Property Sector- Sale of property held for >5 years not liable for RPGT

It was widely reported that the Prime Minister Datuk Seri Najib Tun Razak announced that the Real Property Gains Tax (RPGT) of 5% will only be applied to properties sold within five years of purchase i.e. property sold after 5 years from date of purchase will not incur the 5% RPGT. The news is no surprise as the market was speculating of a revising terms for the RPGT of 5% which was announced in the 2010 Budget of the country in October 2009.

It is definitely good news that non-speculators will not be penalized. It allows those holding properties for >5 years to sell their homes and recognized 100% of the capital gains to upgrade their homes. In turn, this spurs genuine property activities, which are supported by the country’s fundamentals, as oppose to speculative activities.

We are very comfortable with the 5% RPGT on homes held for <5 years as it curbs speculative activities; this is mainly seen in the KLCC vicinity, Mont Kiara/Hartamas and some areas of Penang Island. In the KLCC and Mont Kiara/Hartamas areas, we believe there is an oversupply of high-end high-rise residentials with limited rentability. The RPGT helps cool potential over-selling in these areas since 1) capital gains upward momentum will be slow 2) lack of tenants.

However, the news illustrates uncertainties in policy making, which may shake foreign investors’ confidence. We called the IRB and were informed that they were not informed of this new announcement. They also added that the 5% RPGT proposals has not been gazette yet. We asked if the 5% RPGT will apply if one would to sell a property on 1st Jan 2010 if the proposal has not been gazette yet. IRB said than the 5% RPGT will not be effective, until the proposal has been gazette. Given that we are approaching the last week of Dec 2009, it appears that the 5% RPGT may take effect at a later date. If so, it adds more elements in uncertainty in Malaysia’s policy making.

The RPGT is inevitable. We know that it is only a matter of time before full RPGT finance bill is back (0%-30%). Additionally, some argue that the 5% RPGT could be a prelude to the upcoming GST system. Delaying imposition of the RPGT could be very detrimental to sentiment as property investors require clarity in policies to better strategize their investment. We hope that the government will clarify and ink its stance quickly.

We are likely to upgrade the property sector to a Trading BUY (from NEUTRAL) in our upcoming 2010 Strategy. We continue to prefer diversified developers with strong bread & butter / recurring base income coming from investment properties/townships. We believe the relief of no RPGT for holding properties for >5 years will spur the genuine market implying townships and matured suburb developments.

We still reiterate our calls; Mah Sing Group – BUY – RM2.10, SP Setia - Trading BUY – TP: RM4.25, Hunza Properties – Trading Buy - TP: RM1.96 (rights issuance to kick-start its mall works), E&O – HOLD - TP: RM1.29 (ultimately price will hold above RM1.00 after 2 years of ICSLS 2009/19 issuance as E&O does not want to continuously pay 8% coupon interest p.a. for the ICSLS). Defensive property companies and REITs, like KLCC Property Holdings – HOLD - TP: RM3.44 and Axis REIT – BUY - TP: RM2.28 remains unaffected, unless there are plans for disposal.

Market Review 21/12/2009: All signs are coming nicely together. Market looks like its on the verge to explode

KLCI




Source: Nextview



On KLCI, apart from Bollinger Bands, it is also on the verge of breaking its narrowing triangle. Although there were some last minute market down just now (I suspect it has something to do with what happened on Hang Seng. Indonesia too was very Bearish today as they lost 3.1%), it was still within the triangle. Bollinger Bands is very tight at this point and awaiting a MAJOR Breakout. From such tightening formation, I would not be surprise if KLCI reacted as much as 100 points in short space of time. In fact, such formation and tightening of Bollinger Bands almost always result in violent movement.



Bollinger Bands would tell whether there is a violent movement coming up, and technical formations are rather Bearish, so the intellectual guess would be down. Technically, it is preferable to wait until it is confirmed. But you know the drill; once it is confirmed it is very difficult to get out.



I know most of us are on holiday and I mentioned that if anything drastically negative were to happen it would be next year, but next year is less than 2 weeks away. Lets not get too obsessed on when it will happen. To me, once market has triggered the critical levels, we have to react. Remember that if market goes down this time around, chances are it would be changing market uptrend, meaning that we have to change the strategy from buy on weaknesses to sell on strength.

RHB Equity 360° - 21 December 2009 2010 Market Outlook & Strategy

Top Story : 2010 Market Outlook & Strategy - Earnings recovery, but
anticipate global policy changes

Strategy Update

- The global and local economy has emerged from the recession
and the recovery is gaining momentum. Corporate earnings are also
trending up, with net EPS for the FBM KLCI benchmark projected to
bounce back to +15.0% in 2010 and 14.1% in 2011.

- Much of the positive developments, however, have already
been factored into the market, in our view. After adjusting for the
upward revision in earnings projection, our end-2010 FBM KLCI target
has been tweaked up to 1,400, based on unchanged 15x 2011 earnings,
which implies a potential upside of about 10% from the current level.
This is, however, consistent with the historical performance where
returns are always lower in the second year of a recovery.

- In our view, it may be a little too early to turn cautious
given a combination of economic and earnings recovery, reasonable
valuations, low interest rates and high liquidity. Nevertheless,
investors would have to factor in the anticipated global policy
changes in the months ahead, rebalance their portfolios and prepare
for greater market volatility in 2010.

- The challenge is to look for stocks that could generate
capital upside from earnings growth as well as have attractive
dividend yield to outperform the market. Apart from economic and
earnings recovery, we believe commodity/asset reflation theme could
gradually emerge as a catalyst for greater market performance in 2010,
while the power and telecommunications sectors also appear to be
interesting. In the immediate term, we are more positive on the
banking sector as an economic recovery play.

Top Story : Technology - Poised for a stronger earnings recovery

Strategy Update

- We note that chip players remain cautious on building
inventories or expanding capacity despite the strong surge in chips
demand since 2Q09. As chips suppliers continue to adopt just-in-time
production given limited visibility post festive sales in 1Q 2010, we
expect tech companies to ramp up capacity and build inventory in the
event of stronger demand from US and Europe in 2Q-3Q 2010.

- Although Oct orders were flattish mom, we note that
equipment orders have been registering six months of mom gain since
Mar 09, driven mainly by investments in logic capacity as well as
stronger-than-expected capex spending by major foundries. Going into
2010, capex momentum would hinge on: 1) conversion from gold to copper
wire-bonding; 2) resumption of DRAM & NAND process migration
investments; and 3) resilient wafer foundry capex spending.

- We believe investors should already be looking at better
earnings growth for the semiconductor players in 2010-11. We note that
global peers are currently trading at an average FY10 PER of 13.8x,
which compares to 10.8x for the semiconductor stocks under our
coverage. Hence, we have revised up our FY10 target PER to 12x (from
11x previously) to reflect: 1) improved sector earnings visibility on
the heels of strong chips demand from China and gradual pick-up in US
demand for consumer electronics. Accordingly, our fair values for
Unisem and MPI have been raised to RM2.29 and RM6.52 respectively
(from RM2.09 and RM5.29 previously).

- Hence, against the backdrop of improved earnings visibility
and stronger chip sales in 2010, we have upgraded the sector to
Overweight (from Neutral previously). Our top pick for the sector is
Unisem.

RHB Equity 360° : Genting Singapore : Awarded casino concession in Cairo Outperform

News Update

Genting Singapore’s subsidiary under Genting UK plc has been selected as the new operator of the casino at the soon-to-be-renamed Nile Ritz Carlton Hotel, Cairo. The hotel owner, Misr Hotels Company, a government-controlled company, intends to undertake a major US$100m renovation and refurbishment of the 50-year hotel soon and re-open it as the Nile Ritz-Carlton in early 2012. Genting UK has been awarded the casino concession for the new hotel for an initial period of 10 years and plans to open the casino under the brand “Crockfords on the Nile”.
As no other details were given on the casino, we are unable to assess the impact of this on GS’ financials. We understand, however, that in Egypt, the gaming market is going strong, given that there are already 20 other small casinos in Cairo itself. We note that in the Middle East currrently, only Lebanon, Eqypt and cruise ships in Israel have licensed casinos. Despite the scanty details, we believe this is a good move for GS, as investment cost is likely to be minimal while it would be able to build up its Crockfords premium brand in a new market and strengthen its casino network.
No change to forecasts, until we obtain further details from management. We maintain our Outperform call, with fair value of S$1.33, based on a combination of EV/EBITDA and DCF methodologies.

YNH : Pullout from the purchase of Menara YNH by KFH Outperform

News Update

YNHP yesterday received notification from KFH that it will not proceed with the purchase of 50% in Menara YNH office. We understand that YNHP will seek compensation for the cancellation of buying its property.
Given current financial crisis in the Middle East, the pullout by KFH is not a surprise to us. On the contrary, we view this positively as YNHP can now proceed with the sale to a second buyer to unlock the land value. The company is likely to lower its selling price by about 10% in order to secure the new buyer.
No change to earnings forecasts for now. Our indicative fair value has been lowered to RM2.19, based on 30% discount to its RNAV per share of RM3.13 (from RM2.54, based on 1.4x P/NTA due to the change in valuation method). Maintain Outperform.

Hiap Teck : Likely to report strong 1QFY07/10 performance Market Perform

Results Preview

We believe 1QFY07/10 performance is likely to come in above our as well as the market expectations on the back of margin expansion at the manufacturing division arising from stable steel prices.
To pre-empt the better-than-expected set of performance, we are raising FY07/10-12 net profit forecasts by 10.3%, 6.6% and 6.3% respectively, to reflect better margins at the manufacturing division.
Correspondingly, indicative fair value is raised by 8.3% from RM1.44 to RM1.56 based on 7x revised CY2010 EPS of 22.3 sen.

16 December 2009 Top Glove : 1Q10 earnings could exceed expectations Outperform

Results Preview

Top Glove is expected to announce its 1Q results later this evening. We believe results could surprise on the upside largely on stronger-than-expected margins, which managed to remain resilient despite qoq despite higher latex cost and weakening US$.
Qoq, we expect topline growth of around 10-15% on the back of upward adjustments made to selling prices (17.1% qoq), that more than covered the increase in latex cost (+19.4% qoq) as well as weakening US$ (-2.8% qoq). All-in, 1Q earnings could rise by around 10-13% qoq.
Commercial production for 16 new lines at F20 is on track to start commercial production in Feb ’10 while construction for F21 has started with commercial production expected to start by Jul ’10. Due to the high take-up rate for its gloves, Top Glove intends to put an additional 8 new lines at F18 with commercial production expected to start by Jul ’10. All in, Top Glove’s annual production capacity is expected to reach 35.3bn pieces by end-FY10, from 31.5bn pieces currently.
We are keeping our fair value of RM9.50 pending the release of the results. No change to Outperform call.

16 December 2009 Transport : Worst is over, but road to recovery not without speed bumps Neutral (up from UW)

Sector Update

We believe the sector is poised for improved prospects in 2010 in line with the recovery in the global economy, but not without some speed bumps along the way.
IATA expects traffic growth rates for both passenger and cargo already bottomed in 2009 and they will return to the growth path from 2010.
While petroleum tanker freight rates are unlikely to revisit the lows in 2009, they are generally expected to remain relatively subdued in 2010.
FY10-11 net profit forecasts of AirAsia and MAS are raised by 13-26% largely to reflect better yields.
Upgrade the transportation sector to Neutral from Underweight. AirAsia’s fair value is raised by 14% to RM1.40 and our call is upgraded to Market Perform from underperform. MAS’s fair value is raised by 26% to RM1.96, while call is maintained at Underperform. MISC’s fair value is raised by 15% to RM8.95 and our call is upgraded to Market Perform from underperform.

16 December 2009 Building Materials : Steel prices unlikely to return to 2008's peak Underweight

Sector Update

We believe the demand outlook for steel in the region will continue to strengthen into 2010. However, we expect volatility in steel prices and that 2008’s peak level is unlikely to be visited as: 1) Global steel consumption is unlikely to recover back to pre-crisis level any time soon; 2) Concerns on overcapacity remain; and 3) Dubai debt crisis may nip the return of the construction boom in the Gulf State in the bud.
We believe pricing power of metallurgical coke producers is likely to be capped given that metallurgical coke producers inherently have little bargaining power against its customers and suppliers. Also, the overcapacity in China’s steel sector will further suppress metallurgical coke producers’ pricing power as and when steel producers cut steel output.
We are keeping our Neutral stance on the steel sub-sector, as we believe further price recovery is likely to be capped by overcapacity and still-weak global steel consumption.
We are keeping our Underweight stance for the overall building materials sector given our Underperform calls on both Lafarge and YTL Cement.

RHB Equity 360° : Top Story : Property – Pent-up demand + cheap liquidity = asset reflation

Overweight
Sector Update

Economic recovery, rising inflationary expectation and an excess of liquidity permeating the market due to easy monetary conditions would ultimately benefit the property sector, especially the high-end property market. We see minimal impact from RPGT and recent mortgage rate hike due to:

a) property demand in Malaysia is still dominated by owner-occupier;

b) affordability remains high; and

c) attractive financial packages offered by developers. Meanwhile, more aggressive launches and land acquisitions also reflect developers’ optimism on the property market.

We see challenges from the implementation of new FRS and we expect high volatility in earnings performance due to lumpy profit recognition. As a result, our FY11-12 full year earnings forecasts could potentially drop by 24.2-83.7%. We understand that big property players (with township developments or investment properties) have lesser impact (or lower volatility) than project- or location-focused players. We are switching our valuation method from P/NTA to RNAV due to FRS convergence ahead.
As for investment property owners, we see lower occupancy and rental risks now due to the economic recovery as well as improving office market outlook.
Maintain Overweight stance on the property sector. We prefer developers over investment property owners. Our top picks are Sunrise, Glomac and IJM Land.

RHB Equity 360° - Top Story : Technical Highlights

Daily Trading Strategy : Need More Rebound To Secure A Sentiment Change

- Although the FBM KLCI successfully rebounded to above the
10-day and 40-day SMAs yesterday and the 10-day SMA of 1,264.83 has
also escaped from cutting below the 40-day SMA of 1,263.81, we remain
skeptical over the sustainability of yesterday's rebound, given the
artificial last-minute push-up on the benchmark index.

- In our view, the FBM KLCI needs to launch further rebounds
and convincingly cross above these SMAs in the coming sessions before
it could secure a complete reversal of the recent negative trend.

- If not, the market sentiment will be vulnerable to selling
pressure on renewed external volatilities.

- While the Dubai bailout news is encouraging, we expect
trading focus to shift to a fresh market catalyst soon, i.e. the
upcoming US FOMC meeting on Tuesday and Wednesday to assess near-term
sentiment on the US dollar.

- For now, the major support level for the FBM KLCI is still
at 1,250, while near-term resistance hurdle is now pegged at Nov's
peak of 1,288.42.



Daily Technical Watch: Axiata Group - Trading within a sideways trend
from RM2.85 to RM3.30...

- 10-day SMA: RM3.043

- 40-day SMA: RM3.054

- Support: IS = RM2.85 S1 =
RM2.50 S2 = RM2.05

- Resistance: IR = RM3.30 R1 =
RM3.70 R2 = RM4.40

RHB Equity 360° - IJM Land : Mishap In Melaka Aeon Mall

Outperform

News Update

- A fatal gas explosion was happened in IJM Land Melaka AEON
Mall yesterday. The accident had killed 25-year-old supervisor while
injuring 16 others. The blast is believed to have been caused by a
leak when workers were testing the gas meters from the centralised
Liquid Petroleum Gas system. Further investigation needed to determine
the exact location of the blast or the cause (source: Star Biz).

- We do not expect significant impact from the accident to
IJM Land as: a) any losses from the accident will be covered by
insurance; and b) we understand from IJM Land's management that the
delay in signing the SPA for the mall is caused by the due diligence
process by potential buyer, not the alleged accident that occurred in
AEON mall. The management remains confident on the sale and is
targeting to conclude it by 1QFY10. In our FY10-12 earnings forecasts,
its Melaka project accounts for 4.2-9.2% of our bottom line.

- No change to our earnings forecasts and fair value of
RM3.19. Maintain Outperform rating on the stock.




IJM Land : Mishap In Melaka Aeon Mall
Outperform

RHB Equity 360° - Corporate Highlights

Genting Singapore : Betting on positive prospects in a recovering
economic environment Outperform

New Coverage

- We are positive on Genting Singapore's (GS) prospects in
the longer term. We believe GS' Resorts World @ Sentosa (RWS) project
will be a lucrative one, given that it will be operating in a
guaranteed casino duopoly market and that it will be riding on
Singapore's anticipated tourism-led economic recovery. We believe
Singapore's highly lucrative gaming tax structure would also be a
major pull factor for VIP punters, and would also enable the
Singaporean casinos more flexibility in junket commission rates,
depending, of course on the yet-to-be-decided Government guidelines.

- We projected GS to record a 5-year turnover CAGR of 16.3%
p.a. from FY10, while net profit is forecasted to grow at a higher
5-year CAGR of 30%, in view of our expectation that as visitor volumes
grow and as RWS' operations become more settled, margins will improve
on the back of greater economies of scale and improved operational
efficiencies. We project net gearing to peak in FY10 at 114.6%, while
free cashflow is expected to turn positive, albeit minimally from FY10
onwards.

- To take into account the full potential of RWS, we believe
a longer term outlook must be adopted, given that a full-year
contribution from the entire RWS would only be captured from FY12
onwards. As such, we have used a simple average of the shorter-term
EV/EBITDA method and the longer-term DCF method to obtain our fair
value of S$1.33/share. We initiate coverage on Genting Singapore with
an Outperform recommendation.


Genting : Raising target price post initiation of Genting Singapore
Outperform

Company Update

- We have initiated coverage on Genting Singapore (GS) with a
fair value of S$1.33/share, which implies an upside of 22.7% from
current price levels of S$1.08/share.

- We have updated Genting's forecasts to take into account
the revised GS projections, resulting in a -2.7-3% revision in FY09-10
earnings, while our FY11 forecasts have been revised up by 2.4%.

- After including our indicative fair value for GS of
S$1.33/share (from market value previously), our SOP-based fair value
for Genting has been raised to RM9.35 (from RM8.60 previously).
Maintain Outperform.

RHB Equity 360° - Top Story : Telecom

Top Story : Telecom - Decent growth coupled with attractive yields
Overweight (* from N)

Sector Update

- Despite continued subscriber growth, voice minutes are
increasingly becoming commoditised and we expect tariffs would
continue to be under pressure. Moving forward, we expect topline
growth for the sector would largely be driven by non-voice revenue
with the two key drivers of non-voice revenue being wireless broadband
and data value-added services.

- Our optimism on data revenue is based on factors such as
Malaysia's young demographic profile that are internet savvy,
acceleration in deployment of advanced technologies as well as more
advanced mobile internet networks as well as influx of feature-rich as
well as data-optimised handsets and smartphones.

- We are generally comfortable with the gearing positions of
the telco operators. For the mobile operators, we expect annual
operating cash flows to trend upwards on the back of mid-high single
digit/low double digit revenue growth as well as stable EBITDA
margins.

- As for TM, EBITDA margins are expected to remain under
pressure in the near term mainly due to rollout cost for its HSBB
network but our numbers suggest that annual operating cash flows
should be sufficient to meet its capex requirements.

- The key risk is still, in our view, competition. However,
while we expect tariffs to continue to remain under pressure due to
the intense competition, we do not expect irrational pricing to
set-in.

- We have upgraded our recommendation on Digi to Outperform
from Market Perform and consequently, upgraded our sector call to
Overweight from Neutral.

Dubai risks being a mirage in the desert

If AS recent as 2006 some 25 per cent of the world's building cranes were operating in Dubai, the state is now rushing quite a different form of construction as bankers, investors and lawyers converge to reconstruct the massive debt owed by its investment holding company, Dubai World.
Magnificent Dubai was once a wonderful idea. One incorporating a 1-km tall hotel, rows of glass towers, a palm-shaped man-made island for the rich and famous and a mind-boggling ski slope in the middle of the desert. Never Never Land was kids' stuff.

The expatriates came in droves to bask in Dubai's glory. From glib-talking investment bankers and consultants to professional golfers and footballers, they stamped their mark of approvals and called Dubai home, confident of its bright future.

In those glorious years Dubai's strategy was as shrewed as it is now reckless on hindsight. If it did not have it, it would just buy it.

It even attempted to buy its own ecological system, spending billions of dollars to aerate well-manicured lawns which otherwise would not survive in the dry desert, billions more to produce snow on the artificial ski slope, and even more billions to build super-expensive artificial islands visible from outer space.

There is nothing wrong with that, except in Dubai's case, going overboard seems an understatement.

Throughout history nature has often proven to be an insurmountable obstacle, period.

And indeed throughout history too, being excessive has often led to failures. Even more dangerous when such excesses are financed by borrowed capital.

But as reality sinks in from a week ago, it now faces the danger of becoming just a mirage in the desert.

Things did not go wrong in Dubai only last week. The writing was on the wall from as early as 2006 when analysts were already talking about a bubble building up in the emirate state.

Dubai had great ideas, no doubt about that, and for a while it was the centre of attraction for all things in the emirates.

But underneath the grand plans, Dubai is also a very bad example of economic risk-taking.

Still, however, everybody including the international financiers and investors ignored the perils and together celebrated Dubai's dreams, forgetting one vital risk - its relatively weak real economy.

Dubai's oil reserves have dwindled to negligible levels, it is not a major exporter of goods and has been practising the dangerous economic strategy of attempting to create an artificial economy using borrowed capital.

In building its future largely around just the property and tourism sectors and minus a strong real economy, it was imminent that Dubai committed itself to the mistake of overly exposing its economy to external elements far beyond its control. The global credit crisis was the bombshell.

After the extent of the problems faced by Dubai World were known last week, the dreams are fading as fast as the once-confident expatriates are now buying their one-way tickets out of the emirate.

Now, only the bankers, financiers and lawyers are the ones with eyes trained on Dubai as they began to restructure Dubai World's mammoth debts.

They may succeed since after all the crisis is still contained as largely a huge real estate deal turned bad and not yet a full-blown sovereign default.

But it is too early to see what the future really has in store for Dubai. Perhaps the most the bankers, financiers and investors can do now is to look back and, difficult as it may be, acknowledge that it was also in part due to their failures that the perils were ignored.

UBS raises Malaysia's 2010 growth forecast to 6%

UBS economist Paul Donovan has forecast the Malaysian economy to grow by 6 per cent next year, probably the most bullish view yet, to be driven by solid consumer spending and a gradual global recovery.

Malaysia's economy is likely to see one of the sharpest rebounds in the region and grow faster than Indonesia and Singapore next year, because there are less negative forces that could drag down the economy, the London-based economist said in a media briefing in Kuala Lumpur yesterday.

Malaysia does not face political upheavals like in Thailand, nor does it have a financial sector to fix like in Singapore. It also does not share South Korea's credit card problem.

Still, this bullish view on the economy does not necessary mean Malaysian shares will surge, because stock markets in general have rallied ahead of the growth expectations, Donovan said.

Investors worldwide have already priced in a sharp global recovery next year, but the rebound is more likely to resemble a "swoosh" akin to the famous Nike trademark, he said.

"There is probably a limited upside for Malaysian shares next year, at less than 10 per cent (from the current level), unless the earnings recovery seen this year can sustain into next year," head of Malaysia equities at UBS, Leong Fee Yee, added.

"Public spending will be less next year and the private sector will have to pick up the slack. But it is still uncertain how much could the private sector contributes," Leong said.

Malaysian shares have risen 45 per cent this year, trailing the 82 per cent surge in Indonesia, 59 per cent gain in Singapore and 55 per cent jump in Thailand.

The Malaysian government is projecting a 3 per cent growth in the economy next year, after shrinking an estimated 3 per cent this year.

The world has just reached its turning point in the third quarter and is about to embark on a recovery, Donovan said. But the recovery will be slower than many investors or stock analysts have expected, he said.

The global economy is set to grow 3.6 per cent next year, while the US would expand by 2.6 per cent and the Europe at 2.4 per cent. Asia will probably grow 7.5 per cent next year, according to UBS forecast.

He said economic recovery in the US and Europe is constrained by two key hurdles: the restricted bank lending is limiting consumer spending; while small companies, faced with a double credit crunch from both banks and the stalled inter-company credit, are cutting their stockpiles.

"The market has underestimated the importance of small companies. This was why corporate earnings have greatly beaten forecast in the third quarter, but the gross domestic product growth was slower than market expectation in the quarter," Donovan said.

TM : Core net profit improved 16.5% qoq

Outperform
3QFY09 Results/Briefing Update
- 3Q results missed both our and consensus expectations. The key variances were weaker-than-expected margins and a higher-than-expected effective tax rate. As expected, TM did not declare any dividend.

- 3Q EBITDA fell 7.2% qoq on weaker revenue (-1.3% qoq) and margin compression as EBITDA margin slipped 2.1%-pts to 33.6%. Nevertheless, core net profit improved 16.5% qoq due to:
1) lower depreciation following the revision in estimated useful life of certain network assets; and
2) lower effective tax rate of 23% (excluding exceptional items vs. 2Q09: 50%).

- TM continued to remain tight-lipped with respect to details on the HSBB project. The number of premises passed as at 11 Nov was around 90k and management targets to pass 150k premises by end-2009 and 750k by end-2010. Management does not expect any significant topline contribution from HSBB next year but contribution in 2011 could be more significant as the number of premises passed rises.

- We have cut our FY09-11 net profit forecasts by 6-9.3% following the weaker-than-expected numbers.

- TM’s investment case is its steady dividends it offers investors while its RM2.76bn cash pile as at end-3Q09 provides cover for around four years’ worth of minimum dividend payments. No change to our fair value of RM3.55 (based on required net yield assumption of 5.5%) and Outperform recommendation.

Affin : 9M Profits = 91% RHBRI’s Forecast – Cheapest

Valuations Outperform
3QFY09 Results

- 9MFY09 results almost full year forecast due to higher-than-expected NIM, non-interest income and lower-than-expected NPLs (despite the spike in 3Q).
- Surprise special dividend.
- Fourth consecutive quarter of elevated PBT on the back of expansion in NIM, , non-interest income and stable overheads. These were partly offset by higher LLP.
- Asset quality deteriorated as NPL formation jumped but all below 1Q and our original assumptions.
- FY09-11 forecasts raised by 18-30% to factor higher NIM and non-interest income as well as lower NPLs.
- New FY09 ROE projection (8.2%) is in line with management’s KPI of 8%.
- Although the latest spike in NPLs could deter investors’ interest, its valuations (single-digit PER and 20% discount to book) remain the lowest in our banking universe.
- Maintain Outperform. Fair value raised from RM2.38 to RM3.00 (unchanged 11x CY10 EPS or 5x discount to sector and benchmark PER of 16x to account for its weakest asset quality in our universe.

Economic Highlights: GDP & Inflation

GDP : Real GDP recorded a smaller decline of 1.2% yoy in the 3Q, outlook Improving
Economic Highlights (published 20 Nov 2009)
- Real GDP recorded a smaller decline of 1.2% yoy in the 3Q, compared with -3.9% in 2Q and -6.2% in 1Q.
- This was better than consensus estimate of -2.4% and our expectation of -2.7%, on the back of a pick-up in domestic demand driven largely by the Government’s stimulus spending and a smaller decline in exports.
- As a result, we now expect 4Q real GDP to expand at a stronger pace of 2.1% yoy versus our earlier estimate of +1.0% and real GDP for the full-year to contract by a smaller magnitude of 2.3% in 2009, compared to our earlier expectation of -3.0%. For 2010, we are keeping our real GDP growth forecast unchanged at +3.8%.

Inflation : Inflation rate fell by a smaller magnitude in October
Economic Highlights (published 20 Nov 2009)
- The contraction in the headline inflation rate narrowed to 1.6% yoy in October, from -2.0% in September. This was the second straight month of a smaller contraction in inflation rate, on the back of a smaller decline in the core inflation rate. This was, however, mitigated by slower increase in prices of food & non-alcohol beverage during the month.
- Going forward, we expect inflation rate to move back to positive territory towards the end of the year and it is expected to continue its upward trend and accelerate to 2.0% in 2010, from an estimate of +0.7% in 2009. We believe the Central Bank is likely to maintain its overnight policy rate unchanged at 2.0% for the rest of this year and at least until mid-2010 with prospect of a 25-50 basis points hike in 2H 2010.

Top Story : Kossan – 3Q earnings could exceed expectations

Outperform
Results Preview
- Kossan is expected to announce 3QFY12/09 results on 24 Nov. We believe the results could exceed our expectations due to: 1) upward adjustments to selling prices, which more than covered the higher raw material cost; 2) better-than-expected margins as more higher-value gloves were sold during the quarter; and 3) stronger performance from the TRP segment.
- Qoq, we believe the revenue growth was mainly on the back of upward adjustments to selling prices in order to pass on the higher raw material cost to customers. 3Q core earnings, however, could rise by 12% qoq, as a result of margin expansion due to: 1) price adjustments made have more than covered the rising raw material cost and product mix; and 2) stronger performance from the TRP segment.
- We are keeping our FY09-11 earnings forecasts unchanged. Nevertheless, we highlight the potential of an upgrade in our numbers, pending the release of the 3Q results.
- We are placing our fair value of RM6.47 under review pending the release of the 3Q results. Our Outperform call however, remains unchanged.

WCT : 9MFY12/09 net profit declines 15% yoy

Underperform

3QFY09 Results

- 9M net profit came in within expectations at 72-78% of full-year market consensus and our forecast.

- 3Q construction EBIT margin eased further to 3.7%, from 5.8% and 8.3% registered in 2Q and 1Q, we believe, as work progress on low-margin jobs, i.e. New Doha International Airport (NDIA) and AEON mall in Melaka, further gathered momentum during the quarter, while the high-margin Abu Dhabi F1 Circuit was already at the tail-end.

- Maintain Underperform. Fair value is RM1.99.

AEON : A little festive cheer?

Market Perform

3QFY09 Results

- 9MFY12/09 net profit of RM77.8m (+2.7%) was slightly above our expectations but within consensus, accounting for 67% and 63% of forecasts respectively. Key variances were mainly due to higher property management EBIT margin in 9M09 of 21% vs. our conservative full year assumption of 19%.

- Whilst AEON is on track to opening its new Melaka mall next month and its two Cheras “MaxValu supermarkets together with part-Jusco departmental stores” concept malls in FY10, this is below its average of 2-3 new Jusco stores p.a. in the past four years, which implies a potential slow down of its earnings growth in the near-term. We have yet to input any potential loss in property management income from 1U, which could potentially bring FY11 earnings down by 5.4% from our revised forecasts.

- To tackle any potential slow down in earnings momentum, AEON is looking at two options of expanding i.e. taking up a stake in its parent’s expansion plans in Vietnam, and expanding into East Coast, Sabah and Sarawak. Expansion plans take a year or two to materialise, and given possible gestation period of two to three years, more positive earnings stream would only be realised from 2014 onwards，

- We raised our FY09-11 forecasts by 6.2-8.6%. Fair value is raised to RM5.30 (from RM5.00) based on unchanged 14x FY10 EPS. Maintain Market Perform.

Tan Chong : Temporary setback but riding stronger going forward

Outperform

3QFY09 Results

- Although 9MFY12/09 results only accounted for 64% and 69% of our full-year forecast and market consensus, we consider the results to be largely within expectations as we expects the negative impact from production cutback to reverse in 4Q09 as it ramps up production to meet deliveries.

- We expect the company to register a stronger rebound in 4Q09 on the back of: 1) order backlog carried forward from 3Q09; 2) margin expansion stemming from greater economies of scale and favourable exchange rate. Further out, we expect the company to register stronger unit sales growth stemming from economic recovery and improvement in consumer sentiments. Consequently, we have raised FY10-11 unit sales projections by 3.8% and 4.1% respectively, while keeping FY09 unit sales unchanged.

- Hence, we have raised our FY10-11 earnings projections by 16.7% and 14.1% respectively, while keeping our FY09 earning estimate unchanged. Accordingly, we have raised our fair value to RM2.92 (from RM2.50/share previously), which is based on unchanged 9x FY10 PER. Reiterate Outperform.

YNH : Not signing SPA For Menara YNH office yet

Outperform

Visit Note

- Four key highlights from recent company visit: a) management remains confident on the sale of its Menara YNH office portion to Kuwait Finance House. However, it does not discount the possibility of proceeding with the sale to a second buyer if KFH fails to sign the SPA by end-09; b) YNH has formalised the sale of the yet-to-be-built Pantai Hospital (RM80m) in Manjung; c) construction works for Kiara 163 and Menara YNH-retail portion will be delayed again; and d) the company plans to launch Fraser Residence project by end-09. Total GDV is about RM550m.

- We are maintaining our FY09 earnings forecast but upgrading FY10-11 forecasts by 5.4-11.8% to factor in Fraser Residence and Pantai Hospital. YTD, the company has unbilled sales of RM920m, or 2.8x of our FY10 revenue forecast (excluding Menara YNH office).

- Our fair value has been raised from RM2.52 to RM2.54, based on unchanged 1.4x P/NTA.

MPI : Suzhou riding on capacity expansion

Market Perform

Briefing Update

- While management expects 2QFY06/10 revenue to increase qoq, growth would likely be more modest vs. 1Q (+18% qoq). However, management expects 2Q net profit to grow sequentially on the back of: 1) higher overall utilisation rate; and 2) stronger contribution from higher-margin high-density packages.

- Management expects to boost its MLP capacity to 5m/day by end-FY10 from 4m/day currently given strong demand for its MLP packages arising from resilient demand for networking and handset chips in China. MPI Suzhou would be rolling out its higher-margin X3-MLP with high volume production by 3QFY10.

- While 1QFY10 utilisation rates for high-density packages of 60-70% appeared weaker than MLP (which was around 95% in 1QFY10), the company expects 2QFY10 utilisation rates to increase gradually as more customers begin to qualify these packages. According to management, gross margin of high-density packages are 17-20%-pts higher than low-density packages which are 15-30%.

- Although global chip sales registered seven consecutive months of gain on a mom basis after five months of decline beginning Oct 08, we are cognisant of potential weak chips demand in 1QCY10 (after a strong resurgence in 2Q-3QCY09 and sustained growth going into 4QCY09).

- Hence, no change to our forecasts and fair value of RM5.98/share for now. Maintain Market Perform.

MNRB : Bleak outlook due to rising claims ratio

Underperform (down from MP)

Results Preview

- Given the RM22.2m net loss made in 1QFY03/10 as well as potential unfavourable claims experience in 2QFY10, we do not expect MNRB’s 1HFY10 earnings to turn around.

- We believe claims ratio for Malaysian Re will be higher vs. 1QFY10 of 64%, due to loss of commercial properties claims arising from series of natural disasters in ASEAN countries in Jul-Sep period. Thus, we have increased our claims ratio assumptions accordingly to 68% (ex-IBNR) for FY10-12 from 64% previously and cut our dividend projections to 4-10sen (from 13-15sen) for FY10-12 which translate into dividend yield of 1.2-3.1% from 4-4.6% previously.

- Downgrade to Underperform, from market perform previously. Fair value has been cut to RM2.94 based on 0.7x FY03/09 NTA from 0.8x previously, to reflect the bleak outlook ahead and lower dividend yield.

MAHB : Introducing Air Recovery Programme

Outperform

News Update

- MAHB will offer new perks in the form of cash to airlines under its new incentive package, Airline Recovery Programme from 1 Jan 2010.

- Under the programme, new airlines flying into KLIA, LCCT and Sultan Abdul Aziz Shah Airport in Subang will receive a cash incentive of RM10/inbound pax for the first twelve months.

- Existing airlines will also benefit as they will be entitled to incentive payments under the new programme.

- While it is unsure how the new incentive would affect MAHB’s revenue and bottomline, we believe additional expenses arising from cash incentives given out to new airlines will likely be offset by additional airport tax revenue brought in by both the existing and new airlines.

- Indicative fair value is RM4.68 based on 12.5x FY12/10 EPS of 32.3 sen.

AirAsia : To benefit from MAHB’s incentive scheme

Underperform

News Update

- AirAsia will benefit from the new incentive package called Airline Recovery Programme introduced by Malaysia Airports that will take effect from 1 Jan 2010, for three years.

- AirAsia will fall under the “existing airlines” category that will be entitled to RM10/pax incentive for first 10% growth, RM12.50/pax for next 8% growth and RM15/pax for growth above 18%, using 2008 as base year.

- Based on our estimates, AirAsia is poised to receive RM7.2m and RM4m incentive payments from Malaysia Airports that will boost its FY12/10-11 net profits by 2-3%.

- Forecasts maintained, pending guidance from AirAsia on its estimates on quantum of incentive payments.

- Maintain Underperform. Fair value is RM1.23.

EON Capital – Improving earnings with potential capital management

Outperform

Company Update

- Transformation moving to second phase – target ROA of 1% by end 09. First phase has yielded some positive results.

- Internal restructuring delayed by six months – potential tax free income and higher dividend.

- More active capital management given strong capital ratios and the positive impact from the internal restructuring.

- No changes to our forecasts but our assumptions are more conservative than management guidance, implying potential upside to our forecasts.

- Maintain Outperform. Fair value is pegged at RM7.27 based on unchanged 15x (1x discount to sector and market benchmark) CY10 EPS.

CIMB Group Holdings - Dual-Listing (SELL)

Price: RM13.28

Target Price: RM11.60

Recommendation: TRADING SELL



· The group is proposing to undertake an initial public offering of up to 35mn share to investors in Thailand with a dual listing of its share in Stock Exchange of Thailand. Proceeds amounting to RM466mn (based on last trading price of RM13.30) will be raised with minimal dilution to existing shareholders. Estimated Core Capital Ratio will be raised by 0.3% to 11.7% from existing 11.4%. Mgmt has previously guided they are comfortable with CAR of 10.0%

· Time after time, we are impressed with CIMB’s ability to read the market so well and its capability in obtaining high valuations for deals that it enters. To recap, in Feb 2007, the group issued 117m new CIMB shares (or 3.64% of share base) to Bank of Tokyo-Mitsubishi UFH (BTMU) at RM11.41/share or premium of 17% to the last traded price of RM9.75 valuing CIMB at 2.8x P/BV vs. our valuation of 2.5x P/BV. The proposed equity placement enabled CIMB to de-gear and raise RM1.34b in cash, after it raised RM990m from the sale of its insurance business in Jan 07.

· Today, we believe the proposed listing of 35mn CIMB shares in SET is no different to the deal 3 years ago. The group is taking the opportunity of elevated valuation to raise cash for its working capital and de-gear itself. We remain cautious about the stock and maintain our price target of RM11.60 based on 2.0x FY10 BV of RM5.70/share with a Trading SELL rating. We believe CIMB should trade at best 2x book, as its revenue contribution is heavily skewed to fees income compared with its peers. Both PBV band (figure 1) and PER (figure 2) band indicate that CIMB is trading at a demanding multiple equivalent to the peak of the banking cycle. Thus, the current valuation probably represents good selling opportunity. Trading SELL maintained as we see possible pricing in of valuation expansion and ROE of 18% (Figure 3) which is significantly above management guidance of 12-16% ROE objective for FY09-10.

Oriental Food Industries - Undervalued F&B play (Trading Post)

Price: RM1.45

Fair Value: RM1.80

Recommendation: UNRATED



· We recently visited Oriental Food Industries Holdings Bhd (OFIH) in Melaka and came away with the following key takeaways.

· Market leader in snack foods and confectionery products. OFIH manufactures snacks, potato snacks, wafers and confectionery products that are sold under the brands Fudo, Jacker, Rota, Oriental and Super Ring. Approximately half of the company’s FY09 revenue was derived from exports and the company expects the proportion of foreign sales to increase moving forward.

· FY09 net profit more than doubled YoY to RM9.8m even though revenue declined by 5% due to the global economic slowdown. This was mainly due to lower raw material prices, strengthening of the US Dollar and improvement in production efficiency as a result of internal initiatives.

· Capacity expansion to drive double-digit earnings growth in FY10, with the addition of new potato crisp and wafer lines in CY09, as well as moderation in input costs and introduction of new products. We anticipate that 2HFY10 earnings will be stronger than 1HFY10 due to festive seasonality. We have forecasted FY10 net profit growth of 10% to RM10.7m.

· Potentially higher FY10E dividend payout expected. OFIH paid out an interim dividend of 2.0 sen for the first time in 1QFY10. Given the company’s strong free cash flow (of RM11.5m at end-FY09) and minimal capex requirement (estimated RM4-5m in FY10) the company could possibly pay out at least 8.0 sen DPS this year, translating to a FY10 dividend yield of 6%.

· Currently trading at 8.2x FY10 PER, that is lower than the domestic food and beverage industry FY10 PER average of 15.1x. Other indicators of OFIH being undervalued are that its share price now is trading below its own 5-year historical average PER of 12.1x and NTA/share of RM1.80 (at end-June 2010). Indicative fair value of RM1.80 represents a potential 24% upside.

Pantech Group Holdings - Value in growth prospects (Reinitiating Coverage)

Price: RM0.95

Target Price: RM1.22

Recommendation: BUY



· At least RM65.1b worth of domestic downstream projects in the pipeline. Assuming 5% of project values go to pipes, fittings and flanges (PFF), c.RM3.3b worth of projects to tender for going forth. These estimates are extremely conservative as there are also potential projects from other markets (eg. Singapore, European Union).

· Enhanced earnings from new manufacturing division. The new stainless steel and alloy products will be manufactured by its new subsidiary Pantech Stainless & Alloy Industries S/B, in Pasir Gudang. The new products are guided for roll out by 2HFY11 and generate at least RM100m of top-line revenue in a full year. We have not incorporated these earnings into our current forecasts.

· Saudi Arabian tie-up, access to world's largest net oil exporter. Should it be successful, a joint venture (JV) will earn it access to supplying Saudi Aramco. Prospects are some upstream investment of around USD23b and downstream investment of around USD11b-USD12. We have not incorporated any of such forecasts into our earnings.

· Positive on European Union (EU) anti-dumping ban lift. For the present year, Pantech is allowed to ship to the EU without having to pay anti-dumping duties. Since the lift in August 2009, a total RM1m worth of fittings have been shipped to the EU. Should they achieve total lifting the EU will be a significant market going forth.

· FY11 a better year. Minimal trading division revenue growth in FY10, with 10% growth in FY11 assuming contracts awarded in 2010 commences work. For the manufacturing division we forecast 65% utilisation rate in FY10, with improvement to 85% in FY11 due to increasing exports to the USA and the EU markets. We have assumed FY09 operating margin of 18% for trading division and 13% for the manufacturing division going forward.

· Re-initiate coverage with a BUY call at target price of RM1.22 based on FY11 basic EPS of 17.5sen and 7x PER. We see value in their new manufacturing capacity, earnings growth from the EU market expansion, and potential Saudi Arabian tie-up. The stock is trading at attractive valuations of 5.8x PER for FY11, a significant discount to its oil and gas peers.

SECTOR FOCUS OF THE DAY

Steel Sector : Clever strategy to fill earnings vacuum Overweight



Scrap prices in Asia have breached US$300/tonne since beginning of this month. New offers for imported scrap in East Asia are up US$5/tonne to US$10/tonne, according to Steel Business Briefing. This validates our growing conviction that regional steel demand is set to accelerate from 4Q09 onwards - on top of a present rebound in price of iron ore. Domestic steel prices have remained relatively stable at the RM1,950/tonne-RM2,000/tonne level over the last three months despite muted local demand. However, we expect prices to re-accelerate moving into 2010. On the supply side, we are positive about the Chinese Government’s renewed commitment to consolidate its steel industry. We maintain our OVERWEIGHT rating on the steel sector. Ann Joo remains our top pick. Focusing primarily on long steel products, its structural repositioning puts the group in a sweet spot as an early beneficiary of accelerated infrastructure spending - with an added capacity kicker from its new blast furnace project.



QUICK TAKE
Construction : More progress made on Klang Valley LRT works Overweight



NEWS HIGHLIGHTS
Parkson Holdings : Parkson Retail Q3 profit gains 5.7%
CIMB Group Holdings : CIMB Niaga eyes 20% loan growth
Star Publications (M) : To develop former HQ site at PJ
Energy Sector : Bakun reservoir - 695 sq km - ready to be filled



AMFRASER RESEARCH
Swiber Holdings : Supported by sale & leaseback gains Buy

NST

NST ended the a.m. session at RM2.39. We have received questions from fund managers/analysts whether this means that the stock is already fairly valued?



We highlight that based on our fair value estimate of RM2.35/share for NST (revised in our report today) and special tax-exempt DPS of 40 sen, the stock still offers a potential total return of 15% at current levels. Alternatively, we think NSTP could potentially trade up to a cum-dividend price of RM2.75.



In addition, based on the earlier 1-for-1 share swap ratio, where the reference price for the Media Prima share was set at RM2.00/share, this (RM2.00) appeared to have set a benchmark-level for the stock. With the share swap ratio revised to 1.2:1, we think the new benchmark price for NST could potentially be RM2.40, ex-dividend.

CIMB Group Holdings-Trading Sell- 11 November 2009

CIMB Group Holdings- In line with expectation (Result Note)



Price: RM12.82

Target Price: RM11.60

Recommendation:Trading Sell







· CIMB’s 9MFY10 net profit of RM2,004m was above our net profit estimate of RM2,537m (79%) and consensus’ RM2,541m (79%). Excluding one-off items of RM98mn relating to Indonesia’s business, the result was broadly inline (76%). 2Q corporate and investment banking related revenues of RM393m (-2.5% QoQ) were flat and the same to treasury revenue of RM386mn (+3.8%) impacted by macro fears on rate hike during the quarter.

· Traditional banking provides stability. Net interest income (RM1,595mn, +6.2% QoQ) growth combined with a stable cost income ratio (52%) produced a better 15.7% ROE for the quarter (vs. 2Q 15.5%). Asset quality remained benign with low net NPL ratio of 2.4% and NPL coverage increasing to 87%. YTD loan increased 11.7% is above year end target of 8%.

· We increase our FY09 net profit estimates by 3% to RM2,615mn incorporating one-off items mentioned above.

· CIMB group earnings growth is highly dependent on contribution from investment banking related businesses, both locally and abroad, with retail and corporate banking showing signs of flattening growth. External market condition still unsettling and the year-long local equity rally has likely outpaced the prospects for economic recovery. We expect 2010 to be a relatively slower year for investment banker and estimate CIMB net profit growth to be only 11% YoY (vs. consensus of 21%).

· Key concerns include the on going volatile sentiment that could slow capital market activities and hence related fee income. Market related revenues (stockbroking, investment banking and treasury) contributed 40% of CIMB’s total revenue in FY08-09 and we expect it to hover around 37% in FY10. Fee incomes would be most at risk should 2009 proves to be a bear market rally with equity and bond markets likely to be affected by potential global rate hikes. We see rising risk for non-interest income contributions and threat on Capital ratio to some extent

Technical Highlights

Daily Trading Strategy : Remain cautious before a breakout of the final key resistance…

- As the FBM KLCI continued to chalk up fresh year high of 1,277.81 yesterday, and still trading within the recent uptrend, further upside can be expected towards the UTL near 1,286 in the near term.

- However, as shown on the daily candlesticks chart and the momentum indicators, risk of yet another profit-taking pullback today cannot be totally ignored.

- In other words, we expect selling pressure to continue dragging the broader market sentiment, while sporadic buying supports seen on selective index-linked heavyweights will likely persist.

- All in, the FBM KLCI must still push harder to remove the final key resistance at the UTL near 1,286, before its technical picture can turn even more bullish on the short-to-medium-term duration.

- Only upon a total removal of the UTL, the index will head towards the 1,300 psychological level.

- Immediate support is seen near the 10-day SMA of 1,253, followed by the critical technical level of 1,250.

Corporate Highlights

CIMB : Record earnings Outperform

3QFY09 Results/Briefing Update

- 3QFY09 results above expectations. Record quarter – CIMB Niaga and treasury the star, stable consumer bank and higher China contributions. Only setback was the higher provision for non-ASEAN loans in the corporate and IB division.

- Asset quality improved slightly. On track to hit FY09 KPIs.

- Corporatisation of bad bank soon, will be positive to CIMB Bank.

- Potential of more non-recurring sale as part of capital management.

- Has excess capital but premature to provide higher dividend guidance, next year would be better timing.

- Still unclear impact from FRS139 and Basel II IRB approach but indications from earlier meetings suggest positive to capital ratios.

- FY09-11 forecasts raised by 9-10%, consequently, FY09 ROE was raised from 13.8% to 15.1%.

- Maintain Outperform. Fair value raised from RM13.50 to RM14.70 based on unchanged 17x CY10 EPS.



Hartalega : 6MFY10 net profit up 90.3% yoy Outperform (up from UP)

2QFY10 Results

- 2QFY03/10 net profit came in above our and consensus expectations with 6M net profit of RM59.5m (+90.3% yoy) accounting for 57.5% and 56.3% of our and consensus estimates respectively. The key variances were: 1) stronger-than-expected demand due to the tight supply of gloves in the market as a resuly of the H1N1 virus; and 2) better-than-expected margins resulting from operating leverage effects from the higher utilisation rate.

- Hartalega declared a first interim single-tier of 5 sen (2Q09: gross DPS of 2 sen and 2 sen tax-exempt). This translates to a net yield of 0.9%.

- Qoq, sales volume grew 5% qoq thanks to a combination of stronger demand and higher selling prices, while 2Q earnings grew 25.6% largely due to the expansion in EBIT margin of 4.4%-pts qoq.

- We have revised our FY10-12 revenue forecasts by 4.6-5.4%. We have also raised our FY10-12 EBITDA projections by 18.6-30.1% to reflect the better-than-expected margins achieved by Hartalega thus far. As a result, our FY10-12 earnings projections have been raised by 14.2-27.0%.

- We have also raised our target CY10 PER to 11x (from 9.5x) to reflect the stronger earnings growth now projected. Our indicative fair value has been raised to RM6.23 from RM4.47 (based on CY10 PER of 9.5x) and subsequently, have upgraded our call on the stock to Outperform from Underperform.



MRCB : Venturing into a small property project in Australia Trading Buy

News Update

- MRCB has subscribed to a 70% stake in Yes 88 for A$6.6m (RM20m) that owns a piece of land measuring 1.24 acres 15km from Melbourne City Centre, planned for the development of two 4-storey residential properties with a total GDV of A$54.8m (RM170m).

- Assuming a PBT margin of 20%, MRCB’s share of PBT from the venture is projected at RM23.8m over the project period.

- We are maintaining our forecasts that assume MRCB's property profits to be underpinned by recurring sales at its existing projects, particularly, KL Sentral, as well as contributions from new property ventures such as the latest one.

- If MRCB is to bag two prime federal land parcels in KL as reported, its valuation can be enhanced by 69sen per share. Fair value is RM1.71. Maintain Trading Buy.

Economic Highlights

10MP : EPU targeting GDP growth of 5.5% during 10MP

Economic Highlights (published 11 Nov 2009)

- The Economic Planning Unit (EPU) unveiled that the Government is targeting an economic growth of an average of 5.5% a year during the 10MP.

- We view the growth target as not very ambitious. Still, we understand that Malaysia could still achieve a developed nation by the year 2020, albeit a less prosperous one.

- We understand that the Government will allocate only RM180bn for development expenditure under the 10MP, of which RM15bn will be used as the PFI Facilitation Fund to serve as tipping-off for private projects to take off. This will generate at least RM50bn of private investment to make up the difference compared to the RM230bn allocated under the 9MP. However, we are concerned that the 3P procurement model will shift the burden of expenditure from development to operating, which is already stretched.



IPI : fell by a smaller magnitude of 6.0% yoy in September

Economic Highlights (published 10 Nov 2009)

- Industrial production fell by a smaller magnitude of 6.0% yoy in September, compared with -7.0% in August. This was the sixth consecutive month of improvement and the smallest decline in 11 months, suggesting that industrial activities continued to improve, albeit gradually.

- The smaller drop in output was due to a smaller decline in mining production. This was, however, offset partially by a sharper drop in manufacturing output and a slowdown in electricity output.

- As a whole, based on the preliminary numbers, we estimate that the contraction in real GDP is likely to have narrowed to 2.7% yoy in the 3Q, from -3.9% recorded in the 2Q. This was on account of a pick-up in domestic demand and a smaller decline in exports.

Top Story : Plantation – Finally reaching peak production

Overweight

Sector Update

- Malaysia’s CPO production rose by 27.4% mom in Oct 09, while exports rose by 11.7% mom, resulting in higher CPO stock levels of 1.97m tonnes (up 25% mom from 1.58m tonnes in Sep 09). This led to higher stock/usage ratios of 10.9% (from 8.8% in Sep 09), although it is still significantly lower than Oct-08’s 11.7%. We do not think the current stock level is really anything to be worried about, given that this only represents about one and a half months of average historical monthly consumption of 1.28m tonnes, which is the “normal” level. We expect production levels to start trending back downwards towards end-Nov 09, while demand should continue to rise on the back of improved economic activity and the festive season, which should then result in stock levels declining from Dec-09 onwards.

- Over the recent month, there have been five main developments affecting the palm oil industry, including: 1) US soybean crops harvests picked up, but now risk on South American supply side; 2) El Niño – is it back?; 3) CPO demand may be curbed in China, but may rise in India in ST; 4) Crude oil price on uptrend- long term price uptrend intact; and 5) Narrowing discounts with soyoil.

- No change to our forecasts, as we continue to expect CPO to register a more sustainable pick-up in prices closer towards the end of the year (end Nov/Dec 09), after the peak production period ends, while fundamentals and price prospects for CY2010 are more positive. We maintain our Overweight stance on the sector and our Outperform calls on IOIC, KLK, Sime Darby and CBIP, Market Perform on Genting Plantations and Underperform on IJMP

NEWS HIGHLIGHTS

RESULTS NOTE

· AMMB Holdings (HOLD; RM4.75; TP: RM4.90) - Inline



TECHNICALS

· KLCI - More sideway action



NEWS HIGHLIGHTS

· MAS unveils Golden Lounge in Heathrow’s T4

· Govt withdraws vehicle end-of-life policy

· CCM plans revamp

· YTL Com to sign pacts with several partners

· SP Setia builds on winning formula

· Kinsteel profit down on lower steel prices

· Sime Darby forms unit in China

· Seven banks expected to rake in RM318mil in fees for maxis listing

· Proton chairman offers to take Transocean private



ECONOMIC NEWS HIGHLIGHTS

· Bank Negara reserves at RM335b



FOREIGN NEWS HIGHLIGHTS

· Wall St. rises 3% for week on Friday's slim gain

· US stocks eye retailers as jobless ranks swell

· China Merchants Securities to hold $1.6 billion IPO in Shanghai

· India may lead G20 in stimulus exit as Singh signals wind back

AmWatch: UMW Holdings : WSP in trouble again? BUY

The US Commerce Department last week imposed preliminary duties of 99% on oil pipes from China. Complaints were brought by US Steel Corp, the US operations of Russia based Evraz Group SA and Pennsylvania based Wheatland Tube Co.

But duties will be just 36.5% for the 37 largest exporters. During 2Q09, exports accounted for just 13% of UMW Holdings Bhd’s (UMW) unit in China, Wuxi Seamless Oil Pipe Co Ltd’s (WSP) revenue - though this was a sharp drop from 60% in 1Q09.

Much of the export revenue decline was offset by an increase in demand from domestic Chinese market. Assuming exports were to fall to zero because of new import duties, we estimate UMW’s earnings to lower by 3%-4% in FY09 and FY10.

At WSP level, earnings are estimated to lower by 25%-26% over FY09-10. Bulk of the export market comprises of higher margin, non-API products. We expect export risks to be somewhat mitigated given WSP’s plan to setup a US-based, pipe production plant in Houston. We maintain our BUY call on UMW.

Our Sum-of Parts derived fair value of RM6.30/share is under review.


Others :
Plantation Sector : CPO production could exceed expectations next year NEUTRAL



QUICK TAKE
Sembcorp Marine : Acquiring one of Seadrill’s rigs BUY



NEWS HIGHLIGHTS
Malaysian Airline System : Voted Asia’s leading airline
Nestle : Setting pace for growth
KPJ Healthcare : Expects RM2bil revenue in five years
Sime Darby : Eyeing more estates in Africa

Genting Bhd - Completes RM1.45bil MTN programme

Recommendation: Buy
Share price: RM7.15
Fair value: RM8.95

* Genting Bhd announced to Bursa Malaysia that it had sold RM1.45bil in 10-year medium terms notes (MTN). The MTN was oversubscribed by 1.7x. Book-building process ended on 28 October 2009 with the bonds priced at 5.3% p.a. - payable semi-annually.

* Genting Bhd had originally targeted to raise RM900mil as its first tranche but due to strong response, the group upsized the issue to RM1.45bil.

* The issuance of MTN was not a surprise as Genting Bhd had earlier announced that it would be establishing a RM1.6bil programme over 15 years. First issuance of the MTN was to take place within two years from date of approval by the Securities Commission.

* We believe that proceeds from its MTN will be used to refinance a loan taken to fund Genting Bhd's entitlement to Genting Singapore Ltd's 1-for-5 rights issue. Cost of Genting Bhd's rights entitlement was about RM2bil.

* As its MTN amounts to about RM1.45bil, this means Genting Bhd will most likely use internally generated funds to finance its remaining subscription cost of RM0.6bil in respect of Genting Singapore's rights issue.

* We had previously estimated that Genting Bhd received about RM180mil in dividends from Genting Malaysia Bhd and Genting Plantations Bhd last year. Company level net cash amounted to RM310mil as at end-December 2008.

* Based on its coupon rate of 5.3%, the MTN will reduce Genting Bhd's FY10F net profit by 4% to RM1.25bil. There is likelihood that Genting Bhd may rely on higher dividends from its subsidiaries for the coupon payments.

* Impact of MTN coupon payments on Genting Bhd's earnings is not significant. As such, we are maintaining our BUY recommendation on Genting Bhd for its gaming exposure in Malaysia, Singapore and Britain.

* In another development, Genting Bhd's chief executive Tan Sri Lim Kok Thay said that "Resorts World at Sentosa" (RWS) is on track to open by early-January 2010. We view this positively as the group would then be able to enjoy a full-year's contribution of earnings from RWS. For FY10F, we have forecast that Genting Singapore Ltd would record a net loss of S$10mil before turning in a net profit of S$345mil.

MBM Resources - Strong QoQ continues (Results Note)

Price: RM2.40

Target Price: RM2.95

Recommendation: BUY



· 9M09 results below expectations. 9M09 net profit of RM45.8m accounted 70% of consensus and 60% of our forecast, underpinned mainly by lower-than-expected associates’ contribution.

· YoY, 9M09 net profit was recorded substantially lower by 54.5% due to: (1) 6.6% drop in revenue on lower vehicle sales (-7.5% YoY); (2) EBIT declined by 55.9% hampered by Yen appreciation; and (3) 46.8% lower in associates’ contribution (Perodua unit sales: -5.8%; Hino sales unit: -1.95).

· QoQ, 3Q09 revenue grew 11.8% on higher vehicle sales across all brands and stronger sales by the manufacturing operations. EBIT margin remains stable at 3.7% due to stable Yen against RM. Consequently, net profit grew a significant 61.3% to RM22.5m on the back stronger associates’ contribution due mainly to higher Perodua sales by 21.5%.

· YoY, 3Q09 revenue declined by 3.1% due to lower vehicle sales while net profit decreased by 30% mainly on the back of compressed operating margin due to stronger Yen : RM. EBIT fell by a large 49.7% to RM11.2m and the EBIT margin was reported lower to 3.7% from 7.1%.

· Nevertheless, MBM’s cash position improved to RM0.43/share from RM0.29/share QoQ, on stronger operating cash flow generated. MBM’s NTA/share also improved to RM3.50 from RM3.43 QoQ. No dividend is declared and we expect gross DPS of 10 sen and 12 sen for FY09 and FY10, respectively. An interim dividend of 3 sen was declared in 2Q09.

· We tweaked lower our FY09 net estimate by 21.6% to RM63.1m due mainly to of higher-than expected associates’ contribution (+17%) imputed previously. Subsequently, we are also revising lower our FY10 net estimate by 11% to RM90.5m. However, we will expect the stabilised Yen, improved sales volume and better consumer sentiment will continue to underpin MBM’s earnings. The Perodua MPV expected on 23 Nov 2009 will contribute to FY10’s numbers with an estimate of 30,000 units sales.

· Upgrade to BUY, Target Price at RM2.95 based on 8x PER to FY10 EPS of 36.9 sen. We ascribed lower PER of 8x – 20% discount to the industry’s PER of 10x mainly due to stock illiquidity of the counter. Although sales volume is likely to record lower at year-end, we believe that the improved sentiment in the auto sector (and the new Perodua MPV), higher sales volume target next year and MBM’s strong fundamentals are key catalysts we are upgrading MBM. The group’s strong fundamentals are also expected to limit the downside risks.

RCE Capital - Growing strong in 1HFY10 (Results Note)

Price: RM0.64

Target Price: RM0.90

Recommendation: BUY



· RCE’s 1HFY10 net profit of RM37.4m was in-line with expectations, constituting 48% of our estimates and 49% of consensus’ forecast. Robust loan demand from civil servants and new product launches sustained 1HFY10 earnings growth of 25%. We anticipate a stronger 2HFY10 earnings based on seasonality.

· Strong loans growth YoY with 1HFY10 net loan receivables up by 30% to RM1.05b. Warm reception to a new 15-year product that was introduced in September and resilient loan demand from civil servants supported a 25% increase in revenue that flowed through to a corresponding 25% increase in net profit. NPL ratio is still below 3%.

· Product diversification compensates for lower sales QoQ. 2QFY10 revenue was 11% lower QoQ as loan book rose by a slight 5% QoQ, reflecting slower economic growth and increasingly competitive environment. The company’s efforts to diversify its product portfolio with the launch of new Islamic products with tiered interest rates resulted in improved profitability however, as shown by the 4% expansion in EBIT margin. The higher-margin product mix, lower finance costs and taxation resulted in group net profit registering a slight 2% increase. Higher doubtful debt provision of RM12.2m (more than double QoQ) in 2QFY10 to bring it closer to 2QFY09 level of RM16.3m after an especially low provision in 1QFY09.

· Private placement raised RM39.1m. 71.1m new shares were placed out on 10 August 2009 at RM0.55 (at a discount of 17.5% to the day’s closing share price of RM0.667). The proceeds were used for working capital to fund loans growth.

· FY09 and FY10 earnings estimates unaltered.

· BUY recommendation maintained with target price of RM0.90, predicated on 9x PER applied to FY10 EPS of 10.0 sen. FY10 dividend yield of 1.6% maintained. We like RCE for its first-mover advantage in the niche civil servant financing segment, low NPL ratio and loans growth and believe it is undervalued at 6.4x FY10 PER.

Top Story : Unisem – Guiding for a bullish FY10

Outperform
Briefing Update
- The company expects Chengdu’s FY10 earnings to double on the back of higher capacity (i.e. rising QFN capacity) and margin expansion (due to stronger contribution from higher ASP packages).

- Despite a more gradual economic recovery in US and Europe, management appears bullish and expects FY12/10 revenue and net profit to be higher than FY08 given: 1) stronger chips demand arising from China’s stimulus package; 2) margin expansion arising from stronger contribution from Unisem Chengdu as well as higher demand for its higher-margin WLCSP and module packages; and 3) continuous cost-cutting measures (i.e. migration to copper wire bonding). In addition, the company expects 3QFY12/09 of RM25.8m to be achievable in the 4QFY12/09 and going into FY12/10 with potential upside to earnings arising from stronger-than-expected economic recovery in US and Europe in 2010.

- We have revised up our FY09-11 earnings by 8.1%, 10.4% and 4.1% respectively after factoring in higher EBITDA assumptions. Accordingly, we have raised our fair value to RM2.09 (from RM1.90 previously).

- While we are cognisant of potential weak chips demand in 1Q 2010 (after a strong resurgence in 2Q-3Q and sustained growth going into 4Q09) as well as a more gradual economic recovery in US and Europe, we have given management the benefit of doubt that China’s chips demand will remain on track for stronger growth in 2010. Reiterate Outperform.

HPI Resources - BUY - 3 Nov 2009

CBRS: HPI Resources - Above expectations (Results Note)



Price: RM1.61 (cum-bonus) RM1.29 (ex-bonus)

Target Price: RM1.77 (ex-bonus)

Recommendation: BUY





· 1Q10 results were above expectations. While 1Q09 revenue of RM88.3m was 24% of our full year’s forecast, net profit of RM6.3m was 33.3% of our forecast driven mainly by lower than expected taxes (8% versus our 19% forecasted) as well as higher than expected gross margins.

· QoQ, revenue was up 15.1% underpinned by its paper milling division which jumped 27% sequentially on the back of higher demand and prices while the packaging division saw an improvement of 12%. Net profit however dipped 19.8% as higher input costs eroded margins with GP % dropping 35 points to 18% (4Q09 : 21.5%).

· YoY, revenue down 11.8% due to the lingering effects of the economic slowdown but net profit jumped 42.6% on the back of contributions from its Perak operation and milling division.

· Outlook improved as the global economic recovery gains momentum. While too early to conclude that the recovery is set, what is certain is that the worst of the crisis could have been behind us. Our economics team is forecasting GPD contraction of 2.1% for 2009 followed by a recovery to growth of between 3% - 4% for 2010.

· 1:4 bonus issue going ex-entitlement on November 13, 2009. The exercise will involve the issue of 10.65m new shares.

· Forecast upgrade as we model in higher margins taking into account the better economic conditions ahead. While we maintain our revenue projections for FY2010 and FY2011, our net profit projection for FY10 is raised by 22.2% to RM23.1m and FY11 by 24.3% to RM23.8m. BUY maintained with a higher target price of RM1.77 (ex-bonus issue) or RM2.21 on a cum basis based on 4x CY2010F. The low multiple is due to the stock’s small cap status and potential cyclical earnings.

Kenanga Today

CORPORATE NEWS

· Lityan to be a GLC?

· Hong Leong Bank in finance company JV plan in China

· Turkish bank keen to work with CIMB and Maybank

· Changhuat receives RM96 million contract

· Scomi Group loan stocks conversion price at 40 sen

· Puncak Niaga in JV for Indian water supply project

· Unisem 3Q net profit improves

· Palm Oil Earnings Expected To Drop 25 Per Cent This Year



FOREIGN NEWS

· US Treasury to borrow US$276b in 4Q

· RBS Near APS Deal; Sees Unexpected EU Divestments

· CapitaMalls Asia IPO seeks as much as S$2.78 billion

· Temasek eyes AXA China stake, valued at US$1.05b

· Oil rises above US$77 in Asia Monday

· Global Chip Sales is up for the seventh month

YTLE - IMPLEMENTATION OF 2.3 GHZ BROADBAND WIRELESS ACCESS (WiMAX)

We refer to the articles appearing in The Starbiz and the Edge Financial Daily on 28th October 2009 pertaining to the fine imposed on our subsidiary, Y-Max Networks Sdn Bhd (“YMN”) by the Malaysian Communications and Multimedia Commission (“MCMC”) in relation to the roll out of its WiMAX network. We confirm that YMN has received a letter from MCMC informing YMN of its decision to require YMN to make payment of a sum of RM1.9 million.

YMN was awarded the right to the 2.3 GHz spectrum in March 2007. Under the terms of the award, YMN was required to submit a business plan to MCMC with a roll out programme to achieve 25% population coverage by 31 March 2009. Subsequently, YMN changed its business plan and decided to build a nationwide network instead of undertaking a piecemeal roll out. Under its revised business plan, YMN will exceed the targeted coverage prescribed by MCMC by next year. The revised business plan has been submitted to MCMC for approval.

An appeal has accordingly been made to MCMC to reconsider its decision in light of the revised business plan submitted by YMN. YMN is awaiting the response from MCMC to its appeal.

Sunrise: Profit up +24% yoy on better margins

Sunrise posted 1Q10 net profit of RM37m (+24% yoy), in-line with consensus estimates. Key takeaways from the result: (1) Revenue fell 4% yoy to RM190m, with sales coming from Solaris Dutamas, 10 Mont’Kiara, 11 Mont’Kiara and The Residence projects. (2) Gross profit margin rose to 35.2% in 1Q10 (1Q09: 30.6%) on lower construction cost and building material prices. As a gauge, steel prices during the period declined 58% yoy to USD305/tonne. (3) The construction progress of 10 Mont’Kiara and Solaris Dutamas are on schedule and expected to be completed this FY10. (4) Company recorded RM243m of sales in 1Q09, of which RM159m has been finalised. Total unbilled sales at RM864m provide earnings visibility for the next 12 months.

Share price (+47% YTD) trades at 7x FY10E PE, 51% discount to peers. We expect new sales to be strong due to improving buyers’ sentiment and the low interest rate environment. Construction margin is expected to be improved due to lower construction material prices.

Newsbreak
Sunrise 1Q10 profit +24% yoy to RM37m
For 1Q10 the developer recorded RM243m of bookings and net profit of RM37m; Sunrise expects its property sales to surpass the previous fiscal year.
Pilecon Engineering audited results shows RM179m loss
The loss, as compared with earlier reported losses of RM798k filed in February, was due to goodwill impairment, provision for claims and doubtful debts.
Unisem 3Q09 profit up 5% on falling revenues
Despite revenues falling 14% to RM284mm, profit was up due to higher contributions from China, lower operating costs and interest expenses.
Scomi Engineering to bid for Bangalore monorail projects with local firm
It will cooperate with Geodesic Techniques to bid for new monorail alignments in the city. The capital outlay and project financing has yet to be determined.


Economics
US: ISM manufacturing in Oct rose to 55.7, expanding for the third consecutive month amid a jump in production and employment. Pending home sales also climbed for an eight straight month in Sept by 6.1%.
UK: PMI manufacturing increased to 53.7 in Oct from 49.9 in Sept, the highest since Nov 2007, boosted by a rise in output and new orders.
Euro: PMI manufacturing expanded for the first time in 17 months in Oct, as the index rose to 50.7 from 49.3 in Sept, raising optimism that the region will exit recession soon.