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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.

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