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Sunday, October 3, 2010

Weekly Market Preview 04 October 2010

From the Chartroom

It ain’t over until it is over as our bullish stock market trend remains intact. In fact, we will only know where exactly the top will be on hindsight. So, with the momentum still riding high, our Malaysian bourse could scale greater heights in 4Q10. We consequently raise our technical target for the benchmark FBM KLCI to peak somewhere inside the 1,525-1,565 range, after reaching our initial forecast of 1,410-1,480 set at the beginning of this year.

3Q10 turned out to be the most profitable quarter so far this year. The FBM KLCI advanced 11.4% (versus +3.8% in 1Q and –0.5% in 2Q) to lift the year-to-date return to +15.0%, the fourth highest among the 11 Asian stock exchanges tracked by us. The big winners across the region were led by Indonesia (up 38.2% so far this year), Philippines (+34.3%) and Thailand (+32.8%) while the worst underperformers were Japan (- 11.2%), China shares listed in Hong Kong (-3.0%) and Taiwan (+0.6%). Meanwhile, key U.S. indices on Wall Street were marginally in the black (up between 2.3% and 4.4%) after nine months.

Quite evidently, foreign funds inflows have been the force behind our stock market rally. They were net buyers for four straight months since Jun, after adding a net amount of RM4.3b worth of Malaysia shares in Sep (more than the RM2.9b registered in Aug). For the whole third quarter, their net buying worked out to be RM9.5b (significantly more than the RM0.8b of net buying in 2Q10). In contrast, turning net sellers in 3Q10 were both the local institutions (minus RM8.1b vs. a positive RM1.2b in 2Q10) and local retail investors (minus RM1.0b vs. 2Q10’s minus RM1.2b).

A steady pipeline of news flows is in the works to push our local bourse even higher on rotational themes as we enter the last quarter of 2010. The line-up of events include:
  1. Action plans and policy liberalisations to boost the economic fundamentals when the Government announces the Budget 2011 (on 15 Oct) and the New Economic Model Part 2 (on 26 Oct). This could further strengthen the Ringgit, thus attracting more overseas funds to park their money in the country;
  2. New listings of big-cap companies, namely Malaysia Marine & Heavy Engineering Holdings (end-Oct) and Petronas Chemicals Group (by Dec), as well as probable sell-down of shareholdings in government-linked companies, both of which should whet investors’ appetite; and
  3. The progress of individual mega projects such as the MRT and LRT transportation networks, privatization of government land parcels for property developments etc. But this is not to say that there is no downside risk. Lingering in the horizon are clouds of adverse external developments.
Possible pitfalls that could derail the global equities from their upward trajectory include:
  1. a double-dip recession threat;
  2. spreading of sovereign debt crisis;
  3. wild swings in the currency markets;
  4. unstable commodity markets; and
  5. sudden withdrawals or contractions of liquidity around the world.

On the chart, our in-built trading strategy – a tool that generates buy signals based on predetermined conditions – has been tested and proven to be dependable thus far. Recall that this trading system is run on an embedded program that combines selected technical indicators and filters, with its reliability and validity back-tested using statistical technique. The decision rule says that the index would have to jump at least 10% to be counted as one profitable trade, or else it would be considered a false trigger if it slides 10% or more, whichever comes first, measured from the signal point.

In our 3Q10 quarterly technical write-up dated 28 Jun, we highlighted then the appearance of outstanding buy signals from No 47 to No 50, which implies that the FBM KLCI would at least ascend to between 1,377 and 1,418, should they eventually pass our trading rule by a markup of 10%. These goals were subsequently surpassed when the benchmark index hit a high of 1,479.59 on 17 Sep. With this, a total of 42 of the 50 buy signals (or an accuracy rate of 84%) that popped out between 2000 and 2010 has now satisfied our investment criteria, thus enhancing the predictability power of our trading system. While no new alert has emerged since buy signal No 50, our current readings of other technical indicators/chart patterns are telling us that more upside could be in store for our stock market.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Sunday, September 26, 2010

Weekly Market Preview 27 September 2010

From the Chartroom

A market correction appears to be in progress now. How low more can it go?

The bellwether FBM KLCI wanted to move higher last week, climbing in the initial days (to a peak of 1,479.59) before succumbing to selling pressures (and hit a low of 1,445.33) towards the end. It settled at 1,451.19 on Friday for a weekly decrease of 15.8-point or 1.1%. Falling in tandem during the week were the FBM 70 Index and the FBM ACE Index, down by 0.4% and 0.8%, respectively. Daily average trading volume was larger at 1.2b shares (versus 894.0m units a week ago) though average trading value came in lower at RM1.6b (from RM1.8b), as investors’ interest skewed to the small-mid cap companies.

With news flows anticipated to go light this week – no major events are spotted on our calendar – we reckon the mood will be to sell rather than buy equities following the recent winning streak. Routine reports on tap include:

(a) Gamuda’s latest quarterly financial result announcement scheduled on Tuesday; and
(b) the monthly banking statistical bulletin for Aug due on Thursday.

There may also be lesser tendency for window-dressing activity to prevail as we approach the end of 3Q10, given the buoyant market rally to-date (the FBM KLCI is now up 10.4% in the current quarter and 14.0% since the beginning of the year).

From a technical perspective, after touching and subsequently backed off from 1,480 thrice since two Fridays ago, the FBM KLCI is signaling that it could be about time to take a rest. After all, it had been climbing at a quick and steep pace, up in 13 of the past 16 weeks before last week’s decline. Even so, measuring from the highest point of 1,479.59 to the trough of 1,445.33, the fairly smallish percentage drop of 2.3% suggests that further downsides remain likely.

We have set our lines of defence for the FBM KLCI at 1,435 (first) and 1,415 (second) at the moment. Below this, a major support level is drawn at 1,395. They translate to probable pullbacks in the range of between 3% and 6% from the recent peak, which will then sit somewhere within the past market correction pattern since the current leg of rally began in late May this year (see chart next page).

Yet, this may not be the end of the 1½-year-old stock market uptrend. Until and unless a nasty surprise is unleashed to trigger a trend reversal, the positive momentum will probably carry the benchmark index to fresh highs beyond the ongoing consolidation process. On the chart, the FBM KLCI will be eyeing to overcome 1,465 (immediate resistance) before testing 1,495 (next resistance) when it eventually resumes its way up.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Monday, September 20, 2010

Weekly Market Preview 20 September 2010

From the Chartroom

Even after advancing to a series of higher highs lately, more upsides could still be in store for the FBM KLCI. The vital question to ask now is whether the bellwether would climb further without pausing or an overdue pullback is in the horizon already.

The bulls were still working diligently in the recent holiday-shortened week. The benchmark FBM KLCI made a weekly increase of 29.2-point or 2.0% to settle at 1,466.97 last Friday. Similar positive performance was also registered by the FBM 70 Index (+2.7%) and the FBM ACE Index (+2.6%) through the week. Trading activity came in at a daily average of 894.0m shares valued at RM1.8b, versus 610.4m units worth RM1.1b the week before.

If the falling US$ (and the strengthening Ringgit) is the main cause that has been motivating foreign funds to put their money in Malaysia equities since Jun this year, then investors would want to know the outcome of the U.S. Federal Open Market Committee meeting scheduled on Tuesday (21 Sep). While the U.S. policymakers are widely anticipated to keep the federal funds rate at near zero level for now, the key takeaways from the language of its accompanying statement – on the U.S. economic conditions, inflation outlook, other financial developments etc – are likely to reaffirm (or alter) the consensus opinion on interest rate / currency markets expectations.

Already, the sliding US$ is increasingly seen as a worry for some major exporting countries. Just last week, Japan intervened for the first time since 2004, buying the greenback and selling the Yen in an effort to reverse or halt the decline. From the perspective of equities investors, the currency swings (which can cut both ways) because of policy interventions and regulatory risks will be one leading force that could shift dramatically global funds flows ahead. On the home front, we will get to hear a lot of publicity on the government’s Economic Transformation Programme (ETP) and its components of National Key Economic Areas (NKEA), the details of which will be displayed for public viewing on Tuesday. While plenty of information – e.g. a list of projects to be rolled out, the investment sums involved, the targets to be achieved etc – will be made available, the focus will fall on sectors (like oil & gas, energy, infrastructure/construction and financial services) with immediate probable implications on our stock market.

There may also be a bit more interest on individual companies – such as Berjaya Sports Toto (on Monday) and SP Setia (on Thursday) – that are due to release their latest quarterly financial result announcements. Following the steep ascend in the FBM KLCI – up in 13 of the past 16 weeks for a cumulative increase of 15.6% with the deepest weekly drop amounted to a mere 1.4% – we reckon it is just a matter of time that an intermittent market correction would set in. What remains uncertain at this stage is whether it would come sooner or later.

After reaching a fresh high of 1,479.59 – a level last seen in mid-Jan 08 – our Malaysian bourse should be vulnerable to profit-taking pressures ahead. The first two resistance-turned-support lines for the FBM KLCI are drawn at 1,465 and 1,435, respectively. Yet, the FBM KLCI could scale greater heights on rotational plays eventually. As the index will likely extend its primary uptrend from a trough of 836.51 in mid-Mar 09, possibly recovering towards an all-time peak of
1,524.69 (in mid-Jan 08), we have pegged the resistance targets at 1,490 (immediate) and 1,520 (next) for the FBM KLCI to overcome along the way.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Sunday, September 5, 2010

Weekly Market Preview 06 September 2010

From the Chartroom
Malaysia’s bellwether FBM KLCI is on the roll, racing ahead to surpass our resistance targets sooner than forecasted. What next?

Up on all days except Friday, the key market barometer jumped 24.6-point or 1.7% during the week to finish at 1,435.67. Rising in tandem were the FBM 70 Index (+2.5%) and the FBM ACE Index (+0.8%). As big-caps garnered more interest, daily average activity increased to 928.5m shares (from 803.9m units) in volume and RM1.8b (RM1.4b previously) in value.

Foreign funds have been coming to Malaysia. According to Bursa Malaysia’s record published last week, they were net buyers of RM2.9b worth of Malaysia equities in Aug. This marks the third straight month of net buying by foreigners (+RM1.8b in Jun; +RM2.3b in Jul), although their level of trading participation was only marginally higher at 28.4% of value traded (versus 27.5% in Jul).

Aug is also the third month in a row when both local institutional and retail investors sold more shares than they bought, with net figures of –RM2.2b and –RM0.5b, respectively. In comparison, net selling by:
(a) local institutions stood at RM1.2b in Jun and RM1.6b in Jul; and
(b) local retail investors was RM0.5b in Jun and RM0.4b in Jul.

In terms of trading value breakdown for last month, local institutions accounted for 35.4%
(36.8% in Jun) while local retailers made up 21.0% (20.2% in Jun). Overall trading interest, nonetheless, may wane a bit in this coming holiday-shortened fortnight. Just one key economic report is on tap: the index of industrial production (IPI) for Jul due on Thursday (9 Sep).
Separately, the plantation statistics (on production, exports, inventory, etc) for Aug are scheduled for release next Wednesday (15 Sep).

As investors get into the holiday mood, our domestic stock exchange may take a rest too. Against a quieter backdrop, a consolidation pattern could be approaching. After all, the benchmark FBM KLCI – following an almost uninterrupted climb – has chalked up a cumulative gain of 86.3-point or 6.4% in a short space of 3½ weeks, now standing at just 5.8% below its all-time high of 1,524.69 (achieved in mid-Jan 08).

If an overdue market correction does set in, then we reckon the bellwether will likely find its first and second support lines at 1,415 and 1,395, respectively. Measured from the index high of 1,441.80 (reached last Thursday), this represents to a probable 2%-3% drop.

On the upside, the FBM KLCI remains on track to advance to higher highs since the market rally began in mid-Mar last year. The resistance targets to be overcome are seen at 1,435 (immediate) and 1,465 (next). The momentum could eventually carry the FBM KLCI – after hitting the mid-point range last week – further into our 2010 peak projection band of between 1,410 and 1,480.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Sunday, August 29, 2010

Weekly Market Preview 30 August 2010

From the Chartroom
The benchmark FBM KLCI appears to be cruising on a course of its own, even as profit-taking activity is prevalent in the broad market. Whether the pace will last remains our focus at this juncture. Riding on the upward momentum, the bellwether added 16.0-point or 1.2% through the week despite market breadth coming in negative on four days (and quite even for the remaining one day).

The FBM KLCI consequently closed higher at 1,411.05 on Friday, while both the FBM 70 Index (-1.8%) and the FBM ACE Index (-3.1%) recorded weekly losses. Also, fewer shares changed hands during the week with daily volume averaging 803.9m shares (from 980.4m units) valued at RM1.4b (RM1.5b previously). Our piece last week talked about the two current drivers of Malaysia equities performance. There will be follow-up developments on both fronts this week.
First, the appeal of the Ringgit as an investment currency may (or may not) be enhanced depending on the outcome of Bank Negara Malaysia (BNM)’s monetary policy committee meeting scheduled on Thursday (2 Sep). After lifting the overnight policy rate thrice (by a total of 0.75%) in the preceding three sessions, the street remains divided on whether the policymakers would stand pat or tighten further. The currency outlook could then shape foreign investors’ appetite towards Ringgit-denominated assets like stocks.

Secondly, research houses in town will be tabulating the corporate earnings scorecards when the Apr – Jun quarterly reporting season comes to an end today. On our side, among the listed companies inside our coverage that have made their announcements so far, 60% met expectations while 23% beat estimates and the balance 17% were below par. Consequently, we will likely bump up slightly our universe earnings growth projections for 2010 (from 18% a quarter ago to roughly 22%).

Meanwhile, the external trade statistics – which capture Malaysia’s export and import performance – for Jul is due to be out on Thursday. Technically speaking, we prefer to see a healthy correction in the FBM KLCI first which could then pave the way for a sustained run-up thereafter. The key market barometer remains in an overbought area after climbing 162.1-point or 13.0% in three months, standing now at its highest level since Feb 08.

Thus, it may be just a matter of time before the benchmark index tumbles on intermittent selling pressures. To cushion any probable market declines, we have set our first and second support zones at 1,395 and 1,375, respectively. Else, if the existing momentum carries on uninterrupted and lifts the FBM KLCI to even higher grounds ahead, then it is poised to challenge the next two resistance targets of 1,415 and 1,435 sooner than anticipated.

On the chart, the FBM KLCI – which reached a high of 1,415.28 last week – has entered our 2010 peak projection range of between 1,410 and 1,480. More upside could be on the way as we reiterate our bullish technical stance, notwithstanding possible transitory pullbacks. Partly backing this view is an ascending triangle pattern (first highlighted in our report dated 2 Aug, reproduced in the chart overleaf), which has guided an index objective of 1,437 by measuring a vertical distance of the triangle height from the breakout point.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Wednesday, August 25, 2010

HWangDBS - Highlights

Axiata Group (RM4.42; Buy; Price Target: RM4.95; AXIATA MK)
Broad-based improvement
• Annualized core 1H10 result was within our estimate but ahead of consensus’
• Nudged up FY10F-11F earnings by 2%-3%; raised SOP-TP to RM4.95, maintain Buy
• Applied new dividend policy (30% payout) to FY10F NI, raised FY11F payout to 30% (from 10%)

PPB Group (RM16.90; Hold; Price Target: RM16.80; PEP MK)
Limited catalysts ahead
• 2Q10 below, sweetener was DPS of 70 sen
• Spiraling wheat prices a dampener
• Hold, cut SOP-TP to RM16.80

IJM Corp (RM4.95; Buy; Price Target: RM6.20; IJM MK) Accelerating earnings momentum
• Good quarter, property was star performer
• Construction earnings now at inflection point
• Buy, SOP-derived TP of RM6.20

Parkson Holdings (RM5.48; Buy; Price Target: RM6.80;PKS MK) Building on positive momentum
• Sales momentum spills over to Sep quarter
• Earnings growth driven by SSS growth and new stores
• Reaffirm Buy call with RNAV-derived TP of RM6.80 (from RM7.00)

Alam Maritim (RM1.12; Buy; Price Target: RM1.40; AMRB MK)
Temporary rough patch
• Lower fleet utilisation and delay in vessels delivery will drag down near term earnings
• Cut earnings after revising assumptions; job orders expected to improve in 2H10
• Still cheap; maintain Buy with RM 1.40 TP

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Monday, August 16, 2010

Weekly Market Preview 16 August 2010

From the Chartroom
Our Malaysian bourse could have hit a near term bottom already. On the other hand, any upward movement will probably be gradual. The benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) touched a low of 1,342.07 on Thursday before erasing all the initial losses to recover to where it was two Fridays ago. Losing ground through the week though were the FBM 70 Index (-0.6%) and the FBM ACE Index (-0.4%). Amid the profit-taking mood, daily average volume softened to 787.7m shares (from 947.9m units) valued at RM1.1b (versus RM1.3b).

Asian equity markets ran into headwinds that were blowing out from the U.S. The major losers in the region last week were China shares listed in Hong Kong (-4.3%), Japan (-4.0%) and Hong Kong (-2.8%). Key bellwethers on Wall Street also succumbed to selling pressures, falling between 3.3% and 5.0% week-onweek. Essentially, sentiment was hurt by worries that the world’s biggest economy might be stumbling, a scenario that has also been acknowledged by the Federal Reserve when it said last week the pace of the economic recovery is anticipated to be more modest in the near term.

What about the economic condition back home? It should be reasonably solid judging by the healthy statistics in recent months:
  1. The external trade data showed an annual increase of 22% for exports and 30% for imports in the Apr – Jun period, translating to a quarterly trade surplus of RM23.3b; and
  2. The Index of Industrial Production (IPI) was up 10.8% year-on-year between Apr to Jun.

This then implies Malaysia’s Gross Domestic Product (GDP) performance would come in strong in 2Q10 (after registering +10.1% in 1Q) when the report is released on Wednesday (18 Aug), which could also touch on the future expectations. Meanwhile, we are still waiting for the government to make public the second part of Malaysia’s New Economic Model (NEM) – a blueprint that is designed to elevate our country’s economic status to a highincome nation – which was previously scheduled to be unveiled in the first half of Aug.

On the corporate front, the Apr – Jun quarterly reporting season is expected to intensify in the week ahead. Among the listed companies tentatively due to announce their financial results include Malaysian Airline System (on Monday), KL Kepong (Wednesday), MISC (Thursday), WCT (Thursday) and Maybank (Friday). Just to put things in perspective, the FBM KLCI has advanced from a trough of 1,243.86 (in late May) to a peak of 1,370.52 (in early Aug), up 126.7-point or 10.2%. Thereafter, it slid to as low as 1,342.07 last Thursday, representing a decrease of 28.5-point or 2.1%. The key market barometer then recovered swiftly
to settle at 1,360.15 on Friday. Has the market correction run its course? It appears to be so in our eyes, at least for the time being. The FBM KLCI has found support by bouncing up thrice from a minor upward sloping trend line (see chart overleaf). If this pattern persists, then we reckon the index is likely to plot higher lows ahead. Further down, we have drawn support levels at 1,340 (first) and 1,305 (second).

Is our local bourse going to resume its uptrend? Probably yes though it may not be right away. The consolidation process could carry on – by swinging sideways with a positive bias – as it takes time for the market to absorb the profit-taking activity. Our immediate and next resistance targets for the FBM KLCI to overcome are set at 1,375 and 1,395, respectively.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Sunday, August 8, 2010

Weekly Market Preview 09 August 2010

From the Chartroom
The market signs are telling us that it could be time for our Malaysian bourse to pause for a temporary breather after scaling new heights last week.

After reaching a top of 1,370.52 on Tuesday – its highest level in 29 months – the bellwether FTSE Bursa Malaysia KLCI or FBM KLCI eased off to finish at 1,360.45 on Friday, little changed from the preceding week’s close of 1,360.92. However, the secondary tier stocks were mostly up, lifting the FBM 70 Index (+0.8%) and the FBM ACE Index (+0.9%) through the week. Consequently, daily average volume came in at 947.9m shares (from 868.7m units the week before) valued at RM1.3b (RM1.3b previously). There is a bit more foreign money in Malaysia now than before. According to the latest statistics provided by Bursa Malaysia, foreigners bought more shares than they sold – equivalent to a net amount of RM2.3b – in Jul.

This is the second straight month when foreign investors were net buyers of our local equities (after registering +RM1.8b in Jun). Combined, they accounted for 27.5% of total trading value during the month (28.2% in Jun). In comparison, both local institutional (-RM1.6b in Jul versus -RM1.2b in Jun) and retail (-RM0.4b in Jul versus -RM0.5b in Jun) investors remained net sellers for the second month in a row. They made up 36.8% and 20.2% of total value traded in Jul (versus 39.4% and 18.5% respectively in the previous month). Note: the balance trading activity came from other categories of investors namely proprietary day traders (4.7%)
and local nominees (10.7%). Can our domestic bourse attract continued buying interest from foreign funds? Perhaps so, coming off from a low base, though the money may only trickle (rather than rush) in. One pull factor is the lure of our Ringgit. Should the Malaysian currency – presently hovering near its highest level (of RM3.1320 / US$ in Apr 08) since the removal of exchange rate peg in Jul 05 – appreciate further, our local stocks stand to benefit as overseas investors may want to park their funds in this country in search of incremental portfolio returns.

To get an update on currencies market outlook – which is shaped by interest rate differentials as one of the considerations – we will check on the U.S. Federal Open Market Committee meeting due on Tuesday (10 Aug). Whilst the policymakers are likely to keep the federal funds rate at almost zero, they may drop hints on future rate hikes based on their assessments on the economic and inflation conditions.

Back home, the focus of the week, in terms of scheduled news flows, includes:
(a) the Index of Industrial Production (IPI) for Jun on Tuesday;
(b) plantation statistics for Jul also on Tuesday; and
(c) corporate earnings reports for the Apr – Jun quarter.

Technically speaking, the FBM KLCI may have entered a short-term consolidation phase. To be sure, a pullback is only normal at this stage considering the benchmark index’s swift rally (up 61.0-point or 4.7% in slightly more than one month). Nevertheless, any market correction from an overbought territory is anticipated to be relatively shallow. Our first and second support lines are currently set at 1,340 and 1,305, respectively. Yet, we believe the FBM KLCI has not reached its peak since the recovery started in mid-Mar 09. A resumption of its uptrend could be forthcoming after digesting the recent gains, with 1,375 (immediate) and 1,395 (next) standing as the resistance targets to be challenged going forward.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Tuesday, August 3, 2010

Axiata Group - Exciting growth ahead

Exciting growth ahead
  1. Strengthened by Malaysian and Indonesian operations
  2. Raise FY10F-FY11F net profit by 4%-6%
  3. Raised sum-of-parts TP to RM4.75; maintain BUY

Celcom is well-managed. Our meeting with Axiata’s wholly-owned subsidiary, Celcom (Malaysian celco) revealed that it is well-managed. It is growing healthily in the broadband segment, and on track to meet its 70K Blackberry net add target for this year. This is supported
by its widest 80% 3G/3.5G coverage. The GSM segment remains key to Celcom, with growth opportunities in the foreign worker segment, under-served rural areas, and MVNO partnerships. We expect Celcom to perform well this year and next, with sustainable EBITDA margin of c.45%. Celcom makes up c.45% of Axiata’s earnings and 68% of our valuation estimate.

XL exceeded expectations. 67%-owned XL in Indonesia reported strong 2Q10 result yesterday, beating consensus EBITDA estimate by 18%. This was mainly driven by growth in the SMS and mobile internet segments. DBS Vickers raised FY10F-FY11F net profit for XL by >20%, which resulted in 6%-8% upside to Axiata’s group net profit. However, this is mitigated by 1%-2% downward pressure (on group NI) by Dialog in Sri Lanka. Tariff hike (started Jul10) in a price sensitive market due to regulatory intervention (price floor) could dampen revenue growth ahead.

Raised price target following 13% upgrade to XL’s valuation. Celcom’s performance in Malaysia remains healthy, while the outlook for XL in Indonesia is improving. Axiata’s growth prospect is good, with forecast 3-year earnings CAGR of 43%.

Report by
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Thursday, July 29, 2010

Today's Market Preview - 30 July 2010

Our Malaysian bourse may continue its slow-and-steady climb today despite an overnight drop on Wall Street (which saw major U.S. equity barometers slipping between 0.3% and 0.6% at the closing bell).

Essentially, the benchmark FBM KLCI – after getting a 3.2-point lift from just one counter (Axiata) yesterday – could ride on the rising momentum that had driven up the bellwether by a combined 12.7-point or 0.9% in the past four days. Sharing our marginal positive bias view are the futures participants, as the Aug month futures contract for the FBM KLCI rose to 1,364.50 (representing a 6.1-point premium) yesterday.

In terms of scheduled news flows, only the monthly banking statistics for Jun is on tap later in the evening.

Report by

Monday, July 26, 2010

Malaysia Banks - NIM outperformance in 2Q10

NIM outperformance in 2Q10
  1. Expect 2Q10 earnings to grow 6% q-o-q driven by net interest income on higher NIM
  2. Industry loans grew 5% YTD May 10; 2H stronger with approvals up 13% y-o-y
  3. Maybank (Buy, RM9.10) offers superior growth with a twist of Indonesia earnings infusion while RHB Cap (Buy, TP RM7.30) stands out as a value play
Stronger 2Q10 driven by topline growth. We expect 2Q net profit to grow 6% q-o-q, driven by net interest income as NIM should pick up pace following the previous two OPR hikes in Mar and May 10. With another 25bps OPR hike in July, further uptick in NIM for the rest of 2010 is possible, assuming minimal competition for deposits. We think the direction of NIM hinges on the respective banks’ asset and liability management and their pricing strategies amid competition. We understand that lending spreads for key sectors such as mortgages and hire-purchase loans were maintained following price rationalization earlier this year, which would lend support in holding up loan yields.

Strong loan growth momentum continues. Up to May, industry total loans grew by 5%. On a y-o-y basis, loans grew 12% across segments, while applications and approvals grew 14% y-o-y and 13% y-o-y, respectively, indicating robust loan pipeline in 2H10. We expect the loan growth momentum to continue (FY10 forecast is 11%), supported by the improving domestic economic prospects. So far, OPR has been raised three times by 75 bps to 2.75%. Our economist is expecting another 25 bps hike by year end. The stance taken by BNM on OPR hikes imply that the Malaysian economy is on the growth trajectory. This bodes well with increasing demand for fund raising (loans and debt issuances) which is positive for banks.

Top picks - Maybank and RHB Cap. Our high conviction picks are Maybank (Buy, TP RM9.10) and RHB Cap (Buy, TP RM7.30). For Maybank, we expect loan growth of 12-15% for FY10-12F (above industry average of 12%), supported by its domestic franchise, especially in hire-purchase and mortgages, and its Indonesia prospects. RHB Cap is the cheapest stock in our Malaysia large cap universe at only 9x FY11 PE, and 1.2x FY11 BV vs sector average of 14x
FY11 PE and 1.9x FY11 BV, while its ROE profile is respectable at 14-15%.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Sunday, July 18, 2010

Weekly Market Preview 19July 2010

From the Chartroom
This week’s performance could signal whether our Malaysian stock market is ready for a positive breakout or will remain inside a consolidation pattern. Riding on increased buying interest especially in the first half of last week, the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) added 12.3-point or 0.9% from two Fridays ago to finish at 1,336.65. Climbing through the week too were the FBM 70 Index (up 1.8%) and the FBM ACE Index (+0.1%) with daily average volume and value rising to 680.0m shares (from 561.6m units) and RM1.1b (from RM908.8m), respectively.

As revealed by Bursa Malaysia last Friday, there is still fairly little foreign money parked in Malaysian equities at the moment. Based on the stock exchange’s record, foreign ownership as a percentage of overall market capitalization stood at 20.6% in Jun 10. It, nonetheless, represents a tiny increase from 20.5% in Mar 10 (and versus 20.4% in Dec 09). This somewhat reconciles with our earlier remark (highlighted in our From The Chartroom write-up dated 5 Jul) that foreign investors bought more Malaysian shares than they sold – translating to a slight net amount of RM0.8b – between Apr and Jun this year, after accounting for 26% of total trading value during the second quarter.

The low foreign presence means that our domestic bourse will probably be more resilient than its overseas peers, just like the scenario in recent months. With macroeconomic data on the external front giving out mixed signals thus far, investors may have to look for investment trends from the ongoing U.S. corporate reporting season. It is also the case in Malaysia, as earnings announcements for the Apr – Jun 10 quarter stream in this week from the likes of Public Bank (Monday afternoon), Digi (Tuesday afternoon) and BAT (Thursday evening). Last week, the FBM KLCI momentarily tested the upper area of our consolidation zone that is marked by the
1,280 and 1,340 lines on the chart. After touching a high of 1,341.96, an absence of follow-through buying activity subsequently caused the benchmark index to back slide.

Yet, there is still hope for the bellwether – after climbing in six of the past seven weeks for a cumulative jump of 67.5-point or 5.3% - to stage a breakout on the upside. This will be probable assuming it could hold on to much of its gains as the market absorbs the prevailing profit-taking pressures. By showing resilience, investors – who may then perceive a limited downside scenario – will turn buyers of shares sooner rather than later. And an extension of the uptrend is likely if and when the FBM KLCI clears the 1,340 resistance barrier, as it makes its way towards the next resistance target of 1,375. Alternatively, should the index pullback persist, it would then suggest the 6½-week market consolidation process is expected to drag on for the time being, with the first and second support levels to be found at 1,305 and 1,280, respectively.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Thursday, July 15, 2010

Market Strategy - Cut in subsidies

The government announced that it would cut subsidies for sugar, petrol, diesel and liquefied petroleum gas (LPG). This would result in higher prices: sugar (+25 sen/kg or 15%), LPG (+10 sen/kg or 5.7%), RON95 (+5 sen/litre or 2.8%), RON97 (+5 sen/litre or 2.4%), diesel (+5 sen/litre or 2.9%). According to The Star, the subsidy cuts would amount to RM750m savings for the government this year. This works out to 0.5% of the estimated federal government operating expenditure (or 3.6% of initial estimates of subsidies for 2010).

Although small at this time relative to the total government expenditure at this point, this could signal a gradual reduction in subsidies. It could indicate that a tariff hike for Tenaga (Buy; RM10.80 TP) could be forthcoming. The subsidy cuts would also allow funds to be channelled to projects that help improve public transportation such as the MRT. The price increases could result in a lift in inflation and dent consumer sentiment but the extent should not be significant at this point. We expect some minor disruption in traffic volume growth for PLUS in 2H with the marginal increase in fuel and diesel prices. PLUS has already chalked up an impressive YTD
traffic volume growth to May 2010 of 9.8% y-o-y for its core highways of North-South Expressway; New Klang Valley Expressway; Federal Highway Route 2 and Seremban- Port Dickson Highway. Management is guiding for traffic volume growth of 3-4% for 2010 while our forecast is more conservative at 2%.

We are already expected a slower 2H on the back of this fuel price hike and the higher base effect in 2009. Reiterate Buy with an unchanged target price of RM4.00. For Gamuda (Buy, TP RM4.35), we see the gradual cut in subsidies as a potential signal that the government is serious
in implementing the RM36bn MRT project. Recall, that the MMC-Gamuda JV has said it will commit RM3bn in funding together with a RM1.8bn performance bond to see initial works of this MRT take off. But balance of the funding has to be from the government which will likely be from the eventual cut of subsidies.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Wednesday, July 14, 2010

Tenaga Nasional - Proxy for stronger GDP growth

Proxy for stronger GDP growth
• 3QFY10 result was within expectation
• Demand growth and locked-in coal cost support stronger earnings
• Maintain Buy for attractive valuation and potential upside from tariff hike

Stronger 3Q on power demand growth. TNB’s 3Q revenue improved 10.3% y-o-y following 5.3% power demand growth supported by improvements at petrochemical and steel sectors. However, EBIT was flat due to a 12% rise in operating expenses as a result of higher offtake from coal fired plant, higher IPP payment (+6%), and RM63m provision in 3Q for general expenses. TNB recorded RM569m forex translation gain in 3Q as a result of a stronger ringgit against the US$ and Yen (+5%). Excluding the forex impact, 9M10 core net profit of RM2.1b is within our expectation, but at the lower end of market estimates.

Tariff hike is imminent, but timing uncertain. A tariff hike is imminent for TNB given higher coal costs and potential cuts in gas subsidy, but the timing is uncertain. Gas price to the power sector is currently subsidized at RM10.70/mmbtu (37% below current price of RM17/mmbtu); the government is looking at cutting this. We expect 2% net tariff hike to cater for higher capacity payment, an increase in gas cost to be fully passed-on, but coal cost will rise by 10% for FY11F due to limited supply. We estimate every 1ppt increase in gas cost will erode FY11F EPS by 1.6%, while a 1ppt increase in tariff will raise EPS by 9.1%.

Attractive valuation. Maintain Buy for TNB with a target price of RM10.80/share based on last 3-year average forward PE of 14x. TNB is trading at attractive 11x FY11F PE and 1.2x P/BV against its 10-year historical averages of 20x and 1.5x, and peers’ averages of 14x and 1.4x. Foreign shareholding in TNB has improved from 9.4% in Dec 09 to 10.7% in Jun 10.

June Ng +603 2711 2222

HWANGDBS Vickers Research Sdn Bhd (128540 U)

Tuesday, July 13, 2010

KNM Group - Signs of better times?

New orders picking up
  • Order book at year-high of RM2.4b; eyeing several sizable contracts in SEA and Europe
  • To take advantage of tax incentives by bringing more production home
  • Maintain Hold; re-rating hinges on contract flows in 2H10

Signs of better times? KNM has secured RM1.0b worth of jobs thus far, double what it secured in 1H09. Its current order book is at the year-high of RM2.4b compared to RM1.8b in the beginning of the year. Its average selling price (ASP) has also improved moderately to close to RM20,000/MT from a low of RM18,500 in 2009 (record high of RM22,500 in 2008). We understand KNM is eyeing several sizable contracts (>RM100m) in South East Asia and Europe. We expect accelerating oil & gas activities for the rest of this year to drive future demand for process equipment.

Extending market reach, benefit from tax incentive. KNM may add two more plants to extend its global market presence. But the investments would be small at c.RM40m with a potential JV local partner. KNM expanded its Saudi Arabia capacity recently, bringing total group capacity to 157,300MT/year (+6.8%). Meanwhile, works are currently underway to upgrade its Kuantan plant to undertake manufacturing of BORSIG’s boilers for the global market. There is also a plan to package BORSIG’s membrane equipments in Malaysia to take advantage of the RM1.4b tax incentive and improve overall cost efficiency.

Maintain Hold and RM0.55 TP. We are maintaining our earnings assumptions at this juncture, as utilisation rate remains low at 60% and margins are still expected to be sluggish in 2Q10. Re-rating catalyst for the stock would depend on job orders in 2H10. We reiterate our Hold rating for KNM with a target price of RM0.55, pegged to 9.0x FY11F PE. The counter is currently trading at 8.4x FY11F PE against the sector’s 8.8x and the region’s 15.0x.

Monday, July 5, 2010

Sector Focus - Property Fighting For A Home

Fighting For A Home
  • Recent launches sold via balloting due to overwhelming response
  • Robust demand even at new benchmark prices
  • Developers’ margins to pick up with higher selling prices & incentive roll-backs
  • Recovery in sales & margins yet to be reflected in share prices.Maintain positive view on Malaysian property sector. Top pick: SP Setia.
Sales going strong at record prices. Huge turnouts seen at property launches over the last three weekends:
  1. Desa Parkcity’s Casaman. All 147units were snapped up within five hours despite record pricing of RM1.7m–RM2.1m/unit for 2/3- storey link houses. More than 650 registrants were present for the balloting exercise, each armed with a bank draft for RM50-100k.
  2. Boustead’s Surian condos at Mutiara Damansara (311 units at RM600psf). 80% sales were achieved after last weekend’s balloting (all non-Bumi units taken up). This was despite the high 50% Bumi quota (vs 30% typically) and large built-up areas of 1679-2443sf, priced at RM926k-1.3m/unit (most of the 850- 1400sf were sold prior to the ballot).
  3. Sime’s Reika link houses at USJ Heights (107 units; RM982k/unit; land size: 24’ x 80’). Achieved 75% take up last weekend, at 19-22% higher ASP vs launch of Kayangan Puteri in Nov09 (RM808-838k).
  4. Desa Parkcity’s Westside One condos (338 units; RM600psf). Approximately 90% of non-Bumi units were booked over just one weekend (built-up area : 969-2066sf).
In Penang, E&O’s Quayside Resort condos (RM685psf, 298 units) reached 65% sales (soft-launched in Oct09) – setting the stage for the launch of its second tower in Singapore soon at ~RM750psf. Later this month, SP Setia will also be conducting a balloting exercise for its Setia EcoPark Phase 8C semi-detached (24 units; RM1.8m/unit vs RM1.2m for Phase 8B launched in end-Oct09).

Positive outlook still not reflected in share prices. Malaysian property sector is trading at 0.74x P/BV (0.56x P/RNAV), still below 0.77x historical mean despite recovery in sales and margins. Malaysian property sector is trailing way behind regional peers in terms of share price recovery post-financial crisis. We remain positive on Malaysian property sector; top pick: SP Setia (sector leader, largest residential developer by sales). We also like E&O, DNP, and Sunrise for their prime landbank, strong brandname and attractive valuation. As for SunCity, its upcoming RM3bn REIT should help unlock value and strengthen its balance sheet.

Yee Mei Hui +603 2711 1332
Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Thursday, July 1, 2010

Berjaya Sports Toto - Dealt Another Blow

FULLY VALUED RM4.22 (Downgrade from Buy)
Price Target : 12- month RM 4.00 (Prev RM 4.80)
Reason for Report : Corporate Update
Potential Catalysts: Strong growth for 4D and lotto games; award of Vietnam NFO licence to associate

Pool betting duty raised to 8% from 6%, from Jun10
  • 12-13% impact to FY11-13F earnings
  • But potential support from bumper dividends
  • Downgrade BST to Fully Valued (from Buy), TP cut to RM4.00 (from RM4.80)

Higher gaming tax. The government has recently turned hawkish on the gaming sector, due to political pressure and urgent need to source for income to narrow the widening budget deficit (although impact to government’s coffers will be small). After last week’s retraction of sports-betting licence granted to Ascot Sports (supposed to be injected into related party Berjaya Corp with BST acting as distribution agent), pool betting duty for NFOs has been raised to 8% from 6% (on net gaming revenue) effective 1 Jun 2010. The last gaming tax hike was in 1998 (from 7% to 8% of gross revenue), while pool betting duty was standardized to 6% from 6-12% in 2003. Higher gaming tax could lead to less attractive prize payout which would encourage punters to switch to illegal operators. NFOs could end up with lower revenue and margin compression.

Downgrade to Fully Valued, TP cut to RM4.00. We estimate the pool betting hike will reduce BST’s FY11-13F earnings by 12-13% (yet to factor in potential lower payout and loss of market share to illegal operators). This will bring down our valuation (based on dividend discount model) by 14% to RM4.00. Least affected NFO will be Tanjong (2-4%) as gaming only contributes 21% of EBIT.

Potential bumper dividends could provide some support. BST may declare higher dividends (but on weaker earnings) to help parent Berjaya Land finance the repayment of RM711m convertible bonds due in Aug 2011. This will be supported by its new RM800m medium-term-notes program (expected to draw-down initial RM500m by end- 10 to refinance debts and for working capital). We have only assume 75% payout (based on BST’s dividend policy).

Yee Mei Hui +603 2711 1332

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Tuesday, June 29, 2010

Today's Market Preview (30-06-2010)

Monday, June 28, 2010

Green Packet - WiMAX embedded Intel chip is here!

Green Packet (RM1.00; Buy; Price Target: RM1.75; GRPB MK)
WiMAX embedded Intel chip is here!

In a full-page advertisement in The Star newspaper today, Intel introduces the arrival (in Malaysia) of its WiMAX-embedded processor, the Intel Core i5. P1, the WiMAX subsidiary of
GRPB, is a partner while Acer, Asus, Dell, Lenovo, MSi and Toshiba are the manufacturers of WiMAX-embedded notebooks/netbooks (WENB).

A phrase in the ad says “Why just WiFi when you can also WiMAX?” clearly states that the WENB also come with WiFi capability. We foresee WiMAX as a standard feature in future notebooks/netbooks, much like the path that WiFi took years ago. We also understand that WENB sold in Malaysia would be set to P1’s WiMAX service by default, though users have
the choice to change WiMAX operators on their own. This is not only a strong endorsement for P1, but also helps to channel subscribers to P1. The timing of this announcement is within our expectation (of mid-2010), and is positive for P1 and GRPB.

Meanwhile, our sum-of-parts price target of RM1.75 for GRPB is under review pending the official announcement and further detail of GRPB’s and P1’s tie-up with SK Telecom (SKT).
As mentioned in our earlier comment a month ago, the price target for GRPB could be lowered to c. RM1.60 due to the dilutive effect of SKT’s acquisition of c. 25% stake in P1. Nevertheless, our BUY call is intact.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Thursday, June 24, 2010

Today's Market Preview (25-06-2010)

Wednesday, June 23, 2010

Berjaya Sports Toto, Raising debt = bumper dividends?

Berjaya Sports Toto (BST) has received the approval from Securities Commission to undertake a medium-term note (MTN) programme of up to RM800m (tenure may range between >1 to 10 years). The initial drawdown will likely be around RM500m, which proceeds will be used to refinance its remaining RM450m debt and for working capital.

BST’s net gearing has improved from 174% in 1QFY10 to 43% in 4QFY10. Its last debt raising exercise was mainly to finance bumper dividends declared in 4QFY09 (final dividend of 11 sen + advance FY10 interim dividend of 19 sen), in preparation for potential exercise of a put option for early redemption by parent Berjaya Land’s bondholders. BST has just declared a 8 sen second interim dividend in 4QFY10, which works out to ~RM107m. We do not discount the possibility of surprise bumper dividends as Berjaya Land’s RM711m convertible bonds will be due in Aug 2011.

On a worst case scenario, the initial RM500m MTN drawdown will increase net gearing to 155% and interest expense by RM25m (assuming 5% interest rate) or 5% of FY11 net profit. But the actual impact should be much lower as some existing debt will be refinanced, while repayment should be fairly quick given BST’s strong operating cashflows of RM400-500m p.a.

Maintain Buy on BST, and our TP of RM4.80, based on dividend discount model.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Tuesday, June 22, 2010

Axiata - Dividend and capex guidance

Axiata told the media after its AGM yesterday that it would announce a dividend policy by 3Q10. The company guided FY10F capex of RM3.6b, which includes RM1b for Celcom in Malaysia, USD500m for Excelcomindo in Indonesia, USD100m for Dialog in Sri Lanka and USD100m for Robi in Bangladesh. Further, Axiata plans to issue RM4.2b in Islamic debt by next month to refinance its existing loans. As the Islamic debt replaces existing facilities, there would
be negligible impact on our forecasts.

We had already factored in a slightly more conservative capex of RM3.7b for FY10F, which we see no need to update at this moment as the impact on earnings and valuation of Axiata is minimal. Since Axiata is announcing a dividend policy in 3Q10, which need not necessarily mean a payout, we had omitted a dividend payout for FY10F, but have assumed dividend payouts to start in FY11F. We have imputed a token amount of 10% only vs. a previous target of 30%,
which we intend to review once the official policy is announced.

We are keeping our forecasts, sum-of-parts price target of RM4.50 and BUY recommendation on Axiata. Further cost reduction in both operating and network costs are catalyst for future re-rating of Axiata.

Published by HWANGDBS Vickers Research Sdn Bhd (128540 U)

Sunday, June 20, 2010

Weekly Market Preview (21 June 2010 To 25 June 2010)

From the Chartroom
A replay of our Malaysian bourse performance being stuck in a tight trading pattern is on the cards unless fresh catalysts show up quickly. So please excuse us if we have to recycle contents from our previous writeups for this week.

After swinging inside a 23.1-point range throughout the week, the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) settled at its intra-week high of 1,317.69 on Friday, a weekly increase of 23.0-point (+1.8%). Both the FBM 70 Index and the FBM ACE Index also climbed (by 2.1% each) for the week. Trading activity remained slow though, averaging at 545.6m shares in volume and RM854.6m in value (versus the daily average of 575.5m units worth RM774.5m traded the preceding week).

Whether our local stock market will stage a sustained breakout on the chart – either way – anytime soon will likely be triggered by overseas (rather than local) developments. And for the coming week, investors may react to the outcome of the U.S. Federal Open Market Committee (FOMC) meeting scheduled on Tuesday and Wednesday (22-23 Jun).

While the policymakers are expected to keep the federal funds rate close to zero for the time being, their rhetoric on the current economic and monetary affairs could shift the probable timing of future interest rate hikes in the U.S., which has already been pushed back from the second half of 2010 previously to the first two quarters of 2011 following the fallouts from the European sovereign debt crisis. The interest rate differentials outlook may then reshape foreign exchange expectations, which would also be taking into consideration China’s latest initiative to gradually make its Yuan more flexible. Any changes, in turn, will cause wider implications on portfolio funds flows around the world.

Meanwhile, it could still be fairly quiet on the domestic scene this week, notwithstanding possible window dressing activity ahead of mid-year book closing for some funds. Other than a new listing on Wednesday (23 Jun) – Shin Yang Shipping Corporation, a company that provides shipping services and shipbuilding with a market cap size of RM1.26b based on its retail offer price of RM1.05 per share – not much else (in terms of news flows) is in the pipeline.

Technically speaking, a breakout could be on the way if the FBM KLCI either: (i) penetrates above the 1,340 resistance threshold with a follow-up move to challenge the high of 1,349.92 achieved (on 4 May) since the market rally started in Mar last year; or (ii) slices below the resistance line of 1,280, which is approximately where the 200-day moving average line currently stands on.

With no technical signal appearing just yet, it remains to be seen which route the bellwether will take when an eventual breakout occurs. Nevertheless, judging by its resilient performance lately, the chance for a positive breakout is getting increasingly better now. Let’s keep our fingers crossed.

Report is from HWangDBS

Wednesday, June 16, 2010

Top Glove - Earnings growth on track

Top Glove (RM12.86; Buy; Price Target: RM14.40; TOPG MK)
Earnings growth on track

At a Glance
  • 3QFY10 net profit of RM64.5m (+9% q-o-q; +53% y-o-y) was within our expectation
  • Declared 14sen interim DPS
  • Maintain Buy and RM14.40 TP, based on 15x CY11EPS
Comment on Result
3QFY10 revenue came in at RM555.9m (+9% q-o-q; +49% y-o-y) largely driven by strong demand and higher ASP. Latex powder gloves remained the Group’s key product, contributing 58% of group revenue (2QFY10: 56%). Sales in Latin America grew strongly, and comprised 21% of group revenue vs 19% in 2QFY10. Net profit of RM64.5m (-9% q-o-q; +53% y-o-y) brings 9MFY10 net profit to RM200.2m, which is c.80% of our FY10F earnings.

EBITDA margin fell to 18% (2QFY10: 22%) due to a time lag in passing on higher latex costs to customers and a weaker USD. Latex price peaked in Apr 2010 and averaged RM7.35/kg in 3QFY10 (+13% q-o-q). The Group declared 14sen interim DPS, which is in line with our expectation (full year DPS of 33sen). Capacity expansion is intact for F7, F18 and F21, which are
expected to be completed progressively by end 2010 and add a total of 3.75 bn (+12%) pieces in capacity. Balance sheet strengthened further with net cash position at RM273m, equivalent to RM0.90/share (2QFY10: RM0.88/share).

Reiterate Buy and RM14.40 TP based on 15x CY11 EPS. We like Top Glove for its consistent earnings delivery record, strong cash flow, and robust 27% ROE.

ANALYST: Malaysia Research Team +603 2711 2222

Today's Market Preview (17-06-2010)

Tuesday, June 15, 2010

IJM Corporation - Clinches RM350m Second Penang Bridge approach roads

IJM Corporation (RM4.82; Buy; Price Target: RM6.00; IJM MK)
Clinches RM350m Second Penang Bridge approach roads

IJM has accepted the Letter of Acceptance from Jambatan Kedua Sdn Bhd for award of “The Second Penang Bridge - Package 3B: Batu Kawan Expressway” at a contract sum of RM349.98m. The Project involves, among others, the construction of a new dual 2-lane carriageway of approximately 5.7 km with a cloverleaf interchange and four (4) bridges. The construction period is 31 months from the date of site possession of 28 June 2010.

This contract is the construction of approach roads for the second Penang bridge on the mainland which we understand is more lucrative than the portion on the island. We also understand IJM was not the lowest bidder but won based on technical competence and reputation to execute. This represents IJM's third contract win for CY10 and will lift its current orderbook by 10% to RM3.9bn. With this win our FY11 (Y/E March) order win assumption is now RM903m. It has since clinched RM597m. Assuming blended pretax margins of 7%, pretax profit over the construction period amounts to RM25m or EPS of 1.3 sen on a full diluted basis.

We reaffirm our Buy rating and SOP-derived TP of RM6.00.

Published by
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Monday, June 14, 2010

HWangDBS Report About Gamuda, TP RM4.45

Gamuda (RM2.95; Buy; Price Target: RM4.45; GAM MK)
Carving out the most lucrative portion
The Edge weekly carried a cover story on the proposed MRT system. Below are some key salient points :-

  1. The project size is estimated at RM36bn vs earlier estimate of RM30bn. This makes it the biggest mega project in Malaysia’s history;
  2. The project could receive RM3.6bn or 10% of cost from the facilitation grant of RM20bn set aside for PPP projects during the 10MP;
  3. The proposal by MMC-Gamuda was unsolicited and the government has decided to put it out to tender in a ‘Swiss challenge’. Other parties in particular a China company led consortium is threatening to steal this project away from the JV.
  4. Gamuda-MMC JV will only be bidding for the tunnelling portion works estimated at 30% of project cost or RM10.8bn in spite of it being the mastermind behind the proposal. About 70% of project cost will be competitive bidding which the JV cannot bid due to conflict of interest. Foreign contractors will only be allowed to bid for the remaining 30%.
  5. The rationale of the project is to bring Malaysia more in line with other developed countries in terms of number of km of rail per one million population. Malaysia currently stands at 15 vs Singapore of 40, Hong Kong of 26, Seoul of 27, London of 53 and New York of 47.
  6. Gamuda-MMC JV has set a target of 40% of all trips in and out of Greater KL done via public transport and half of this done via rail by 2020. Currently Greater KL has a population of 4.3m. Of the 8m trips done to and fro everyday, only 18% or 1.44m trips are via public transport (bus and rail) and of this 1.44m trips, only 400,000 or 20% are done via rail.

Our view : We remain confident of the JV clinching the tunnelling portion works worth RM10.8bn in spite of talks of competition from other parties. While the contract amount of RM10.8bn for the JV is lower than expected (RM5.4bn equalled shared between Gamuda and MMC), we expect this portion to be the most lucrative carrying the highest margins. Gamuda’s current orderbook stands at RM7bn. Hence this project could lift its orderbook by 77% to RM12.4bn. Assuming a pretax margin of 12%, potential profit accretion throughout the tenure of the project is RM648m or 24 sen per share.

We reiterate our Buy rating and SOP-derived TP of RM4.45/share.

Published by
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Sunday, June 13, 2010

Today's Market Preview (14-06-2010)

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