Tauke Saham

Malaysia Market Strategy 2007

2006-12-22T07:25:00.000-08:00

KLCI at 1,300: What does this imply?

FY07E PE of 16.4x (UBS earnings forecasts). This is roughly:

Half a standard deviation from the KLCI’s 3-year average PE of 15.6x
Equal to the KLCI’s 8-year average PE (MYR was pegged in Sept-98)

Conditions that could support this re-rating:

Further evidence of government spending
M&A: Turning point could be a Proton deal involving a foreign group, further banking consolidation
Politics: PM Badawi calling for early general elections in Q108 O/W domestic demand and restructuring/growth themes
Domestic demand: Maybank, SP Setia
Restructuring: Tanjong, PLUS Expressways, PPB Oil

Top picks: Maybank, SP Setia, Tanjong, PLUS Expressways, PPB Oil Palms

FULL RESEARCH: UBS Investment Research

Asian equities offer attractive outlook in 2007

2006-12-22T07:17:00.000-08:00

Strong domestic demand, strengthening currencies and a 12.5% 2007E EPS growth to drive the Asian equity markets up 12% in 2007.
Overweight China and Japan – most attractive upside potential to our 2007E index targets, and Taiwan and Korea – highest earnings growth in the region. Singapore remains our top asset reflation play in ASEAN.
Aggressive overweight on Asian financials for domestic-driven earnings profile, and overweight on tech sector for valuation and growth appeal.
Neutral on Hong Kong, Malaysia and Thailand; we recommend that investors underweight Indonesia and Australia.

FULL RESEARCH: CREDIT SUISSE

MEASAT: S&P Recommended Buy - Target 2.90

2006-11-17T10:43:00.000-08:00

Measat Satellite Systems Sdn Bhd and Boeing Satellite Systems International Inc jointly announced that MG’s MEASAT-3 communications satellite has been shipped from the Boeing
manufacturing facility in El Segundo, California to the Baikonur Cosmodrome in Kazakhstan for a scheduled December launch.

This follows on from launch service provider International Launch Services (ILS) successful launch of ARABSAT’s BADR-4 on Nov. 9 and Eutelsat’s HOTBIRD 8 satellites on Aug. 5 using the Proton Breeze M launch vehicles. The launch of MEASAT-3 has been delayed since the Feb. 28 launch failure of the ARABSAT 4A satellite.

Following the launch, some in-orbit testing is expected which will take several weeks. MEASAT-3 is expected to be commercially available from early 2007 and is consistent with present assumptions.

Full Report: S&P

MAHSING: S&P recommended Buy - Target 3.83

2006-11-17T10:37:00.000-08:00

MS’ 3Q06 financial results were within expectations. 9M06 net profit reached MYR48.2 mln, accounting for 74% of our 2006 forecast. For the quarter, progress billings were underpinned by ongoing projects such as Aman Perdana in Meru-Shah Alam and Austin
Perdana in Johor Bahru.

Property development EBIT margin remained healthy at 26% in 3Q versus 21% in 2Q. We believe the level of profit margin is sustainable given MS’ focus on mid- to high-end residential products in relatively good locations. Unbilled sales grew 18% QoQ to MYR431 mln as at
Sep. 2006, which is commendable in view of a generally subdued property market.

The Board of MS has approved the following corporate exercises: (1) private placement of up to 10% of existing share capital with an expected completion date in Jan. 2007, (2) 1-for-4 rights issue exercise to be completed in June 2007 and (3) 1-for-5 bonus issue to be completed in July 2007. We understand the bulk of the money (~MYR134 mln) raised will be used as working capital for various new projects.

Full Report: S&P

NOTION: Insider Asia Called Buy Target 0.415

2006-11-17T10:35:00.000-08:00

Notion’s prospects remain positive, as it continues to ride the consumer electronics boom, and benefit from continuous growth in new products and technologies for HDD-embedded products, as well as the miniaturization of HDDs. Its new plant places it in a good position to increase its order-book.

In the non-HDD components market, Notion continues to grow its digital camera parts business, with multi-nationals like Canon, Sony, Nikon, Panasonic and JVC under its wings. It is pursuing another major SLR camera maker and is making inroads into the automotive parts business.

Metal prices corrected sharply after the global slump in commodity markets in mid-May 2006, but have started rising again. Aluminium prices fell from over US$3,200 to around US$2,500 per tonne, but have climbed back to around US$2,800 per tonne on expectations of strong demand from China.

Full Report: Insider Asia

Stemlife Bhd IPO: Subscribe - prospects look bright

2006-10-07T11:09:00.000-07:00

Fair Value - RM0.81 (SBB Securities)

Promising growth prospects. Development of new therapies and increasing awareness of personal healthcare should spur demand for stem cell storage. The group’s expansion in Thailand and future plans to penetrate Indonesia will further add exponential growth prospects in the medium term. The stem banking industry is estimated to grow at a CAGR of 33.8% in Malaysia, 73.9% in Thailand and 58.5% in Indonesia from 2005 to 2010.

Consistent revenue flow almost guaranteed. A consistent stream of revenue is almost guaranteed for the long term from locked-in annual storage fee. Good growth prospects in its customer base will provide the assurance of improving recurring revenue.

Already in growth cycle phase. Group revenue is mainly derived from Umbilical Cord Blood Stem Cells (UCBSC) banking. Potential is significant given Malaysia’s 500,000 birth rate annually. Tapping a mere 1% to 2% of that pool annually could greatly enhance its growth. StemLife captures 63% of UCBSC market share in Malaysia. At current upfront and annual fee structure, the group will gain 1.6% increase in profit after tax (PAT) for every 1% increase in sales volume. Elsewhere, a 1% increase in product price is likely to result in a 3.7% gain in PAT.

Potential in PBSC and therapy is tremendous. The Peripheral Blood Stem Cell (PBSC) banking and therapy segment is likely to be the next growth segment for the group. While its is much more costlier than UCBSC, the market is wider than USBSC. Revenue from therapy services is estimated to be approximately RM30,000 per procedure.

Dividend likely to be high. The management guidance pointed to 50% dividend payout ratio going forward.

Valuation. The stock is fairly valued at RM0.81 based on a Discounted FCFF three-stage growth methodology at a WACC of 16.09%. We have opted to value the stock using this method given that the group is relatively young and it is growing at a relatively high rate (the stem banking industry in Malaysia is estimated to grow at a CAGR of 33.8% from 2005 to 2010).

FULL RESEARCH: SBB SECURITIES

External Trade: August 2006

2006-10-07T11:03:00.000-07:00

August exports pace much higher than market consensus: Malaysia’s August exports rose 14.8%yoy to RM53.5b, decelerating from July’s revised exports growth of 15.9%, but was much higher than consensus estimate of 11.0% (Bloomberg).

Compared to July, exports increased by 5.9% in August, a positive forward indication. Imports growth also accelerated to 17.7%yoy ( RM43.4b) in August compared to 10.2% in July, and consequently the trade surplus increased to RM10.1b.

Impact of US slowdown may only be more pronounced in 1H07. It is quite clear that in the US, the latest economic data portends slower economic growth. The US GDP growth decelerated significantly to only 2.6% annualised growth in 2Q06 compared to 5.6% in 1Q06, below market expectation of 3.0%. As the US is Malaysia’s main exporting country, it is logical that Malaysia’s exports growth may slow down in the coming months. However, Malaysia’s exports to US accelerated in August to 10.0%yoy and 11.5%mom compared to in July of a contraction of -0.7%yoy. However, there may be a lag effect as US mortgage refinancing only slowed down significantly in 2Q06, and therefore, the impact on US consumer spending may only be pronounced from 1H07. This might explain the still strong exports growth to US.

On the components side, Malaysia’s exports growth is being supported by higher exports to the following countries: i) EU (+11.7%yoy), ii) China (+56.2%) and iii) Asean (+13.3%). In terms of the components of exports, Malaysia’s exports of electronics and electricals (e&e) accelerated to 11.4%yoy from 8.9%yoy in July while commodity exports continued to be strong as follows: i) LNG (24.2% vs 10.9%yoy in July), ii) CPO (27.8% vs 31.6% in July), and iii) refined petroleum products (15.8% vs 66.9% in July). The drag on exports is being caused by exports of crude oil which contracted 10.0%yoy in August due to the almost 5.0% fall in crude oil prices in August.

Full Report: Mayban Securities

TENAGA: Powering Ahead (OSK Target RM11.90)

2006-09-30T03:25:00.001-07:00

Upbeat outlook. Catalysts for further price upside are:

renegotiation on PPAs which could be favourable to TNB;
improving earnings from the financial and operational efforts;
ample funding for capex (no risk of additional interest expenses); and
possible write-back from Perwaja.

Tenaga’s share price has risen by 13.3% since our last review on its target price in May 2006.

FULL RESEARCH: OSK Research

HIAP TECK: OSK Target RM1.28

2006-09-30T03:25:00.000-07:00

OSK Research said in its report:

Belief reinforced! We recently visited Hiap Teck with a plant tour to its newly commenced big diameter plant with 7 fund managers and came back with improved optimism.

Iron is hot... We are now more convinced on Hiap Teck’s prospects underpin by a plethora of earning catalysts:

Replenishment of inventories by local stockists on all products since March ‘06 may sustain till end of CY06.
9MP to improve domestic steel demand from 2Q07.
Sustainable steel demand worldwide to boost export figures.
Penetration into new export market by leveraging on its niche products namely mid and big diameter’s SHS from new mill.
Long presence in overseas market with diversified customer base offer flexibility to switch focus to better margin market.
Huge spare capacity for big diameter mill offers room to improve production figures going forward.
Forthcoming new capacity to boost small and mid diameter pipes production that currently running at optimum level.
Dumping risk negated after recent 3% cut in export rebate for steel products by Chinese government.
API certification in the pipeline and is expected to boosts profit margin latest by FY08.
Commencement of water pipes replacement projects to benefit HTVB’s new big diameter pipes plant.
10 years tax holiday for new plant should help improve bottom line from 2HFY07 onward.
Stabilised steel prices to improve earning visibility.

FULL REPORT: OSK Research

ROHAS: Undervalue (SBBSec Target: RM1.46)

2006-09-30T03:18:00.000-07:00

Business profile. Incorporated in 1961 and listed in March 95 on Second Board (transferred to Main Board in Nov 01), Rohas is organised into four main business segments:

Industrial products: Manufacture, design and fabricate of transmission towers, microwave towers and water tank panels (contributes 97% to 1H06 revenue).
Consumer products: Manufacture of composite-based materials and polymer lithium ion cells and batteries (contributes 1% to 1H06 revenue).
Water treatment: Implementation of portable water treatment projects (contributes 2% to 1H revenue).
Rental: Rental of plant & equipment (contributes <1% to 1H06 revenue)

The King of tower…,not only in Malaysia. Rohas is a well-respected leader in its industry with an impressive resume. It has a reputation for being the most cost efficient lattice tower fabricator. Rohas talents were spotted by the industry after it secured a turnkey contractor award from Celcom back in the 1990s. It won the confidence of other major players in the likes of Binariang, Telekom and Maxis amid its impressive track record for being able to deliver at half the budgeted time. From its initial exports to Sri Lanka, the company has expanded its markets to countries in Asean, the Middle East and Africa. The group targets to boost its contribution from exports to >60% by 2007 and will focus on its steel lattice structures and related services for the telecommunication and power distribution industries, especially due to the major telecommunications companies’ expansion, particularly in developing countries, as Rohas would stay competitive in terms of pricing.

FULL RESEARCH: SBB Sec

Talam: K&N Kenanga Recommend Hold

2006-09-28T09:49:00.000-07:00

The smaller-than-expected losses in 1QFY07, both y-y and q-q, wouldn't bring much cheers to investors as they were driven mainly by absence of write-offs and impairment losses rather than a fundamental business turnaround.

Medium term outlook remains highly uncertain as Talam undertakes a group debt restructuring exercise ("GDRS") to settle its debts. More cash infusion may be needed to complete its outstanding property projects.

Full Research: K&N Kenanga

Sapura Crest: S&P Target RM0.95 (Buy)

2006-09-28T09:45:00.000-07:00

While earnings are revised lower, 12-month target price is unchanged at MYR0.95 as post FY07 expectations are largely unchanged. Retain a Buy call given expectations for SapCres to continue to benefit from ongoing positive outlook for oil & gas drilling and marine services demand. The disappointing IPF earnings are already discounted and believe that downside risk is relatively limited at current levels.

Full Research: Standard & Poors

Telco Sector: Maxis Launch HSDPA broadband

2006-09-28T09:37:00.000-07:00

Maxis officially launched Malaysia’s fastest mobile broadband service on High Speed Download Packet Access (HSDPA) yesterday. The service is the first in the world to be commercially deployed for residential customers. HSDPA is a 3.5G technology with a maximum theoretical speed of 14.4MB. It is 3x and 15x faster than 3G and traditional dial-up respectively although experiential speed is typically 2-3MB on best effort basis. The service will be initially available in the Klang Valley (Damansara, Petaling Jaya, Subang Jaya, USJ, Puchong, Cheras and Wangsa Maju areas) and will be extended to Penang in October.

Full Report: OSK Securities

Rates Pause As Expected

2006-09-28T09:31:00.000-07:00

Overnight Policy Rate left unchanged. The Monetary Policy Committee (MPC) of BNM left the Overnight Policy Rate (OPR) unchanged at 3.5%, as predicted by all economists polled by Bloomberg. This rate pause was the fourth consecutive time that BNM is holding the rate steady after the last 25bps hike in April 2006.

Inflation no longer a threat. BNM expects inflation to decelerate further from the current level, particularly with the recent softening in global oil prices and the expected mild moderation in global growth. However, BNM expects inflation to tick up slightly in the coming months due to seasonal factors but “the broad trend towards easing price pressures” should continue. With inflation no longer a threat to the economy, we believe in the near term, BNM will leave interest rates at the current level to ensure sustainability of growth momentum.

Full Research: OSK Securities

RHBCAP: The Merger Talks Continue (Target RM3.70)

2006-09-25T06:43:00.000-07:00

Latest Development. Over the weekend, The Edge Weekly reported that Utama Banking Group’s (UTAMA) asking price may be between RM1.45 and RM1.65/share on a fully diluted basis for its entire stake in RHB (inclusive the 32.8%-stake, 449m-ICULS-A as well as 357m- ICULS-B of RHB). The above pricing translates into total amount of RM1.5bn and RM1.7bn, which is in line with our earlier expectation.

Full Research: OSK Securities

NTPM: OSK Target 0.42 (Buy)

2006-09-25T06:37:00.000-07:00

Top in Malaysia. NTPM is Malaysia’s biggest tissue paper manufacturer with a >50% market share commanded by household brands like Premier, and Cutie. NTPM also does third party manufacturing for various exporters and generic brands. Besides local sales, the Group also derives 20% of its revenue from exports to Singapore and other countries within the Asia Pacific.

Wide range of products. Key products of the Group are toilet rolls (50% of sales), facial tissue (20% of sales), sanitary napkins (10%) and the remainder are items like packet tissues, kitchen rolls, cotton buds, facial cotton, diapers..

Industry. The tissue paper market in Malaysia is that of an oligopoly. With two main players, NTPM and Kimberly Clarke and a myriad of smallish players. Industry growth is dependant on purchasing power and increase in standards of living. If measured by tissue consumption per capita, there is evidently plenty of room for growth to be had in Asia. As a gage, Singapore has consumption of 11-12kg per capita per annum. While Malaysia is at 3-4kg’s and Thailand only at 1kg. On average, the industry sees growth of about 5% yearly.

Pulp Non-Fiction. One of NTPM’s key concerns is the price of its main raw material – pure tree pulp which currently fetches prices of about RM1700 per tonne. This compared to recycled pulp, which costs only RM500 per tonne inclusive of processing has eaten into margins over the past few year. Rest assured that price increases are put into place accordingly to keep up with costs.

To note, NTPM’s products compete in a different segment of the market than Kimberly Clarke as they have a lower pure plup content and thus lower pricing. The ratio used is about 70:30 for recycled pulp to pure pulp. Going forward, NTPM seeks avenues to find other pulp replacements. One source that is becoming increasing popular is recycled Tetra Pack pulp which, although synthetic, has a very close feel and resemblance to pure tree pulp.

Full Research: OSK Securities

ATIS: S&P Targer 1.15 (Strong Buy)

2006-09-25T06:36:00.000-07:00

S&P maintaining Strong Buy recomendation and 12-month target price of RM1.15, based on 8.0x PER and 1.0x P/B (both unchanged) on projected EPS and BVPS for FY07. Target valuation multiples are in line with its historical averages.

Full Research: Standard & Poors

Dreamgate: S&P Call STRONG BUY

2006-09-24T09:13:00.000-07:00

With gaming operations in Mongolia temporarily suspended and no indications as to when it will resume, Dreamgate is looking to move its new machines from Mongolia to Cambodia. The older machines installed in 2005 will be left in Mongolia for now as Dreamgate has already recovered its cost on those machines. The Mongolian government has suspended gaming operations since August 2006 pending the review of gaming licenses. However, contribution from Mongolia is small at 3% of net profit in 2Q06.

S&P maintain Strong Buy recommendation with an unchanged 12- month target price of MYR1.83. In our opinion Dreamgate is wellpositioned to benefit from further liberalization of casino activities, strong demand for gaming machines and rising casino spending in the region. Dreamgate currently trades at an undemanding PEG of 0.59x.

Full Research: Standard & Poors

Lion Forest Industries: S&P call HOLD

2006-09-24T09:10:00.000-07:00

LFI has announced that it is raising its proposed capital distribution from MYR1.20 per LFI share to MYR2.00. This follows negotiations with creditors of the Lion Group on the utilization of proceeds from the impending sale of SFI. Of the proceeds of MYR944.8 mln from the impending sale, MYR420.3 mln will now be distributed to shareholders, versus MYR252.2 mln previously.

With the sale of SFI targeted to be completed by 1Q07, a significant deviation from our FY08 numbers, given that SFI currently contributes to about 90% of group earnings. LFI’s primary business thereafter would be the manufacture of tyres in China and the sale of building products. Its plantation remains greenfield and would likely only start yielding results 3-4 years after planting. Forecasts have yet to reflect the earnings dilution from the sale of SFI.

Full Research: Standar & Poors