HWangDBS - Highlights

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

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

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

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

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

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Weekly Market Preview 16 August 2010

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

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

What about the economic condition back home? It should be reasonably solid judging by the healthy statistics in recent months:

1. The external trade data showed an annual increase of 22% for exports and 30% for imports in the Apr – Jun period, translating to a quarterly trade surplus of RM23.3b; and
2. The Index of Industrial Production (IPI) was up 10.8% year-on-year between Apr to Jun.

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

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

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

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Weekly Market Preview 09 August 2010

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

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

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

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

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

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


Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Axiata Group - Exciting growth ahead

Exciting growth ahead

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

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

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

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


Report by
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Today's Market Preview - 30 July 2010

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

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

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

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Malaysia Banks - NIM outperformance in 2Q10

NIM outperformance in 2Q10

1. Expect 2Q10 earnings to grow 6% q-o-q driven by net interest income on higher NIM
2. Industry loans grew 5% YTD May 10; 2H stronger with approvals up 13% y-o-y
3. Maybank (Buy, RM9.10) offers superior growth with a twist of Indonesia earnings infusion while RHB Cap (Buy, TP RM7.30) stands out as a value play

Stronger 2Q10 driven by topline growth. We expect 2Q net profit to grow 6% q-o-q, driven by net interest income as NIM should pick up pace following the previous two OPR hikes in Mar and May 10. With another 25bps OPR hike in July, further uptick in NIM for the rest of 2010 is possible, assuming minimal competition for deposits. We think the direction of NIM hinges on the respective banks’ asset and liability management and their pricing strategies amid competition. We understand that lending spreads for key sectors such as mortgages and hire-purchase loans were maintained following price rationalization earlier this year, which would lend support in holding up loan yields.

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

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

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Weekly Market Preview 19July 2010

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

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

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

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

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)