AirAsia Expect 12-14% FY09F-11F EPS Dilution

To raise RM505.4m.
The proceeds would likely be mainly used to fund the Group’s working capital and future capex. The placement would enlarge AirAsia’s share base by 16% to 2,756.2m shares and dilute Tune Air’s (AirAsia’s major shareholder) stake to 26.5% from 30.7%. There are no details available on the new shareholders at this juncture but it is understood that the placement offer had received strong demand from foreign investors.

Dilutive to EPS.
Our FY09F and FY10F EPS will be diluted to 15.7sen and 13.6sen respectively (from 18.2 and 15.6 sen) due to larger share base. This raises FY09- 10 PE multiples to 9.0x and 10.4x EPS. However, the deal would also help support AirAsia’s balance sheet. We expect net gearing level to ease to 2.4x from 3.1x by end-FY09F.

Still unattractive.
We maintain our Fully Valued call and lowered TP to RM1.10 (from RM1.25), based on 8x CY10F EPS. This is after taking into account the dilutive impact on EPS following the placement. We remain concerned on the stock given its rapid fleet expansion and current high net gearing of 3.5x. AirAsia is currently trading at 10.4x FY10F EPS (ex-EI) and 1.1x FY10F BV, higher than peers’ 7.8x and 0.9x respectively.

Report From HWangDBS

14 Sept 2009 Weekly FBM KLCI Technical Perspective

Our Malaysian bourse appears to be back on track now, ready to ride on a positive trajectory to plot fresh highs for the year going forward. This comes after the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) jumped last week, climbing to a high of 1,210.36 before finishing at 1,208.28, up 29.5-point or 2.5% from the previous Friday’s close.

Rising in tandem through the week was the FBM 70 Index (+2.0%) but the FBM ACE Index ended weaker (-1.3%). Daily average volume rebounded too to 662.2m shares valued at RM1.1b, from 548.4m units worth RM981.9m previously. While trading activity should ease ahead of the long weekend break, the bulls will still want to sustain the renewed momentum generated from last week’s upbeat performance. With news flows on the domestic scene also likely to be quiet – no key data is anticipated other than the insignificant ones namely Consumer Price Index report for Aug (due on Wednesday, 16 Sep) and the international reserves as at 15 Sep (on Friday, 18 Sep) – the focus will turn to the external front for new leads to emerge.

Report From HWangDBS

Plantation Sector Report From HWangDBS

Weaker August exports.
August palm oil production in Malaysia changed little m-o-m (+0.2%) at 1.495m MT, as Sabah’s yield recovery remained weak. Exports to China and India also declined m-o-m; we believe purchases for October festivities have started to wind down. At end of August, palm oil inventory had risen by 83k MT to 1.415m MT, representing an stock/usage ratio of c.7.7% from c.7.2% in July. An expected rise in September production and flat exports may further increase palm oil stock next month.

Short-term negative bias may reverse in 4QCY09.
While palm oil prices may continue its negative bias in the near term, prospects of lower Malaysian palm oil supply q-o-q and lower Indian and Chinese soybean yields in 4QCY09 may offset record US soybean harvests this year (on oil-content basis). Hence, we are positive on CPO price direction in 4QCY09.
Selective stance still maintained.
Most plantation stocks under our coverage already reflect stronger CPO price expectations next quarter (note our average CPO price forecast of RM2,300 this year vs. YTD price of RM2,256), as their share prices did not move in tandem with CPO prices’ recent correction. Hence, we believe it is imperative to remain selective. Our top picks are based more on valuation of long-term prospects than on CPO price movements. We believe Wilmar and Kencana Agri are still undervalued; and expect them to sustain a decent 7.2% and 29.6% growth in CY10F earnings, respectively

Malaysian palm oil production forecast cut.
Palm oil production volume in the first two months of 3QCY09 amounted to 2.987m MT. This means September production would need to reach 1.966m MT in a typical peak q-o-q increase of 20%. Given August data, this seems unlikely to be met this year. As it is equally unlikely for 4QCY09 production to increase q-o-q, we have hence cut Malaysian palm oil production forecast to 17.6m MT for this year from 18.1m MT. For now, we are maintaining Indonesian palm oil
production at 20.8m MT and CY09F -10F prices at RM2,300/MT.

Report From HWangDBS

IJM Corporation fixes issue price and exercise price of warrants

IJM announced that it has obtained the required approvals from Bursa Malaysia for its 2-for-5 bonus issue, and rights issue of up to 134.9m new warrants. As such it has also
announced that:

1. the issue price for the IJM warrants has been fixed at RM0.25 per IJM warrant; and
2. the exercise price for the IJM warrants has been fixed at RM4.00 for every one new IJM share.

The issue price and the exercise price for the IJM warrants were determined after taking into consideration the theoretical ex-bonus price of the IJM shares of RM4.23, which was calculated based on the 5-day volume weighted average price of the IJM Shares up to and including 7
September 2009 of RM5.93.

The ex-date for the bonus issue and listing date of the warrants has yet to be determined. The warrants are barely in the money at current share price. Hence, we expect minimal conversion in the near term.

Weekly FBM KLCI Technical Perspective

From a technical perspective, a tentative breakout near the apex of a mini-triangle shape was spotted last week. If the momentum carries on, the FBM KLCI – in a consolidation phase for three weeks already – will be in a position to resume its uptrend, guided by the two parallel trend lines bordering the rising channel. (The triangle is usually considered a continuation pattern in the study of technical analysis). A positive bias should then lift the benchmark index to overcome the immediate resistance mark of 1,190 and surpass its recent high of 1,196.46 (in mid-Aug). Beyond that, the FBM KLCI will probably be eager to challenge the next resistance target of 1,230. On the downside, given the experience of short and shallow market pullbacks in the past 5½ months, we reckon the index performance will be defended by support levels of 1,160 (first) and 1,125 (second) going forward.

Report From HWangDBS

Glove demand with the emergence of new diseases such as H1N1

Growing international demand, projected at 140 billion pieces this year, are helping Malaysia’s glove makers defy the global economic downturn. Industry growth has been between 8 and 10 per cent in the past decade, but with the emergence of new diseases such as H1N1, demand usually spikes by 12-13 per cent.











Naturally, analysts are overweight on the sector although a recent run-up in the share prices of glove makers means most of them are already fully valued. For sure Malaysia’s glove makers will benefit from this even.

KLSE Banking Sector Building Up Momentum

Building up momentum

• 2Q09 earnings largely above expectations with core earnings growth at 11% q-o-q and 7% y-o-y boosted by capital markets.
• Momentum build-up with capital markets being the kicker to earnings in 2H09. Capital management would be a theme next year.
• Top picks are AMMB and Public Bank. We also like Hong Leong Bank as a laggard quality pick.

2Q09 earnings largely above expectations.
Core earnings growth (excluding Maybank’s impairment charge) for 2Q09 stacked up well at 11% q-o-q and 7% y-o-y driven by strong Islamic banking and non-interest income, thanks to capital markets despite concerns that provisions and NPLs would spike up. Operational income remains healthy, while asset quality indicates stability despite rising provisions which we believe are pre-emptive.

Building up momentum.
We expect non-interest income to be the driving force for earnings in 2H09 given strong pipeline for debt and equity capital market activities. IPOs to date have been rather small in value but we expect such activities to pick up. The main kicker for IPO would be the re-listing of Maxis, expected by the year end. We also expect bond issuances to surge from now as bond pricing mechanisms have normalized. Stable and low interest rate environment makes it conducive for companies to seal low funding costs for longer term borrowings. AMMB and BCHB are best proxies for capital market plays. We prefer AMMB over BCHB for valuations.

Capital management in future.
We believe that asset quality would remain resilient as banks are in a much stronger position now in terms of capital, ability to manage NPLs and risk management. Banks are well capitalized while some banks seem overcapitalized. We expect banks to continue hoarding capital in a still
uncertain environment, with possible capital repayment and/or higher dividend payouts only next year. We believe BCHB, AMMB, Hong Leong Bank and Maybank could turn more active in capital management.

Selective plays.
Our top picks remain with AMMB for valuations and Public Bank for resilience and dividends. We suggest switching out of Maybank to BCHB for Indonesia exposure and also for the relative PBV-ROE parametric among big cap bank plays. Even Hong Leong Bank (although its shares are less liquid) stacks up better in terms of PBV-ROE compared to Maybank. We like Hong Leong Bank as a laggard quality play. For a small cap bank play, EON Cap looks attractive being the cheapest bank in our universe at 0.9x FY10 BV with limited downside risk.

Summery Report From