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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).

Recommendation
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
general@hwangdbsvickers.com.my

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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