Value Investing In KLSE

VALUE BUY ICAPITAL.BIZ (ICAP)

2009-10-10T00:27:00.000-07:00

Did you make great profit from my previous tips? Please check out my previous recommendation to see them for yourself.Track record doesn't lie.

ICAP is another stock for you to make superior profit. What is ICAP doing actually?

iCapital.biz Bhd is a closed-ended equity mutual fund launched and managed by Capital Dynamics Asset Management Sdn Bhd. It invests in the public equity markets of Malaysia. The fund invests in stocks of companies operating across financial sectors. It invests in value stocks of companies. The fund benchmarks the performance of its portfolio against the KLSE Composite index.

The attraction in ICAP lies in its portfolio,which consists of the following companies:

Integrax
Parkson Holdings
Astro
Padini Holdings
PIE
Boustead
Poh Kong Holdings
Suria Capital
Tong Herr Resources
Petronas Dagangan
F&N Holdings
Telekom
Kuala Lumpur Kepong
Swee Joo
Mieco Chipboard
Lion Diversified
Hai-O Enterprise

There are three potential upsides for ICAP:

a) Most of these companies have shot up in the recent recovery in the stock market. Most importantly, these companies are cash rich with little debt. These companies will definitely have plenty of room to grow by capitalising on distressed assets and ride on the economic recovery. ICAP is a great proxy to these companies

b) Current ICAP's NAV is RM 1.91 while its stock price is trading at a discount. It closed at RM1.79 on Friday. While buying ICAP at discount will provide some safety cushion, investors should also focus on its potential appreciation. ICAP still have about RM 30 mil cash on hand (based on its latest quarterly result) which placed it at a great position to buy on the dip.

c) ICAP is only allowed to invest in KLSE currently. If it is allowed to invest overseas,it will boost ICAP's potential and more investors will be more attracted to it since it provide a cheap proxy to value companies all around the world.

This is the right time to capitalise on ICAP

Value Buy ALUMINIUM Company of Malaysia Bhd (ALCOM)

2009-09-20T02:09:00.001-07:00

Aluminium Company of Malaysia Berhad, engages in the manufacture and trade of aluminum sheet and foil products in Malaysia, other Asian countries, and internationally. It offers pre-coated finstocks for use in air-conditioners. Aluminium Company of Malaysia Berhad is a subsidiary of Novelis Inc.

A few keys point of ALCOM:

1) Alcom does not produce aluminium but uses it as a raw material for its products. Due to the rise in the commodities prices and depressed demand last year, Alcom suffers a small net loss in its previous financial years. That has been causing the lag in its share price recently.

But many didn't know,when the commodities prices were stable from 2007 to 2008, Alcom were able to consistently produced about RM 14 mil p.a. Alcom has established customers in India, Hong Kong, the Philippines and Thailand.Recently,the company was looking at new markets in India and Middle East.

Alcom has a market cap of RM 142 mil and consistently reward its investors with 10% dividend. Its currrent asset is RM 133 mil against total liabilities of RM 40 mil. Hence, by paying RM 142 mil for the business,investors are getting RM 90 mil net-net current asset plus non-current asset of RM 93 mil. In short, investors are paying RM 50 mil for ALCOM's business which produces RM 14 mil p.a (or P/E = 3.5 x) and gets non-current asset of RM 93 mil for FREE.

2) ALCOM is controlled by Novelis Inc. Novelis Inc. is the global leader in aluminum rolled products and aluminum can recycling. The company operates in 11 countries, has approximately 12,500 employees and reported revenue of $11.2 billion in fiscal year 2008. Novelis supplies premium aluminum sheet and foil products to automotive, transportation, packaging, construction, industrial and printing markets throughout North America, South America, Europe and Asia. Novelis is a subsidiary of Hindalco Industries Limited, one of Asia's largest integrated producers of aluminum and a leading copper producer. Hindalco is the flagship company of the Aditya Birla Group, a multinational conglomerate based in Mumbai, India.

3) ALCOM has RM 62 mil cash with no debt. Alcom can easily raise another 100 mil from debt market (assuming debt/equity = 0.50). In total, Alcom has access to RM 160 mil to acquire other companies with the assistance from Novelis. Or Alcom can distribute its cash to shareholders through bonus issues / special dividend.

To sum it up, Alcom gives you:

a) Stable 10% dividend due to stable business and balance sheet. Potential special dividend

b) Future appreciation due to business link with Novelis which opens up vast acquisition opportunities

c) Great margin of safety at current entry price. The share price has been almost stagnant for the past 1 month. It didn't follow the recovering market sentiment.

d) Good business at cheap valuation. Investors are paying RM 50 mil for ALCOM's business which produces RM 14 mil p.a (or P/E = 3.5 x) and gets non-current asset of RM 93 mil for FREE.

Value Buy Pan Malaysia Corporation

2009-09-03T18:22:00.000-07:00

Pan Malaysia Corporation Berhad, an investment holding company, engages in manufacturing, marketing and distributing confectionery, and cocoa-based and other food products primarily in Malaysia, Australia, Singapore, and Hong Kong. It also involves in operating departmental and specialty stores, and property investment activities. The company is based in Kuala Lumpur, Malaysia.

PMCORP is in the process of restructuring.Recently,it posted a positive net income compared to losses in the last few year.the attraction of PMCORP comes from its assets. Its book value is at around RM 0.45/share.This gives a safety margin of over 50% at current price of RM 0.135.

PMCORP has come a long way to 'cut some of its rottenning poisoned limbs'. It has let go subsidiaries which are loss making and focus on its profit making businesses such as retail and manufacturing. So,PMCORP does not need to consolidate any losses and will be able to report good profit.

A few good points on PMCORP:

a) The cash level is at RM 127 mil while total liabilities is at RM 54 mil.This means by paying off its liabilities,investors will own some of the assets (properties,businesses,subsiadiaries and fixed assets) at half the value plus a clean balance sheet.

b) Expected to post cumulative earning per share of RM 0.013. At current price of RM 0.135, its forward P/E is 10x

c) It's a closely held company

Since it is in black now,PMCORP should be trading at around its Net Asset per share. PMCORP is a classic story of a frog turning into a prince.

Value Buy Willowglen MSC

2009-08-30T04:06:00.000-07:00

Willowglen MSC Berhad, through its subsidiaries, engages in the research, design, development, engineering, supply, sales, implementation, and maintenance of computer-based control systems. The company offers hardware products, including RTUs and communication controllers. Its software products include SysLink VIDEO-SCADA software for telemetry, video surveillance, control, and monitoring functions; system simulator that allows a user to test RTU programs without a physical RTU; and Web accessibility via InterLink. The company’s products also comprise digital video recorders (DVR) and PC-based DVR’s. It operates in Malaysia, Singapore, and Europe. Willowglen MSC Berhad is a subsidiary of New Advent Sdn. Bhd.

Willowglen has a market cap of 59.5 million at current price RM 0.24 per share. It made about 8 mil for the past 3 years, which gives it a P/E of 7.4x. What makes Willow attractive?

1) Willow has very healthy balance sheet. In 1Q2009,its current asset amounts to 54.7 mil against total liabilities of 6.9 mil. In this net cash position, Willow can easily expand its business through acquisition or new market venture.

2) Great dividend at 2 cents per share per year. That gives a dividend yield of 8.3%. Due to rising revenue and profitability (refer to 1Q2009 result),Willow can easily distribute more than 2 cents dividend in the coming years.At current price,its dividend yield can easily rise to 10% next year

3) Willow is a closely held company. Its shareholders have strong experience in this industry and that bodes well for Willow to get new contract through networking.

4) Besides acquisition and special dividend, Willow is ripe for bonus issue while listing itself in Main Board. Comparing Willow with other MESDAQ companies,Willow is more than prepared to join the big boys in Main Board. If this happens,Willow 's share price can easily jump 50% .

Willowglen is a darling stock for those who likes MESDAQ companies. If you can't make money through Willowglen,i will rather shut down this blog.

Value Buy Cocoaland Holdings

2009-08-23T06:48:00.000-07:00

Cocoaland Holdings Berhad, an investment holding company, engages in manufacturing and trading processed and preserved foods, fruits, and other related food stuffs primarily in Malaysia. The company also engages in the wholesale and retail of processed and preserved foods; and the manufacture of fruit juices. Its products include chocolates, cookies and wafer, nuts, candies and gummies, snacks, and soft drinks and jellies. The company is based in Kuala Lumpur, Malaysia. Cocoaland Holdings Berhad is a subsidiary of Leverage Success Sdn Bhd.
Prospects
Cocoaland Holdings Bhd has set-up a plant in Fujian province in China under a 50:50 joint venture (JV) to produce its popular Lot 100 fruit gummy products. Cocoaland is one of the few gummy manufacturers in Asia. In the JV, Cocoaland Industry Sdn Bhd, signed an agreement with China’s La Bi Xiao Xin International Co Ltd.
The JV company, Coco (Fujian) Food Industrial Co Ltd, would involve US$5 million (RM17 million) in investment and start production in August 2007. Cocoaland will be responsible for manufacturing and its partner will look into distribution and marketing. The investment is fully funded via cash. It is expected that the earnings from the China operations coming through for the 2008 financial year and subsequently, the full impact can only be felt in year 2009.
La Bi Xiao Xin is a unit of Singapore-listed China Lifestyle Food & Beverages Group Ltd. It has more than 17,000 retail outlets under the La Bi Xiao Xin brand and annual revenue of over 500 million renminbi (RM221 million). The distribution network is large and perhaps in the future,

Cocoaland may own 1% of China’s Market through the JV.

Cocoaland is at RM 1.03,has P/E of around 10 compare to the industry standard, Dividend Yield 5%. Cocoaland is expected to declare bonus issues / special dividend for its investors.

Value Buy Suiwah Corporation

2009-08-16T07:10:00.000-07:00

Suiwah Corporation Bhd., through its subsidiaries, operates supermarkets, departmental stores, and hypermarkets primarily in Malaysia. It operates four retail outlets, including Sunshine Square, Sunshine Farlim Hypermarket, Sunshine Jelutong, and Suiwah Air Itam. The company also engages in the research, design, development, manufacture, and prototyping of flexible printed circuits boards; property investment and development; money lending; electrical goods retailing; and trade of garment, construction materials, and general merchandise. The company was founded in 1961 and is based in Penang, Malaysia. Suiwah Corp. Bhd will open its latest lifestyle concept store cum supermarket at the Penang Times Square in October. The store, called Sunshine City, is the latest addition to the Suiwah Corporation chain of retail stores and will also be the anchor tenant of Penang Times Square phase one.

Why Suiwah is attractive?

a) Damn cheap valuation,partly due to its weaknesses to deploy capital. Market cap is around RM76mil but the company is in net cash position of RM39mil. Separating the business with the cash will price the business at RM 37 mil (P/E around 3.7 based on 10 mil net profit)

b)Expansion through concept store in Penang to tackle middle high income group.Penang people knows Sunshine very well and income from middle low remain stable.

c) Implementing share-buy back to return 'some lose change' to shareholders (to calm shareholders due to stupid mistake of JV)

d)Going to declare first and final dividend of 8 cents/share in Nov 09 (not generous at all)

e)Majority shares are owned by friends and family (more than 50%).

f) Just opened PT. Sunshine Amanjaya in Indonesia to engage in the business as a main distributor, importer and exporter (this may provide business synergy)

g) Net Asset per share is RM 2.76 (at current price,investors are paying 45 cents for a ringgit)

The risk in Suiwah:

a) Lack of direction: Its executive directors are very old (56 and 60 years old).Due to their unexciting life,they want to try something different to spice up their life using shareholders' money.Instead of specialising in retailing business,Suiwah jumped into OIL & GAS in May 2008. It entered into an agreement with parties from India that include Valdel Investments Pvt Ltd and Valdel Oil and Gas Pvt Ltd (VOG). Suiwah took up a 15% stake in VOG, which is involved in the exploration and production of oil and natural gas in India. Luckily,this J.V has failed to win any bid for exploration project and hence,the J.V has been called off in Jan 2009.

The failure in this JV is good for investors because every tom,dick and your dogs know if the J.V successfully win an exploration project,Suiwah will still lose big time because it only owns 15% equity with no control over the cash outflow.In addition,it's risky to deal with Indian partners/businessmen.Even,Ananda Krishnan who is borned in Sri Lanka having hard time to understand them.

The sad thing here is no valid reason given by Suiwah for this JV but your dogs smell that this maybe a hanky-panky deal which does not benefit Suiwah shareholders at all.Shareholders feel happier if the Suiwah returns the cash back to shareholders. The unwillingness to explain to shareholders shows bad corporate governance (aka treating shareholders like idiots) and Suiwah has high possibility of repeating unrelated diversification again.

b) Declining revenue: This may be due to intense competition. It also shows management weaknesses to handle market dynamics.

c) It is a waiting game: Investors must wait for the 'old' management (currently,in retirement mood) to execute an aggresive startegy in related fields

Weighing the risk & rewards in Suiwah,current price will
provide investors a huge margin of safety,6% dividend and potential
growth story.

Value Buy Mamee-Double Decker

2009-07-25T00:20:00.000-07:00

Mamee-Double Decker (M) Berhad, an investment holding company, engages in the manufacture and marketing of food and dairy products, and soft drinks primarily in Malaysia, the People's Republic of China, Myanmar, and other Asian countries. The company offers various products, including instant noodles, snacks, dairy products, chilled products, beverages, and confectionery. It also exports a range of products, including yogurt, cultured milk, fruit juice, instant noodles, snacks, and beverages to countries in Asia, the Middle East, Africa, the Americas, Europe, and Oceania. In addition, the company engages in the development of commercial buildings; and provides advertising contractor and agent services, as well as information systems management and motor vehicle rental services.

Mamee is currently selling at 2.46 per share at P/E 6.6. In 1Q2009,it made 10mil which is almost 2.5 times compare to 1Q2008. By analysing historical earnings,Mamee is expected to make 30 mil this year (compare to 20 mil for previous years)

Its balance sheet is very strong.It holds about RM51 mil in cash with no long term debt.Its current ratio is 2.88 and quick ratio is 2.26.Historically,it gave about 6% dividend yield.There are a few possibilities on how MAMEE will utilize its cash

1) Make acquisition to enhance cashflow. Recently it acquires Charmille Pte Ltd (Charmille) which is a company that has involved in the precision engineering industry in the Asia Pacific for more than 25 years. This type of business has some synergy element in manufacturing and trading business.

2) Buy back shares if the share price is undervalue.Mamee-Double Decker has been buying back its shares since a few months ago.Hence,it's downside is pretty small.

3) Take over target.Mamee is a good take over target by Pang's Family or other companies.But Pang's family,which own around 70% collectively of MAMEE may not takeover MAMEE since these owners are in their 50s already.Thus,MAMEE may be taken over by other companies.

MAMEE has net asset per share of 2.46 and based on current share price,it is selling at RM 210 million for the whole business. Stripping the cash of RM 51mil away,the whole business is selling at RM 160 mil.By estimating a net profit of RM 30 mil this year,the actual P/E is 5.3

At share price of RM 2.46,investors are getting a good bargain for defensive company with further growth prospect such as MAMEE.

Felda, (maybe in hot soup), to seek listing soon

2009-06-30T03:55:00.000-07:00

This is just another way to pass the funds from the public,EPF,Khazanah,PNB and other national coffers into some connected napoleans.I am waiting for its prospectus.

But,why list FELDA now?

What about PN17 Malaysia Airlines? It's very funny how a national airline can be so badly managed until it goes into PN17 status.Let's compare with Singapore Airlines.

A quick analysis : It's the people that makes the difference !

Just FIRE the whole MAS's top management and replace it with top notch from all around Malaysia regardless of skin colour.

You will see a very BIG improvement ! That's the TRUTH that no one can deny.

Value Buy Mah Sing Group

2009-06-26T07:38:00.000-07:00

This is another stock which I've recommended but it didn't go up much.Those who bought it at RM 1.60 in April 09 is making some quick 20% return @ current price of RM 1.76 plus RM 160 dividend.

Mah Sing Group involves in construction, management, and development of residential, commercial, and industrial properties in Malaysia. The company also involves in the manufacture, assembly, and sale of a range of plastic molded products in Malaysia and Indonesia.

Around 80% of its revenue originates from property development and another 20% from its plastic division.Currently,Mah Sing is in net cash position.In times of turbulence,”Cash is King”.
By comparison to other property developers,its landbank is small.Moreover,it does not have revenue from property investment unlike Sunway and IGB.It does not have a REIT as well.

With current financial strength,Mah Sing is well positioned to:

1) Buy cheap lands in M’sia and other countries. Take note that Mah Sing has not venture overseas unlike SPSETIA,GAMUDA and GUOCOLAND

2) Eat up competitors to enhance landbank because good lands are limited

3)Increase J.V projects and benefit from current low construction cost

4)Capital repayment and buy back shares if Mah Sing does not have any future plan which I doubt

If you check its shareholders, Tan Sri Leong owns around 40%,Capital Group 9.7% and Amanah Saham Bumiputra owns 14%.

What intrigue me was Amanah Saham Bumiputera has been accumulating Mah Sing ’s shares in an aggresive mode.Could there be insider news?

Currently,Mah Sing declared 16sen dividend for the year.This stock has little probability to fall to RM 1.25 level again due to high percentage of institutional owners which are actively investing in this company

Risk of investing in Mah Sing:
1) Weakening property industry outlook
2) Bad capital deployment strategy

Weighing its risk and reward,Mah Sing is a good buy at around RM 1.76

The similar article can be read from:
http://boyboycute.wordpress.com/2009/03/28/mah-sing-is-a-good-buy/

Value Buy Astro All Asia Networks

2009-06-19T23:11:00.000-07:00

Astro All Asia Networks plc is a Malaysia-based investment holding company engaged in the provision of management services. The Company’s business segments comprise: Malaysian multi channel television, which is engaged in the provision of multi channel direct-to-home subscription television and related interactive television services in Malaysia; Radio, which provides radio broadcasting services; Library licensing and distribution, which is engaged in the ownership of a library of Chinese filmed entertainment and the aggregation and distribution of the library and related content, and Others, which includes a magazine publishing business, interactive content business for the mobile telephony platform, Malaysian film production business, talent management; creation of animation content, television content aggregation and distribution, ownership of buildings, its regional investments in media businesses and investment holding companies

Astro is the sole provider of satellite DTH TV service in Malaysia with exclusive DTH rights until 2017. It's the biggest pay-TV operator in Southeast Asia with 2.56M residential subscribers. Its total penetration of Malaysia TV households is 44% todate. This is a highly cash-generative business which generates around RM 0.13 of cash flow per share - per year on average.

Astro is spreading its wings to India,Indonesia(but failed) and Middle East. Due to its sheer size of population,you'll go crazy to estimate its potential future cashflow derived from these countries.What you can estimate is the value of business in Malaysia. Its Malaysian DTH monopoly business is valued at RM 3.50 to RM 4.00 per share. But current share price is @ around RM 2.80 per share.At current price,it's selling at a discount because stability of Malaysian business and future potential is not included.

Major shareholders are Tan Sri Ananda Krishnan (42.4%), Khazanah Nasional Bhd (21.4%) and
Employees Provident Fund (7.3%).Recently,we heard rumuors that Astro,Measat and Maxis will be 'lumped' together for creating more value through cost savings and synergy.In fact,this rumuor is not new and has been circulating in the industry even before you guys know it through local newspaper.

This event is very likely to take place some time in the future if the share prices of Measat and Astro is staying too long at low valuation.If you have made money in my previous recommendations (Mah Sing,SP Setia,HIRO,BJLAND and others),Astro is the next place to diversify your investment to capitalise on its future potential.

Please read my previous posts on Astro (http://boyboycute.wordpress.com) to gain more knowledge on it.

Genting Bhd is having money problem !

2009-06-13T20:22:00.000-07:00

Genting Berhad, an investment holding company, engages in leisure and hospitality, gaming and entertainment, plantation, power generation, real estate, tours and travel related services, genomics research and development, and oil and gas exploration activities worldwide. The company operates in five divisions: Leisure and Hospitality, Plantation, Property, Oil and Gas, and Power. The Leisure and Hospitality division operates hotel, resort, gaming, and entertainment businesses; and provides tours and travel-related services, and other support services. The Plantation division involves in oil palm plantations, palm oil milling, and related activities. The Property division engages in the property development, and letting of land and premises. The Oil and Gas division involves in oil and gas exploration, development, and production, as well as sale of crude oil. The Power division engages in the generation and supply of electric power. The company also provides advisory, technical, and administrative services to oil and gas companies; risk and insurance management consultancy; project management services; information technology related services and marketing; research and development of software and consultancy services; and offshore captive insurance and financing. In addition, Genting involves in leasing and money lending; golf course and casino operations; manufacturing and trading of bio-oil; provision of cable car services; provision and sale of utilities consisting of treatment and supply of water; and management of loyalty program management services. Further, the company involves in the genomic research and development, fresh fruit bunches processing, and provision of IT/data centre and consultancy services, as well as Internet sports betting services.

Based on its historical earnings, Genting 's forward P/E ratio is around 17 times. This is a no-brainer stock because it consists of cash cow businesses such as casino,money lending,power generation,oil &gas,plantation etc With the rebound of commodities prices, Genting is well positioned to reap huge profit again. I still remember when Genting proposed 5:1 share split in 2007.Its share price shot to the roof almost touching RM 40 / share. At that time,it has not even bid for the construction of Sentosa Resorts World in Singapore or bought stakes in MGM.

After the share split,its price shot up from RM8 to 9.xx per share. At current valuation, Genting is cheap due to its diversification of businesses in all sectors which will produce huge cashflow when the economy recovers at the end of 2009.

This is not a stock for dividend yield but it is certainly a growth stock. Its cash coffer is growing too fast and Genting is facing the problem of having too much money. In addition to its own cash,its group of companies can easily raise cash from its shareholders/financial institutions.

At this juncture,Genting may

a) Declare special dividend (very unlikely because there
are so many bargains around the world)

b) Increase stakes in other big players such as MGM
(very likely)

c) Subscribe to convertible bonds/other issues
offered by other big players such as MGM,which is deeply in debt,with an
option to convert to share (very likely)

d) Related Party Transaction:Very unlikely because the
situation is too delicate now

e) Do nothing: Very unlikely because this is not the
characteristics of top management/Board in Genting

So,you have it. A list of potential action which may be executed by Genting to utilize its cash. There are signs of its baby steps from its acquisition of 3.2% stakes in MGM.

As investors,it's crazy to speculate when is the big announcement.

Let's get in now!

Maxis to relist?

2009-06-13T08:29:00.003-07:00

We think so too. We think there is high likelihood of a relisting of Maxis. Firstly, RAM
has placed Binariang GSM’s long- and short-term ratings on rating watch with a
negative outlook. Binaring GSM is the company that acquired minority shareholders’
stake when Maxis was privatised in 2007. The rating watch is premised on RAM’s
growing concerns over Aircel’s eroding profitability and cashflow due to intensifying
competition, particularly when it its ramping up its capex programme. RAM Ratings
reported that “…management has represented that efforts are underway to obtain
equity support in the form of cash injection from shareholders that would be available
to the Group on a staggered basis over a few years. RAM Ratings views the timely
infusion of funds to be critical in preserving Binariang GSM’s debt protection
measures.”
Secondly, our industry sources also indicate that Maxis may be seeking a relisting,
possibly as early as Sep 09. We also gather that there are no plans to inject Maxis
into Astro as speculated by the market.
Possible impact on listed telcos. We believe the entry of Maxis may be negative for
DiGi given its poor trading liquidity as well as for Telekom Malaysia (TM) which has
the smallest market capitalisation among the listed telcos. Investors may switch out of
these stocks in favour of a bigger-cap telco which is very likely to have better trading
liquidity.
If it seeks a relisting, we believe Maxis will position itself as a high-dividend yielding
stock given that it has gone ex-growth. Furthermore, its major shareholder will attempt
to extract maximum dividends to help fund Aircel’s capex. We do not think Maxis will
be listed without Aircel and Natrindo Telepon Selular as their large start-up losses will
be a large drag on Maxis’s earnings and will dampen the appeal of the company.
Among the listed telcos, Axiata should be the least affected by Maxis’s entry as it
offers growth and regional exposure, which the rest of the Malaysian telcos do not,
and has a large market cap and high trading liquidity.
Our back-of-the-envelope estimates suggest that Maxis could have a market
capitalisation of RM32bn-40bn based on:
• 13-15x forward P/E, a discount to DiGi’s 15-16x. This high multiple may be achieved
if its dividend yield is attractive. We estimate Maxis’s core net profit from Malaysia to
be about RM2.5bn-2.7bn vs. RM2.0bn in FY06.
• 7x forward EV/EBITDA, a discount to DiGi’s 7-7.8x. We estimate that Maxis
generates an EBITDA of RM4.5bn-4.7bn.
This will dwarf Axiata, Malaysia’s largest listed telco with a market cap of RM20bn,
and will place Maxis among the top 4 or 5 stocks on Bursa Malaysia by market cap

Maxis to relist?

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Consumer:High yielders and growth picks on offer

2009-06-13T08:29:00.001-07:00

The defensives performed. No major surprises in the 1Q09 results in
the Consumer Sector. F&B manufacturers generally turned in another
solid quarter of net profit growth. After a difficult quarter, we believe the
worst is over for retailers and mixed players who now look poised for a
recovery in 4Q09, especially if the rebound in GDP proves to be
stronger than initially expected. Remain selectively Overweight.
The worst is over. Key indicators suggest consumer confidence and
hence, consumption bottomed in 1Q09. Although the worse-thanexpected
6.2% GDP contraction in 1Q09 pushed back expectations of
an earnings recovery in the broader economy, we believe the defensive
qualities of the Consumer Sector mean that sector earnings are very
close to, if not already at, a floor.
Manufacturers reaped solid gains. F&B manufacturers were standout
performers in 1Q09, generating net profit growth of 5-157% YoY vs. an
average of -24% for the sector as a whole. We attribute this mainly to
lower input costs coupled with the carrying-over of higher selling prices
from end-2008. We expect earnings growth to remain resilient through
2009-10 for most F&B manufacturers.
But retailers/integrated players not so lucky. As expected, 1Q09 net
profit growth for retailers and integrated players was significantly
affected by the slowdown in the economy and the reversion of
consumer expenditure to basic necessities over non-essentials.
Nevertheless, two of our stock picks, KFC and AEON Co, registered
creditable net profit growth. More importantly, all signs point to a
recovery by year-end that could well be stronger than initially expected.
Selectively Overweight. Our picks in the Consumer sector offer either
steady double-digit growth or consistently high dividends. AEON Co,
KFC Holdings and QL Resources are all on track to achieve doubledigit
annual growth over 2009-11. We also like JT International and
Guinness for their high dividend yields of 8-12%, and their defensive
earnings

Consumer:High yielders and growth picks on offer

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Building:Foundations set for recovery

2009-06-13T08:28:00.001-07:00

Positive outlook for 2010. The steel and cement sectors are prime
beneficiaries of government infrastructure spending, where projects are
expected to gain momentum in 2010. We are Overweight on Building
Materials. Buy Kinsteel and Lafarge Malayan Cement. Hold Ann Joo.
Steel: Slow but steady recovery. Steel millers grappled with low
selling prices in 1H09, but capacity utilization is expected to improve by
4Q09 from estimated low levels of 40%, with breakeven levels
expected by 3Q09. Recovery would stem from the resurgence in
domestic and regional demand as significant infrastructure projects are
rolled out towards end-2009/early 2010. Upstream steel players should
benefit significantly from larger-scale infrastructure projects.
Cement could recover faster. After the 7-8% YoY demand contraction
in 1Q09, 1H09 is expected to dip 2-3% YoY, and we expect modest
1.5% YoY growth for the full year as demand improvement skews
towards 2H09. We expect stronger 8% growth in 2010. Recovery
should be swift as smaller sized infrastructure and building projects
spark cement demand. The industry benefits from a broad base of
construction projects of various sizes, unlike the long steel players
which rely on large-scale infrastructure works to drive profit growth.
Buy Kinsteel and Lafarge, Hold Ann Joo. We continue to like
Kinsteel for its attractive valuations and integrated operations with the
ability to reap economies of scale. Lafarge’s dominant position in the
cement market places it at the forefront of the sector recovery.
Continue to Hold Ann Joo as valuations appear fair

Building:Foundations set for recovery

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O & G:Industry conference

2009-06-13T08:27:00.003-07:00

Poor outlook. Panelists at the 14th Asian Oil & Gas Conference 2009
(AOGC) generally concurred with our views on declining E&P spending
as well as project cancellations, delays and replenishment risks as the
oil and gas sector navigates the global economic slowdown and
financial crisis. We maintain Underweight.
IEA says 2009 E&P spend collapsed by 21%. International Energy
Agency (IEA) director Nobuo Tanaka said E&P spending has fallen
21% to USD375b, USD25b worse than our assessment. Planned O&G
projects involving a total 2.0m bpd of oil and 1b cu ft / day of gas supply
were cancelled over the past 6 months. A further 35 projects affecting
4.2m bpd of oil and 2.3b cu ft / day were delayed by at least 18 months.
Industry is in consolidation. PETRONAS Chairman Hassan Marican
said small, independent and cash-strapped oil players are suffering
more than the Super majors and National Oil Companies in this
environment. He sees forced sellers among the weak players due to
cashflow and financial constraints.
Oil prices to remain volatile. Hassan Marican thinks oil prices will
remain volatile over the next few years. He questioned the foundations
of the oil price rally. Is it due to economic recovery prospects or
speculative investment in commodities on weaker USD views? He
added there is a real danger that continuing low investments could lead
to capacity shortages and another energy price spike.
Steady development needed to ease volatility. There is a need to
develop more O&G fields to moderate volatility in the industry cycle as
the current spare capacity and new output conditions indicate a repeat
of cycle volatility akin to the 1980’s. Spare crude oil capacity has been
tight, averaging 2.7m bpd over the past decade.
Maintain Underweight. We reiterate our view that values have
vanished following the recent share price run-ups. We are Sellers as
mid-cycle valuations are now reflected in the share prices of O&G
stocks. Prospects of global economic recovery remains hazy and global
oil demand needs to be sustained at a higher level of of 85-86m bpd
and move to a higher growth path to justify more expensive valuations

O & G:Industry conference

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Media:Expecting another poor quarter

2009-06-13T08:27:00.001-07:00

Maintain Underweight. The 1Q09 results of media companies in our
analysis were mostly below expectations due to the weak economic
environment. The 2Q09 total adex is likely to contract YoY on lack of
adex- friendly events this year. We revise our 2009 adex growth
forecast from -3% to -9%. Media Prima and Star remain Sells while we
downgrade Astro from Hold to Sell on rich valuations.
Dismal quarter. Except for Astro, the 1Q09 results of media
companies were mostly below expectations due to the weak economic
environment. We estimate that total adex and GDP growth are highly
correlated at 0.9. Higher discounts led to lower net adex revenues and
dashed hopes of recovery when the Mar ’09 gross total adex appeared
relatively unchanged (-1% YoY, +30% MoM).
2Q08 high, a tough feat to repeat. May and Jun ’09 total adex is
expected to be markedly lower YoY due to the high base set last year
by the Euro 2008 ad spend. This lull may continue into Aug ’09 due to
the high base set last year by the Beijing Olympics ad spend.
Therefore, media companies are likely to experience at least another
two quarters (2Q-3Q09) of net adex revenue contractions.
Expect total adex to contract 9% in 2009. Our economics team is
now expecting domestic GDP to contract by 3.8% this year (-1.3%
previously). An unchanged total adex growth/GDP growth multiple of
2.3x (Asian Financial Crisis multiple), led us to our revised 2009 total
adex growth forecast of -9% (-3% previously).
Rich valuations, added risks. We expect adex sentiment to improve
only in 4Q09 on better economic prospects. We would also be better
able to gauge adex sentiment for 2010 then. We maintain our
Underweight call on the media sector. Media Prima and Star are Sells
while we downgrade Astro from Hold to Sell. Rich valuations (8.3x
2009 P/BV), may pose a set-back for corporate exercise involving
privatisation, take-over of Maxis, or even a merger with Measat

Media:Expecting another poor quarter

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Gaming:Key takeaways from G2E Asia 2009

2009-06-13T08:26:00.001-07:00

A modest G2E Asia 2009. Last week, we attended the Global Gaming Expo
(G2E) and conference Asia at the Venetian Macau. This year’s event was on a
noticeably smaller scale than the previous two years, probably the effect of poorer
economic conditions and travel concerns sparked by the recent outbreak of the
A(H1N1) flu. Visitor arrivals and participation at the conference were also less this
time around.
• Informative conference. The three-day conference addressed various gamingrelated
topics ranging from gaming operations within the region to the
opportunities and challenges faced by casino operators in the current economic
climate. All in all, we found the conference enlightening as the main topics
discussed were relevant not only to the Macau and Asian gaming industry but
also to the current economic climate. We came away from the conference still
upbeat about Macau’s long-term prospects as Asia’s premier gaming hub. But we
do acknowledge that short-term concerns such as visa restrictions and the poor
economic environment are likely to cast a cloud over the near term.
• An eye-opening expo. We drew three key conclusions from this year’s expo: i)
Although the crowd was noticeably smaller, there was still a good mix of
representation from global and regional gaming equipment manufacturers. ii) We
were pleasantly surprised by the strong emphasis on Asian-related themes and
features in most of the machines on display. iii) Electronic gaming machines
appear to be the new wave in gaming, going by their increasing presence on both
the expo floors and our site visits to several casinos.
• Maintain OVERWEIGHT. Our earnings forecasts for all gaming stocks remain
intact. We continue to OVERWEIGHT the regional gaming sector and retain our
preference for the Malaysian gaming plays. Our top pick is Resorts World (RWB)
but we also like its parent, Genting Bhd. Both stocks remain OUTPERFORMs but
with higher target prices as we now remove the discount to their SOP values to
reflect the rising risk appetite and expectations of stronger newsflow on potential
regional M&As following the group’s subscription to MGM bonds and equity over
the past month. While we like Genting Singapore for its unique exposure to the
republic’s duopolistic gaming hub, we reiterate our UNDERPERFORM call due to
its expensive valuations. We see a cheaper indirect entry into Singapore’s gaming
and tourism potential via Genting Bhd. In the regional space, Galaxy remains a
NEUTRAL as many of the impending short-term positives have already been
priced in and there is still a risk of a medium-term funding gap. Meanwhile, we
continue to like B-Toto for the possibility of a bumper dividend. Dreamgate
remains an UNDERPERFORM with the potential de-rating catalysts being i)
lacklustre sales, ii) slower-than-expected deployment of its machines, iii) further
margin compression, and iii) more delays in the take-off of its maiden casino
venture

Gaming:Key takeaways from G2E Asia 2009

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Airline:Caught in a pincer

2009-06-13T08:25:00.001-07:00

Higher crude oil price assumptions... Our regional oil and gas analyst Itphong
Saengtubtim is raising his crude oil price assumptions by US$15-20/barrel to US$60
in 2009, US$75 in 2010 and US$80 in 2011(Figure 1).
The new price assumptions are based on: (a) continued recovery in global economy;
(b) US dollar weakness; (c) speculators buying commodities; and (d) continued tight
supply from both OPEC and non-OPEC producers.
…and jet fuel prices too. We will eventually factor into our airlines’ earnings models
US$5-10/barrel increases in our jet fuel price assumptions to US$70 in 2009, US$85
in 2010 and US$90 in 2010 (Figure 2).
The size of the revision for jet fuel is lower than the revision for crude oil because of
the sharp reduction in crack spread. Our previous crack spread assumption was
US$20/barrel, which we now trim to US$10. The crack spread has narrowed
significantly from a high of US$45/barrel in mid-2008 to just US$6-7 currently, as
demand for jet fuel sags under the weight of poor aviation demand and capacity
cutbacks by airlines (Figures 3 and 4).

Airline:Caught in a pincer

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Banking:Foreign banks share the pain

2009-06-13T08:24:00.001-07:00

Foreign boys not spared a 20% 1Q earnings decline. The combined net profit
of the five major foreign banks in Malaysia fell 19.7% yoy to RM824.6m in 1Q09,
worse than the 14% slide recorded by the local banks. Clearly, the foreign boys
are not spared the impact of the economic downturn, with earnings dents coming
primarily from (1) a 1.3% yoy drop in net interest income, (2) 25% slump in non-
interest income, and (3) 23% jump in loan loss provisioning (LLP).
• Foreign banks’ loan growth trailing local banks’. As expected, foreign banks
recorded slower net loan growth of 3.1% yoy in Mar 09 compared to 12% for
local banks’ domestic lending. The performance of foreign banks was pulled
down by a 6.8% contraction in Citibank’s loan base, due primarily to a drop in
property and business loans. Other major foreign banks registered single-digit
loan growth ranging from 3.3% (for UOB) to 8.7% (for OCBC).
• Higher NPL ratios and credit costs. Against the backdrop of a grim economic
climate in 1Q09, all major foreign banks saw a rise in their net NPL ratios. The
blended net NPL ratio of these five banks increased from 1.68% in Dec 08 to
1.81% in Mar 09, lower than the industry’s 2.2%. The hike in NPL ratios led to a
23% yoy surge in 1Q09 LLP.
• Better performance by local banks. In 1Q09, local banks outperformed their
foreign peers in the areas of (1) net profit – 14.2% yoy drop vs. 19.7% for foreign
banks, (2) non-interest income – down 7.1% yoy vs. 25.3% for foreign banks
despite their higher exposure to poor investment banking income, and (3) NPL
ratios – a few local banks, i.e. Maybank, Public Bank, AMMB and Alliance
managed to contain their NPL ratios while qoq rises were evident for all the
major foreign banks.
• Maintain NEUTRAL. Foreign banks’ poor 1Q09 financial results reflect the
adverse operating environment. We take heart in the outperformance of the local
banks during these difficult times as it suggests that the improvements in local
banks’ operations, especially in the area of risk management, have helped them
to weather the economic downturn. On this note, we are maintaining our
NEUTRAL stance on Malaysian banks as local banks may trump our and market
expectations in countering the slowdown in loan growth and the uptick in NPLs.
Our top pick for the sector remains Public Bank

Banking:Foreign banks share the pain

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Water: Juiced-up offers?

2009-06-13T08:23:00.001-07:00

Yesterday, Kumpulan Perangsang Selangor’s (KPS) (KUPS MK, Not Rated) share
price spiked 36 sen or 20%, possibly on speculation of headway being made on the
consolidation/acquisition plans for water assets in Selangor. We followed up with
industry checks and were positively surprised to learn that the Selangor state
government may make fresh takeover offers to PNSB, Syabas, ABBAS and SPLASH
soon. The new offers are likely to be attractive.
We gather that the Jun 09 deadline for the state government to make alternative offers
to the four water concessionaires in Selangor is unchanged. Several meetings have
been held between the federal and state governments via a joint committee over the
past 2-3 weeks. The federal government is represented by the Ministry of Finance
officers, EPU and PAAB, among others. The state government is represented by the
state secretary and KDEB, among others.
An alternative valuation parameter by the state government has been agreed on and a
takeover offer is likely to be made within the next 1-2 weeks. The target acquirees are
unchanged – PNSB, Syabas, Splash and ABBAS.
Puncak is likely to be offered RM3.50-4.00/share, based on the sum of parts of PNSB
and Syabas. The price tags for Splash and ABBAS are likely to be much better than
the initial offers and more acceptable. The breakdown of acquisition values is not
available but it will apparently be roughly 1x BV + returns/premium. Indications are
that the derived value will not be too far off from the DCF method.
Borrowing/bonds held by the four concessionaires will be addressed. PAAB is likely to
take over the bonds while the state government takes control of the concessions. The
deal could shape up to a back-to-back deal, which could work

Water: Juiced-up offers?

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Oil and Gas:Collective approach at regional conference

2009-06-13T08:22:00.001-07:00

Forecasts of US$75-80 per barrel by year-end. We left the 14th Asia Oil & Gas
conference feeling more bullish on the oil & gas sector. After a year of violent
swings, the industry is seeing signs of stability as crude oil spare capacity is on the
rise. Some experts at the conference forecast an oil price of US$75-80 per barrel by
year-end, in line with predictions by some OPEC members.
• Wave of M&As? Declining revenues, shrinking margins and higher costs are
buffeting some SMEs and could result in asset sales and industry consolidation.
The beneficiaries would be bigger, cash-rich companies which get to expand their
capacity at cheaper asset valuations. We are already seeing this in Sime Darby’s
proposed acquisition of Ramunia – a deal that could give Sime’s yard capacity a
tremendous boost.
• Malaysia’s stronger ties with IOCs. Malaysia is determined to further develop
untapped resources with international oil companies (IOCs). To date, Petronas has
signed more than 60 production-sharing contracts (PSCs) with the IOCs. Malaysian
oil & gas service providers, which include all companies in our oil & gas portfolio,
are definitely benefiting from the PSCs.
• Maintain OVERWEIGHT. The conference ended on a high note. Although there are
challenges to overcome, the sentiment is definitely upbeat, especially with the rising
oil price. Already, the companies in our oil & gas portfolio showed bottomline and
margin improvement in the 1Q09 reporting season. As 1Q is typically a weak
quarter, we expect an even better showing from most of the companies towards
year-end. We remain OVERWEIGHT on the oil & gas sector and continue to rate
Kencana as our top pick. All our forecasts, recommendations and target prices are
maintained

Oil and Gas:Collective approach at regional conference

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Oil And Gas: A slick 1Q09 performance

2009-06-13T08:21:00.001-07:00

An improved performance. While the results announced by oil & gas (O&G)
companies in Mar-May 09 were a mixed bag, they leaned towards the positive,
unlike the previous quarter. A third of the six companies in our portfolio missed our
forecasts, an improvement on 50% in 4Q08. Half of the companies broadly met our
expectations (4Q08: 17%) and one (17%) surprised on the upside (4Q08: 33%).
Since 1 May 09, the share prices of O&G stocks under our coverage have jumped
by an average 28%, reflecting the overall encouraging reporting season.
• Three trends in 1Q09. 1) Margins picked up as companies climbed the value chain:
Except for Dialog, all the companies in our O&G portfolio showed margin
improvement, with average EBIT margin rising from 14% in 4Q08 to 20% in 1Q09.
2) Late delivery remains a problem for offshore support vessel (OSV) operators: In
total, Petra Perdana and Alam missed six vessel delivery dates due to assembly
line congestion and delayed shipment of parts. 3) Petroleum retailers and refiners
bounced back: The rising crude oil price supports the selling prices of products that
are not subject to automatic pricing mechanism (APM) and refiners benefited from
inventory gains.
• Service providers stand to benefit. YTD, the oil price has jumped 56%, reflecting
factors such as 1) a weakening US dollar, which encourages speculative money to
flow into the market, and 2) an increased risk appetite among investors who
anticipate an economic recovery. As a producing country, Malaysia is poised to
benefit from the upward march of the oil price. Petronas-licensed service providers
offering works and facilities such as yards, tank terminals, offshore structures and
maintenance job stand to win the most.
• Target price increases. There are no changes to our forecasts. However, we are
raising our target prices by 11% for Dialog, Kencana, SapuraCrest and Wah Seong
to reflect our recent index target upgrade. We now apply our revised target market
P/E of 15x to the stocks, instead of 13.5x. Our target prices for Alam, Petra Perdana
and Petronas Dagangan are maintained.
• Kencana replaces Petra Perdana as top pick. YTD, Petra Perdana’s share price
has risen by a whopping 120%, making the stock an outstanding performer in our oil
& gas portfolio. While we still like the stock, we are replacing it with Kencana as our
top pick. We believe Kencana’s newsflow and order book replenishment over the
next few months will be more exciting.
• Maintain OVERWEIGHT. We remain OVERWEIGHT on the oil & gas sector in view
of the potential re-rating catalysts of 1) M&As, and 2) more active newsflow. Also
unchanged are all our stock recommendations and earnings forecasts

Oil And Gas: A slick 1Q09 performance

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Did you make profit from reading this blog?

2009-06-08T19:46:00.000-07:00

Did you make profit from my previous recommendation on some companies?

If you did, please introduce my blog to your friends to keep this blog alive.

Thanks

Economic Current in April

2009-06-08T19:41:00.001-07:00

– February results continued the eight month decline in unit sales (avg -2.6%) across fast moving consumer goods (FMGC) as consumers continue to cut back on shopping trips in the U.S..– Additionally, while the percent change in basket ring increased 2.3% in the U.S., they are off from the January increase of 3.9% possibly due to declining prices as many retail channels did see enhanced shopping frequency in the 1st two months of the year – There was a noticeable up tick in store brands, given the 6.4% increase in unit sales across all store brands in the U.S.. This is the highest lift we have seen since August 2008 as the gap between branded items and store brands widened. – Despite the shift to store brands in the US, National Brands in Canada are still holding their share (81.2) as they capitalize on the consumers need for value through increased feature pricing activity. Over the past year unit sales on feature price increased 8% for National Brands to now account for 38.5% of unit sales. PL remained flat reporting a 1% decline in feature price sales.– Canadians are still shying away from multiple store visits. One stop shopping continues to expand – they are making 4% fewer shopping trips but once in store, they are spending 6% more, driven primarily by rising prices.– Expect March sales to be negatively impacted by the seasonal adjustment of Easter, which in 2008 occurred on March 23rd vs April 12 in 2009.

Economic Current in April

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Bank NPLs yet to peak. Underweight

2009-06-06T00:33:00.001-07:00

Be cautious into 3Q. 1Q09 results of the six banking stocks we cover
were generally in line, with combined net profit down 2.1% QoQ and
13.1% YoY. However, the weak 1Q09 GDP suggests growing stress in
system loans over the coming months. We remain cautious on banks’
profits, especially from 3Q09. Underweight the sector.
1Q down a sharp 13.1% YoY. Other than AMMB’s positive surprise,
results were generally in-line. The combined net profit of our banking
universe was flattish QoQ but fell a sharp 13.1% YoY on lower treasury
and FX income and higher loan loss provisions. Net interest income
expanded, but the weak equity market continued to affect brokerage
income, which contracted for the 5th to 6th consecutive quarter.
Some signs of stress. Domestic loans continued growing at most
banks. QoQ loan growth at the major banks (Maybank, CIMB Bank and
Public Bank) outpaced system growth. Some loan segments, however,
have begun showing stress. Domestic NPL saw upticks in the
consumer (mortgage, autos) and working capital segments. Net NPL
ratios continued to trend down due to the expanded loans base.
Earnings to contract. There were no major revisions in our individual
earnings forecasts except for AMMB (FY09: +16%, FY10: +7%). Our
combined net profit forecast was upgraded by a marginal 0.1% for 2009
and 0.7% for 2010. We expect sector earnings to contract 9.9% in
2009, before recovering to 6.8% growth in 2010 (previously -10.1%,
+6.1% respectively). This excludes further impairment in the value of
long-term investments, merger costs and other one-offs.
Asset quality concerns. 1Q09 GDP (-6.2% YoY, -7.7% QoQ) should
be the weakest, suggesting that the worst may be over. However, we
expect economic recovery to be slow, with real GDP to return to the
3Q08 high only in 4Q10. There is a 3-6 month interval from GDP trough
to NPL peak. Hence, banks are set to report weaker profits on rising
NPLs and higher credit charges from 3Q09.
Mainly Sells. Against regional peers, the larger Malaysian banks are
pricey. The current liquidity driven market has pushed valuations up but
prospects for a strong economic recovery stay hazy. Sell into strength

Bank NPLs yet to peak. Underweight

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