Malaysia Bursa - Stocks Analysis and Market Outlook

Money Flow - A positive week except for KLCI

2012-02-21T19:40:00.001+08:00

MARKET SNAPSHOT
• The rally in global equity prices continued in the week ended 17 February despite signs of edginess among investors in the week before. All 16 world’s major indices which we track recorded positive gains during the week under review, excepting KLCI which succumbed to profit taking during mid-week.
• The markets advanced on rising expectations that Greece will obtain the much needed bailout this week coupled with further indications that the US economic recovery is gathering steam.
• Japan's Nikkei 225, top performer of the week, rallied by nearly 5% to hit a fresh six-month high. It was buoyed by brightening earnings prospects particularly among Japanese exporters as the Yen tumbled against the US Dollar, Euro and most other major currencies. The Japanese currency retreated after Bank of Japan announced that it would raise the size of its asset-purchase fund.
• Wall Street had a positive week, a reversal to the negative performance a week before, as both the Dow Jones and S&P500 rose by 1.2% and 1.4% respectively. Stocks rose last week as the numbers on jobless claims and housing start boosted optimism on outlook of the economy. The weekly gain put the broader benchmark merely 0.2% away from recouping all its losses since April last year.
• Likewise, the European markets also performed stronger last week, in contrast to a weak performance in the previous week. The DAX added 2.3%, while the CAC and FTSE advanced by smaller 2.0% and 0.9% respectively last week. The European stocks ended the week higher as Germany expressed optimism that the €130 billion rescue for Greece is on track.
• Most Asian markets had an all around positive week. There were profit taking activities in these markets during the week but prices generally held up. However, China stocks closed the week mostly off its highs as investors feared that a spike in money market rates will make borrowing costlier. Consequently, the CSI300
index rose by a mere 0.1% for the week.
• Finally, The KLCI which succumbed to profit taking in mid-week ended the week -0.3% lower and was the only loser among all the major indices.

TRACKING MONEY FLOW
• The streak of global funds inflow into Asian equity markets continued unbroken for the ninth straight weeks. Last week, there was an aggregate net inflow of foreign equity investment amounted to USD2.1b to the seven markets that we track (Korea, Taiwan, Thai, Malaysia, Indonesia, Philippines and India). These markets, for which fund flow data is publicly available, are our proxy for Asia.
• Except for Indonesia which recorded a slight net outflow of –USD19.4m, all other markets recorded positive inflow last week. There was nonetheless a 63% reduction in net inflow into Thailand at USD155m as compared to the previous week. Conversely, foreign funds returned to Malaysia with weekly net inflow of USD117m last week vis-à-vis net outflow of –USD20.1m the week before. We reckon there could be a rotational play among Emerging South East Asian markets. Thailand is still the preferred market currently but Malaysia may be the next favoured one.
• There was also marked ebb of portfolio capital into Korea as the net inflow dipped to USD568m, down from the billion-dollar figures of previous weeks. Similarly, Taiwan attracted USD440m, the third consecutive weeks of reduction in its net inflow of foreign fund into equity. Even so, until last Friday, Korea and Taiwan had recorded a cumulative inflow of USD11.4b this year, compared with an aggregate of only USD1.7b that moved into the TIPs + Malaysia markets.

MALAYSIA
• Foreign investors returned as net purchasers of shares listed on Bursa Malaysia, after recorded an outflow in the week before. It was a positive reversal that could signal a rotational play into our market.
• Foreign investors purchased, on net basis, Bursa-listed shares amounted to RM357.7m last week. They were net buyers in four out of five trading days of the week.
• The purchase was however accompanied by a reduced level of participation. Foreign daily average gross trade (purchases + sales) declined to RM3916m, from RM4211m the week before.
• Local investors’ participation rate, in contrast, surged last week.
• Local retailers turned marginal net seller for the first time since late January. However, their participation rate surged to RM7.43b, the highest so far this year.
• Local institutions, likewise, turned net seller with the largest deficit this year at RM302.8m. Their average participation rate was the highest so far in year 2012 at RM9.53b.

THE WEEK AHEAD
• While the current liquidity-driven rally may have got legs to drive the KLCI higher, nonetheless it may seek a pause in the immediate term as the urge to take profit sets in among market investors.
• We expect the market to be heading for a brief consolidation hence the KLCI shall continue to be vulnerable to profit taking this week.

by MIDF

A Mathematical Analysis of Maybank its Dividend Reinvestment Plan

2012-02-05T14:16:00.001+08:00

Our mathematical analysis of Maybank’s dividend reinvestment plan (DRP) shows that with 90% of shareholders opting to reinvest their dividends, the beneficiaries are actually the shareholders who choose to receive their dividends in cash. Their dividend yield remains an attractive 5.9% p.a. and the growth potential of their shareholding improves from 3.8% to 6.9% p.a. thanks to the reinvestment from the other 90% of shareholders. We are reducing our target price for Maybank from RM8.00 to RM7.80 due to EPS dilution from its DRP, and lowering our net dividend yield forecast from 6.1% to 4.0% p.a. which is a truer reflection. HOLD maintained.

Maybank’s dividend reinvestment plan
Maybank introduced its DRP for the final dividend for FY6/10, and interim and final dividends for FY6/11. Under the DRP, shareholders have the option of reinvesting their electable portion into Maybank shares at a discount of up to 10%. The reinvestment rates so far have been 89%, 91% and 86% respectively i.e. an average 89% of shareholders choose to reinvest their dividends. Dividend payout ratios (DPR) in FY10 and FY11 were 77% and 75% respectively.

In the case of a normal dividend payout
Assuming Maybank’s ROE of 15% in FY11, a DPR of 75% would imply maximum asset growth potential of (1-75%) x 15% = 3.8% p.a. This is because asset growth is tied to growth in equity via the minimum capital adequacy ratio (CAR). Assuming that earnings growth is tied to asset growth, EPS growth potential is limited to 3.8% p.a. At Maybank’s current FY12 PER of 12.5x, earnings yield (EY) = 1/PER = 7.9% p.a. and a DPR of 75% translates into net dividend yield (DY) = DPR x EY = 75% x 7.9% = 5.9% p.a. So a shareholder receives DY of 5.9% p.a. and EPS growth of 3.8% p.a.

What happens when 90% of shareholders opt to reinvest?

New shares issued = dividend entitlement/adjusted share price = (90% x 75% x net profit)/(90% x (share price – gross dividend per share)) assuming the new shares are issued at the maximum 10% discount to market price adjusted for the gross
dividend. So new shares issued = (75% x net profit)/(share price – (share price x DY/0.75)) = (75% x net profit)/(share price x (1-5.9%/0.75)) = (75% x net profit)/(share price x 0.92). The percentage increase in new shares = new shares issued/issued shares = 75% x net profit/(share price x 0.92)/issued shares = 75%/0.92 x (net profit/issued shares)/share price = 0.82 x EPS/share price = 0.82 x
EY = 0.82 x 7.9% = 6.5%.

Earnings growth potential = retained portion of ROE = ((1-DPR) + 90% x DPR) x ROE = (25% + (90% x 75%)) x 15% = 13.9% p.a. EPS growth potential diluted for the new share issue = 1.139/1.065 = 6.9% p.a.

We also have to take into account that the shareholder who opts to reinvest his dividend will see his shares increase by (percentage increase in new shares)/(percentage of shares owned by him) = 6.5%/90% = 7.2%. So his share of
net profit rises by (percentage increase in shares owned by him) x (diluted EPS growth) = 1.072 x 1.069 = 14.6%.
So the shareholder who opts to reinvest his dividend receives DY of zero and EPS growth of 14.6% p.a.
Whereas the shareholder who opts to receive his dividend in cash, receives DY of 5.9% p.a. and EPS growth of 6.9% p.a.

To cut a long story short
With Maybank’s DRP as it stands, the shareholders who reinvest their dividends are “giving away some of their growth” (14.6% instead of 15.0%) to the shareholders who opt to receive their dividends in cash (they continue to enjoy an unchanged dividend yield of 5.9% p.a. but better growth of 6.9% compared to 3.8% thanks to the reinvestment from the other 90% of shareholders).

Table 1 below illustrates a summary of the above analysis:
‘A’ is what a shareholder gets if Maybank does not declare any dividend i.e. no yield for maximum growth potential of 15% p.a.
‘B’ is what a shareholder gets if Maybank has a DPR of 75% cash i.e. 5.9% p.a. dividend yield but Maybank’s growth potential drops to 3.8% p.a.
‘C’ is what a shareholder gets if he opts to reinvest his dividend and 90% of shareholders do so i.e. no yield for growth of 14.6% p.a.
‘D’ is what a shareholder gets if he opts to receive his dividend in cash while 90% of shareholders reinvest their dividends i.e. 5.9% p.a. dividend yield with growth of
6.9% p.a.
‘D’ is thus better off than ‘B’ while ‘C’ is worse off than ‘A’.

Valuation and recommendation
We are reducing our target price from RM8.00 to RM7.80 per share, following a 2% reduction in our FY12 EPS forecast. This is taking into account the 2% increase in Maybank’s issued shares from its DRP for the final dividend of FY6/11.

We are lowering our DPR forecast from 75% to 50% so its forecast net dividend yield is now 4.0% compared to 6.1% previously. Our valuation of Maybank is derived by applying a PER of 12x to our forecast FY12 EPS which has not assumed
any further dilution from new shares issued under its DRP. Implicitly, without reinvestment of dividends, we have to assume a DPR of only 50% to be consistent with an asset growth of 8% p.a. and ROE of 15-16%.

Although Maybank could continue to declare a 75% DPR, it would either require reinvestment of dividends (which would dilute EPS through the issue of new shares), or pay out from its excess core capital (which is not sustainable in the long
term).

We maintain a HOLD recommendation. Maybank’s share price has remained flat since our Results Review dated 15 November 2011 where we recommended a Hold with target price of RM8.00. Although we have reduced our target price and dividend yield forecast, total expected return is close to zero so the stock remains a HOLD.

by ECMLibra

Still Robust Infow of Fund to Asia Despite Truncated Trading

2012-01-31T16:07:00.001+08:00

MARKET SNAPSHOT
• The global rally in equity prices took a breather last week, as trading in Asia was disrupted by the Chinese New Year. Many markets were closed on Monday and Tuesday, while the markets in China and Taiwan were out for the entire week.
• Wall Street had a mixed week as the corporate earnings reporting season began in earnest. The Dow Jones shed -0.5% while the S&P500 maintained the momentum with a marginal 0.1% gain, keeping the index above the critical 1,300 level.
• European markets had a generally better week than that in Wall Street. The DAX continued its strong rally gaining 1.7%. So far in 2012, the DAX has gained 10.4%, making it one of the best performing developed markets in the world. The FTSE and CAC closed the week hardly changed.

• Asian markets had a mixed, but generally positive week as all eyes will be on the China and Taiwan markets as they re-open on Monday. The markets in Japan, India and Thailand were NOT closed for the New Year and these markets did rather well. India’s Sensex was the best performer in our ladder
with a gain of 3%, and is now the best performing in Asia this year with a gain of 11.5%. There was proft    taking    in    Manila    and    Jakarta.
• The KLCI remained a noticeable laggard losing -0.12% last week. Year-to-date, the index has lost -0.6%, the only market among those that we track to be in the negative territory.

TRACKING MONEY FLOW
• Asian equity markets continued to draw global funds in a trading-shortened week. For the sixth consecutive week, and eight in the last nine, foreign funds were net purchasers of Asian stocks. This is based on the proxy markets that we track. Last week, there was an aggregate net INFLOW of foreign equity investment amounted to USD2.3b to the seven markets that we track (Korea, Taiwan, Thai, Malaysia,   Indonesia, Philippines    and India), for which fund flow data is publicly available.

• Almost all markets recorded positive infow, with the exception of Indonesia and Malaysia. Considering that the trading week was shortened and Taiwan was still closed, the USD2.3b that came in is quite robust. There was a surge of portfolio capital to Thailand and Philippines — these two markets may surprise in the weeks ahead.

below: Cumulative Foreign Fund Flow to ASEAN Countries (click to enlarge).

• The outfow of Indonesia andMalaysia may reflect rotational play among Emerging South East Asian market. But in the bigger scheme of things, funds are currently more inclined to move to North Asian markets. Until last Friday, Korea had recorded an infow of USD5.4b, compared with an aggregate of USD1.0b that moved to the TIPs + Malaysia markets.

by: MIDF Research

2012 - A Trader's Market?

2012-01-18T07:45:00.001+08:00

Asia ex-Japan
Go contrarian. Investors should buy into oversold cyclicals in the near term and go Overweight on consumer discretionary, IT, industrials and materials. Asia ex-Japan equities are currently trading at very attractive valuations of 10.7x 12-month forward PER and investors’ expectations are low, but cashed up.

Policy inflexion point. Several catalysts will drive the re-rating process; the unofficial quantitative easing by the European Central Bank and policy easing in Asia will stabilise the domestic liquidity situation. In addition, corporate earnings, especially in the industrial sectors, should be supported by better margins and an end to global inventory adjustment by 1Q12.

Prefer China and TIP. That said, the outlook for the full year will continue to be clouded by events in the developed world. Against this backdrop, growth stocks usually outperform value stocks. On a country basis, this translates to an Overweight on China and TIP (Thailand, Indonesia and the Philippines) due to their better EPS growth outlook.

Underweight India and developed Asia. We are funding this out of an Underweight position on Hong Kong, India and Singapore due to their less supportive liquidity cycle. In particular, financials in Hong Kong will be weighed down by the relatively tight global free liquidity, in contrast to the latter’s upswing in 2009.

Despite the positive start to 2012, investors remain sceptical. Perhaps the bitter aftertaste of a disappointing 2011 continues to linger. However, we strongly recommend investors to go long on the market in the near term. We see a mini rally in the offing; what is different compared to last year is that investors are starting this year with very low expectations and the global economy is not as bad as it had seemed. With cash ratio running high, we expect investors to put the funds to work on improving macro news flow as the European Central Bank’s (ECB) unofficial quantitative easing (QE) and policy reversals in Asia make their impact felt.

above: click to enlarge

In the near term, we like oversold cyclicals and among the bigger caps, we prefer stocks in the industrials, IT, materials and consumer discretionary sectors.

For the full year, we expect 2012 to remain a trader’s market. The funding needs in Europe and prospects of further fiscal austerity in the developed world will continue to cloud the market outlook. Hence for the medium term, we are overweight on China and TIP (Thailand, Indonesia and the Philippines) on the basis of their stronger EPS growth outlook. At the stock level, investors should focus on those with topline visibility.

by Maybank Investment Bank

Malaysia Equity and 2012 FBM KLCI Target by DBS Vickers

2012-01-09T11:22:00.001+08:00

For 2012, our KLCI target is 1,590 based on 14x forward earnings — a target which could be reached as soon as the elections date is set.

Construction, plantations and media companies are the main election plays.

We like Malaysia for its defensive qualities in a region which will continue to suffer from high volatility. During the last UNMO meeting, PM Najib's election hints have carried an increasing certainty about them suggesting that elections are likely to occur sooner rather than later. We believe increasing election chatter is likely to boost stock market sentiment. We are therefore retaining our Overweight recommendation in Malaysia.

Our forecasts for 2012 GDP growth is cut to 4.5%. This still represents one of the strongest growth rates in Asia. DBS's economist believes investment activity should pick up, as the government pushes ahead with the award of infrastructure projects aimed at offsetting the negative effects of a potential external slowdown. Being 97% export dependent, a slowdown in commodity exports, in both value and volume terms are key risks to the economy.

Earnings growth within our stock universe is now 8.6% for 2011 and 13.1% for 2012. The 2012 forecast looks high compared to a consensus forecast of 11.6%. We expect downgrades to set in before bottoming out in 1Q12. Among the market heavy weights, cost pressures from higher oil prices will affect Tenaga, and MAS; while top line disappointment due to slower growth could affect CIMB and Genting

We expect Singapore and Malaysian ties to continue to improve, providing investment opportunities for companies from both countries. The landmark railway land swap deal in 2011, followed by investments by the Singapore sovereign wealth fund Temasek, and Singapore companies in Malaysia's Iskandar region are clear evidence of the improving relationship.

Recently, parliamentary members from Singapore's ruling party attended the annual gathering of Umno leaders and party activists in the latest UMNO gathering in Malaysia. This is significant as the last time this occurred was reportedly 20 years ago. We expect average GDP growth for both countries to be enhanced to pre-1998 levels (See “M+S, a new chapter has begun”, DBSVickers, Joanne Goh et all, 11 July 2011”) and expect M&A activity and business dealings between Singaporean and Malaysian companies to gather pace in 2012.

The annual target for investment in Iskandar Malaysia (IM) has, reportedly, been already met th is year. Since the scheme's inception five years ago, IM has recorded a total cumulative committed investment of MYR77 bil across various sectors as at Sep 2011. 60% is from domestic investors vs 40% foreign.

The much anticipated premium factory outlet was officially opened on 11 December and is expected to bring shoppers from Singapore as well as the region and will add vibrancy to IM for a start. Other cataly tic projects like highways, universities, theme parks will be opening in stages in the next year.

Attracting FDI and raising income levels are key objectives of PM Najib's 'New Economic Policy' (NEP). From the latest World Investment Report (updated with 2010 numbers), FDI flows into Malaysia have held up at 5% of total FDI into Asia ex-China. The improvement in FDI in Malaysia between 2009 and 2010 was surpassed only by Singapore, Hong Kong, China, and Indonesia, whereas countries like India, Thailand, Philippines and Taiwan saw lower FDI in 2010 compared to 2009. On the face of it, therefore, we see a lot of potential in PM Najib's NEP.

For 2012, our KLCI target is 1,590 based on 14x forward earnings — a target which could be reached as soon as the elections date is set. Construction, plantations and media companies are the main election plays.

by DBS Vickers

Buy Bumi Armada –Exponential Growth Ahead

2011-12-16T07:13:00.001+08:00

BUY RM4.00 Price Target : 12-Month RM 5.00
Potential Catalyst: New FPSO contracts, lucrative

Exponential growth ahead
•   Strong candidate for lucrative marginal field development risk service contract
•   Beneficiary of rising demand of FPSO solutions in the region
•   Maintain Buy with RM5.00 TP with 25% upside

Best bet for Petronas’ RSC. We expect Bumi Armada to secure the lucrative risk service contract (RSC) for Petronas’ marginal fields next year. Its excellent track record and synergistic O&G services, particularly the FPSO solutions will be viewed favorably by foreign oil players looking for local partner for RSCs. We understand that Bumi Armada is keen to bid for marginal fields and its newly set-up oil field services division is well positioned to leverage on its expertise and aggressively bid for RSCs that command IRR of 11-20%.

FPSO tenders are picking up. We believe that Bumi Armada is likely to bid for more FPSO contracts in Malaysia as jobs are opening up. FPSO tender for Petronas’ RM15bn North Malay basin development (PM301 and PM325) has taken off, potentially to be awarded by year-end to fast-track production by 2013. Petronas is also likely to deploy FPSO solution for its Bunga Dahlia and Teratai fields (PM302). Meanwhile, FPSO tender for ONGC’s Cluster 7 margin al fields in India has started and Bumi Armada is likely to bid for the job. It has purchased an option for an Aframax tanker in early Nov11 (similar to its option purchase for D1 FPSO bid), suggesting another FPSO project in the pipeline.

Maintain Buy. Bumi Armada is our high conviction Buy given its long-term earnings visibility with RM7.2bn firm order book (exclude JV’s D1 FPSO in India worth RM1.9bn) and strong 3-year earnings CAGR of 26%. Its geographically diversified earnings base with large exposure in the growing O&G sector in Asia and Africa is set to propel its growth prospects to become a world champion.

by HwangDBS Vickers 13th Dec 2011

Buy – DRBHcom Interested in a stake in Proton?

2011-12-06T12:14:00.001+08:00

DRB-Hicom: Buy; RM2.20 Price Target: RM3.45; Stock code 1619

Market is rife with rumours that DRB-HICOM (DRB) is keen to acquire Khazanah’s 42.7% stake in Proton. We understand other parties which may be interested are Naza and Sime Darby. The EdgeFinancialDaily today reported that Tan Sri Syed Mokthar AL-Bukhary is believed to be in
negotiations with Maybank Investment Bank to facilitate a deal to take control of Proton. It is believed that if there are no parties prepared to acquire Khazanah’s 42.7% stake, it may choose to sell a stake of less than 33% to avoid the bidder having to make a MGO.

It is a known fact that DRB in 2009 had submitted a bid to acquire a 32% stake in Proton but the deal fell through. We spoke to management on this and their view is that there is nothing to substantiate this rumour. However, it believes the jewel in Proton lies in its state-of-the-art Tanjong Malim plant which is strategically located. While there are also other synergies such as spillover for DRB’s autoparts business and DRB also has a 60:40 JV with Proton to develop 4,000 acres of land surrounding Proton’sTanjong Malim plant (Proton City), we believe these are longer term positives.

Also, DRB is also in the midst of expanding its Pekan plant to cater for the presence of VW and potentially Audi. There are immediate goals for VW’s production in Pekan to ramp up to 50,000 units by 2016 for export to the Asean market. In the longer term, DRB with its slew of established
relationships with motor giants such as VW, Honda, Suzuki, Isuzu and Mercedes may be an ideal platform to bring in more foreign partners to work with should the acquisition take place.

Hence, the key would be pricing where on the surface it may not work to DRB’s benefit. At current price, Proton trades 23x FY13F PE (Y/E March) and 0.59x NTA. This compares to DRB which trades 7.5x FY13F PE (Y/E March) and 0.8x NTA.

All in, we would be sceptical if the key motive for acquisition of Proton is just capacity expansion. Its Pekan plant is running on 40-45k units per annum vs potential capacity of 95k p.a. We reaffirm our BUY rating and TP of RM3.45 based on a 20% discount to our SOP value. As it stands, we think DRB’svalue proposition is already strong with a growing presence in automotive, services and property.

by HwangDBS Vickers

Malaysia Property Stocks Review

2011-12-01T10:00:00.001+08:00

Current Malaysia property demand trends

Demand appears resilient for now. We attended Star Property Fair 2011 over the weekend and were pleasantly surprised by the crowd. On a broader perspective, we reiterate our Neutral stance on the sector in anticipation of slower property sales growth going forward as we believe that the property cycle is peaking. We, however, expect the pricing/demand for prime-located or LRT/MRT-themed property projects
to stay strong.

Investor-dominated crowd. The considerable crowd at the property fair was a pleasant surprise to us. This was despite the school/public holidays and uncertainties permeating the global economy. Visitors were mostly locals and above 30-years old. From our observations/ discussions with sales personnel and agents, most visitors are buying/ looking for investment properties. In our view, this group would be thus sensitive to any potential stricter policies by BNM/government.

Shifting demand towards connectivity. We observed strong demand for properties with LRT/MRT stations in their vicinity. Such projects enjoyed strong take-ups and/or record prices. Encorp‟s The Strand @ Kota Damansara was fully sold in less than 3 weeks (retail + service apartments; non-bumi lots; non-developer interest bearing scheme; RM720-770psf; 640-2,500sqf; launched in early Nov‟11) while Sunway Velocity (900-1,600sqf) achieved 70% take-up despite being offered at RM950psf record price vis-a-vis the area. The next “hot” project, which attracted considerable interest at the fair, is IOI Properties‟ SkyPOD Puchong project supported by the new STAR LRT station nearby.

Bite-sized projects: “Small” but “sexy” in absolute pricing. We detect a growing demand trend for “affordable” homes. This has led to the proliferation of the „shoe-box‟ unit concept in the Klang Valley. This refers to properties being sold at relatively high psf prices but decently ranged on a size basis i.e. RM400-800k due to smaller floor area. Despite a RM800psf ASP, OSK Properties‟ 392 units SoFo (priced from RM390k/unit onwards; 488-1,000 sqf) at the Atria redevelopment project was fully sold in a day. The success could also be due to the lack of new supply at the matured Damansara Jaya area. The “leftover” of hot projects are usually big size units (more than 1,500sqf/unit) with pricing at above RM1m, in our observation.

Locally driven demand. Based on our discussion with property developers and agents on site, recent demand for property has been driven by locals. Foreign buying has mostly been focused on high end properties and the prime KLCC area (which is a familiar location to them). Moreover, the recent property launches (like bite-sized units) are more targeted towards the local population. We expect the current trend to continue given the global economic crisis.

Annual property event by The Star. The 3-day property fair was held at the KL Convention Centre from 25-27 Nov‟11. Most listed developers e.g. SP Setia, Mah Sing, Sunway, Ivory, Glomac, Encorp and Dijaya participated in the event. Apart from the popular “Developer Interest Bearing Scheme” (DIBS), selected developers also offered attractive 5-14% rebates to property buyers.

Housing Minister guided for cautious 2012 growth. The Housing and Local Government Minister Datuk Seri Chor Chee Heung said that the Malaysia‟s property sector is expected to experience cautious growth in 2012 during the launch of Star Property Fair 2011. He expects the property industry to register a 3.4% YoY growth in 2011,
versus 5.1% in 2010 and the downward trend would continue to 2H12.

UEM Land (Hold; RM2.02 TP). The largest developer in Malaysia (in term of landbank and market capitalisation) and land owner in Nusajaya with total remaining landbank of more than 4,068 acres (73% in Nusajaya, 27% outside Nusajaya) and estimated RM31b GDV. Potential surprises could come from more government land developments. Khazanah is the major shareholder, with a 67.5% stake in UEM Land.

Sevreal Malaysia Property Stocks Reviewed

SP Setia (Not rated) - A versatile property developer with a spectrum of mid-to-high end products. SPSB has 3,957 acres undeveloped landbank with an e.RM46b GDV. Next key earnings drivers include its RM6b KL Eco City, RM10b Setia City and e.RM8b MOH Bangsar project. In end-Sep’11, its major shareholder, PNB has offered a conditional take over with RM3.90 offer price for SPSB shares and RM0.91 for its warrants.

Sunway (Hold; RM2.28 TP) – One of the leading property and construction groups in Malaysia (new merged entity of Sunway City and Sunway Holdings). It has RM2.9b outstanding orderbook YTD (construction) and RM1.6b unbilled sales as at Sep’11 (property).

Mah Sing (Hold; RM1.76 TP) - A versatile property developer with a spectrum of mid-to-high end products. MSGB is famous with its fast turnaround strategy. It has 1,070 acres remaining landbank (Klang Valley, Penang and Johor Bahru) with an estimated RM13b GDV.

Glomac (Hold; TP is under review) - A versatile property developer with a spectrum of low-to-high end products. Next key earnings catalysts include its 90 acres prime-located Puchong land worth RM1b GDV. It is our preferred pick for the property sector

by Maybank Investment Bank 30th Nov 2011

WCT Price Target RM3.70

2011-11-22T09:43:00.001+08:00

WCT: Buy; RM2.31 Price Target: RM3.70
Highlights from analyst briefing
i) WCT provided more sombre outlook in terms of new order wins citing Eurozone concerns where a lot of Middle East projects are still being funded by European banks, longer lead time in procuring new jobs and margin conservation as key issues. However, it did not officially tone down its RM2bn new order wins for 2011 (YTD wins of RM187m).

ii) Our forecast for new wins in FY11 is RM400m and RM2bn in FY12F but we have assumed very little profit recognition in FY11. Total outstanding external orderbook is RM2.4bn equally split between local and Middle East jobs. 3Q11 construction EBIT margins of 11% will be more reflective of margins gong forward.

iii) Total tenderbook now stands at RM4bn of which RM3bn is for highway jobs in Oman and the balance RM1bn for 2 building jobs locally. We understand the tenders in Oman are with a new JV partner which is a specialist in highway related projects. WCT will likely have a majority stake of 80% in these projects.

iv) Some of the other jobs which WCT is pursuing locally are balance of Vale earthworks of RM3bn, Putrajaya building, Iskandar Malaysia projects, Interstate Water Transfer, KLIFD, southern double tracking, West Coast Expressway, Penang traffic alleviation and PNB buildings.

v) Property sales have been robust with YTD September sales of RM398m already tracking its FY11 sales target of RM400m. It is likely WCT will end the year with sales of RM420m-RM430m excluding 1 Medini. 1 Medini has yet to be launched as WCT is looking to raise pricing beyond US$150 psf. Initial registrations have been strong with 275 units out of 300 booked.

We maintain our Buy rating and SOP-derived TP of RM3.70.

by HWDBS

Boustead Heavy Industries – Maintain Buy by HWDBS

2011-11-16T09:53:00.001+08:00

Buy RM2.85 • Maintain Buy with lower RM4.00 Target Price
Biting the bullet
• Cost overruns at commercial projects to hit 2H11 result, so we cut FY11-13F earnings
• 2nd batch of OPV contracts a rerating catalyst

Provisions for commercial projects. We understand 2H11 results may be hit by provisions for its commercial projects, possibly resulting in losses in 3Q11. BHIC has yet to recognise c.RM40m of provisions mainly for projects from Swire Pacific (2 accommodation barges) and Sealink (2 chemical tankers). This will be mitigated by still lucrative government contracts which make up 90% of its current RM1.2bn outstanding orderbook, and it managed to charter out a tanker to Japan’s Asahi Tanker for 1 year plus 1-year extension option to potentially reap RM6.6m.

Delays in RM7bn OPV contract. The 2nd batch of OPV contracts is long overdue since the LOI was issued in Oct10, but we believe BHIC has bagged it. We understand the delay was due more to technical issues relating to equipment. And since the contract will have 50% local content to stimulate the economy, BHIC may be an election play to secure the massive project, which will underpin its long-term earnings visibility.

Slashed earnings. We slashed FY11-13F earnings by 86%/23%/19% after accounting for the delayed OPV contracts, provisions for commercial projects, and lower contract win assumptions. BHIC is currently bidding for RM500m worth of O&G and shipbuilding contracts that may be awarded by 1H12. It is also finalising a comprehensive ISS
contract for the Malaysian Navy that will give strong recurring income.

Maintain Buy. We cut our TP to RM4.00 pegged to 12x FY12 EPS after the earnings cut. Although there could be a negative knee-jerk reaction to the provisions, we believe the 2nd batch of OPV contracts will be a major rerating catalyst. There could be further upside to our RM7bn value assumption.

by HWDBS

Malaysia Plantation Sector Outlook - Neutral

2011-11-14T09:29:00.001+08:00

October MPOB statistics were within expectations with stronger exports both m-o-m and cumulatively. Going forward, we expect that production to continue doing well and exports to pick up further towards year end. We do however note that the severity of a La Nina and supply concerns in the soybean market could be re-rating catalysts for the sector. Maintain Neutral.

Production: Up 2.1% m-o-m, 10M11 vs.10M10 up 10.4%
Production for October increased by 2.1% m-o-m while cumulative production is up 10.4% after the La Nina event of last year.
We can expect production to continue strongly as we are in the midst of the peak production period which is typically during 4Q. Full year production is currently on track to break 2009’s high of 17.7m mt, as we expect 2011’s full year production to fall within 18-18.5m mt.

Exports: Up 19.2% m-o-m, 10M11 vs.10M10 up 6.0%
Exports reached record highs in October, mainly driven by Pakistan (up 80.2% m-o-m). We believe this is due to price sensitivities towards the widening price discount between CPO and soybean oil (Figure 9). Exports to EU and US also saw m-o-m increases of 23.5% and 12.1% respectively. On the downside, exports to Egypt shrank 67.1% m-o-m.
While exports to China have been slow possibly due to the harsh winter conditions making CPO storage difficult, we expect exports to rise again towards the end of the year as pre-stocking begins for Chinese New Year in January.

Inventory: Slight decrease of 0.9% m-o-m
The rise in exports coupled with the increase in production has caused inventory levels to remain flat, closing at 2.1m mt.
We expect exports to continue to be strong along with production and that inventory figures will close below 2m mt by year end.

On weather and soybeans
The Southern Oscillation Index (SOI) indicators are currently pointing towards the early stages of a La Nina event as conditions have strengthened slightly over the past fortnight. However, current outlooks suggest that it is likely to be considerably weaker than the event in 2010/11.
The downward revision of US soybean crops together with the risks of a La Nina event hampering South American crops suggest soybean supplies are likely to tighten going forward. Chinese soybean imports are also expected to increase in 2012. This will keep soybean, and in turn CPO prices, strong.

Maintain NEUTRAL
Our CPO ASP is RM3,200/mt for 2011 and RM3,000/mt for 2012.
The adversity of the oncoming La Nina is an event to watch and may be cause for a re-rating catalyst for our CPO ASP in 2012. Besides that, further deterioration of soybean supplies could also take CPO prices higher next year.

By Ecmlibra Research

CapitaMalls Malaysia Trust

2011-10-31T14:00:00.001+08:00

CapitaMalls Malaysia Trust Stock Code 5180 REIT

CMMT will be raising RM330m via the private placement of 261.9m new units at issue price of RM1.26. The quantum of equity fund raised exceeded our expectation as it implies that East Coast Mall will be 100% funded by equity which will result in larger than expected EPU dilution. FY11-13 earnings will be cut by between 3.6% and 7.5%. On the flipside, gearing will be lowered which allows more flexibility for CMMT to pursue further acquisitions. Maintain BUY as we continue to like CMMT for its exposure to retail investment properties which we believe is resilient.

News
CMMT announced last Friday that it has fixed the issue price of private placement of 261.9m new units at RM1.26 per unit which will raise gross proceeds of RM330m.

Comments
Recall that CMMT has on 15 June 2011 proposed to acquire East Coast Mall for RM330m. It has also proposed to issue new units via a private placement in order to fund the acquisition of East Coast Mall.
The quantum of equity fund raised exceeded our expectation as it implies that East Coast Mall will be 100% funded by equity.
The issue size represents 17.5% of existing number of units in circulation while the issue price of RM1.26 represents a 3.8% discount to last traded price of RM1.31.
While the larger than expected issue size of the private placement will reduce gearing and borrowing cost, these will not be sufficient to mitigate the effect of equity dilution.
Post private placement, the debt/total asset ratio will decline from 33% as of 30 Sep 2011 to approximately 30%.

Impact on earnings estimates
While FY12 and FY13 net profits will be raised by 5.2% and 4.8% respectively due to lower interest expense, earnings per unit (EPU) for FY11-13 will be cut between 3.6% and 7.5% as the effect of dilution outweighs savings on interest expense.

Impact on valuation and recommendation
We maintain our BUY call as we continue to like CMMT for its exposure to retail investment properties which we believe is resilient.
However, our DDM-derived target price has been lowered from RM1.50 to RM1.43. At our target price, FY12 distribution yield will be 5.3%.

MBM Resources - Eyes on HIRO

2011-10-29T23:28:00.001+08:00

BUY RM3.10 Price Target : 12-Month RM 3.90
Proposed acquisition of Hirotako
• MBM offers RM0.97/share cash to buy 100% in HIRO
• Premium pricing but LT earnings accretive
• Maintain Buy with TP RM3.90 for its attractive valuation and sound fundamental

MBM Forecast and Valuation

Offering RM0.97/share for HIRO. MBM Resources (MBM) has proposed to acquire all voting shares and outstanding warrants in Hirotako Holdings (HIRO) at RM0.97/share and RM0.05/warrant with an acceptance condition of >65% stake in HIRO. These represent 14% premium to HIRO’s 5-day market average closing prices of RM0.85/share and 5% above the warrant’s exercise price of RM0.92/share. Total consideration amounts to RM412.5m. Listing status of HIRO would be removed once MBM holds 90% or more of HIRO. This is expected to complete by 1Q12.

Premium price tag. The acquisition price tag is not cheap, valuing HIRO at 11x FY11 PE, which is at the high end of its historical trading band (slightly above +2 SD for PE and P/BV) (Figure 2). However, the acquisition will be earnings accretive (+11-14% to FY12F after deducting interest cost assuming 60% loan financing) as well as help speed up expansion of MBM automotive business with wider product offering in the airbags and steering space. We think the acquisition is likely to go through given the attractive price tag. Meanwhile, there is no indication if HIRO’s management will stay to run the business.

Attractive valuation; Maintain Buy. MBM is trading at 1-year forward PE of 4.6x or -0.5 SD from historical mean PE. Sound fundamental with RM162m net cash and trading below 1x P/BV valuation. Assuming 60% loan financing, MBM’s net gearing remains manageable at 21% after acquisition. Maintain Buy with TP RM3.90 based on 6x FY12 PE.

by HWDBS Vickers

Axis REIT - Acquisition of DHL Warehouse

2011-10-28T16:24:00.001+08:00

Axis REIT Bursa stock code 5106

Acquisition of DHL logistic warehouse
Axis REIT proposes to acquire a 3-storey office building and a logistic warehouse complex in Penang for RM48.5m cash via a sale and lease back arrangement. We are positive of this acquisition as it is yield accretive given its gross yield of 9.4% as compared to CY12 distribution yield of 8.0%. Maintain BUY as we continue to like Axis REIT’s resilient earnings from its diverse portfolio of properties and decent yield.

News
Axis REIT proposes to acquire a 3-storey office building and a logistic warehouse complex in Daerah Barat Daya, Penang for RM48.5m cash via a sale and leaseback arrangement with DHL Properties (Malaysia) Sdn Bhd.
The property has a gross built-up area of 231,940 sq ft and land area of 3.083 hectares. It fronts onto the south-eastern side of Lintang Bayan Lepas 9, within Bayan Lepas Industrial Park, Penang and is strategically located within the Bayan
Lepas Industrial Park, Phase IV which lies off the western side of Lebuhraya Tun Dr. Lim Chong Yu at a radial distance of approximately 18km due south-west of the George Town City Centre and approximately 3km radius due east of the Bayan Lepas Town Centre.
Under the sales and leaseback arrangement, the property will be leased to DHL for a fixed term of 5 years with an option to renew for another 5 years. The initial rent is set at RM379,529.35 per month which will be raised by 2% every year.
The acquisition is expected to be completed by end 2011.

Comments
Together with the recently announced acquisition of a logistic warehouse in Seberang Prai for RM59m, this acquisition will raise the total assets of Axis REIT from RM1,280.6m as of 3Q11 to RM1,388.1m while its portfolio of properties will be increased to 29.
We are positive of this acquisition as it is yield accretive. Gross yield of this property is at 9.4% as compared to existing CY12 distribution yield of 8.0%.
Axis REIT will fund this acquisition (as well as the Seberang Prai logistic warehouse) by debt. On a proforma basis, these acquisitions will raise its debt/total asset ratio from 38.2% as of 3Q11 to 43%, which is still within the threshold limit of 50%.
We believe Axis REIT will undertake a private placement upon completion of these acquisitions to lower its gearing in order to facilitate more acquisitions going forward. Note that Axis REIT has a general mandate to undertake up to 20% private placement.

Impact on estimates
We raise FY12 and FY13 estimates by 3.9% and 4.1% respectively.

Impact on valuation and recommendation
Reiterate our BUY call. Axis REIT remains as our preferred play on investment properties in Malaysia as well as a preferred buy-and-hold investment vehicle under coverage.
We raise our DDM derived target price from RM2.65 to RM2.76.
Our target price implies a FY12 P/NAV of 1.4x and distribution yield of 7.3%.
Key share price catalysts include (1) yield accretive acquisitions, (2) asset enhancement initiatives, and (3) positive rental reversion.

above (click to enlarge): Axis Key Financial Data

by ECM Libra

IOI Plantatation Stock Code 1961

2011-10-27T13:05:00.001+08:00

IOI Plantatation Valuation and Recommendation

Decides against plantation land purchase IOI’s plans to purchase 11,977ha of plantation land from Dutaland has been called off but Dutaland has yet to accept the reason for the termination which may lead to a legal suit. Although the termination is a setback to IOI’s plan to grow its plantation landbank, it may allow the group to look for better opportunities elsewhere given its spare financial resources. We continue to have a Trading Buy call as rising CPO prices on the prospect of a La Nina may be a catalyst.

News
IOI Corp announced that its sale and purchase agreement (SPA) with Dutaland Berhad for the acquisition of 11,977.91 hectares of plantation land for RM830m has been terminated due to non-compliance of certain terms and conditions.
However, Dutaland does not accept IOI’s reasons for termination of the SPA. Accordingly, Dutaland has notified the stakeholder, OSK Trustees Berhad, not to remit to IOI the deposit of RM83m being the 10% deposit paid by IOI under the SPA and any interest accrued thereon.

Comments
Given that Dutaland does not accept the termination, a legal suit may ensue. Dutaland was expected to make a profit of RM511m from the sale of the land and they may seek a specific performance relief from the court for the transaction to be completed.
At the price of RM69,294/hectare, many considered the purchase to be a pricey one. As such, some fractions of the market would perceive this to be a positive development.
For us, we were positive on the group expanding their hectarage and believed that the new hectarage would at last fuel FFB growth which has been stagnating since 2008. Although the termination of the SPA is a setback to IOI’s plan to increase its
FFB, it may allow the group to look for better opportunities elsewhere. However, this issue between IOI and Dutaland will have to be resolved first.
On the earnings front, we had not factored in any earnings from the new hectarage. As such, no changes need to be made arising from the termination of the SPA. We had previously postulated that the new hectarage would add 5.3% and 7.7% to
FY12 and FY13 net profits respectively.

Valuation and recommendation
We continue to have a Trading Buy call on IOI as CPO prices have already corrected and appear to be rising again. While we don’t expect prices to strengthen significantly in the long term, there could nonetheless be some adjustment back to the RM3,000/mt level if more news on the La Nina emerges in the market in coming weeks.
That said, prices could also weaken further if there is more news on improving soybean supplies with ongoing South American plantings. Whatever the case, we view it to be a trading market at the moment and IOI makes for a good proxy given their healthy liquidity.
Our target price of RM6.11 is unchanged based on FY12 P/E of 20.4x which represents mid-cycle valuation.

by ECMLibra

DAYANG - Maintain Buy

2011-10-24T09:56:00.001+08:00

Dayang Enterprises Stock Code 5141 Sector Oil & Gas

Dayang Enterprises announced a contract extension from long time customer, Murphy Production Operations last week. The news is a definite positive and brings their orderbook to an estimated RM1.2bn. More importantly, we view that Dayang is attractively priced at current level, trading at CY12 P/E of 11.2x and yielding dividends of 5.9%. As such, we maintain our BUY rating on the stock.

News
Dayang Enterprises announced last Friday that they had received a contract extension from Murphy Production Operations for topside maintenance services (TMS).
The contract extension is effective from 19 Nov 2011 until 18 Nov 2012.
The estimated value of the contract is RM50-100m. The contract sum is stated as a range because it is a “call up contract”. As such, work orders will be awarded at the discretion of Murphy during the contract period and the value of the work orders are based on the contracts schedule of rates.

Comments
The contract extension is good news for the group and we foresee that there could be further renewals in the coming years for this job.
Given that it is a call up contract, earnings from the contract will be lumpy hence there may be some volatility in quarterly earnings depending on work orders.
We will be making no adjustments to our estimates for this contract. Replenishment of up to RM170m has already been factored into FY12 earnings assumptions. As for margins, we expect the group to secure EBIT margins of up to 30%. This has been relatively consistent for TMS work since the group was listed in 2008.
Dayang’s orderbook is estimated at some RM1.2bn at the moment, inclusive of this contract. The bulk of their orderbook is made up of a TMS job for Petronas Carigali (worth RM802m) which extends until 2016.

Valuation and recommendation
We continue to have a BUY call on Dayang Enterprises with a TP of RM2.17 (previously RM2.04). Our revised TP is based on calendarised 1HFY12 EPS of 14.5 sen. We raise our TP as we are rolling over valuations from FY11 previously.
At current valuation, Dayang is attractively priced. The stock trades at a reasonable CY12 PE of 11.2x and continues to pay out attractive dividends of up to 10 sen per annum. We characterise the stock as one of the “safe” bets in the O&G sector because of their long term contracts and solid margins. Some excitement may just appear ahead as well on the M&A front as the group is currently in discussions for potential collaboration with Perdana Petroleum (Perdana).
On that subject, we view it would make more sense if Dayang is to acquire the Petra Energy stake that Perdana still holds rather than buying directly into Perdana. Petra Energy’s business model is very similar to Dayang’s and they would have a near market monopoly of the TMS market with the acquisition. Also, recall that Dayang’s previous foray into the vessel segment (with Borcos Shipping) ended without much
fanfare and barely lasted 2 years.

by ECMLibra

KNM Maintain Trading Buy

2011-10-10T09:47:00.001+08:00

KNM Stcok code 7164 at 1x book value of RM1.72

KNM has been lifted out of a 3 year share price low with 2 new contract announcements this week. The group’s orderbook now stands at RM5.3bn but we caution that RM2.2bn of that is for the UK Biomass project which has yet to reach financial close. Otherwise, KNM appears to be progressing well in terms of job flow and could see earnings recovery in 2H11. We now value the group at 1x book value of RM1.72. Maintain Trading Buy.

News
KNM Group yesterday announced that their wholly owned subsidiary, KNM Process Systems had signed a contract with Lukoil Uzbekistan Operating Company in respect of the documentation and equipment supply facility “booster compression station” at the Khauzak site in the Republic of Uzbekistan.
The project amounts to RM227.6m (US$71.6m @USD/MYR3.18) and is expected to be completed in 23 months.
To note, earlier this week KNM also announced a RM70.6m contract from Octagon Consolidated for construction of a waste energy plant in Sri Lanka.

Comments
The recent contract announcements have come as a relief for KNM as it hasbumped the stock out of their 3-year low of RM1.12/share. The stock currentlytrades below the 1Q2009 trough of RM1.30/share and is even trading 26.6% below book value of RM1.72.
We believe that these new jobs have been captured in our forward replenishmentestimates of RM1.5bn for 2012. As such, we make no changes to earnings at this juncture.
To note, this is the 2nd major job the group has secured from Lukoil for work inUzbekistan. We view this to be a positive development as it indicates that KNM is gaining traction in a new market with a growing O&G industry.
The jobs mentioned above will bring the group’s current outstanding orderbook to roughly RM5.3bn.
However, we caution that not all of the RM5.3bn is secure at the moment. Some risk remains with the UK Biomass project as financial close has yet to be achieved.
The project is worth RM2.2bn and the financial close has seen more than 6 months delay so far.
Our forward estimates could be at risk if this project does not reach resolution by year end. However, if the group does manage to close more new projects in the interim, earnings may not need to be adjusted drastically as new jobs will offset the lack of earnings recognition from the UK project.

Valuation and recommendation
KNM’s share price movements have been very erratic since 2008 and concurrently, earnings have been very choppy. If not for their tax incentives, the group would be loss making for 1HFY11 and even through FY10.
As such, we view that the PE multiple is not a suitable valuation methodology and we are switching to P/Book. We now value KNM at 1x P/Book of RM1.72 (RM2.25 previously on FY12 EPS pegging 15x market PE). We maintain our Trading Buy call given the positive news flow on contracts. News on the UK Biomass project will have to be closely watched as it would serve as a re-rating catalyst for the stock should it finally come into fruition.

by ECMLibra Investment Research 07Ocktober2011

DRB Hicom Brief

2011-09-26T01:02:00.001+08:00

DRB-Hicom
• We expect a significant rerating from its bargain basement PE and P/B valuations on the back of a 3-year EPS CAGR of 79%.
• The eventual divestment of 30% of Bank Muamalat could enable the group to expand its footprint regionally. Based on 1.4x NTA, similar to Hong Leong Bank’s offer for EON Bank's
assets, this could raise RM600m.
• Strengthening its services and property business with the Pos Malaysia acquisition.

by DBS Group Research

Malaysia Stock Market Momentum -Velocity Has Fallen 40%

2011-07-26T08:08:00.001+08:00

Trading Value vs. Market Value
Market Momentum – Getting past the speed traps
Market Update
- Velocity in the Malaysia equity market has fallen from around the 40% level early this year to as low as 19% on 6 Jul and is currently trending around the median of 29%. Velocity is a function of trading value vs.. market value – we note that average trading value (for Jun-Jul) has fallen 16.0% since end-2010 but we note that market value has risen by around 4.7% over the same period (even after stripping out new listings). This suggests that the market has not hit a roadblock and that investors are not in a hurry to sell.
- Looking at the sectors’ YTD performance, timber (including all four plywood plays) and media stocks were strong outperformers, despite negative returns in the last two months. More consistent outperformers for the YTD and last two months were telecom and banks, while utilities and technology consistently underperformed. We believe this trend may continue for a few more months but technology stocks could see a turning point in the 4Q as inventory is depleted and sales begin to pick up.
- We counted five oil & gas stocks among the top 20 YTD outperformers, but this was balanced by price declines for KNM and Perdana Petroleum. Nevertheless we expect offshore activity to continue picking up, which will likely lead to improved performance for vessel and downstream plays over the next 6-12 months.
- We anticipate there may be earnings disappointments for some sectors this quarter, including motor (supply chain disruption), technology (weak demand/supply chain disruption) and education (delays in student enrolment), but the reasons are already known.
- We also see investors weighing the risks of: 1) M&A deals that are pending completion, concessions that need to be renewed, and ETP projects that are pending execution and this will continue to affect related stocks. In our view, the risk/reward equation has not changed.
- As we move forward, we expect sceptics to disappear, thereby lifting the market. Nevertheless, to bridge the gap in investor confidence in the near term, we believe alpha+ stocks offer a measure of comfort in terms of estimated returns from capital upside and dividend yield.

by RHBIB

Malaysia Property Sector

2011-07-22T08:28:00.001+08:00

Malaysia Property Sector and Stocks Highlights
• We reaffirm our Overweight stance, and BUY ratings on S P Setia, IJM Land and Ivory Properties. From the fundamental standpoint, we are unmoved by the recent sentiment-driven sell-down in property equities, triggered by market talk of potential policy tightening on residential demand. Among the concerns are the reintroduction of a graduated scale of real property gains tax (RPGT), mortgage loan approval criteria based on net salary and loan-to-value cap at 70% for the purchase of second home. The sell offs have also been due to a weak market.
• Thus far, there have not been any policy pronouncements on these fronts. And, our channel checks reveal mixed signals on the potential policy curbs. While we do not completely discount the rumoured policy tightening, our view is that any policy curbs, if they were to materialise, will not likely be severe enough to derail incremental residential demand formation given the significant multiplier effect of housing on economic growth. The authorities need to strike a delicate balance between ensuring the systemic stability of the banking system, consumer confidence and the development of the Iskandar Region where a vibrant housing market is a critical success factor.
• In any case, we believe that property equities have surely priced-in the policy risks by now. Consider this: sector stalwart S P Setia’s share price has already tumbled by some 15% off its high of RM4.40 in April 2011, compared with the 1.5% rise in the KLCI index over the same period. This is much more severe than the 3% correction in S P Setia’s share price when the government imposed the LTV of 70% for third homes.
• The valuation retracement – as reflected in the widening of discount to NAVs (S P Setia and IJM Land are trading at a 30% and 39% discount to our NAVs, respectively) – implies that the balance of risks is on the upside. This is because we are seeing a
sustained strength of the primary market where presales are holding up very well. Just last week, we witnessed the overwhelming market response to the launch of Mah Sing’s Icon City and Sunway City’s Velocity. And, mature townships
continue to register robust presales of landed homes.
• Admittedly, the secondary market is seeing a slowdown in transactions. Rising physical completion may also put a cap on
asking prices. Nonetheless, our sense is that landlords have the holding power to sit on the completed homes. The secondary market may see a widening in bid and ask prices leading to slower transactions. But as long as presales prices are still inching up, secondary prices appear unlikely to soften significantly.
• We remain committed to our investment thesis of an extended residential pricing up-cycle, although price gains are likely to be more modest because of a higher base. The current pricing strength in the primary market also reflects rising replacement cost of land. More importantly for property equities, we believe that the NAV growth story is intact even in an environment of slower residential price gains. We put forth three reasons.
• NAV-accretive land deals. This is the primary valuation driver given that well-executed land deals would accelerate NAV growth. S P Setia, IJM Land and Ivory Properties are the frontrunners for several land deals, we believe. With urban renewal gaining traction, developers would be able to capitalise on the ongoing privatisation of government land and staff quarters. This structural change in the land supply side is a significant positive.
• There may also be potential liberalisation of residential plot ratios in established urban areas where there is an acute shortage of land available for development, coupled with strong effective demand, we believe. As it is, we are already seeing generous plot ratios at select sites to defray the high land cost. Such a move, if it materialises, would accentuate NAV expansion stemming from higher gross development value.
• Valuation kicker from the redevelopment of Sungai Buloh. The Sungai Buloh land has high immediate development potential. Kwasa Land – the development arm of the Employees Provident Fund – is expected to announce the tender for the first parcel by 1H2012. Work on the MRT lines and stations in the locality has commenced.
• Earnings delivery is intact as developers – S P Setia and IJM Land – are sitting on record unbilled sales of RM3.5bil and RM1bil-RM1.5bil, respectively. Taken together with the scope for NAV growth, we believe that properties equities are cheap from both the earnings and assets perspectives. One negative though is the market risk in the near term: we expect the KLCI
to move sideways with consensus earnings expectations bottoming out in 3Q11. This should pave the way for the next leg up in early 4Q11 when we expect the KLCI to end the year at around 1,650 – with property equities leading the upturn as we approach the tender for the Sungai Buloh land in 1H2012.

Research by AMResearch

Malaysia Foreign Fund Flow - bucking the trend again

2011-07-19T10:39:00.001+08:00

Stock market Snapshot
Asian markets actually performed better with a mixed outcome. Markets in China, Indonesia and the Philippines actually closed higher. The developed Asian markets actually felt the brunt of selling, with the Hang Seng the worst performing losing -3.7%, followed by Singapore’s STI at -2.1% and Taiwan’s Taiex at -2.0%. The KLCI closed the week lower by -1.1%, only the second weekly decline in 10 weeks.

MALAYSIA STOCKMARKET
• In the local market, foreign investors surprisingly remained net buyer last week. Foreigners have now been net buyer of Malaysian equity in 14 out of the last 17 weeks.
• The buying however eased last week. Net purchase of equity amounted to only RM171.5m compared with RM0.7b - RM1.2b a week in the preceding four weeks. Foreigners were net sellers on Mon-Tue, but turned buyers on WedFriday.
• The participation rate or gross trade (purchases + sales) of foreign investors dropped to RM4.1b, the lowest in ﬁve weeks.
• Retailers surprisingly turned net buyers, albeit marginally, after four consecutive weeks of selling. Local institutional investors remained net sellers last week, unloading RM3.7b and bought RM3.5b worth of equity last week. However their participation rate was still high at >RM7b.

above: Malaysia Daily Foreign Fund Flow (click to enlarge)

MALAYSIA EQUITY MARKET: WEEK AHEAD
• Despite weak sentiment last week, we expect the situation to improve this week in line with the mild rebound in U.S markets on Friday.
• There was positive development as Italy’s parliament on Friday passed a 48b-euro austerity budget aimed at slashing the public deﬁ cit by 2014. However, it will still be a crunch week as Eurozone leaders will hold an emergency summit on July 21 try to agree a second international bailout for Greece. The EU and International Monetary Fund bailed out Greece in May 2010 with a package worth 110b euros (USD160b) in exchange for a
series of drastic austerity measures to stabilise its public ﬁ nances.
• Coincidentally, July 21 is also the listing of Bumi Armada IPO, Malaysia’s biggest IPO this year. We have a fair value of RM3.62, but the share price may trade closer to RM4 if global sentiment towards equity improved.
• The economic report card season for the second quarter kicked off last week. China’s 2Q11 GDP decelerated slightly to 9.5%yoy from 9.7%yoy in 1Q11, easing concerns over accelerating inﬂ ation. Singapore’s 2Q11 GDP decelerated sharply to only +0.5%yoy, from +9.3%yoy in 1Q11, warning the market to expect an ugly set of numbers for the rest of countries in the region. We are looking at 4.0% growth for Malaysia in 2Q11. There is no ofﬁcial GDP release scheduled for this week in this region.
• Foreign shareholding on Bursa Malaysia shot up to 22% at the end of June, based on data released by Bursa last week. That was an increase from 21.4% at the end of March. During that period, an estimated RM7.5b of net foreign funds moved into listed Malaysia equity. That is in line with out estimate that a 1%-point increase in foreign shareholding is equivalent to an inﬂ ow of about RM10b

Research by MIDF Invetsment Research

BUY Kencana Petroleum : Rising margins, bright order prospects

2011-06-28T15:34:00.001+08:00

We maintain our BUY call on Kencana Petroleum Bhd with an unchanged fair value of RM3.40/share, pegged to an FY12F PE of 22x.

This follows another strong quarter of earnings delivery. Kencana’s 9MFY11 net profit of RM159mil (+69% YoY) was slightly above expectations, accounting for 76% of our earlier FY11F net profit of RM210mil and street estimate of RM211mil. We have raised our FY11F earnings by 4% due to a 1ppt-increase in fabrication EBIT margin to 18%. But FY12F-FY13F earnings are maintained on unchanged fabrication margins of 19%. Hence, Kencana’s fair value, pegged to FY12F earnings, is likewise unchanged.

below: KENCANA Petroleum Earning Summary (click to enlarge view)
Since the beginning of the year, Kencana has secured RM787mil worth of fresh contracts, including an estimated RM200mil EPC works for the Berantai marginal field – for which the group has a 25% equity stake in the risk-sharing contract. The group’s order book prospects are still bright, given Petronas’ spending programme of RM300bil over the next five years, which include enhanced oil recovery and marginal field jobs. We understand that Kencana may be involved in the bidding of two other marginal fields later this year. There is also M&A excitement as we expect additional joint ventures for Kencana in offshore construction services following the group’s proposed RM400mil acquisition of subsea service provider Allied Marine & Equipment Sdn Bhd. The stock currently trades at an attractive FY12F PE of 18x, below its 2007 peak of 25x.

by Maybank-IB

CIMB and Maybank no longer pursuing RHB cap

2011-06-27T14:22:00.001+08:00

Malaysia's largest two banks, Malayan Banking Bhd and CIMB Group Holdings Bhd, have dropped separate plans to acquire smaller rival RHB Capital Bhd, dashing the nation's hope of creating Southeast Asia's most valuable lender. The two banks confirmed a newspaper report that merger talks were off, in light of Abu Dhabi Commercial Bank setting a high valuation bar when it sold its 25% stake in RHB to Aabar Investment last
week. CIMB Chief Executive Nazir Razak said, "Based on our various discussions and our assessment of the present expectations of key stakeholders, we do not believe that we will
be able to arrive at a value creating merger.” (Reuters)

Sapuracest Reiterate Buy - Arab Malaysian

2011-06-03T14:01:00.001+08:00

SAPURACREST PETROLEUM 2 June 2011
Sapcres stock code 8575

Fabrication to support full-fledged services

Investment Highlights
• We reiterate our BUY call on SapuraCrest Petroleum (SapCres) with an unchanged fair value of RM4.75/share based on an unchanged FY12F PE of 22x.
• SapCrest has signed an agreement to acquire a 50% stake in Labuan Shipyard and Engineering Sdn Bhd (LSE) from Real Mild Sdn Bhd for RM25mil cash. LSE is one of the largest engineering and shipyards in Southeast Asia. Its yard is sited on 30ha of land within the port of Victoria Harbour in Labuan with deepwater access. The price translates to a decent RM15.50 psf, compared withRM40 psf which Petronas paid for the Teluk Ramunia yard from Sime Darby Engineering last Friday.
• The Labuan yard, which can construct offshore platforms and ocean going vessels, has an annual capacity of 36,000 tonnes, 60% of Kencana Petroleum’s 60,000 tonnes. Brown field services provider Petra Energy Bhd recently signed an MOU to undertake minor fabrication works at the Labuan yard.
• In the immediate term, this yard will be supporting the repair and maintenance of SapuraCrest’s rigs, construction vessels/barges and offshore support vessels. We expect the group to start bidding for engineering, procurement and construction jobs in East Malaysia.
• We are positive about this acquisition which will provide the missing fabrication link to SapCrest’s suite of services, which currently include offshore installation works, pipe- lay, drilling, marine spread and operation & maintenance services. But pending the award of contracts to the yard, we maintain FY12F-FY13F earnings.
• This acquisition comprises a minor 1% of the group’s aggressive RM2.7bil (US$900mil) capital expenditure. But the total capital requirement could eventually mean an equity raising exercise as the group’s net gearing could rise to 159% by end-FY13F from a net cash of RM64mil as at 31 January 2011.
• We understand that the group may be planning to build two new DP3 derrick-lay barges with crane capacities of 1,200 tonnes and 3,500 tonnes, which will cost US$220mil and US$320mil, respectively. If the group secures a pipe lay job from Brazil’s tender of six packages this year, the group may be building another pipe-lay vessel worth US$400mil.

• The stock currently trades at an attractive CY11F PE of only 18x vis-à-vis over 20x for Dialog Group, MMHE and Kencana Petroleum. Given SapCrest’s dominance in IPF services in Malaysia, we are positive that SapCrest is likely to secure additional offshore installation jobs from Petronas’ prolific capex rollout.

by AMResearch

Dialog Group Maintain A Buy

2011-06-03T10:43:00.001+08:00

Dialog stock code 7277 Oil and Gas Trading and Services Sector

Pengerang EPC comes in higher, but later

Investment Highlights
• We maintain our BUY call on Dialog Group Bhd with an unchanged fair value of RM3.04/share, based on our sum-
of-parts valuation. Our fair value implies an FY12F PE of 29x, which is above its three-year average of 17x but below its peak of 40x in 2007.
• Dialog has signed a contract and an alliance agreement with its effectively 46%-owned Pengerang Independent Terminals Sdn Bhd (PITSB) to provide engineering, procurement, construction and commissioning (EPCC) works worth RM1.9bil for first phase of an independent deepwater petroleum terminal, which will have a capacity of 1.3mil cubic metres and six vessel berths, at Pengerang, Johor.
• The first phase’s construction cost of RM1.9bil is 12% higher than the management’s earlier guidance of RM1.7bil but the schedule of completion has been extended from end-2013 to 2014. As such, we maintain FY12-FY13F earnings which already incorporate EPCC revenues of RM500mil-RM800mil.
• We understand that the reclamation earthworks for the project will be awarded over the next two months. Recall that PITSB is a special-purpose vehicle which will be 90% owned by Pengerang Terminals Sdn Bhd (PTSB) and the balance 10% to be held by the Johor state. Dialog owns 51% of PTSB and VOPAK 49%.
• The independent deepwater petroleum terminal will be developed on contiguous onshore and seabed land located between Tanjung Ayam and Tanjung Kapal in Pengerang.
• The terminal will comprise a harbour port, jetty and other marine facilities with water depth up to 26 metres capable of handling Ultra Large Crude Carriers, Very Large Crude Carriers and other vessels, and with tankage facilities for the handling, storage, processing and distribution of crude oil, petroleum, petrochemicals and chemical products.

• Dialog currently trades at a premium CY12F PE of 25x versus the oil & gas sector’s 15x. This stems from the exciting Pengerang terminal prospects, along with the group’s defensive earnings profile, which registered a commendable 25% CAGR over the past five years.
• Besides tank storage projects, there could be further excitement from the group potentially being involved in the Bentara/Balai marginal field development via an equity stake in a risk-sharing contract with Roc Oil.

by AMResearch