claims on its shopping centre in Melaka for a fire in 2009. We maintain our forecasts for now, expecting a stronger 2H to make up our full-year forecasts. 2H should strengthen with the reopening of the 1 Utama store, in time for the Raya and year-end festive seasons

Ann Joo Resources RM2.90: Buy
Seeing domestic cyclical growth Shariah-compliant

Back in the black. 1Q11 ex-forex net profit of RM34m (4Q10: RM3m net loss, 1Q10: RM42m net profit) was inline with expectations, making up 19% of our full-year forecast and 18% of consensus. Earnings growth momentum is likely to sustain on the commencement of big-ticket construction jobs (i.e. LRT Package A). Maintain Buy with a target price of RM3.30 (11x FD 2012 PER).

Technicals
The FBM KLCI gained 7.37 points to close at 1,540.94 yesterday. Its resistance areas of 1,542 and 1,555 will cap market gains, whilst the obvious support areas are located at 1,525 and 1,540.Due to the DJIA’s marginally firmer tone last night, we will see some benign trading activities today.

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

Other Local News
RHB Cap: Abu Dhabi bank to meet over stake sale. A decision on the sale of the 25% stake held by Abu Dhabi Commercial Bank (ADCB) in RHB Capital Bhd is expected after ADCB board meeting on May 31. (Source: The Star)

Ann Joo: Plans expansion. Steel maker Ann Joo Resources Bhd is looking at expanding its operations across South-East Asia via joint ventures (JVs) or mergers and acquisitions (M&As) in greenfields and small regional steel millers. (Source: The Star)

Wah Seong: Tipped for LNG pipe coating job. Wah Seong Corp Bhd is close to bagging a pipe coating job relating to the Australia Pacific liquefied natural gas (APLNG) project, valued at about RM122m (USD40m). The project is expected to be given out in the next one to two months. (Source: The Edge Financial Daily)

Property: Tycoon Li Kashing firm buying malls in Malaysia. Singapore-based ARA Asset Management Ltd, which is linked to Hong Kong tycoon Li Kashing, is in different stages of negotiation to buy between five and 10 malls throughout Malaysia. Its second Asia Dragon Fund has a fund size of USD1b to buy Asian assets. (Source: The Star)

Consumer: Govt to review subsidy if oil price hits USD110-120 per barrel. The government has decided to maintain the prices of RON95 petrol , diesel, and liquefied petroleum gas (LPG), but will review the fuel subsidy if oil price reaches between USD 110-120 per barrel. (Source: The Edge Financial Daily)

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Maybank IB Views

SECTOR UPDATE
Oil & Gas: Overweight
ODS-Petrodata's perspective

Broad-based views. ODS-Petrodata expects an improved outlook for the offshore fabricators and shipyard operators in 2011. The vessel market remains in an overbuilt state but charter rates have hit rock bottom. Management believes the overall recovery is progressing but the volatile oil price is a concern. We are of the same opinion. We remain Buyers of Dialog, KNM, Kencana, PGas, SapCrest and Wah Seong. We are placing Alam, Petra Perdana and TOFF (all presently Sell calls) under review as we re-assess the vessel market outlook.

ECONOMICS
External Trade, February 2011
Exports beat street but "Japan factor" looms on the road ahead...

Exports growth in Feb' 11 surprised on the upside as it grew by +10.7% YoY (revised Jan ‘11: +4.6 YoY; Maybank IB: +1.8%) while imports sustained double-digit growth as it rose by +11.5% YoY (Jan ’11: +13.5% YoY; Maybank IB: +13.7% YoY). MoM, exports and imports contracted by -5.5% and -12.6% respectively as the short working month effect was amplified by Chinese New Year holidays. For the first two months of 2011, exports and imports gained by +7.5% YoY and +12.6% YoY respectively vs. 27.6% YoY and 29.5% YoY in Jan-Feb 2010. No change in our full-year forecasts i.e. 8.3% export growth, 8.9% import growth and RM122.6b trade surplus.

Technicals
The FBM KLCI closed lower by 2.41 points to 1,553.07 yesterday. Its resistance areas of 1,556 and 1,576 will cap market gains, whilst the obvious support areas are located at 1,529 and 1,554.

Trading idea for today is a Buy call on MHC.

Other Local News
Maxis: To raise non-voice revenue to 50% by 2012. Maxis Bhd aims to raise its non-voice revenue to 50% next year from 41.5% currently boosted by the launch of the Maxis Integrated Partner in Education (MIPE) programme. (Source: The Edge Financial Daily)

TM: Gets SC nod to raise up to RM2b. Telekom Malaysia Bhd (TM) has received approval from the SC to raise up to RM2b via commercial papers and medium term note programmes to meet capital expenditure requirements. (Source: Bursa Malaysia)

Pos: Khazanah board to meet this week on Pos. Khazanah Nasional Bhd's nine-member board is scheduled to meet this week to finalise bids made for Pos Malaysia. (Source: Business Times)

Press Metal: Plans expansion. Press Metal Bhd proposed the phase-2 expansion of its aluminium smelting operation that would be located at the new Samalaju Industrial Park, Bintulu, Sarawak. (Source: Bursa Malaysia)

Iskandar: Two probes into Iskandar Investment last year. There were two separate probes done within Iskandar Investment Bhd (IIB) last year following complaints of how contracts were awarded. The investigations found cases of mismanagement, criminal breach of trust, procedures that were not followed and leaks of confidential information. (Source: Business Times)

Banking: Market to dictate number of banks. The market will determine the number of banks in the country, which are currently well-capitalised. Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz said banks have reached a "minimum size and are well-capitalised with quality capital that has enabled them to take advantage of economies of scale". (Source: The Star)

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Maybank IB Views

COMPANY UPDATE
Top Glove Corporation RM4.75: Hold
Tide is turning Shariah-compliant

Can't get any worse. We see limited downside from current level: (i) share price has fallen 22% since our downgrade in Sep '10 and is close to our old TP of RM4.70; (ii) earnings may bottom in 2QFY11 (expected to be flat QoQ) and sequentially, driven by new capacities in 2HFY11; (iii) latex cost has stabilised and is set to fall by May after the "wintering season". Our DCF-derived TP is lowered to RM4.55 (from RM4.70) after tweaking our FY11-12 forecasts (-5-11%). But, downside to our TP from current level is only 4%, hence we raise Top Glove to a Hold.


KNM Group RM2.53: Buy
Momentum rising Shariah-compliant

Earnings could surprise on the upside. We concur with KNM's industry perspective of an improving operating outlook. Post briefing, we cut 2011 EPS estimate by 13% but are keeping 2012-13 forecasts unchanged. There is room for upgrades, for our 2012 earnings forecast is 21% below guidance. KNM remains a Buy and we expect the stock to gain traction once it proves its ability to deliver on earnings.


Sunway Holdings RM2.20: Buy
Sunny skies: Another job win Shariah-compliant

Looking bright. The latest RM74m contract brings to total RM369m job wins for the year to date. We expect job win momentum to pick up, based on by a huge RM16b tender book. Sunway is a Buy with a fair value of RM2.85 (11x 2011 PER) and a merger offer price of RM2.60.


Technicals
The FBM KLCI slipped 6.87 points yesterday to close at 1,515.74. Its resistance areas of 1,515 and 1,530 will cap market gains, whilst the obvious support areas are located at 1,498 and 1,512.

Trading Idea is a Sell call on MAYBULK


Other Local News
Sime Darby: Plantation unit explores potential investment in vegetable oil plant in Europe. Sime Darby Plantation has identified the Languedoc-Roussillon region in France as a potential location to establish its multi-feedstock vegetable oil processing plant as part of its strategy to expand into key areas around the world. The proposed plant, to be located in the coastal town of Port-la-Nouvelle, will help to meet the growing demand for edible oil in Southern Europe and North Africa. (Source: Bursa Malaysia)

AirAsia: Thai AirAsia eyes at least USD150m from IPO. Thai AirAsia plans to raise at least USD150m (RM454.5m) from its initial public offering (IPO), which is targeted by the end of this year. Thai AirAsia has named Credit Suisse Securities (Thailand) Ltd, CIMB Securities (Thailand) Ltd and Thanachart Securities Public Co Ltd as its joint lead underwriters. (Source: Business Times)

Nestle Malaysia: Budgets up to RM120m for capex. Nestle Malaysia Bhd has budgeted RM100m to RM120m to expand its capacity this year. The increase in capacity allows the group to expand its export market, namely Indonesia and Philippines, as well as the domestic market. (Source: The Edge Financial Daily)

QSR: Sets up Cambodian unit. QSR Brands Bhd has incorporated a company in Cambodia, Integrated Poultry Industry (Kampuchea) Pte Ltd, for the purpose of operating a broiler and processing production in Phnom Penh. (Source: Bursa Malaysia)

FDI: Invest KL targets 10 MNCs annually. Invest KL, expected to be launched by end-April, is targeting to attract at least 10 multinational companies (MNCs) annually to invest in Kuala Lumpur and the Klang Valley. Invest KL had attracted two MNCs, Schlumberger and Vale, so far. (Source: The Star)

Transportation: Feasibility studies on high-speed KL-Singapore rail. The Government is currently undertaking feasibility studies on a high-speed rail connecting Kuala Lumpur and Singapore. The feasibility studies would take about eight weeks to complete. (Source: The Star)

Telco: P1 part of SK Telecom's larger plans. While investors may have turned sceptical towards loss-making WiMAX player Packet One Networks Sdn Bhd (P1), its new strategic partner SK Telecom (SKT) believes there is much value in P1's wireless business as a launchpad for SKT's aspiration to expand regionally in Southeast Asia. SKT said that either P1 or Green Packet could become part of SKT's expansion plans in Southeast Asia later. (Source: The Edge Financial Daily)

Economics: External reserves increased slightly in the second half of February 11 to RM338.6b (USD109.8b) as at 28 February 11 from RM338.0b (USD109.6b) on 15 February 11. The latest reserve amount is equivalent to 8.1 months of retained imports and 4.3 times short-term external debt. (Source: Bank Negara)

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RHBInvest Research

Banks:
4QCY10 report card – No major surprises but net profit at new high.
Overweight stance maintained.

Corporate Highlights

Tan Chong:
Business as usual.
Outperform call and fair value is RM6.00 (unchanged).

KNM:
Order book at an all-time high.
Maintain our earnings estimates and Outperform call on the stock. Fair value is RM3.45.

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RHBInvest Research Sector Call

Sector Call

Oil & Gas: Petronas 3QFY11 Results
Overweight

Petronas Chemicals: Fair value at RM7.27
Outperform

Dialog: Fair value at RM2.82
Outperform

Petronas Gas: Fair value at RM13.76 Outperform

SapuraCrest: Fair value at RM4.37 Outperform

KNM: Fair value at RM3.45 Outperform
RH Petrogas: Fair value at S$1.55
Outperform

Dayang: Fair value at RM2.60 Outperform

Petra Perdana: Fair value at RM1.16

• Outperform

Kencana: Fair value at RM2.85

• Market Perform
  

Wah Seong: Fair value at RM2.0

• Underperform
• Maintain Overweight as we expect the domestic sector to remain vibrant.

Corporate Highlights

SP Setia: Outperform

• Showing presence in Cyberjaya
• Maintain Outperform. However, in view of the prevailing weakening equity market sentiment, we take a more prudent valuation and lower our fair value to RM7.30.

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Maybank IB Views

SECTOR UPDATE
Oil & Gas: Overweight
ETP Part 3: Oil majors spending to rise; Pengerang project to kick-off

Underscores our bullish stance. 3 entry point projects (EPP) relating to oil and gas (O&G) under the Economic Transformation Programme (ETP) unveiled by PM Najib yesterday solidify our view of a robust year ahead. The specific projects mentioned denote growth and opportunities for local service providers. MHB, Dialog, KNM and Kencana are the key beneficiaries. News flow will remain strong over the near term. We foresee a re-rating in valuations on some stocks when the marginal field projects are announced next. We are Buyers of Dialog, KNM, Kencana MHB, PGas and SapCrest.


COMPANY UPDATE
Sunway Holdings RM2.37: Buy
5th property development in Singapore Shariah-compliant

Maintain Buy. Sunway's 5th property project in Singapore strengthens its presence in the island state. It has won a tender for another piece of land at Jurong together with its "old" partner Hoi Hup for SGD131.6m. We estimate SGD328m GDV and RM28m net profit contribution. There is no change to our earnings forecasts as we await details. Sunway is a Buy with a RM2.85 price target (11x 2011 PER). Its merger with SunCity at RM2.60 per Sunway share is long-term positive.


JT International RM6.08: Buy
Bet on this cigarette

Time to inhale. JTI's share price rose 28% over 2010 to close at RM6.05 at the year-end. Whilst this was commendable, we believe that 2011 could outperform 2010 for two simple reasons. First, local crop failures will result in cost savings for JTI. Second, JTI's build-up of cash reserves suggests that valuations ex-cash will lag market valuations once more. Our updated DCF-valuation rises to RM8.10 (+34%) although we have left earnings forecasts unchanged.


Technicals
The FBM KLCI fell 0.58 points to 1,562.94 yesterday. Its resistance area of 1,562 and 1,576 will cap market gains, whilst its weaker support areas are located at 1,537 and 1,558.
Trading ideas for today are two BUY calls on THPLANT and SPCRES.


Other Local News
Affin: Unaware of CIMB bid. Affin Holdings Bhd deputy chairman Tan Sri Lodin Wok Kamaruddin said yesterday he was not aware of rumours that Affin Bank is being eyed for a takeover by CIMB Bank. Sources close to CIMB Group said the rumour completely goes against the group's ambition to become a major regional financial player and they also think that it is not true. (Source: Business Times)

Dialog: To start RM5b terminal project in April. Dialog Group Bhd plans to begin development work on its proposed RM5b Pengerang deep water terminal project in April. This is one of the 19 entry point projects (EPPs) under the Economic Transformation Programme (ETP) announced yesterday. (Source: Malaysian Reserve)

Economic: ETP goes into overdrive. The Economic Transformation Programme (ETP) switched into overdrive in the new year, with an additional 19 entry-point projects (EPP) and developments that are expected to contribute almost RM67b in investments, RM36b in gross national income (GNI) and create 35,000 new jobs. (The Edge Financial Daily)

AP Land:Low Yat to acquire for RM305m. Low Chuan Holdings, the investment vehicle of Low Yat group has offered to purchase Asia Pacific Land (AP Land), to which Low Yat group holds 33.98% stake, for RM305.2m or 45 sen per share. The purchase consideration will be settled by way of RM201.5m cash while RM103.7m will be treated as amount owed to AP Land. (Source: The Edge Financial Daily)

O&G: Gas Malaysia eyes Bursa listing this year. Gas Malaysia Sdn Bhd, a company that distributes natural gas to households and industries, is said to be eyeing a listing on Bursa Malaysia this year but that idea has not yet received the full backing of all of its shareholders. The company's controlling shareholder is MMC Bhd that owns 41.8% and other shareholders of the company are Petronas Gas Bhd, Shapadu Group and Tokyo Gas-Mitsui & Co. (Source: The Star)

Top Glove: To invest RM160m in Cambodian rubber plantation. Top Glove Corp Bhd is investing RM160m in Cambodia to plant rubber trees to reduce its dependency on latex, which is bought at market prices. The company is targeting to obtain 20% of its latex requirement from the plantation over time. (Source: The Star)

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RHBInvest Research

Top Story

• The spike in volume and value of trades indicates that there is still ample liquidity in the market.
• Expect continued anticipation in terms of news flow for new projects, contracts, M&A. However, focus will shift more to actual award of contracts or projects, as well as to delivery and execution, potentially causing disappointment.
• The news flow for some sectors (in particular the oil & gas sector) appears to be going strong, and will continue to be the catalyst in the near term.
• In our view, the market will remain a trading market as we believe share prices cannot veer too far from fundamental valuations.

Sector Call


Plantation:

• 2010 production a disappointment, what of 2011?
  
• Should there be another disappointment in production in 2011, CPO prices could potentially remain at high levels of above RM3,500/tonne for the entire year.
• We maintain our CPO price assumptions at RM3,100/tonne for 2011 and RM2,900/tonne for 2012.
• No change to our Overweight rating on the sector

Oil & Gas:

Dialog:

• Fair value raised to RM2.82
• Outperform

Sapuracrest:

• Fair value maintained at RM3.86 Outperform

KNM:

• Fair value maintained at RM3.78 Outperform

Dayang:

• Fair value maintained at RM3.36 Outperform

Petronas Gas:

• Fair value maintained at RM13.51 Outperform

Kencana:

• Fair value raised slightly to RM2.89
• Market Perform (Down from OP)

Petra Perdana:

• Fair value raised to RM1.29 using P/NTA methodology
• Market Perform (Up from UP)

Wah Seong:

• Fair value maintained at RM2.02
• Market Perform

We are reiterating out Overweight call on the sector.


Corporate Highlights

PLUS: Underperform (down from TB)

• It all ends with a whimper.
• With the latest news, it is now very likely that UEM-EPF will stick to their existing RM4.60 offer. With no firm competing bids, UEM-EPF has no compelling reason to raise their offer.
• PLUS yesterday confirmed only UEM-EPF remitted the RM50m cash deposit.
• We downgrade PLUS from Trading Buy to Underperform with a fair value of RM4.60 (previously RM5.20) to reflect the offer price by UEM-EPF.

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RHBInvest Research

Top Story:

Construction:

• The prospects of the construction sector will be bright in 2011.
• Maintain Overweight.
• Our top “tactical” pick is Gamuda (FV=RM4.51) T
• Top “value” pick is Fajarbaru (FV=RM1.37).

Corporate Highlights


KNM:

• The company has won a huge EPC contract worth GBP450m (RM2.2bn) from the UK’s Peterborough Renewable Energy Limited (PREL).
• Upgrading our FY11-12 core EPS estimates by 22.4% and 17.3% correspondingly.
• We maintain our Outperform call on the stock
• Upgraded target price of RM3.78/share (from RM3.09)

Sunrise:

• A cheaper entry to the enlarged UEM
• New fair value of RM3.25 for Sunrise (from RM2.80), based on a swap ratio of 1.33 under Option 1-direct share swap.
• Upgrade our call to Market Perform.

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Maybank IB Views

ACQUISITIONS / DISPOSAL
PLUS Expressways RM4.60: Buy
Sense and sensibility Shariah-compliant

Shareholders to decide. PLUS' EGM tomorrow will proceed and shareholders will vote to either accept UEM-EPF's offer or adjourn the passing of resolutions which will give PLUS more time to evaluate Jelas Ulung's offer. As we have written yesterday, we are not comfortable with Jelas Ulung's offer - we are concerned on financial implications or recourse later. After a 5.5% share price gain yesterday, PLUS is trading at UEM-EPF's offer price and just a tinge away from our RM4.70 DCF-based target price. Our Buy call is now under review.


COMPANY UPDATE
KNM Group RM2.69: Buy
Doing a double; raising target price Shariah-compliant

Double joy on orders. We are bullish on the fabricators and have raised KNM's target price by 40% to RM4.35 as it has started to exhibit strong new job wins. The latest RM2.2b EPCC project win instantly doubles its backlog to RM4.6b and the growing momentum is set to sustain into 2011. We opine delivering consistent earnings and margin recovery will supersede market skeptics. Maintain Buy.


Lafarge Malayan Cement RM7.68: Buy
Bright prospects; upgrade to Buy Shariah-compliant

Liquidity and scarcity. Share price has outperformed its cement and steel peers by 3% and 11% YTD respectively and the stock now trades at 15.4x 2012 earnings, which we expect to be a peak demand year for cement in view of major infrastructure projects in Greater KL starting in 2011. Nonetheless, 2012 could mark the start of sustained demand for cement driven by the LRT, MRT, and government land development projects. On that scenario, 15.4x 2012 valuation is not too demanding.


Technicals
The FBM KLCI surged 9.30 points to 1,505.18 yesterday. Its resistance areas at 1,507 and 1,525 may cap market gains, whilst its obvious support areas are located at 1,493 and 1,505.
Trading idea for today is a SHORT TERM BUY call on TWSPLNT.


Other Local News
DRB-Hicom: In RM1b tie up with VW, keen to be VW's distributor in Malaysia. DRB-Hicom Bhd and Volkswagen AG (VW)'s has officially tied up in a collaboration worth RM1b. DRB-Hicom will assemble the Passat, Polo and Jetta models in Pekan. DRB-Hicom has expressed an interest to distribute VW's vehicles in Malaysia. (Source: The Star)

Conglo: Ex-CEO explains why Johor Corp wanted him out. Former Johor Corp CEO Tan Sri Muhammad Ali Hashim said that the reason for his removal is for to facilitate the sale of Johor Corp's assets, including the fast-food businesses. (Source: Business Times)

Amanah Saham Nasional Bhd: Declares 22% higher income payout. ASNB, the subsidiary of Permodalan Nasional Bhd (PNB) has declared an income distribution of 7.5 sen per unit and a bonus of 1.25 sen per unit for ASNB for the financial year ending Dec 31, 2010. The total payout is 22% higher than last year, at RM5.93b while bonus portion payment is RM603.34m. (Source: The Star)

MTD: In JV for jobs in S. Arabia. MTD Capital Bhd has formed a joint-venture (JV) company with ANC Holdings Pte Ltd to target engineering and infrastructure projects in Saudi Arabia. MTD would hold 51% in the JV while ANC would have the remaining 49%. (Source: The Star)

Agriculture: Government negotiating to raise price of Kenaf. The Ministry of Plantation Industries and Commodities is negotiating with a Pahang-based Japanese company to raise the price of kenaf to more than RM750/t to enable the jute-like plant to be commercially cultivated by former tobacco planters. (Source: Bernama)

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Maybank IB Views

COMPANY UPDATE
Axiata RM4.75: Buy
Secular growth trends to continue Shariah-compliant

Raising earnings and target price. We revisit our assumptions following Axiata's stellar 3Q10 results and tweak our earnings higher to reflect latest operating trends. We still like Axiata for its high-growth pan-Asian footprint, and believe Axiata would continue to benefit from a liquidity-induced market rally. Reiterate Buy with a higher RM5.45 TP.


KNM Group RM2.33: Buy
Sabah cross-over brings ample opportunity; target price raised Shariah-compliant

Target price lifted to RM3.10. We are positive over KNM's JV with Petrosab as East Malaysia fabrication opportunities are huge, riding on PETRONAS' rising domestic capex spend. The SOGT and Sipitang CTF projects are some of the JV's targeted projects. KNM remains a Buy with a raised 12-month target price of RM3.10 (+41%) as we foresee a sustained recovery outlook, locally and globally. Our new target PER is 10x (previously 9x) and we roll-over valuations to 2012 earnings.


ECONOMICS
US Economy
Stimulus begets stimulus...

FOMC meeting yesterday ended with the fed fund rate (FFR) retained at 0%-0.25% and more importantly, the Fed reiterating its commitment to the USD600b QE2, which has started with the purchases of USD114.1b US Treasuries since 12 Nov. In addition, there is a third fiscal stimulus package in the works in the form of USD858b tax incentives pending Congress approval. While these monetary and fiscal stimulus may be positive for the US and global economy in the short term, the risks are amplified over the long term.


Technicals
The FBM KLCI advanced 0.79 points to 1,510.58 yesterday. Its resistance areas at 1,512 and 1,531 may cap market gains, whilst its firm support areas are located at 1,495 and 1,510.
Trading idea for today is a SHORT TERM BUY call on TONGHER.


Other Local News
KLK: Subscribes to RM209.8m rights issue entitlement. Kuala Lumpur Kepong Bhd (KLK) and its unit will subscribe to their rights issue entitlement in London-listed Yule Catto & Co Plc amounting to GBP42.4m, or RM209.8. The subscription will be financed with cash reserves and bank borrowings.KLK and its unit hold 27.4m shares, or 18.8%, in the specialty chemical manufacturer. The funds raised from the rights issue is for Yule Catto's acquisition of PolymerLatex Group, an European emulsion polymer products manufacturer with assets in Europe and Asia worth GBP376m (RM1.85b). (Source: The Star)

MAS: Firefly airline plans four new hubs. Firefly plans to set up at least four new hubs for its jet operations within the next two years. This excludes KL International Airport (KLIA) where it would begin its jet services from Jan 15 next year. The four new hubs will be established at Kota Kinabalu (KK), Kuching, Senai and Penang. (Source: The Star)

DiGi, Time dotCom: Ties up in RM139m deal. Digi.Com Bhd has entered into a 10-year wavelength purchase agreement and a maintenance and support deal collectively worth RM139m with Time dotCom Bhd (TdC) as a follow-up to the bandwidth service agreement signed between the two companies in April 2008. TdC would fiberise, maintain and support parts of Digi's backhaul links between its aggregation wireless towers and mobile switching centres. (Source: The Star)

Maxis, TM: Ink 10-year deal. Telekom Malaysia Bhd (TM) and Maxis Broadband Sdn Bhd have signed a 10-year agreement for TM to provide high speed access connectivity, via its high speed broadband access (HSBB Access) service, to Maxis. The deal would enable Maxis to offer bundled services, including Internet Protocol (IP)-based offerings, to 700,000 homes at present and 1.3m households by the end of 2012. (Source: The Star)

Starhill REIT: YTL disposes properties to Starhill REIT. YTL Corp Bhd, via its units, will dispose nine of its hospitality-related properties to Starhill Real Estate Investment Trust (Starhill REIT) for RM1b. The properties disposed are Cameron Highlands Resort, Hilton Niseko, Vistana Penang, Vistana Kuala Lumpur, Vistana Kuantan, The Residences at The Ritz-Carlton, Kuala lumpur, The Ritz Carlton Hotel, Kuala Lumpur, Pangkor Laut Resort and Tanjong Jara Resort. Starhill would lease the properties to the respective vendors/leases for 15 years, with an option to renew for a further term of 15 years. The lease payments for the properties are fixed and include a 5% step-up rate every five years. (Source: Bernama)

YTL: Powers into Jordan. YTL Power International Bhd would invest USD5b to acquire 30% stake in Eesti Energia's Jordanian oil shale projects. The oil plant with output of 38,000 barrels per day will be jointly developed by the partnership between Eesti Energia (60%), YTL Power (30%) and Near East Investment (5%). (Source: The Star)

Autos: BMW unveils another locally assembled model. BMW Malaysia Sdn Bhd has added the contemporary sport-centric BMW X1 to its stable of locally assembled cars. The model would be assembled in Kulim, along with BMW 3 Series and BMW 5 Series that are currently assembled there. (Source: The Star)

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