Stocks to watch: DiGi, IOI, Supermax, YTL

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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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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RHBInvest Research

Top Story: Tan Chong

Results Preview

• Robust 1Q Earnings Expected
• While supply constraints are still a sector worry, Tan Chong’s high inventory levels of over RM1bn at end-2010 (2009: RM673m) will enable it to better weather possible component shortages in the coming months
• We believe the share price already reflects potential supply concerns and is close to being fairly valued.
• We lower our fair value to RM4.95 (from RM5.40) to reflect lower peer valuations but reiterate our Market Perform call on the stock.

Corporate Highlights

Maybank:

Results / Briefing note

• Low loan impairment losses boosts net profit
• Fair value has been raised to RM10.50 from RM10.20. Maintain Outperform.

YTL Power:

Company Update

• YTL Comms yesterday launched the Yes Life app (free to download) for Apple products running iOS 4, which allows iPad and iPod Touch users to add full mobile functionally into their devices, while iPhone users can have a 2nd mobile phone number.
• Maintained SOP-derived fair value at RM2.57. Without management’s assurance on future dividends, we believe YTLP may lose a bit of shine since the key investment thesis for the stock has historically been high dividend yields.

TRC:

News Update

• TRC has proposed a 1-into-2 share split, followed by a 1-for-5 bonus issues, and a 1-for-5 free warrant issue (WB).
• Maintain Outperform. Fair value is RM1.94.

MISC:

Briefing Note

• MISC guided for a FY12/11 that will be “every much like what you saw in FY03/11” but a better FY12/12 ahead with “step-up” earnings from LNG and offshore segments.
• Fair value is RM7.53. Maintain Underperform.

AirAsia:

Results Preview

• 1QFY12/11 Results Should Please Market, But Greater Earnings Volatility Ahead
• We expect AirAsia’s 1QFY12/11 results to beat our forecast but trail market expectations slightly.
• We expect AirAsia’s 1QFY12/11 core PBT to come in at RM160-165m, down 51-53% sequentially vis-à-vis RM340m recorded in 4QFY12/10 due to the seasonally lower traffic and yields and higher fuel cost.
• We are raising our FY12/11-13 net profit forecasts by 27-30% as we now assume AirAsia’s yields to only ease -6.1% in FY12/11 vis-à-vis -7.7% previously.
• Fair value is raised by 27% from RM2.10 to RM2.66. Maintain Underperform.

Century Logistics:

Results/Briefing Note

• Seasonally weak 1QFY12/11, Stronger Quarters Ahead
• Century expects to secure a contract from a new customer for its integrated logistic segment to provide storage and distribution services.
• Century is looking for further opportunities to export in high growing developing countries. Already successful in exporting to Argentina, the company expects to enter Brazil as its next export destination.
• Fair value of RM2.70/share. Maintain Outperform.

Media Prima:

Results Note

• 1Q11 Core Net Profit Up 19.1% YoY
• We maintain our fair value of RM3.20. We reiterate our Outperform call on the stock.

RH Petrogas:

Results Note

• RHP’s 1QFY11 net earnings of S$1.5m were largely in-line with our earnings estimates accounting for about 19.5% of our net profit expectations (S$7.6m). However, it only accounted for 14% of consensus full year estimates of S$10.95m.
• Forecasts. No change to earnings estimates at this juncture as earnings are relatively in line.
• Maintain our Outperform call on the stock and our fair value of S$1.81/share.

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Maybank IB Views

ACQUISITIONS / DISPOSAL
RHB Capital RM8.72: Buy / AMMB Holdings RM6.57: Hold
Merge AMMB & RHB Cap? Why not....

Could it, should it, would it? Could the merger take place? We think it is plausible, for it would tie in with aspirations for further consolidation in the industry and the creation of larger banks. Should AMMB and RHB Capital merge? We believe such an exercise could be earnings accretive and synergistic. Would it happen? That's the billion Ringgit question .... that we will have to leave open-ended. We maintain a Buy on RHB Capital with a marginally higher TP of RM9.50 (from RM9.40) and a Hold on AMMB (TP: RM6.80) for now.

COMMENTS ON NEWS
IJM Corporation RM6.35: Hold
Two new toll concessions Shariah-compliant

Lacking details. Two toll concessions, given the go-ahead by the government last Friday, should positively boost IJM Corporation's construction order book, which stands at approximately RM4.1b now. We estimate order book could easily double. The impact on valuations cannot however be assessed in the absence of further information. We maintain our Hold call on IJM for now, with an unchanged RM6.50 RNAV target price, which implies 21x 2011 earnings multiple.

Technicals
FBM KLCI rose 39.83-points and closed at 1,555.38 last Friday. The fine support areas for the FBM KLCI are located in the 1,498 to 1,555-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 PCHEM.

Other Local News
TNB: Unit signs deal for Manjung plant. Tenaga Nasional Bhd (TNB) unit TNB Janamanjung Sdn Bhd (TNBJ) has signed an engineering, procurement and construction agreement with a consortium led by Alstom Power System SA for the 1,000 MW Manjung coal-fired power plant project. (Source: Bursa Malaysia)

YTL Power: Japanese partner to bid for RM9b Java project. YTL Power International Bhd has teamed up with a Japanese consortium to bid for a 2,000MW coal-fired power plant project in Central Java worth USD3b (RM9b). YTL Power and its Japanese partner have agreed to a 20:80 debt equity ratio, with the Japanese consortium assuming the larger portion of the risk. (Source: The Malaysian Reserve)

Kenanga-ECM Libra: Merger in the works? ECM Libra Financial Group and K&N Kenanga Holdings Bhd are believed to be exploring a potential merger with a possibility of ECM's shareholders selling out to Kenanga. (Source: The Edge Financial Daily)

Boustead: Eyeing majority stake in Esso M'sia with LTAT. Boustead Holdings Bhd and its parent company Lembaga Tabung Angkatan Tentera (LTAT) are believed to be eyeing Exxonmobil International Holdings Inc's 65% stake in Esso Malaysia. (Source: The Edge Financial Daily)

Plantation: World Bank lifts palm oil moratorium. The World Bank last Friday lifted an 18-month global moratorium on lending for new palm oil investments, endorsing a strategy that focuses on supporting small farmers that dominate the sector. (Source: Business Times)

Plantation: Felda Global plans sweet IPO. Felda Global Ventures Holdings Sdn Bhd plans to list some of its businesses starting with its sugar operations this year. The initial public offering (IPO) of wholly-owned Malayan Sugar Manufacturing (MSM) may raise more than RM1b. Felda Global plans to list five companies and it is already in talks with a few investment banks. (Source: Business Times)

Construction: Three foreign players in race for Pudu Jail redevelopment. Three foreign players are among the 10 companies shortlisted by the master developer, UDA Holdings Bhd for the redevelopment project of the Pudu Jail site. The companies are Dubai-based Damac Group teaming up with UEM Land, state-owned China State Construction Engineering Corp that has tied up with Kumpulan Jetson Bhd and Keppel Land Ltd. (Source: The Edge Financial Daily)

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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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RHB Invest Research

YTL Power: New WiMAX pricing competitive; high dividends in doubt
Market Perform

Company Update

Our initial impressions on the Buzz are less than favourable mainly due to: 1) smaller-than-average screen size; 2) lack of applications; 3) keypad being too small; and 4) a not-so-friendly user interface. We welcome the news that YTL Comms plans to launch Android smartphones in Jun, given their rising popularity.



MCIL: A Closer Look Into MCIL’s Non-Malaysian Business Outperform

Company Update

MCIL became a global Chinese language media group with operations spanning from Southeast Asia, Greater China as well as in North America following the merger of Sin Chew, Nanyang and Ming Pao in 1H07. Based on the 9MFY11 results, the non-Malaysian operations accounted for 39% of group’s revenue and 17% of group’s PBT.



Sector Call



Banking: BNM tightens eligibility requirements for credit cards Overweight

Sector Update



BNM announced last Friday a revision to the eligibility requirements for credit cards. Effective immediately: 1) The minimum income requirement for new credit card holders is set at RM24,000 p.a. (previously RM18,000 p.a.); and 2) For cardholders earning less than RM36,000 p.a.: a) Cardholders can now only hold credit cards from a maximum of two issuers. Cardholders with cards from more than two issuers will need to decide by end-2011 their preferred issuers and will be given at least two years to service their outstanding credit card debt for the cards that are cancelled; and b) Maximum credit limit per issuer must not exceed two times the customer’s monthly salary. Affected customers are given a two-year grace period to meet the new requirements.

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