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Wednesday, December 7, 2011

Euro - more pessimistic than last week about reaching an overall deal

As investors await Friday’s European Union summit in which policymakers are expected to craft the next set of measures to deal with the sovereign debt crisis, a senior German official expressed a particularly cautious view on the summits’ likely outcomes.

“I have to say today, on Wednesday, that I am more pessimistic than last week about reaching an overall deal … A lot of protagonists still have not understood how serious the situation is,” the official stated at a pre-summit briefing, according to Reuters.

“My pessimism stems from the overall picture that I see at this point, in which institutions and member states will have to move on many points to make possible the new treaty rules that we are aiming for,” added the official, who spoke on condition of anonymity.

Other highlights from the report included:

President Nicolas Sarkozy and Chancellor Angela Merkel detailed their plan to amend the EU treaty to anchor stricter budget discipline in the euro area in a letter to European Council President Herman Van Rompuy on Wednesday…The French finance minister said the leaders of France and Germany would not leave Friday’s European Union summit until a ”powerful” deal is reached to restore market trust and prevent the sovereign debt crisis spiraling out of control.

One key uncertainty hanging over the summit is whether the EU treaty can be changed quickly to strengthen budget control.

Van Rompuy says tighter budget oversight sought by Paris and Berlin for the euro area could be achieved quickly by tweaking a protocol to the EU treaty that would not require full ratification procedures in many countries. The German official dismissed that idea as a “trick.”

Friday, December 2, 2011

FBM KLCI Showing Bullish Sign!

FBM KLCI, KLCI, Gold, Share market

















Yesterday FBM KLCI close above 1,480 level showing a bullish sign for this month. Share market windows dressing will start 2 week before end year and base on the trading vol, likely FBM KLCI will close above 1,500 by year end.

Bad news from US and Euro will slow down due to coming of long holidays till new year. When no news is good news, share market is ready for mark up.

Wednesday, September 7, 2011

Chance that the benchmark FBM KLCI will break past its immediate resistance barrier of 1,465 today

There is a chance that the benchmark FBM KLCI will break past its immediate resistance barrier of 1,465 today. If so, then the bellwether could be climbing towards the next resistance line of 1,495 ahead.

This follows a positive overnight performance by Wall Street. Major U.S. equity indices jumped between 2.5% and 3.0%, lifted by hopes that the U.S. President would be announcing a US$300b economic stimulus package later tonight. Back home, on tap today are:
  1. Bank Negara Malaysia’s monetary policy committee meeting, which is expected to leave interest rates unchanged; and
  2. external trade statistics for Jul with one media survey projecting an annual rise of 6.6% for exports and 5.9% for imports, translating to a monthly trade surplus of RM7.7b.

Separately, Fututech will be in the limelight after it has received an unconditional takeover offer to acquire its shares at RM0.50 each (versus its last done price of RM0.485) and warrants at RM0.09 each (versus the existing warrant price of RM0.13).

Tuesday, September 6, 2011

Asian equities may show a sense of calmness today after coming under selling pressures

Although Wall Street fell last night (with its key stock indices down between 0.3% and 0.9% at the closing bell), Asian equities may show a sense of calmness today after coming under selling pressures yesterday.

Back home, we expect the benchmark FBM KLCI to recover parts of its 20-point (or 1.3%) cumulative loss suffered over the past two days. Nevertheless, from a technical perspective, the bellwether will probably struggle to break past the immediate resistance threshold of 1,465 ahead.

Stocks that could get a lift today include:
  1. Alam Maritim, which has signed a charter party agreement for the provision of vessel and tug transportation services valued at up to RM221m; and
  2. Taliswork after clinching sub-contract works for a dam expansion project in Penang worth RM339m.

Monday, September 5, 2011

Brace for more selling pressures today

Brace for more selling pressures today. While Wall Street was closed for a holiday last night, the futures market has given a warning of further downsides ahead. The Sep futures contract for the bellwether DJIA slumped to hover at a 300-point discount to the spot rate at 8 o’clock this morning.

The bearish external sentiment – clouded by persisting concerns on the European sovereign debt crisis – could open the way for the key FBM KLCI to drop deeper. The benchmark index is expected to back off from its support-turned-resistance level of 1,465 to the next support line of 1,435 ahead.

With capital preservation a top priority these days, most investors may only be interested in stocks that offer visible returns, such as DXN Holdings, which has received a conditional takeover offer to acquire its shares in cash at RM1.75 per share (versus its last traded price of RM1.42).

Thursday, August 25, 2011

FBM KLCI could pull back from the immediate support-turned-resistance level of 1,465

The benchmark FBM KLCI could pull back from the immediate support-turned-resistance level of 1,465 as investors may want to lighten their market exposure ahead of the holiday-shortened trading sessions next week. This comes as Wall Street was hit by renewed selling activity last night. Major U.S. equity indices fell between 1.5% and 1.9% amid mixed expectations whether the Federal Reserve chairman would be proposing any fresh policy measures to stimulate the weak U.S. economy at a meeting tonight.

On the corporate front, Berjaya Food shares may attract interest following its proposals to: (a) acquire a 50% stake in Berjaya Starbucks Coffee for RM72m cash; and (b) undertake a rights issue involving 4 rights shares with 4 free warrants for every 5 existing shares held at an issue price of RM0.65 each. Separately, Hong Leong Bank is due to announce its latest quarterly results possibly during lunch hours today.

Wednesday, August 24, 2011

FBM KLCI on our Malaysian bourse to move sideways

Even though Wall Street extended its gains last night – its key equity indices rose between 0.9% and 1.3% on better economic data – we suspect Asian investors would be keeping an eye on the U.S. stock futures performance for market direction today.

This morning, the Dow Jones Industrial Average Sep futures contract lost ground (partly due to news that the CEO of Apple has resigned) to hover at a 73-point discount to the spot rate. We expect the benchmark FBM KLCI on our Malaysian bourse to move sideways with a marginal positive bias ahead after declining by 13.2-point yesterday.

In terms of corporate developments, among the listed companies that reported below expectations financial results last evening were Kinsteel, Kossan Rubber and LM Cement. More earnings announcements are due to be made later today, including from Maxis (during lunch hours), Sime Darby and Genting/Genting Malaysia. Separately, EPIC could be in the limelight after getting an unconditional takeover offer to buy its shares at RM3.10 each, which will also involve a cash compensation scheme to the shareholders who have sold their EPIC shares between 10 Dec 2010 and 23 Aug 2011.

Tuesday, August 23, 2011

Wall Street jumped last night

Wall Street jumped last night. Key U.S. equity indices rose between 3.0% and 4.3% chiefly on the expectations that the Federal Reserve chairman could be announcing fresh policy responses to stimulate the struggling U.S. economy at a gathering of central bankers later this week.

This may provide a temporary boost to investment sentiment around the region today. On the chart, the benchmark FBM KLCI will probably climb towards its technical resistance level of 1,495 ahead. Meanwhile, among the slew of corporate financial result announcements out yesterday evening, banking heavyweight CIMB’s report card came in within expectations (which may lead to a rebound in its share price after dropping 4.4% in three days) while Axiata and MAS posted disappointing earnings.

Monday, August 22, 2011

FBM KLCI may swing sideways with a downward bias ahead

After rising as much as 1.9%-2.4% initially, major U.S. equity indices lost steam subsequently to finish between flat and marginally up (0.3%) last night. This pedestrian Wall Street performance would likely prompt Asian investors to be cautious today.

Sentiment on our Malaysian bourse could be affected too. The benchmark FBM KLCI may swing sideways with a downward bias ahead. Immediate support level is seen at 1,465. Against the sluggish broad market backdrop, investors are expected to react to individual corporate developments such as:
  1. Sunway as its shares will be re-quoted today following the merger exercise between Sunway Holdings and Sunway City;
  2. KNM, after reporting below consensus earnings in 2Q11; and
  3. Axiata, which is due to announce its latest quarterly results during lunch time.

Meanwhile, more financial announcements – from the likes of CIMB, MAS, AirAsia and Parkson – are scheduled to be made after market hours today.

Sunday, August 21, 2011

Selling pressures across Asia when trading resumes this week


Brace for more selling pressures across Asia when trading resumes this week. Essentially, the bears would remain in control following an extended drop on Wall Street last Friday. Key U.S. equity indices fell between 1.5% and 1.6% at the closing bell as investors sold equities in response to deteriorating economic prospects.

Back home, the benchmark FBM KLCI will likely start the week on a weaker footing, possible sliding towards the immediate support level of 1,465 ahead. Among the index heavyweights that could drag down the broad market today include Tenaga (after it issued a profit warning arising from additional high fuel costs) and Maybank (which is due to release its latest quarterly results during lunch hours today).

Report from HWangDBS

Thursday, August 18, 2011

The bears are back, causing Wall Street to tumble again last night

The bears are back, causing Wall Street to tumble again last night. Key U.S. equity indices slumped between 3.7% and 5.2% at the closing bell on mounting concerns that the global economic recovery would stall while European banks could face capital constraints.

The negative vibes will surely be felt across the region today. Back home, we expect the benchmark FBM KLCI to slip below its immediate support level of 1,495, possibly falling towards the next support mark of 1,465. In terms of corporate development, we may see interest from investors in: (a) Dialog Group, which has proposed a rights issue with warrants (on the basis of 2 rights shares and 1 warrant for every 10 shares held); and (b) Petra Energy, following a media
report saying that its parent Perdana Petroleum is looking to sell its 29.6% stake in the company.

Wednesday, August 17, 2011

It is going to be a slow trading day on our Malaysian stock exchange today

It is going to be a slow trading day on our Malaysian stock exchange today, much like yesterday (which saw fewer than 900m shares changing hands) as a dearth of fresh market leads is expected to keep most investors on the sideline. On Wall Street last night, key U.S. equity indices ended between flat and marginally weaker (-0.5%).

Similarly, the FBM KLCI will likely show a flat performance ahead to reflect the sluggish investors’ mood. The benchmark index could be moving sideways inside a narrow trading range with its immediate support level seen at 1,495.

Against a broadly quiet market backdrop, Esso Malaysia shares will come under the limelight following the sale of a 65% controlling stake to San Miguel Corporation, which will also be required to extend a mandatory takeover offer at RM3.50 per Esso Malaysia share (versus its last traded price of RM4.95). Separately, MISC is scheduled to announce its latest quarterly results in the evening.

Report from HWangDBS

Thursday, August 11, 2011

Rollercoaster ride for Wall Street continues

And the rollercoaster ride for Wall Street continues. Extending their recent volatile swings, key U.S. equity indices jumped between 3.9% and 4.7% last night following news of a drop in jobless claims.

The positive overnight lead should calm investors around the region today. Back home, the benchmark FBM KLCI could stage a technical rebound but may struggle to cross the immediate resistance level of 1,495 ahead. In terms of news flows, Prime Minister Najib Razak is scheduled to make an investment announcement in East Coast this morning while on the corporate front, Alam Maritim has secured oil & gas services contracts worth RM20m and Catcha Media has served up a negative surprise after amending its strategic alliance agreement with Microsoft to less favorable terms. Later in the evening, Genting Singapore (a subsidiary of Malaysia-listed Genting Bhd) is due to release its latest quarterly earnings.

Wednesday, August 10, 2011

FBM KLCI could tumble towards the support zone of 1,415-1,435 ahead

Yesterday’s market rebound might be a short-lived one as our Malaysian bourse is likely to surrender all its gains and more following Wall Street’s overnight collapse. Its benchmark FBM KLCI could tumble towards the support zone of 1,415-1,435 ahead.

Investors will be looking to dump shares across the region today after major U.S. equity indices plunged between 4.1% and 4.6% last night. Essentially, market sentiment was hit hard amid mounting worries that there would be spillover effects from possible fallout from the prevailing European debt crisis. With the number of declining stocks set to overwhelm advancing ones back home, hoping to buck the bearish trend is Malaysia Airports. The stock may react to a media report that airport taxes could be raised from next month.

Tuesday, August 9, 2011

Technical rebound

Our benchmark FBM KLCI recovered from a low of 1,423.47 during the morning session yesterday to close at 1,472.14 (-24.85pts). Technically speaking, the benchmark index is likely to showcase a technical rebound, pulling away from its immediate support level of 1,465.

Sentiments could be further boosted by the overnight gains in the Wall Street with the US key equity indices rebounded strongly between +4.0% and +5.3%, after the worst drop since Dec 2008. The Fed has vowed to keep interest rates near zero through mid-2013 which could be seen as a temporary respite for the regional markets today.

Back home, counters that are likely to garner increased trading interest today include: (a) Malaysia Airlines and AirAsia, after Khazanah agreed to swap 20.5% of its ownership in Malaysia Airlines for a 10% stake in AirAsia, and (b) Hartalega, following its best quarterly results with RM55m net profit which came better than expected. Meanwhile, industrial production statistics for June will be on tap later in the evening.

Monday, August 8, 2011

Capital preservation will be the priority of most investors for now

After recovering from a low of 1,476.24 to close at 1,496.99 yesterday (which represents a 27.4-point decline), the key FBM KLCI is expected to plunge deeper on persisting selling activities today. Technically speaking, the benchmark index may fall towards the next support level of 1,465 ahead.

Essentially, investors will be more inclined to sell rather than buy equities following Wall Street’s extended freefall. Major U.S. stock bellwether tumbled further last night (down between 5.5% and 6.9% at the closing bell) in the aftermath of S&P’s downgrade of the U.S. sovereign credit rating. And more downside could be in store when trading resumes today, as the Dow Jones Industrial Average futures contract was hovering at a 157-point discount to the spot rate this morning. Given the prevailing jittery market mood, it seems too early to bottom fish at this juncture.

Capital preservation will be the priority of most investors for now.

From HWangDBS

Sunday, August 7, 2011

When the U.S. sneeze the rest of the world catches the cold.

Our Malaysian bourse could carry on marching to the beat of its overseas peers as volatile external forces continue to dictate investors’ sentiment. Its benchmark FBM KLCI may gyrate with a negative bias, probably falling inside the support zone of 1,465-1,495 ahead.

The key market barometer reached a low of 1,509.37 before settling at 1,524.43 last week, down 24.4- point or 1.6% from where it was two Fridays ago, its fourth consecutive week of declines. Both the FBM 70 Index (-2.8% week-on-week) and the FBM ACE Index (-1.7%) were hit too. Trading activity rose to a daily average of 1.2b shares valued at RM2.0b, compared to the 1.0b units worth RM1.6b traded a fortnight ago. When the U.S. sneeze the rest of the world catches the cold. And this was what happened last week. Although the legislative approval for a raise in federal debt ceiling was granted, worries over the U.S. economy losing steam and sovereign credit rating downgrades spooked investors.

Consequently, Wall Street’s equity indices dived sharply to close with a weekly drop of between 5.8% and 8.1%, thus wiping out their year-to-date gains. The bears also crossed over to the other parts of the world, trampling on Asian equities to leave behind a trail of destructions. For the week just ended, the worst hit stock markets in the region were Taiwan (-9.2%), Korea (-8.9%) and China shares listed in Hong Kong (-7.6%). With the economy being the salient talking point these days, the U.S. Federal Reserve will come under greater scrutiny this week. At the Federal Open Market Committee meeting on Tuesday, there could be added expectations for the policymakers to announce fresh economic stimulus initiatives, or at least prevent
confidence from tanking further by spelling out contingency plans should the world’s largest economy threaten to slip into a double-dip recession, while keeping interest rates low for an extended period. Realistically speaking, it will take time for sentiment to pick up again following last week’s global equities rout. This should apply too to our local bourse as its performance will still be subject to foreign fund flows (and any redemption impact). According to the stock exchange, foreigners were net buyers for the fourth straight month when they posted a surplus sum of RM0.6b in Jul (versus +RM3.2b in Jun). The amount of foreign money in Malaysia equities, therefore, could have increased slightly (from our estimate of RM290b based on a foreign ownership of 22.0% as of end-Jun), notwithstanding last week’s market sell-off.

Meanwhile, in the month of Jul, local institutional funds were equally balanced in terms of buying and selling (versus a net selling figure of RM1.9b the previous month) while retail investors were net sellers to the tune of RM0.2b (-RM0.8b in Jun). For the coming week, our domestic stock market may continue to take the leads from overseas developments, which will make local news less relevant. On tap are: (a) the index of industrial production report for Jun, due for release on Wednesday; (b) plantation statistics for Jul (to be out on Wednesday); and (c) isolated material corporate events such as a possible share swap pact between the substantial shareholders of Malaysian Airline System and AirAsia.

On the chart, the FBM KLCI – after a pullback of 72.7-point or 4.5% from its peak of 1,597.08 – has dropped to where it was three months ago and is now hovering just marginally above last year’s closing level of 1,518.91. The bearish momentum generated from the aggressive selling last week suggests that the benchmark index is expected to remain under pressures going forward. A further sell-down could then send the bellwether to test the first two support lines of 1,495 and 1,465, respectively.

While a sustained market rebound appears less probable in the short run – as a trend reversal may only be in the offing if and when the FBM KLCI crosses above 1,575 – it is still premature to jump to conclusion that the bull run that started in mid-Mar 2009 has already ended as we anticipate probable interventions from policymakers around the world to check the slide. Let’s keep our fingers crossed that this will be done sooner rather than later.

Report From HWangDBS

Friday, August 5, 2011

Wall Street last night, causing a collapse of between 4.3% and 5.1%

Mayday! Mayday! The bears ran wild on Wall Street last night, causing a collapse of between 4.3% and 5.1% in key equity indices amid mounting concerns that the global economic recovery might stall.

This will inevitably trigger a sell-off across Asia equities today. The benchmark FBM KLCI on our Malaysian bourse will not be spared too, likely to drop below the immediate support level of 1,530 ahead. In terms of corporate developments, Atis should buck the falling market trend, as the company has proposed a selective capital reduction and repayment exercise to make a cash return of RM1.30 per share to entitled shareholders. Separately, Affin shares are expected to come under focus too after it called off its acquisition plan to acquire an Indonesian bank.

Wednesday, August 3, 2011

Wall Street went on a rollercoaster ride last night

Wall Street went on a rollercoaster ride last night. Key U.S. equity indices were down 1.4%-1.8% at their intra-day lows before staging a subsequent rebound to finish in positive territory (up between 0.3% and 0.9% at the closing bell) as some investors speculated that the Federal Reserve could implement fresh stimulus measures to boost the economy.

As a response, sentiment across Asia today will likely remain nervous following the volatile overnight performance of Wall Street. Back home, the benchmark FBM KLCI could struggle to break past its immediate resistance barrier of 1,550 ahead. With the economy being the main subject widely talked about currently, investors will be eager to check out Malaysia’s external
trade statistics for Jun.

One media survey has projected an annual rise of 6.1% for exports and 2.5% for imports, translating to a monthly trade surplus of RM7.7b. On the corporate front, recently listed Prestariang shares may see added trading interest today after it has signed an agreement with Prometric to develop a testing and certification program for English for its customers.

Monday, August 1, 2011

FBM KLCI may see a marginal downward bias

Asian equities could give back parts of their gains made yesterday due to an absence of follow-through buying activity today. This comes as key stock indices on Wall Street fell between 0.1% and 0.4% last night as investors reacted negatively to weak manufacturing data, which overshadowed an imminent legislative approval for a higher federal debt ceiling.

Back home, the benchmark FBM KLCI may see a marginal downward bias too, possibly attempting to find a stable footing above the resistance-turned-support line of 1,550.
Meanwhile, there is not much corporate news for investors to chew on today. One local business daily reported that a consortium comprising the controlling shareholders of Genting Group, Hong Leong Group and Lion Group has signed an agreement to acquire Tanjong’s numbers forecasting operation for RM2.1b. Separately, Pulai Springs has received a conditional takeover offer from its substantial shareholder to purchase the remaining shares at RM1.18 per share in cash (versus its last done price of RM0.90).

Report from HWangDBS

Wednesday, July 27, 2011

U.S. federal debt ceiling impasse still nowhere in sight

With a breakthrough in the U.S. federal debt ceiling impasse still nowhere in sight, key U.S. equity indices plunged between 1.6% and 2.6% last night. This would likely hit Asian stocks when trading resumes this morning.

Our Malaysian bourse will probably not be spared from the selling pressures too. The benchmark FBM KLCI is expected to retreat further, possibly testing its immediate support line of 1,550 ahead. Given the bearish underlying market tone, and couple with the thin news flows on the corporate scene, investors may not be in the mood to buy equities at this moment. One company that could see added interest today is Malaysia Airports, which is scheduled to announce its financial results for the Apr – Jun quarter in the early afternoon.

Monday, July 25, 2011

The road to recovery could be a gradual process

The road to recovery could be a gradual process as our Malaysian bourse faces stiff resistance from external headwinds. This, however, does not change our technical stance that the benchmark FBM KLCI remains on track to resume its 28-month rally beyond the ongoing consolidation phase.

Coming under renewed selling pressures, the key market barometer fell to a low of 1,552.71 before finishing at 1,565.06 for a weekly drop of 12.2-point (-0.8%). Faring relatively better through the week though were the FBM 70 Index (+0.7%) and the FBM ACE Index (+1.4%). Trading activity picked up to a daily average of 980.1m shares in volume (from 759.8m) and RM1.8b in value (RM1.5b previously), partly lifted by contributions from three new listings (namely Inari, Bumi Armada and Catcha Media).

Essentially, the fall in our local equities was broadly in tandem with the underlying regional weakness. Most share markets across the region saw red during the week – with China shares listed in Hong Kong (-1.3%), Taiwan (-1.3%) and Hong Kong (-1.2%) the hardest hit at the height of the selling – as overseas sentiment was hurt by continued worries on debt woes in Europe and America. Wall Street was affected too with its stock indices posting weekly declines of as much as 1.5%-1.6% at their lows. Nevertheless, almost all bourses subsequently rebounded from their intra-week troughs to finish in positive territory.

In a sense, our Malaysian bourse’s tracking of the regional patterns is not actually surprising since there is now a bigger presence of foreign money. According to the latest statistics provided by the stock exchange, foreign ownership (as a percentage of overall market capitalization) has climbed from 21.4% end-Mar to 22.0% end-Jun. This follows three straight months of net buying by foreign investors – totaling RM6.0b worth of stocks – during the second quarter.
In terms of absolute value, our ballpark calculations suggest that the amount of overseas funds parked in Malaysia equities stood at approximately RM290b at mid-year. Interestingly, this figure – which is derived based on a foreign shareholdings level of 22.0% as of end-Jun – has already exceeded the estimated sum of RM277b as of end-Dec 07 even though the foreign ownership back then was much higher at a peak of 26.2%.

For the coming week(s), external developments will still be the primary driving force behind our stock market performance since domestic news will be relatively scarce. On the calendar will just be a short list of events comprising:
(a) corporate earnings quarterly report cards from the likes of Public Bank (on Monday) and
Malaysia Airports (Thursday); and
(b) new listings such as Hibiscus Petroleum (on Monday), Peterlabs Holdings (Tuesday) and Prestariang (Wednesday).

From a technical perspective, it could take time for the FBM KLCI to recover after sliding back to where it was in late Jun. This suggests the bellwether may be locked in a sideways pattern in the short run, possibly bouncing up and down between the immediate support and resistance lines of 1,550 and 1,575, respectively. A preliminary resumption of our market uptrend – which we are still optimistic on – will probably be forthcoming only when the benchmark index crosses the 39-day moving average line (currently hovering at 1,567) and pulls away from the support-turned-resistance threshold of 1,575.

Report from HWangDBS

Wednesday, July 20, 2011

MRCB - Morphing into GLC property proxy

Property proxy. Property profits should expand at 3-year CAGR of 40% and contribute 63% of FY13F EBIT (vs 35% in FY10) anchored by two launches: Lot B strata offices (GDV RM1.2bn, ASP RM1,250 psf, 60% sold) and Lot D (GDV RM1.4bn, ASP RM1,100 psf, launch end-2011). Lot B saw repeat en bloc purchases from Korean fund, Daol, of 24% of NLA. At Lot D, the successful launch of St Regis Residences (ASP RM1,800 psf; c.50% sold) should be positive for adjacent Lot D. With 12 acres left to develop in KL Sentral, the swap arrangement with the government involving RM129m of construction works on 5-acres of land in Brickfields (implied land cost RM590psf) will ensure
continuity there. We estimate SOP accretion at RM0.20/share based on DCF (RM1bn GDV, 6x plot ratio, and 25% margins).

Visible construction flows. Our RM700-800m p.a. new order assumptions FY11-FY12 seem conservative given the healthy pipeline of jobs - LRT, MRT and River of Life. The
media continued to highlight that MRCB is the front runner for the LRT extensions (Ampang line) worth RM800m. The project will be awarded very soon. We expect MRCB to capitalise on its role as PDP for the River of Life Project, with Phase 1 (first 10.7km) worth RM3.3bn with some visibility on contract awards by end-2011

Raised FY12-13F EPS by c.20% after factoring in launch of Kia Peng condos (GDV RM324m), Batu Feringhi (GDV RM184m) and Setapak (GDV RM1.5bn). We assumed they
would be launched in 2012 with 18-20% margins. Our forecasts exclude Penang Sentral (RM2bn GDV) and the 5 acres in Brickfields.

BUY, TP nudged up to RM3.25. MRCB is poised for a rerating with more sustainable earnings delivery and visible share price catalysts. With the upcoming GE, it is also an ideal proxy, as a GLC-linked contractor and developer. We nudged up our target price to RM3.25 after imputing higher earnings and rolling over valuation base to 2012, although the full impact was offset by higher debt levels.

Monday, July 11, 2011

It is going to be a test of resilience for our Malaysian bourse today

It is going to be a test of resilience for our Malaysian bourse today. We reckon the benchmark FBM KLCI will probably slip towards the immediate support mark of 1,575 ahead.

This follows an overnight slump on Wall Street. In particular, major U.S. equity indices plunged between 1.2% and 2.0% at the closing bell on rising concerns that the debt woes in Europe as well as U.S. could spread. Hoping to buck the bearish market sentiment today are stocks like Kencana Petroleum and SapuraCrest, following a proposal to merge their businesses made by a special purpose vehicle (SPV) via the acquisition of the assets and liabilities of both companies at a respective price of:
(i) RM3.00 per Kencana Petroleum share to be satisfied by RM0.486 in cash and 1.26 new SPV shares per Kencana Petroleum share; and
(ii) RM4.60 per SapuraCrest share to be satisfied by RM0.685 in cash and 1.96 new SPV shares per SapuraCrest share.

From HWangDBS

Wednesday, July 6, 2011

Malaysian bourse might just extend its upward trend today

With the underlying momentum still looking positive, our Malaysian bourse might just extend its upward trend today. The benchmark FBM KLCI – which closed at a new record high yesterday – could be making its way towards the immediate resistance level of 1,605 ahead.

Meanwhile, investors will be keeping their eyes on Bank Negara Malaysia’s monetary policy committee meeting to be held this evening. In a media survey, more economists are expecting the policymakers to raise the overnight policy rate (by 0.25%) as well as the statutory reserve requirement. This comes on the back of China’s announcement of an interest rate hike yesterday.

On the corporate front, of interest would be:
  1. Boustead Holdings, which has proposed a distribution of Pharmaniaga shares (via dividend-in-specie) and a restricted offer for sale of Pharmaniaga shares to its shareholders, as well as a 1-for-10 bonus issue; and
  2. Allianz Malaysia and MNRB, following their mutual termination of negotiation for Allianz to acquire an insurance unit in MNRB.
From HwangDBS

Tuesday, July 5, 2011

Lacklustre performance on Wall Street last night

Following a lacklustre performance on Wall Street last night – which saw key U.S. equity indices ending between -0.1% and +0.3% – investors across the regional might turn a bit cautious today in response to Moody’s Investors Service’s downgrade of the long-term government bond rating for Portugal to junk status.

If so, then our Malaysian bourse could come under pressures too. Profit-taking activity will probably cause the benchmark FBM KLCI to pull back ahead after posting a 19.3-point gain (+1.2%) since last Monday. Technically, the immediate support level is seen at 1,575.
Stocks that may garner added interest today include:
  1. MRCB, after signing a privatisation agreement with the government to develop three projects in exchange for two pieces of land measuring an area of 19,940 sq m located in Kuala Lumpur;
  2. Yinson, amid news report saying that it is bidding for more oil & gas contracts worth RM800m to add to its current orderbook valued at RM1.2b and
  3. Kencana Petroleum, which has acquired a 60% stake in a Hong Kong engineering company for RM12m.

Sunday, July 3, 2011

FBM KLCI Outlook For 2H2011

History beckons for our Malaysian bourse as we enter the second half of the year. Continuing from where it left off at the end of the second quarter, the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) is poised to chart new frontiers ahead, probably peaking inside our 2011 technical forecast range of 1,730-1,780 (an upside potential of 10%-13%).

The key market barometer finished slightly higher in 2Q11 (up 33.9-point or 2.2%), adding to 1Q11’s tiny gain of 26.2-point or 1.7%. This took its year-to-date return to 4.0%, the second best performance across the region. Among the 11 Asian stock exchanges tracked by us:
  1. The Philippines (+5.8% q-o-q) and Indonesia (+5.7% q-o-q) were the better performing markets during 2Q11 while China shares listed in Hong Kong (-5.6% q-o-q) and Hong Kong (-4.8% q-o-q) were the lousiest; and
  2. Indonesia (+5.0% since end- 10) and Korea (+2.4%) came in top of the list when measured on a year-to-date basis while India (-8.1%) and Japan (-4.0%) gave the worst returns so far this year.
Over on Wall Street, major U.S. share indices posted changes of:
(a) minus 0.4% to 0.8% in 2Q11; and
(b) 4.5% to 7.2% in 1H11.

Essentially, overseas equities – following their strong performances last year – are now facing headwinds from macro matters. The list of fear factors include:
(a) the imposition of additional tightening measures to combat inflation;
(b) rising inflationary expectations;
(c) double-dip recession threat in the major economies;
(d) volatility in the commodity / currency markets;
(e) sovereign debt crisis fallouts; and
(f) abrupt liquidity withdrawals from the world’s financial system.

Yet, should investors be able to climb over the wall of worries then better days may just lie ahead of us. From a fundamental perspective, we can look forward to favorable themes like:
  1. a sustained global economic recovery;
  2. positive corporate earnings momentum;
  3. Ringgit strength for incremental currency returns;
  4. progress in the implementation of the government’s Economic Transformation Programme or ETP. (An update of the ETP is scheduled on 5 Jul and an official launch of the mega MRT infrastructure project will be held on 8 Jul); and
  5. upbeat stock market expectations in the run-up to a possible snap general elections.

Amid the wobbly external backdrop, Malaysia could appeal to foreign investors as an under-owned defensive market, even though current CY12 P/E multiple of 14x ranks at the upper end of the regional valuation range (and somewhere in the middle of its historical band). Just like what happened in 2Q11 when foreigners were net buyers of RM6.0b worth of securities, reversing a net selling figure of RM3.4b in 1Q11.

In the most recent month of Jun, Bursa Malaysia statistics revealed that overseas investors bought more shares then they sold – equivalent to an amount of RM3.2b (up from +RM1.6b in May). The streak of three straight months of net buying during the quarter would have raised marginally the foreign ownership in our local bourse, which stood at 21.4% of overall market capitalization as of end-Mar 11.

In contrast, domestic institutional funds remained as net sellers in Jun (of a sum of RM1.9b versus –RM1.3b in May). This consequently brought the cumulative net selling to RM4.4b in 2Q11, versus 1Q11’s net buying of RM5.7b. Meanwhile, local retail investors were evenly matched in terms of buying and selling between Apr and May this year before turning net sellers in Jun (of a net value of RM0.8b versus -RM0.3b in 1Q11).

Technically speaking, we see more upside potential than downside risk in the near to medium term. Our own trading system – which runs on embedded formulas driven by technical indicators and filters with its reliability and validity back-tested using statistical techniques – is predicting an uptrend for the FBM KLCI. To pass a pre-set 20% decision rule in our program, when a buy alert appears on the chart, the FBM KLCI must climb 20% or more (as measured from the trigger point) to be counted as one bullish trade. Or else, should the index drop by at least 20% it would be considered a false signal, whichever comes first. Chart 1 (a) – (c) depicts a sequence of buy signals between 2000 and 2010 – with 37 out of 38 times (representing a 97% hit rate) correctly forecasted a minimum increase of 20%.

While no new alert has appeared in the second quarter, the outstanding buy signals from No 39 to No 43 – assuming they would eventually pass our test rule by a minimum margin of 20% – indicate that the benchmark index remains on a bullish track with a potential to reach at least 1,778 and 1,822 (see Chart 1(d)).
A reverse application of our trading system is to mark support zones by setting horizontal lines at 20% below the signal points. In doing so, buy signals from No 39 to No 43 on Chart 1(d) – if they stick to our rule of not plunging by more than 20% first – imply that the index is expected to find major support at the 1,185-1,215 zone should there be any sharp pullbacks.

Meanwhile, an analysis on the chart patterns and other technical indicators also reveals no visible signs of a trend reversal yet (Chart 2). We therefore reaffirm our bullish technical stance for our Malaysian bourse with the benchmark FBM KLCI – riding on an extended rally that started from a trough of 836 in mid-Mar 2009 – set to break new grounds ahead as it charts its way to peak inside our 2011 technical projection range of 1,730-1,780. Our major support lines to cushion any intermittent market corrections are pegged at 1,390 (first) and 1,305 (second), respectively.

Monday, June 27, 2011

Old Town Berhad - INITIAL PUBLIC OFFERING

Modern twist to old heritage.
Old Town is the manufacturer of ‘OLDTOWN’ instant beverages and the operator of the ‘OLDTOWN WHITE COFFEE’ kopitiam-based café outlet chain. Since the inception of its first shop in 2005, it has expanded to 182 café outlets in Malaysia, Singapore and Indonesia as at 22 June 2011. Of which, half are either fully-owned or partially-owned outlets while the other half are franchised shops. In terms of profit mix, the café chain operation contributes more (65% of FY10 net profit) while the beverage manufacturing segment accounts for the balance.

More outlets opening will drive growth.
Within a short span of 6 years, Old Town has grown its ‘OLDTOWN WHITE COFFEE’ café outlets from one store in Ipoh to 182 outlets spanning across Malaysia, Singapore and
Indonesia. The number of outlets is set to continue growing, with 38 outlets slated to open in FY11 (of which 14 are already in operation) and an additional 31 shops in FY12. Each fully-owned outlet is projected to generate approximately c.RM1m per year in revenue, though the initial contributions will be lower. We expect the growing network of café outlets to lift total revenue to RM300.6m (+18% y-o-y) in FY11 and RM349.5m (+16% y-o-y) in FY12, translating to a 2-year net profit CAGR of 14% to RM41.4m.

High dividend payout expectations.
Old Town has set a minimum dividend payout policy of 50% of its gross earnings for FY11 and
FY12. Based on our forecasts, net DPS works out to be 4.1 sen this year and 4.7 sen next year, which translates to dividend yields of 3.3% and 3.8%, respectively. We believe Old Town is in a position to sustain the high dividend payout expectations given its healthy balance sheet, with net cash balance projected to rise from RM14.4m (or 4.4 sen per share) post listing to RM34.8m (or 10.6 sen per share) by end-FY12.

Subscribe for a 20% upside potential.
We arrive at our RM1.50 fair value based on a P/E multiple of 12x on FY12F EPS of 12.5 sen.
Compared to its two locally listed peers, our target P/E valuation represents a discount to KFC (P/E of 16x) and a premium to Berjaya Food (P/E of 9x). This partly reflects Old Town’s market cap size of RM495m (based on our fair value of RM1.50) vis-à-vis KFC’s RM3.1bn and Berjaya Food’s RM119m.

OFFER PRICE: RM1.25 FAIR VALUE: RM1.50
by HwangDBS

Sunday, June 26, 2011

FBM KLCI - Despite showing tendencies of upward momentum

So near yet so far. Despite showing tendencies of upward momentum, external headwinds are obstructing the FBM KLCI from registering new record levels at the moment. Nevertheless, if the underlying resilience persists then it could only be a matter of time before the bellwether scales greater heights ahead.

The benchmark index – caught inside a tight trading band of 10-point – finished at 1,564.66 last week, quite close to where it was (at 1,563.43) two Fridays ago. Also closing broadly unchanged for the week were the FBM 70 Index (flat) and the FBM ACE Index (-0.3%) although market breadth came in negative every day except Friday. Daily average volume of 918.2m shares valued at RM1.5b was better than the 824.1m units worth RM1.6b traded the previous week.
Regional bourses staged a rebound last week, paced by Japan (+3.5%), Indonesia (+3.4%) and Philippines (+3.3%). Over on Wall Street, major U.S. equity indices posted a weekly change of between -0.6% and +1.4%. With the U.S. economy still on the mend (which has prompted the official economic growth projections to be cut by the Federal Reserve last week) and the threat of contagion effects from Europe’s debt crisis remains, sentiment among equity investors (especially in the U.S. and Europe) is expected to be weak in the near term.

This could put a cap on Malaysia equities performance for the time being. More so when there are no fresh internal catalysts to stimulate domestic buying interest. On the news front, not much is anticipated in the week ahead, other than the debut listings of MSM Malaysia Holdings (on Tuesday; indicative market cap of RM2.4b) and Eversendai Corporation (on Friday; indicative market cap of RM1.3b).

But from a technical perspective, we sense that there is more upside potential than downside risk going forward. We look out for the FBM KLCI to challenge the immediate resistance line of 1,575 soon. An ensuing breakout will represent a bullish sign, with the benchmark index set to ride on the momentum generated to climb to the next resistance target of 1,605. The FBM KLCI will then plot a sequence of higher highs along the way, breaking the record peak of 1,577 set in early Jan this year. The prevailing resilient pattern, meanwhile, could attract buying activity from bargain hunters if and when the market pulls back. Our first two support levels for the bellwether are pegged at 1,550 and 1,530, respectively.

Report From HwangDBS

Thursday, June 23, 2011

GAMUDA - MRT timeline intact

Record year. 3QFY11 net profit of RM117m (+24% qo-q, +40% y-o-y) takes 9MFY11 net profit to RM299m, within our but above consensus estimates. Q-o-q EBIT growth was led by construction (+74% to RM59m) and property (+33% to RM50m). 3QFY11 construction EBIT
margins continued to improve, to 13.9% from 8.3% a quarter ago, lifted by the double tracking project (62% complete). 9MFY11 property sales were already equal to our previous RM1bn forecast for FY11, so we revised it to RM1.3bn.

Briefing highlights. The Sungai Buloh-Kajang MRT line elevated works worth RM12-13bn could see substantial awards over the next six months. There will be c.20 packages for which 70 contractors have been prequalified. For the PDP, we are positive that prequalification for tunneling works worth RM7-8bn has started and will close on 27 June 2011. Tenders are
expected to open in 4Q11 with awards in 1Q12. Meanwhile, consultant Halcrow has completed its study on the remaining two lines, and the government is evaluating its proposal. Possible implementation date is mid-2012. In Vietnam, Celadon City was soft launched with 50 units registered to date. Official launch will be in July to coincide with the completion of the show unit.
Gamuda City is now slated for launch in Sep/Oct 2011 after ground works are done.

BUY – still most leveraged MRT proxy. Keep an eye on 27 June, the deadline for tunneling works prequalification, to see if the PDP is likely to secure the project. We still see Gamuda capitalising on its role as PDP for the conversion of RM10bn (50% share) tunneling contract wins for the entire MRT project.

Report From HWangDBS

Monday, June 20, 2011

FBM KLCI show signs of revival for an extended rally ahead

After an initial snag, our Malaysian bourse is showing signs of revival for an extended rally ahead. Therefore, we are keeping our hopes that the benchmark FBM KLCI could plot fresh highs by overcoming its record peak of 1,577 soon.

Saving the best for the last, the key market barometer jumped on Friday to offset earlier losses for a weekly gain of 7.2-point or 0.5%. Finishing marginally weaker through the week were the FBM 70 Index (-0.1%) and the FBM ACE Index (-0.3%). Trading activity picked up to a daily average volume of 824.1m shares valued at RM1.6b, from the 735.3m units worth RM1.4b traded the week before. Malaysia continues to shine as a defensive equity market with a year-to-date return of 2.9%, the best among the eleven regional share indices tracked by us and only one of two that are currently in positive territory (the other being Indonesia, up 0.5% so far this year). Essentially, overseas equities are facing external headwinds which have dragged down their performance lately. This was the case last week when most Asian stock exchanges – such as Hong Kong (-3.2%), China shares listed in Hong Kong (-2.7%) and Singapore (-2.4%) – ended in the red.

Amid the growing worries about a doubtful global economic outlook (particularly in the U.S., China and Japan) and spillover effects arising from the ongoing Europe debt crisis, it will be interesting to hear the views of the U.S. Federal Open Market Committee when the policymakers meet this Tuesday and Wednesday. While the federal funds rate will probably be maintained, the focus is on whether:
  1. the timing of any future rate hike will likely come later rather than sooner; and
  2. QE2 (the quantitative easing program) will expire in end-Jun as previously stated or a QE3 plan will be hatched.

Meanwhile, it should be a dry week as far as scheduled news flows on the domestic scene is concerned. And the same could be said for trading interest as daily volume is anticipated to come in more or less around 1bn shares just like what it has been in recent weeks. But this does not mean that all will be quiet on our local bourse as window dressing activities may be visible in the run-up to the end of first half of 2011.

From a technical viewpoint, there is a chance for the FBM KLCI – after breaking out from two downward sloping trend lines that stretched back to mid-Jan (see chart overleaf) – to keep the positive momentum going. If so, then we expect the benchmark index to extend its rally (from a recent low of 1,507.64 six weeks ago) and plot higher highs ahead.

On the chart, the benchmark index, which settled at 1,563.43 last Friday, is in a position to test and overcome the immediate resistance level of 1,575 soon. A breakaway from this point could signal more upsides with the FBM KLCI likely to climb above its all-time peak of 1,576.95 (reached in early Jan this year) towards the next resistance target of 1,605.

Should there be any intermittent market pullbacks the first two support lines for the bellwether are seen at 1,550 and 1,530, respectively.

Sunday, June 5, 2011

Weekly Market Preview ( 06 JUN 2011 )

After running sideways for approximately 2½ months, our Malaysian bourse could be back on track to scale greater heights ahead. The benchmark FBM KLCI, which leaped to a higher level last week, may build on the technical momentum and attempt to overcome its record peak of 1,577 soon.

The bellwether gained grounds last week, climbing the most on Tuesday for a weekly increase of 11.2-point or 0.7%. Of which, 5.2-index point was contributed solely by Tenaga when its share price rose 6.2% following the electricity tariff hike approval. Finishing mixed through the week though were the FBM 70 Index (+0.8%) and the FBM ACE Index (-1.6%). The larger cap counters attracted more interest, as trading activity showed a daily average of 808.2m shares in volume and RM2.0b in value (which translates to RM2.47 per share), versus the 837.6m units worth RM1.5b (or RM1.79 per share) traded the previous week.

It seems like institutional funds, particularly from overseas, are more active these days. This was also the case in May when foreigners accounted for 31% of overall trading value (up from 20% in Apr). The stock exchange’s latest monthly record released last week also revealed that foreign investors were net buyers of Malaysia equities for the second month in a row, chalking up a net amount of RM1.6b in May versus RM1.2b in Apr.

On the other side of the fence, local institutions sold more shares than they bought last month, totaling a net amount of RM1.3b, quite comparable to Apr’s net selling figure of RM1.2b. Meanwhile, retail investors bought and sold more or less similar amount of shares (measured in value) in May, just like what it was in the preceding month. Following the end of the Jan – Mar quarter corporate reporting season last week, news flows may go slow ahead. In the coming fortnight, routine reports due include: (a) the index of industrial production for Apr
scheduled on Thursday (9 Jun); (b) the May plantation statistics to be released on Friday (10 Jun); and (c) new stock listings by UOA Development (on Wednesday, 8 Jun) and XOX (Friday, 10 Jun).

Nonetheless, light news could be good news for our domestic bourse from a technical perspective. The FBM KLCI jumped out from its sideways pattern last week when it overcame the 1,550 barrier. More importantly, the key market barometer then made an initial breakaway from a triangle formation (see chart overleaf), signaling a possible continuation of the market rally that began in mid-Mar 09. This suggests that the positive momentum generated – which has lifted the index by 44.4-point or 2.9% over the last one month – could carry on and push the FBM KLCI to test the immediate resistance line of 1,575. An ensuing breakout will mean a new historical high for the bellwether (currently stands at 1,576.95, which was attained in early Jan this year) as it makes its way towards the next resistance target of 1,605. Should a market pullback occur, we expect the FBM KLCI to find a stable footing at the support levels of
1,550 (first) and 1,530 (second), respectively.

Thursday, June 2, 2011

Changes to FBM KLCI list?


New index members? There might be changes to the FTSE Bursa Malaysia KLCI or FBM KLCI line-up at the mid-year semi-annual periodic review. This benchmark index represents 30 of Malaysia’s largest listed companies ranked by full market cap, which must also meet the freefloat criteria and pass the liquidity test. Using 31 May as the cut-off date, our simulation reveals two potential new entrants – MMHE (RM12.4b market cap) and UEM Land (RM11.4b market cap) – in the member list. Any changes to the index composition will take effect after market close on 17 Jun.

Likely omissions. Although both MMHE and UEM Land – the 26th and 27th largest companies by full market cap – are below the 25th position (a stock must rise to this spot
or above to be inserted as a new constituent under the buffer ruling; see Fig 1 for details), they could still gain entry into the index. This is because: (a) a replacement may be named ahead of the PLUS delisting (RM22.5b market cap) in 3Q11; and (b) MAS (RM4.6b market cap)
has dropped to 51st position, which means it will be dropped as an index constituent under the review rules.

Portfolio rebalancing effects. A snapshot of the probable FBM KLCI line-up is depicted in Fig 3, showing MMHE and UEM Land with relative weights of 0.76% and 0.69%, respectively, based on 31 May close. Changes to the index, if any, could see index-tracking fund managers rejigging their portfolios. We saw share price swings recently in response to the inclusion of MMHE, UEM Land and MAHB into (and the exclusion of PLUS and MAS from) the MSCI Malaysia Index.
Our current recommendations for the stocks under our coverage are PLUS (Hold; TP RM4.60) and MAS (Fully Valued; TP RM1.10).

Report from HWangDBS

Sunday, May 22, 2011

Weekly Market Preview ( 23 May 2011 )

Momentum is the fuel to stock market advances. Without this inner strength, the likelihood is that the FBM KLCI could still be boxed inside a trading range for the time being.

The benchmark index recovered further initially, hitting a high of 1,550.62 before ending at 1,541.03 last week, little changed from the close of 1,540.74 two Fridays ago. Finishing mixed were the FBM 70 Index and the FBM ACE Index with a weekly change of +0.7% and -0.1%, respectively. Trading activity, meanwhile, stood at a daily average of 882.8m shares in volume (from 922.6m units) and RM1.5b in value (from RM1.4b) during the holiday-shortened week.

After a climb of 25.5-point or 1.7% in two successive weeks, the FBM KLCI is just 1.5% higher than where it was at the beginning of the year. In terms of regional ranking, Malaysia is presently in sixth position (out of 11 Asian equity indices tracked by us), behind the top winning markets – Indonesia (+4.6% year-to-date), Thailand (+3.9%) and Korea (+2.9%) – but ahead of the worst performers, namely India (-10.6%), Japan (-6.1%) and Taiwan (-1.5%).

Fundamentally speaking, given a prevailing shortage of macro catalysts to trigger a broad market run-up, investors may want to use a bottom-up approach to identify individual stocks that could lift our Malaysian bourse performance. On the corporate scene this week, the interest will be on: (a) Tenaga, as the government may announce electricity tariff hikes on Wednesday according to media sources. Using last Friday’s close of RM6.27 as the reference level, a 5% swing in the share price would translate to a gain or loss of 4-index point in the FBM KLCI; and (b) big-cap listed companies like Telekom Malaysia, KL Kepong, Genting group of companies, Sime Darby and IJM Corporation that have yet to release their Jan-Mar quarter financial results.

From a charting perspective, there is no clear technical signal yet to say a breakout in the FBM KLCI is imminent anytime soon. Even so, we foresee a fairly resilient performance ahead with the index likely to find immediate support around the historically defensive 39-day moving average line. Our first two support levels are pegged at 1,530 and 1,495, respectively.

On the upside, gradual as it may be, the FBM KLCI could be showing a sideways trading pattern with a positive bias going forward. This means the key market barometer may be making its way to challenge the resistance targets of 1,550 (immediate) and 1,575 (next) eventually.

Report from HWangDBS

Thursday, May 19, 2011

Today's Market Preview From HWangDBS (20 MAY 2011)

There is a chance that the key FBM KLCI would rise towards and challenge the immediate resistance threshold of 1,550 today after making a previous attempt yesterday. In essence, investors around the region are expected to be in a positive mood following the overnight increase on Wall Street with major U.S. bellwethers finishing up between 0.2% and 0.4% at the closing bell.

Possibly giving a lift to our benchmark index ahead are Tenaga (in response to the news that the government might approve an electricity tariff hike as early as next week) and RHB Capital (amid news that several parties are interested to bid for a 25% equity stake currently held by Abu Dhabi Commercial Bank).

Meanwhile, Tanjung Offshore’s share price could come under selling pressures today after its latest quarterly results came in below expectations.

Sunday, May 15, 2011

Weekly Market Preview (16 May 2011) By HWangDBS


Are we back on track? Or are we merely back to square one? In spite of last week’s bounce-up, our Malaysian bourse could still be stuck inside a trading range with the benchmark FBM KLCI probably swinging between 1,530 and 1,550 unless buying activity gathers momentum soon.

Riding on a technical rebound, the key market barometer was up 25.2-point or 1.7% through the week to settle at 1,540.74. Getting a lift also were the FBM 70 Index and the FBM ACE Index, posting a weekly increase of 1.4% and 2.4%, respectively. Daily average volume remained light though at 922.6m shares valued at RM1.4b, a marginal decline from the preceding week’s 974.6m units worth RM1.4b.

We shall look west for positive vibes to emerge in the week ahead. In addition to the usual leads coming out from Wall Street, there is the Invest Malaysia 2011 Day in the US to watch out for. This event – to be held on Tuesday and Wednesday and led by our Prime Minister himself – is designed to raise the investment profile of the country. A fruitful outcome means attracting investors to put their money in our local stock market as well as other sectors of the broad economy, in industries like high-tech engineering, oil & gas and education services.

Speaking of our economy, we will get a performance update when the 1Q11 GDP report card is out on Wednesday. Meanwhile, as the Jan – Mar quarterly corporate reporting season swings into action, more earnings announcements are expected to come in this week. By promptly cutting above the 39-day moving average (MA) line last week, we should see diminishing selling
pressures for the FBM KLCI, technically speaking. The bellwether is expected to find immediate support at 1,530, where it presently intersects with the normally defensive 39-day MA line.
Yet, after several false starts lately, it remains to be seen whether the market momentum could pick up from where it left off last week. The first resistance hurdle for the FBM KLCI to cross is 1,550, to be followed by 1,575, before we would be tempted to say a resumption of the 26-month rally is in progress.

From a regional perspective, our local bourse is still a relative laggard with a year-to-date return of just 1.4%. With upside potential still outweighing downside risk in our opinion, let’s hope a positive bias is forthcoming sooner rather than later.

Report from HWangDBS

Tuesday, May 10, 2011

Hong Leong Bank - Raising RM2.6bn via rights


Rights issue size raised to RM2.6bn.
Hong Leong Bank has proposed to raise the rights issue size to RM2.6bn (from RM1.6bn) to further strengthen its capital base and for working capital purposes. The issue price will be fixed
at a later date, at 15%-35% discount to the theoretical exrights price, and the exercise should to be completed by 1QFY12. Given the larger rights issue of RM2.6bn, EPS in FY12 could be neutral to mildly negative, depending on the discount attached to the rights. In our FY12 proforma, we assumed 20% discount and it is EPS neutral. EPS would be accretive in FY13.
Sustainable growth.
3Q11 net profit of RM290m (flat qoq) was in line. 9M11 earnings were 73% of our full year
FY11 forecast. Net interest income was led by 2% loan growth, while NIM was flat at 1.77%. Non-interest income fell 17% qoq mainly due to lower fee income and foreign exchange gains. YTD loans grew 11%. Loan growth was mainly driven by personal loans (+8% qoq), mortgage
(+3% qoq) and working capital loans (+4% qoq). Asset quality remained robust with gross NPL ratio improving to 1.9% against 2Q11’s 2.1%, while absolute NPL amount fell 7% in the quarter. Contribution from Bank of Chengdu was RM57m (+29% qoq) or 16% of Group PBT. Tier-1 CAR and RWCAR are both at 12%.

Maintain Buy and RM15 TP.
Given a stronger balance sheet and greater financial muscle, Hong Leong Bank would be able to look at non-organic growth beyond Malaysia to meet its regional aspirations. Our RM15 target
price is based on the Gordon Growth Model and proforma estimates, with the following assumptions: 18% ROE, 5% long term growth and 9.4% cost of equity.

Report from HWangDBS

Tuesday, May 3, 2011

FBM KLCI may show a sideways trading pattern with a marginal positive bias for the time being

Although the flattish performance may still persist, initial signs are indicating that our Malaysian bourse could show a gradual uptrend going forward. A market recovery would likely be in progress if the FBM KLCI quickly pulls away – the farther the better – from 1,530 and glide towards 1,550.

The key market barometer inched up every day except Friday to close at 1,534.95, a cumulative increase of 12.2-point or 0.8% for the week. Finishing mixed though were the FBM 70 Index and the FBM ACE Index with a weekly change of +0.2% and –0.5%, respectively. Daily trading volume was light at 1.0b shares valued at RM1.3b, down from the 1.2b units worth RM1.5b that changed hands a fortnight ago. Investors’ focus will shift back to the domestic scene this week. After reading the U.S. Federal Open Market Committee statement last week – which in summary said that the federal funds rate would be kept low for an extended period and the quantitative easing program to purchase US$600b of longer-term Treasury securities would be completed end-Jun as per the original deadline – we should see added interest in Bank Negara Malaysia’s monetary policy committee meeting to be held on Thursday.

An immediate decision to hike interest rates – or an indication to do so in the near future – by the Malaysian policy makers could enhance further the appeal of the Ringgit as the rate gap widens. Given the better returns in relative term, the Ringgit has been on the rise, climbing 7% since a year ago to reach a fresh 13½- year high of RM2.9610 vis-à-vis the greenback last week. An appreciating Ringgit, in turn, is expected to attract fund inflows thus benefiting Ringgit-denominated financial assets like equities.

The value of a currency – other than interest rate consideration – also depends on economic fundamentals. We will get an update on Malaysia’s external trade performance when the exports-imports statistics for Mar are out on Friday. On the corporate front, the Jan – Mar quarterly reporting season continues with more financial announcements from the likes of Malaysia Marine & Heavy Engineering this week. Let’s hope there will be pleasant earnings surprises ahead to excite investors on our local bourse, just like how the better-thanexpected
profit numbers from the U.S. listed companies have propelled Wall Street to new post-crisis highs lately.

Technically, the FBM KLCI may show a sideways trading pattern with a marginal positive bias for the time being. Its downside is cushioned by the 39-day moving average line (a fairly reliable technical gauge in the past and is currently standing at 1,525), which suggests limited room for corrections. Beneath the line, we have set the second support level at 1,495. Should our market recovery eventually kick in as anticipated, the FBM KLCI will be well-positioned to test and overcome the immediate resistance barrier of 1,550. Thereafter, the bellwether may be eyeing to challenge the next resistance target of 1,575 as it slogs its way to surpass the all-time peak of 1,577 (which was hit in early Jan this year).

Report from HWangDBS

Thursday, April 28, 2011

Today's Market Preview From HWangDBS (29 APR 2011)

The benchmark FBM KLCI looks set to break away from the resistance mark of 1,530 today. It could climb and slog its way towards the next resistance target of 1,550.
This comes as key U.S. equity indices jumped to new post-crisis highs after posting an increase of between 0.6% and 0.8% last night. Essentially, investors were buoyed by the outcomes of the U.S. Federal Open Market Committee meeting, as follow:
  1. it has maintained the range for federal funds rate at 0 – 0.25%;
  2. it would keep the low interest rates for an extended period; and
  3. it would complete its quantitative easing program of purchasing US$600b of longer-term Treasury securities by end-2Q11.

Back to our local bourse, among the counters that may see added trading interest today are:
  1. RHB Capital, following media talk that Chinese banks would be tendering for the block of shares owned by Abu Dhabi Commercial Bank in the banking group;
  2. Masterskill, after tying up with University of Newcastle from Australia to offer joint academic programs as part of its diversification plan to venture into other education fields; and
  3. Focus Lumber, a niche plywood manufacturer due for listing today.

Wednesday, April 27, 2011

Tanjung Offshore (RM1.29; Fully Valued; Price Target: RM1.35; TOFF MK)

Awarded RM15m maintenance service contract
Tanjung Offshore announced that it has been awarded a RM15m contract for the provision of valve repair and maintenance services for Murphy Sarawak Oil. The contract, effective from Mar 11 to Mar 14, comes with a 2-year renewal option where the contract amount will only be
determined by then.

We think that the contract is unlikely to contribute much to our earnings forecast given that its revenue contribution makes up less than 1% of our FY11F revenue. We project maintenance services segment to only contribute 5% of our FY11F EBIT. Offshore support vessel services is still Tanjung Offshore’s main earnings driver and we think that charter replenishment is still a concern at this juncture.

We reiterate our Fully Valued call. We review our RM1.35 TP, pegged to 12x FY11F earnings, for possible reduction.

From HWangDBS

Tuesday, April 26, 2011

GAMUDA - MRT & Vietnam to transform earnings

MRT & Vietnam to transform earnings
  • Potential to triple orderbook with tunneling works
  • Raised FY12-13F EPS after factoring in Vietnam sales
  • Most leveraged MRT proxy, maintain BUY and RM5.25 TP
Gamuda received encouraging response at DBSV POA
conference in Hong Kong recently.

MRT update. While the tunneling tender will be via Swiss Challenge, we remain confident that the PDP’s reputation and overall better cost structure compared to foreign contractors will see it emerge the winner. The tunneling job for all three lines is worth c.RM20bn based on 40% of total
MRT contract value of RM50bn. Guidance is for 15% tunneling pretax margins vs 5% for non-tunneling. Timeline for award for the approved Sg. Buloh-Kajang tunneling works is by 1QCY12 (RM7.5bn), and the other lines by 3QCY12. There is room to raise our RM2.00/share
DCF value for the MRT project (we factored in 50% value in our SOP), premised on RM14bn total tunneling works and 8.3% blended margins.

Raised FY12F/FY13F
earnings by 12%-30% to build in stronger local property sales of RM1.1bn for each year (vs
RM730m-790m previously). 6MFY11 property sales of RM600m implies it could exceed its RM1b FY11 sales target, which will be revised to RM1.3bn because of the buoyant market. We also assumed maiden sales contribution from Vietnam of RM1.2bn and RM1.7bn for
FY12-13F, respectively, based on average 60% take ups and 16-18% margins. These are below Gamuda’s targets of RM1.5bn and RM2.1bn and 20-25% margins. Celadon City in HCMC - slated for launch soon – is seeing strong interest (200 out of 250 units pre-registered). Gamuda City in Hanoi will receive in total 40 ha of land by July, sufficient for three years of launches. Launch is scheduled for July.

Still most leveraged to RM50bn MRT project - BUY.
There is the likely conversion of RM10bn (50% share) tunneling contract wins in CY12 with lucrative 15% margins. Despite the expected higher earnings, there is no change to our target price because it is based on DCF.

Report From HWangDBS

Monday, April 25, 2011

Market Preview From HWangDBS (26 APR 2011)

Despite a mixed performance on Wall Street last night – as key U.S. equity indices ended between -0.2% and +0.2% at the closing bell – we reckon our Malaysian bourse would show resilience ahead.

Technically speaking, its benchmark FBM KLCI could continue its sideways trading pattern with a marginal positive tone today. The key market barometer, however, may struggle to clear its immediate resistance level of 1,530 in the meantime. Counters that may see added trading interest today will include: (a) Sime Darby, which has just been awarded an oil & gas fabrication contract valued at RM1.2b; (b) Alam Maritim, after it has entered into several agreements worth RM33.5m to provide oil & gas support services; and (c) Padiberas Nasional following the government’s extension of its contract to manage the country’s rice supplies for another 10 years.

Sunday, April 24, 2011

Weekly Market Report (25 APR 2011)

While immediate downside risk appears fairly limited, our Malaysian bourse could be stuck inside a sideways trading pattern unless buying interest picks up soon. To foresee any sustainable market revival, the FBM KLCI must overcome 1,530 convincingly first.

The benchmark index rebounded initially (to a high of 1,535.09 on Thursday) but lost momentum subsequently in the week. It then settled at 1,522.75, near where it was (at 1,521.94) two Fridays ago. Larger gains were, nevertheless, posted by the FBM 70 Index (up 0.3%) and the FBM ACE Index (+4.8%) through the week. Meanwhile, lower liners saw active trading as daily volume averaged 1.2b shares valued at RM1.5b, versus the 1.1b units worth RM1.7b traded the previous week.

Overseas developments will be closely watched this week. Following Standard & Poor’s cut in the U.S. longterm credit outlook to negative last Monday, investors may get an update on the country’s financial standing when the Federal Open Market Committee meets on Tuesday and Wednesday. While the policymakers will likely keep the federal funds rate unchanged, the focus will be on:
  1. possible timing hints on future interest rate hikes amid heightened inflationary pressures;
  2. whether the US$600b quantitative easing program will end in Jun as scheduled, which can shift global fund flows trend and currency markets outlook.
(Note: The US$ has been falling lately. For example, vis-à-vis the Malaysian Ringgit, it hit RM3.0054 per US$ on Friday, a fresh high since the fixed exchange rate regime was lifted in Jul 05).

This comes as foreign interest on Malaysia equities remains slow so far. According to the stock exchange, trading participation from foreign investors stood at 24% in 1Q11, down from 27% in 2010 (though in absolute term daily average trading value by foreigners actually rose to RM519m from RM393m last year). On the other hand, retail investors were more active in 1Q11 with trading participation inching up to 27% (from 26% in 2010) and their daily average trading value climbing to RM583m (from RM378m in 2010). The latest statistics published last week also revealed that foreign ownership as a percentage of overall market capitalization had dipped slightly from 21.9% at the end of last year to 21.4% end-Mar this year.

Providing a balance to the external news flows will be several individual events on the local scene. They include:
  1. the high-profile official visit by the Prime Minister of China scheduled on Wednesday through Saturday, which may see the signing of agreements with Malaysian companies in the key economic areas such as oil & gas, education and infrastructure; and
  2. a court ruling (due on Thursday) on the takeover saga of EON Capital’s entire assets and liabilities by Hong Leong Bank.

Technically speaking, the FBM KLCI may just range-bound with a slight upward bias in the short run. A subsequent breakout from the congestion pattern could be forthcoming either by: (a) pulling away from its immediate resistance threshold of 1,530, thus propelling the benchmark index further towards the next resistance target of 1,550; or
(b) a cut below its 39-day moving average line (which is standing now at 1,522) will signal further downside ahead. This may then send the bellwether to test the first two support levels of 1,495 and 1,465, respectively.
Yet, judging from the underlying resilience of late, we are keeping our hopes that a positive momentum will prevail, and pave the way for us to see an eventual market recovery anytime soon.

Thursday, April 21, 2011

Market Preview From HWangDBS (22 APR 2011)

We may see the benchmark FBM KLCI attempting to cut above the resistance barrier of 1,530 again today. This comes as our Malaysian bourse – the only market across the region to finish in the red yesterday – could recover after the 4.7-point dip. Nevertheless, trading interest is expected to be quite slow today as most regional peers (like Singapore, Indonesia, Philippines,
Hong Kong and India) are on holidays today. Wall Street – which saw its key equity indices rising between 0.4% and 0.6% last night – would also be closed tonight.

Amid a relatively quiet market backdrop, counters that could attract attention today include:
  1. RHB Capital, after a media report said two foreign parties are in the midst of making a joint bid to acquire a stake in the bank;
  2. Jerneh Asia, which has signed an MOU to explore a proposed acquisition of a Sabah-based property developer; and
  3. CBIP, as the company has just announced a proposal to undertake a 1-for-1 bonus issue.

Wednesday, April 20, 2011

Market Preview From HWangDBS (21 APR 2011)

There is a chance for the benchmark FBM KLCI to break away from the resistance-turned-support line of 1,530 today, as the bellwether makes its way towards the next resistance target of 1,550 on the back of follow-through buying momentum.

Giving a boost to investors’ sentiment is the overnight jump on Wall Street. Key U.S. stock indices were up between 1.4% and 2.1% at the closing bell lifted by better-than-expected corporate financial results. Back home, we will also be hoping for positive vibes to emerge from the ongoing earnings reporting season as the likes of Tenaga and BAT are scheduled to announce their latest quarterly results this evening. Separately, there may be a pick-up in trading interest in TRC Synergy, which has just secured new construction contracts worth RM44m.

Report from HwangDBS

Tuesday, April 19, 2011

Petronas Gas - Buy with higher TP of RM13.50

Transformation takes shape
• Maiden contributions from regasification and power plants in FY12-13
• PGU gas supply will increase by up to 20% after completion of Melaka regasification plant
• Signing of RSA and PPA will be key catalysts; upgrade to Buy with higher TP of RM13.50

Transforming into multi-utility player.
Petgas will turn into a multi-utility player with the completion of its Melaka regasification plant in Jul 2012 and Kimanis power plant in 2013. We expect the regasification services agreement (RSA) between Petgas and Petronas to be finalized soon. There will be no fuel cost risk under
the RSA as gas supply will be procured by Petronas. Assuming RM1.5bn investment and 9% IRR, the plant will add 18% to net profit from FY13 onwards. We estimate IRR at 9% for the Kimanis power plant, and Petgas’s 60% stake will entitle it to c.RM130m annual contribution from FY14 onwards.

Sustainable 4% net yield despite higher capex.
Petgas registered strong net cash of RM2.1bn (RM1.06/share) for 9M11. We expect capex to rise to RM1.5bn p.a. over FY12-13 with the new investments, but FCF will remain strong at >RM600m due to improved profitability under the 4th GPTA. Petgas does not have a dividend policy. We assumed 66-68% net payout for FY11-12F with sustainable 50 sen DPS.

Additional gas supply to PGU.
We expect higher revenue for Petgas’ PGU gas volume upon completion of the Melaka regasification plant, as the 4th GPTA allows the use of third party gas. We raised FY13-14F net profit by 3%-18% after imputing additional 200mmscfd of gas volume that will be transported by PGU, and maiden contribution from the regasification plant. Consequently, our DCF-derived target price is raised to RM13.50/share.

Report from HWangDBS

Market Preview From HWangDBS (20 APR 2011)

After testing and bouncing up from the 39-day moving average line yesterday, we expect the key FBM KLCI to show an upward bias today. Technically speaking, the benchmark index could climb towards the first resistance line of 1,530. There was an overnight rebound on Wall Street too. Major U.S. equity indices rose between 0.4% and 0.6% at the closing bell as sentiment improved on the back of better housing starts data and corporate earnings momentum. Among the stocks that may attract added interest today include:
  1. DRB-Hicom, after a news report said it has won a bid to take over the controlling stake in Pos Malaysia (at around RM3.60 per share) with an agreement likely to be signed early next week;
  2. Berjaya Corp, which has confirmed that Kim Eng has approached its management to explore the possibility of acquiring a 100% stake (instead of 70%) in Berjaya Corp’s stockbroking arm; and
  3. Emas Kiara, following its announcement to pay a special tax exempt dividend per share of 12 sen (translating to a generous yield of 16.3% based on its last done price of RM0.735).

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