Maybank IB Views

ECONOMICS
Economic Development & Outlook, 2Q11
Revolving and Evolving Risks

The risks, issues and challenges facing the global economy have not changed but have morphed into "4S" from "3S" to now include "(Black) Swans". This is on top of the "Sustainability" (US recovery), "Solvency" (Eurozone sovereign financial crisis) and "Stability" (Emerging Markets's "bubblenomy"). Given the fluid external environment, Malaysia needs to strike a balance between 1) sustaining growth, 2) maintaining macroeconomic and financial stability, and 3) dealing with inflation. The vital elements are 1) executing the Economic Transformation Programme (ETP), 2) gradual monetary policy normalization, fiscal consolidation and subsidy rationalisation, and 3) prudential measures within the financial system to address the asset bubble and household debt risks, thus ensuring the economy stays on track. Our key macroeconomic forecasts are largely unchanged, except for the upward revisions in inflation rate and crude oil price.

COMPANY UPDATE
IOI Corporation RM5.65: Hold
Raises stake in Singapore's South Beach Shariah-compliant

Maintain Hold. IOI Corporation has raised its interest in the Singapore South Beach development to 49.9% from 33.3% when it was initially proposed in Nov 2010. IOI has subscribed for a 49.9% equity interest in Scottsdale which will control 100% of the development. IOI will invest up to SGD816.8m (RM1.96b). Development details are not available, hence, we are unable to estimate the impact on IOI. Nonetheless, we draw comfort that the balance 50.1% holding in Scottsdale is held by Singapore's property pioneer, City Developments Ltd, who should be able to drive values for the South Beach development.

Technicals
The FBM KLCI rose 2.11-points and closed at 1,557.49 last Friday. The obvious support areas for the FBM KLCI are located in the 1,500 to 1,556-zone. The firm resistance zone of 1,558 and 1,576 will see heavy liquidation activities.

Trading idea for today is a Buy call on BENALEC.

Other Local News
MAHB: Passenger traffic to cross 60m mark. Airports Holdings Bhd (MAHB) is confident that total passenger traffic volume across the country’s airports will breach the 60-million mark this year. In 2010, all 39 airports nationwide handled a total of 57.8m passengers. (Source: Malaysian Reserve)

Notion: Eyed by private equity firm again? Market talk of possible corporate exercises has resurfaced at Notion Vtec Bhd, including the potential entry of a major US-based private equity firm and Nikon Corp considering upping its stake in the company. (Source: The Edge Malaysia)

Mamee: Shareholders propose to privatise company. Major shareholders of Mamee-Double Decker (M) Bhd have proposed to privatise the company by undergoing a capital reduction and repayment exercise under Section 64 of the Companies Act, 1965. Under the plan, major shareholders of Mamee who control the company would repay RM179.8m or RM4.39 a share to minority shareholders. (Source: Bursa Malaysia)

O&G: Shell shortlists five potential bidders for sale of LPG business. Royal Dutch Shell plc (Shell) has shortlisted five potential bidders for its downstream liquefied petroleum gas (LPG) business in Peninsular Malaysia. The shortlisted companies are Boustead Petroluem Marketing Sdn Bhd, KUB Malaysia Bhd, KKB Engineering Bhd, Lembaga Tabung Haji and Integrated Petroluem Services Sdn Bhd. (Source: The Edge Weekly)

Property: Projects galore in Penang. Some RM2.94b worth of residential and commercial properties from six developers, based in Kuala Lumpur and Penang, will be launched on the island this year. The south and south-west of the island will see some 1,275 units of residential and commercial properties launched with an estimated gross sales value (GSV) of RM1.45b, while the north-east district will see the development of about 1,166 units of properties valued at RM1.49b. (Source: The Star)

Transportation: Score railway link still pending study. The Sarawak government is still waiting for the completion of a feasibility study on a railway link beginning form the Samalajau Industrial Park in Bintulu to Tanjung Manis. (Source: The Edge Financial Daily)

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Stocks to watch: Infra stocks, Mamee, autos, MAA

KUALA LUMPUR: Stocks could ride on the positive local news flow from the two-day Invest Malaysia conference starting Tuesday, April 12 while focus could also be on selected Sarawak-linked stocks in the run-up to the April 16 elections.

Analysts expect the government might offer a progress report and reaffirm its commitment to achieve the long-term goals under the Economic Transformation Programme.

They are expecting the government to announce more high-impact projects to generate economic activity. The sectors identified as key growth engines include oil & gas and services and among their favourites are KNM and Dayang Enterprise.

Meanwhile, JP Morgan Asia Pacific Equity Research said Malaysia was under-owned and an oil price play. It said Malaysia was the only economy that is a net beneficiary of higher oil prices, as a net exporter of oil and oil seeds.

“In our view, the market should remain resilient as it is under-owned, with average allocations of emerging markets portfolio managers well below a MSCI neutral weight of 2.9%. We like the broader ETP theme which is gradually gaining traction, whose success will have a bearing on the upcoming general election, in our view,” it said.

Other analysts are expecting an update on the Greater Kuala Lumpur / Klang Valley catalyst, one of 12 National Key Economic Areas (NKEAs) under the ETP.

They said specifically, a progress report and timetable for the massive MRT project may be revealed. They CONSTRUCTION [] proxies are Gamuda and MMC while YTL Land is a MRT-related property play.

Shares of MAMEE-DOUBLE DECKER (M) BHD are expected to surge when they resume trading on Monday. Its major shareholders – who collectively hold 79.1% -- have proposed a selective capital repayment (SCR) of RM4.39 a share to the remaining shareholders under a corporate exercise to take it private.

At RM4.39, this was a premium of 79 sen or 21.94% above the last traded price of RM3.60 on Wednesday, April 6.

Perusahaan Otomobil Kedua Sdn Bhd (Perodua) retained its top position in car sales in the first quarter ended March 31, 2011 (1Q2011) with 45,700 units and a market share of 29% -- underpinned by robust sales of the popular Myvi.

However, Perodua managing director Datuk Aminar Rashid Salleh said that “moving forward, the 2Q and 3Q will be challenging, as our operations are impacted by the earthquake and tsunami which hit Japan on March 11, 2011”.

The Edge weekly reports that while the full impact of the disaster on Malaysian auto assemblers is yet to be seen, it has amplified sector risks. Auto delivery could be affected from 3Q if component supply problems continue for a prolonged period.

Stocks related to the Melewar group could see extended trading activities through MAA Holdings has pulled back slightly after the recent week-long price surge.

Last Friday, April 8 shares of Melewar Industrial Group and MYCRON STEEL BHD surged to multi-year highs in active trade, riding on the recent price jump in MAA HOLDINGS BHD [].

Melewar rose 22.5 sen to RM1.13 with 35.5 million shares done, and Mycron was up 15 sen to 81 sen. MAA fell four sen to RM1.34 with 84.1 million shares traded.

MAA Holdings is the parent company of the MAA group of companies and is controlled by the Melewar Group. Khyra Legacy Bhd owns 38.86% of Melewar Industrial and 34.75% of MAA Holdings and 55.57% of Mycron.

MAA Holdings shares have surged from last Friday, April 1’s close of RM1.03 despite a denial earlier this week over the sale of a 70% stake in Malaysian Assurance Alliance Bhd (MAAB) to Zurich Insurance Co. Ltd for an estimated RM1.2 billion.

On Wednesday, MAA denied the sale but said discussions were still ongoing.

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Maybank IB Views

COMPANY UPDATE
Public Bank RM13.04: Hold
Consumer lending still resilient...for now

Momentum sustained. The key takeaway from a recent Public Bank visit is that lending momentum remains very much intact on the consumer front, but that rate competition for both loans and deposits is unlikely to ease anytime soon. Our earnings forecasts are broadly maintained. While we like the stock for its solid fundamentals, much is reflected in the current share price (prospective 2011 P/BV of 3x, ROE: 23.9%) we believe, and we see little catalyst in the near term. Hold maintained with an unchanged DDM-derived TP of RM14.10 (payout ratio: 52%, cost of equity: 10.6%, terminal growth rate: 5%).

ECONOMICS
CPI, Feb 2011
Inflation rate heads further up...

Inflation rate in Feb '11 was a higher-than-expected and a 22-month high of +2.9% YoY (Jan '11: +2.4% YoY; Maybank-IB: +2.5% YoY; Consensus: +2.7% YoY). Sequentially, consumer prices increased by +0.5% MoM (Jan '11: +0.6% YoY; Dec '10: + 0.4%). "Food and Non-Alcoholic Beverages" (FNAB) and "Transport" accounted for 72.7% of the YoY increase. Meanwhile, "core" inflation rate which excludes FNAB prices and Transport costs picked up by +1.5% YoY (Jan '11: +1.2% YoY), led by higher prices of services, notably "Restaurants & Hotels", "Health" and "Education". We have revised our headline 2011 inflation rate forecast to +3% from +2.5% last week.

Technicals
The FBM KLCI rose 11.66-points and closed at 1,515.55 last Friday. The local market rose despite Japan’s nuclear woes at its reactor plants, Middle East tensions in Libya and Yemen as well as Portugal’s debt woes.The obvious support areas for the FBM KLCI are located in the 1,474 to 1,515-zone. The very firm resistance zone of 1,518 and 1,576 will see heavy liquidation activities.

Other Local News
AMMB-RHBCap: Merger may be back on the table. A proposal to merge AMMB Holdings Bhd and RHB Capital Bhd, which first surfaced in 2007, is back on the table. (Source: The Edge Financial Weekly)

MISC: Eyeing IHC Merwede. International shipping publications are speculating that national carrier MISC Bhd could be a potential investor in Holland’s IHC Merwede Holding BV. (Source: The Edge Financial Weekly)

MAS: Firefly banking on Iskandar to develop southern hub. FlyFirefly, a unit of Malaysia Airline System Bhd (MAS) will develop the Sultan Ismail International Airport as its southern hub in tandem with developments taking place at Iskandar Malaysia, the southern economic development corridor in Johor. (Source: The Edge Financial Daily)

Pos Malaysia: Declares 17.5 sen dividend, MPC joins bid. Pos Malaysia Bhd has recommended a first & final and special dividend totalling 17.5 sen per ordinary share less 25% tax in respect of the financial year ended Dec 31, 2010. Separately, Malaysian Pacific Corp Bhd and Amanah Raya Bhd are believed to have submitted a joint bid for the 32.2% equity stake in Pos Malaysia Bhd held by Khazanah Nasional Bhd. (Source: Bursa Malaysia, The Edge Financial Daily)

Mamee: To upgrade facilities. Mamee-Double Decker (M) Bhd, which aims to achieve an annual revenue of RM1b in five years, will spend 90% of its RM100m capital expenditure (capex) this year to upgrade its facilities and machinery in one of its Malacca plants. (Source: The Star)

SC: Zarinah’s term extended. The Securities Commission (SC) said the tenure of its chairman Tan Sri Zarinah Anwar has been extended for one year with effect from April 1. (Source: The Star)

Iskandar: 2012 to be tipping point for Iskandar. The first phase of catalyst projects in the ambitious Iskandar Malaysia will begin operations next year, signaling the beginning of a strong and sustainable metropolis of international standing. (Source: The Star)

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RHBInvest Research

Top Story


Mamee:

• Aggressive topline growth will compromise
• Fair value at RM3.60.

Corporate Highlights


KFC:

• Fast-tracking growth in India
• Fast-tracking growth in India
• Fair value of KFCH at RM3.85
• Upgrading the stock to Market Perform from underperform previously

Kencana:

• The company’s earnings were significantly better (+26.2% qoq and +69.8% yoy) due to the start-up of its KM-1 drilling rig
• We maintain our forecasts as results were within expectations.
• Maintain Outperform call. Fair value of RM2.60/share.
  

Technical Highlights


Daily Trading Strategy:

• FBM KLCI is unlikely to launch a powerful rally to re-challenge the key resistance level at 1,524 and the historical level of 1,531.99 soon, in our view.
• In fact, we see a constant risk of the index falling below the 1,500 psychological level should the profit-taking activities persist in the near term.
• We continue to stay negative and expect the index to see more pressure on the downside

Daily Technical Watch: Media Prima

• Bargain-hunting activities near the RM2.20 key support level ...
• Immediate Support = RM2.20
• Immediate Resistance= RM2.44

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