Malaysian Bulk Carriers - HOLD- 27 Aug 2009

Malaysian Bulk Carriers - Better 2Q09 (Results Note)

Price: RM3.13
Target Price: RM3.00
Recommendation: HOLD

· Still below expectation. Despite significant bulk rates improvement in 2Q09, 1H09 core net profit of RM61.5m accounted only 39.5% of our forecast and 40.4% of consensus. Our core net profit excludes RM4.6m forex gain, RM11.7m investment gain and RM8.0m gain on vessel disposal. No interim divided was declared as opposed to a 10sen interim dividend in 1H08.

· QoQ, 2Q09 revenue improved 33.6% while EBITDA soared 318.5% to RM23.4m, underpinned by strong bulk rates recovery (+42.6%). Rising 2Q bulk rates was in tandem with a higher Baltic Dry Index which average 2713 in 2Q vs 1561 in 1Q.

· YoY, 1H09 turnover and EBITDA was still significantly lower due to sharply lower freight rates, reduced fleet size and lower charter-in activities. POSH, a 22% associate involved in offshore marine support services contributed RM38.4m, which was c.44% of group’s 1H09 pre-tax profit.

· Outlook challenging with management guiding 2H09 to be tough as China’s frenzy commodities import is unlikely to continue. Bulk rates are therefore likely to stay volatile. As recent vessel prices are still holding despite depressed rates, management guided that they are therefore not in a hurry for acquisition as yet. While POSH’s 2Q was sequentially weaker, its performance was more stable compared to group’s dry bulk operation. POSH’s management expects E&P activities to pick up only in 2H10 as most oil majors continue to review capex spending. POSH’s young fleet of 70 vessels (average of <5 years) will expand to 123 by 2012 in accordance to its order book.

· Lowering our FY09 and FY10 earnings projection by 28.5% and 17.3% respectively to account for the lower freight rates. Maintain HOLD with unchanged target price of RM3.00.

What's on the table ?

Ann Joo Resources 2QFY09 in line – Back in the black
Ann Joo’s 1H09 results were largely within our expectations as the company managed to revive its earnings and return to the black in 2Q with a small net profit of RM2.2m compared to a RM38.9m loss in 1Q. We gathered that the significant improvement in earnings was largely supported by increased sales volumes, coupled with a better cost structure arising from improved production efficiency. We expect Ann Joo to ride on the resurgence in demand for building materials. We are upping our FY09-11 earnings by 19-33%, which takes our target price from RM2.10 to RM3.09, still pegged to a 20% discount to our revised target market P/E of 15x. We are upgrading our recommendation from Neutral to TRADING BUY on the basis of the potential re-rating catalysts of demand pick-up from pump-priming, higher exports and this quarter’s earnings turnaround.

Quick takes – Rubber Gloves sector update – Feeling the g(love) during our roadshow

Quick takes – Sin sector update – One for the road

Results – Genting Plantations 2QFY09 below – Weaker output nips earnings in the bud

Results – IJM Corp 1QFY10 in line – In a temporary bind

Results – Malayan Banking 4QFY09 below – Getting the impairment over and done with

Results – Petronas Dagangan 1QFY10 above – The engine starts to roar

Results – Puncak Niaga 2QFY09 above – The last acquisition play

Results – Uchi 2QFY09 above – Brewing a stronger cuppa

CI Holdings update – Expect a juicy 4Q earnings surprise

Economic news – BNM maintains rate amid stabilising signs

Maybank net profit drop 76% on on writedowns and higher provisions for bad loans

Maybank's net profit for the year to June 30 2009 falls some 76 per cent to RM691.9 million on writedowns and higher provisions for bad loans

Top lender Malayan Banking Bhd (Maybank) (1155) yesterday reported its lowest annual net profit in a decade after it wrote down the value of its overseas banks.

Net profit for the year to June 30 2009 came in at RM691.9 million, some 76 per cent lower than the previous year's RM2.9 billion.

President and chief executive officer Datuk Seri Abdul Wahid Omar said the lower profit was mainly due to writedowns of RM1.97 billion for its banks in Indonesia and Pakistan, and higher provisions for bad loans.

The writedowns, which is the difference between what it paid for the banks and their actual fair value, were expected by analysts.
Wahid, meanwhile, is confident the group will do "significantly" better in the current year.

"We're confident of a significantly improved performance this year based on an expected economic recovery and broad-based growth," he told reporters at a briefing in Kuala Lumpur yesterday.

Maybank is targetting revenue growth of 8 per cent this year, with a return-on-equity (ROE) of 11 per cent on its enlarged capital base. Its ROE came in at 10.4 per cent per cent last year.

The group, which made a string of acquisitions that analysts considered pricey last year, swung to a net loss of RM1.1 billion in the fourth quarter compared with a profit of RM703.2 million in the same period a year ago.

It was its first quarterly loss since 2001. It booked RM1.62 billion in impairment charges for Bank Internasional Indonesia (BII) and RM111.1 million for MCB Bank in Pakistan.

Wahid said the group would have made a "reasonable" net profit of RM2.18 billion for the full year had it not been for the impairment charges.

He doesn't expect to make any further impairments on the overseas banks.

The group's loan loss provisions for the quarter was RM782.5 million compared with RM353.6 million a year earlier.

For the full year, Maybank's net income rose by 10 per cent to RM10.5 billion, boosted by Islamic banking income which grew by almost 27 per cent.

Net interest income expanded by 9 per cent to RM5.92 billion on the back of higher loans growth and improved lending margins, contributed mainly by BII.

Non interest income grew by 6.4 per cent to RM3.4 billion.

Gross loans rose by 13 per cent, reflecting the consolidation of BII. Wahid said the group would pay much attention to driving loans growth at BII this year.

Maybank's asset quality improved, with net non-performing loan (NPL) ratio at 1.64 per cent compared with 1.92 per cent before.

"We might see some NPLs from small-to-medium enterprises come in (later), but we do reckon that the amount would be manageable," Wahid remarked.

Meanwhile, he expects the group to be able to increase its stake in Vietnam's An Binh Bank to 20 per cent from 15 per cent" in the next two weeks".

FOREX: Ringgit Closes Firmer Against Us Dollar

The ringgit closed firmer against the US dollar Monday following improved sentiment on the global market recovery, prompting investors to buy stocks in the local bourse as well as raising demand for local currency, dealers said.

The FTSE Bursa Malaysia Kuala Lumpur Composite Index rose 10.70 points, up by almost one percent, to 1,174.49 at close.

The ringgit ended higher at 3.5080/5110 against the US dollar compared to 3.5170/5220 last Friday.

According to the dealers, Asian stocks reacted positively after last Friday's upbeat US housing data and optimism shown by the US Federal Reserve chairman Ben Bernanke concerning the global economy.

However, one of the dealers said that traders remained cautious ahead of the Bank Negara Malaysia's monetary policy committee meeting tomorrow which is likely to retain the overnight policy rate at the current level until middle of next year.

The ringgit moved between 3.5011 and 3.5150 against the US dollar during the trading session.

Against other major currencies, the ringgit was mostly higher at close.

The local currency declined against the Singapore dollar to 2.4448/4506 from 2.4407/4465 last Friday but it rose against the Japanese yen to 3.6973/7016 from 3.7499/7564 previously.

The ringgit strengthened against the euro at 5.0154/0200 from 5.0272/0361 last Friday as well as against the British pound at 5.7819/7889 from 5.8009/8109 previously

SP Setia - 9M09 sales exceeds FY09 target

Price: RM4.52
Target Price: RM4.25
Recommendation: TRADING SELL

· 9M09 Sales of RM1.25b exceeds FY09 sales target by 14%, but July 2009 experience MoM decline. 9M09 sales values grew 8% YoY to RM1.25b. 3Q09 sales value grew 39% QoQ to RM583m, underpinned by SP Setia’s (SP) 5/95 home loan scheme.
· July 2009 sales however fell 23% MoM to RM217m. Klang Valley townships’ July 2009 sales value fell 40% MoM, mainly due to Setia Eco Park. We believe it is related to SP Setia ceasing promotions on 19 July 2009, whilst other Klang Valley developers continue with theirs. Commercial’s (Setia Walk) July 2009 sales fell 78% MoM to RM12m.

· Setia Sky Residences July 2009 sales doubles MoM to RM146m. Recall that SP did a preview launch mid 2008 and raked-in 60%-65% bookings rate for first phase. Hence, high initial take-up rates are the result of these registered sales converted into SPA sales.

· July 2009 sales from Penang and Johor Bahru (JB) rose on the back on new launches. Penang projects grew 122% MoM to RM20m, whilst JB townships sales of RM48 was a 23% MoM increase. This was due to 1) Setia Vista’s first and official launch of RM100m in July 2009 (preview launches were done before) 2) 288 units (+174% MoM) launched in JB townships.

· Eco Lakes, Vietnam achieves “81% take-ups” but is not reflected in 9M09 sales release (see below for further explanation). SP released another 129 units for sale, on top of the initial 128 units, due to overwhelming responses. Total GDV launched was c.RM70m. Another c.USD11m (c.RM39m; USD1=RM3.56) worth of semi-detaches and villas (58 units) are up for the next preview launch. Earthworks have begun.

· Maintain FY09-10E net profit of RM155m-RM160m. We will revise earnings, (leaning to an upward bias) when we get a better feel of future sales, using the next 2 months sales performances. Nonetheless, unbilled sales of RM2.15b provide nearly 2 years earnings visibility, a sharp improvement from 1Q09.

· Trading SELL maintained with unchanged fair value of RM4.25. We still think SP is overvalued as it is trading at 29x FY10E PER versus forward averages of 1) 11x peers 2) 14x markets 3) historical 11x. It is also steep versus 22x forward PER averages in 2007’s bull run year. Similar 2.2x PBV is trading at premiums to its 1.1x peer averages and 1.2x historical averages. More substantial short term re-rating catalysts lies with finalization of the China project and more Vietnam projects.

Technical Review 19th August 2009

I came into the office today and saw the headlines that losses on Shanghai market had trigger panic selling throughout the world. Last week I mentioned that Shanghai market would be a leading indicator for the first sell signal. Since market throughout the world had corrected, then I suspect the next signal from Shanghai market would be monitored with huge interest.

On KLCI, although I had put the 5 waves for KLCI since last month, there is no way that I can confirm whether the 3 waves correction would be the next step for our market. As always, we need to combine with other indicators. From my experience with Bollinger Bands on KLCI, it is exhibiting strong potential that a major movement is around the corner. If you were familiar with my usage of Bollinger Bands, you would know that the next movement would be violent indeed. The only thing that we have to do is judge whether the violent movement is up or down.

For now, it seems that the path of least resistant for the short term is down. Shanghai market being a leading indicator, had already trigger MACD Sell Signal on weekly basis. Other major markets HAS NOT trigger MACD sell on weekly basis yet. However, the concern is that it markets throughout the world DO NOT recover this week, it WILL trigger sell. Weekly MACD would be the most appropriate method since market was in strong uptrend.

Kawan Food- North America outperforms

Price: RM0.79
Target Price: RM1.05
Recommendation: BUY

· Kawan Food’s (KFB) 1HFY09 net profit of RM6.5m came in above expectations constituting 63% of our FY09 estimate of RM10.3m and 60% of consensus forecast of RM10.8m. Strong sales growth in all markets, particularly North America, coupled with moderating raw material costs caused the earnings outperformance. The economic slowdown appears to have benefited KFB as consumers in developed countries opt to dine in.

· Appreciation of the US dollar and strong demand from export markets, particularly US and Canada, drove 1HFY09 revenue up by 31% YoY. Operating profit margin improved by 7% due to lower input costs (for key raw materials flour, sugar, margarine), resulting in operating profit close to doubling to RM8.9m. Net profit rose by a more modest 76% however due to higher tax rate. The 10% increase in effective tax rate came from lower reinvestment allowances as KFB concentrates its expansion in China rather than Malaysia.

· Lower raw material costs and improvements in operating efficiency were largely responsible for the 22% QoQ increase in 2QFY09 net profit of RM3.5m. Revenue rose by 8% due to moderate double-digit sales growth in Europe, North America and Asia offsetting the lower domestic sales.

· Disposal of entire 24% stake by Kilat Kaca Sdn Bhd. We gather that KFB’s substantial Bumiputera shareholders and owners of Kilat Kaca, Datuk Ibrahim Ahmad and Tan Sri Mohd Ibrahim Mohd Zain, have sold their stake to an existing OEM customer of KFB’s based in the UK.

· Nantong, China plant on schedule to begin commercial operations in 3QFY09 manufacturing flatbreads for KFB’s export sales. KFB has spent c.RM50m on the factory, and expects the plant to breakeven by end-FY10 at the earliest.

· Revising FY09 net profit estimate upwards by 12% to RM11.5m to factor in a 16% increase in revenue (+4% from previous estimates) sustained by strong demand from developed countries. Anticipate improvement in FY09 pretax profit margin from lower commodity prices.

· Upgrading to BUY recommendation with new target price of RM1.05, based on rolling-over to FY10 earnings. By utilising a 10x PER (at 25% discount to industry average in view of KFB’s lower market cap) to FY10 EPS of 10.4 sen, we arrive at our target price of RM1.05 and potential 33% upside. The stock is currently trading at an undemanding 7.5x FY10 PER.

Borneo Aqua Harvest - Golden Harvest

Price: RM0.60
Target Price: RM0.80
Recommendation: BUY

· An integrated marine aquaculture operator specialising in rearing high value marine fish for consumption. Key markets including Hong Kong and China offer huge potential given the size and more importantly the purchasing power;

· Proven processes and ready to join the big league marine aquaculture players after gestating for the past few years. With the entire value chain under control, group is now able to chart its own destiny;

· Rising global demand with supply unable to keep pace presents huge opportunity for the aquaculture sector. According to Food and Aquaculture Organisation (FAO), aquaculture now accounts for some 36% of total fish production in 2006 compare with 28.9% in 2001. Should the growth for aquaculture be maintained at 6.4% while fish capture stagnates at the 2006 level, aquaculture’s portion of fish production is set to exceed fish capture by 2016;

· Strategic alliance with major wholesalers in key markets guarantee strong take-up leaving the group to concentrate on its core competencies;

· Minimal expectations with ample room to surprise on the upside. High level of scepticism and perception of risk means little investor interest for now. This will soon change with growing investor familiarity underpinned by strong showing in terms of financial numbers;

· BUY with a fair value at RM0.80 based on 12x CY2010F representing a 40% discount to the overall market’s valuation which should provide some 33% upside from the current levels. Trading at an undemanding 8.9x CY2010 is unjustified given the group’s unique processes, a high level of intellectual content not to mention the immense market potential that the markets in Hong Kong and China on offer.

KLCI — Consolidation ahead

After the stellar run-up since Mar 09, the local market we suspect is due for a breather. While the run-up had been stronger and slightly more prolonged than what we had expected, technical indicators are however all flashing overbought leading to a more cautious stance on our part in the near term. While the bullish momentum remained intact, some near term pullbacks and consolidation to digest the run-up since March cannot be discounted in the near term.

As noted, RSI on both the daily and weekly basis are now trending at very rich levels with possibility of some downward adjustment not unexpected. The weekly meanwhile is also likely to face the neckline resistance at near the 1,191 – 1,189 levels which the bulls should not dismiss it lightly.

While the bigger caps are likely to undergo some corrective pullbacks and consolidation, rotational interest into the mid and lower liners are likely to prevail given their laggard status and undemanding valuations. For the near term, we would expect immediate resistance at the 1,210 – 1,220 levels with support likely to be found at the 1,170 – 1,160 levels. A trading sell on the main CI stocks are maintained with a rotation into the mid and lower liners for possible outperformance given relatively cheaper valuations and better risk / reward.

Kenanga Today - 17 Aug 2009

Corporate News

· Incentive for airlines

· Ideal Property to launch RM1.1bil project in Penang

· Banks ready to implement new framework by January 2010

· Mayland to expand retail mall business

· Hartalega 1Q net profit doubles to RM26m

· Sunrise posts RM43.15m net profit in 4Q

· Hap Seng's acquisition of Menara Citibank at RM235m



Foreign News

· Porsche buy launches VW drive for world domination

· $25bn Colonial Bank closed down by US regulators

· Doha deal could boost world GDP US$300b-US$700b

· China Merchants plans rights issue

· 1,200 new cars hit Beijing every day: state media

· China to start cutting carbon emissions in 2050: FT

· Japan's big businesses expect recovery by mid-2010

Consumer - More than just dividends (Sector Update)

· F&B companies’ potential for strong double-digit earnings growth, in addition to decent dividend yields has made them attractive investments. The positive prospects for the F&B producers highlighted stems from improvements in operating efficiency, market dominance with high barrier of entry, regional market reach as well as moderation in raw material prices corresponding to crude oil price/ economic downturn.

· Halal Industry Development Corporation (HDC) Senior Manager Encik Wan Salman gave participants an overview of the Halal industry and elaborated on the areas of processed food, ingredients, cosmetics and livestock. The size of the worldwide halal food market in 2005 was estimated at US$582.3b (RM2.04 trillion) in 2005. Malaysia is well-positioned to take a sizable bite of the market as a global Halal food hub because of the country’s reputation as a modern, moderate Islamic country, strategic geographic location (proximity to Middle East) and well-received Halal certification standard.

· Borneo Aqua Harvest (BAH) Mr Desmond Yong (Special Assistant to Managing Director) delivered a highly informative presentation on the company’s grouper aquaculture business, followed by live product display. BAH’s competitive advantages are its competency in marine biotechnologies (enables in-house production of fries and controlled timing of production), good geographical location off Lahad Datu, Sabah (clear waters, protected from strong current, ideal climate, logistical advantage with proximity to biggest markets- Hong Kong and China), control of the entire value chain from brood stock management to rearing (thus reducing mortality rate) and own distribution (with two live fish carrier ships and marketing centre in Hong Kong).

· BAH experienced declining profit in FY07-FY08 due to shortage of fish stock following sale of fries in response to pressure from promoters to meet profit forecast. However, the company anticipates a steep pick-up with double-digit earnings growth from 2HFY09 onwards as it raises production capacity to keep up with seemingly inexhaustible demand from Hong Kong and China.

· QL Resources’ (QL) Mr Freddie Yap (Group Accountant and Investor Relations), briefed us on the company’s agro-based businesses of marine products manufacturing, palm oil activities and integrated livestock farming. The company has demonstrated a solid track record of earnings growth for the past 23 years and looks to regional expansion to propel it further.

· Plan for a new surimi plant in Surabaya, Indonesia is awaiting local government approval and is likely to be operational by FY11 at the earliest. The plant will cost US$8m. As for the Tarakan, Indonesia oil palm plantation, 12,000 acres of the total 30,000 acres has been planted up, and is likely to deliver meaningful contribution in FY12 when the trees mature. The company is delaying its integrated layer farming project in Tay Ninh, Vietnam due to unfavourable economic conditions in the country. The company has also decided to proceed on a smaller scale, with RM25m cost of investment spread over 2 years.

· Hup Seng Industries’ (HSI) Dato’ Seri Kerk Choo Ting (Executive Director of several HSI subsidiaries) spoke on the Batu Pahat-based biscuit manufacturer’s restructuring exercise that is designed to spur the stolid family-run concern into its next phase of growth. HSI is one of Malaysia’s largest biscuit manufacturers and makes the iconic ‘Ping Pong’ brand of cream crackers.

· HSI embarked on a cost recovery program in end-2007 by implementing a Mobile Sales System in its trading division. This measure coupled with lower raw material prices, was largely responsible for the 10% YoY increase in 1QFY09 operating profit margin. Anticipate further improvement in profitability as the cost recovery exercise is extended to the manufacturing division in the form of an ERP system.

· We understand that the company is likely to introduce a formal dividend policy of 40% net profit by end-FY09 that would translate into a potential FY09 dividend yield of 7%.

· Daibochi Plastic & Packaging Industry’s (DPP) Mr Thomas Lim (Managing Director) introduced conference participants to the company’s flexible packaging business that caters largely to the F&B industry. DPP is one of only two players that make up approximately 60% domestic market share. The company’s competitive strengths are its ability to provide the end-to-end packaging process (with in-house cylinder-making, metalizing and sealing capabilities) and its well-established relationships with MNC clients (DPP is the sole supplier to Nestle’s Chembong Confectionery factory and Kraft/ Danone biscuits in Malaysia).

· Sizable leap in earnings recently with 1HFY09 net profit of RM10.8m already surpassing the full year’s net profit of RM8.2m in 2008. This was caused by lower input costs with the price moderation of plastic resin and films (42% of total operating expenses), as well as improved product mix. Given the company’s increasing exports to MNCs (now 40% of group revenue) as well as the introduction of innovative new products such as printed plastic film for cigarettes (now being supplied to BAT) and anti-static packaging for electronic products, we expect the 12% pretax profit margin of 1HFY09 (more than double YoY) to be sustainable, if not show further improvement, moving forward.

Bumiputra-Commerce Holdings - The Ultimate Performer

· BCHB’s 1HFY10 net profit of RM1,277m was inline with our net profit estimate of RM2,537m and that of consensus’ RM2,303m at 50% and 55% respectively. Strong 2Q investment and equity related revenues of RM403m (16.8% QoQ) were the basis of strong earning growth. BCHB's Investment bank posted record quarterly revenues of RM775m driven by very strong treasury and investment divisions’ performance. Top line growth combined with a stable cost income ratio (53%) produced a solid 14.5% ROE for the quarter. Asset quality still benign with low net NPL ratio of 2.4%. YTD loan increased by 4.5% are on track to achieve its year end target of 8%.

· Net profit in the second quarter was RM663mn or 18.8 sen a share – the best quarter since 2007, when it was hammered by the financial crisis. We have expected strong earnings, but were surprised by the exuberance performance. The primary earnings driver was prime brokerage and forex trading. Going forward, earning momentum remain strong with the recovery of bond market i.e. the propose USD1.5bn Emas Dollar Sukuk Bond and highly likely RM3-4bn listing of Maxis.

· We see the company showing greater resilience than its peers. Given that the bank has been less severely impacted than its global peers, we believe the market is pricing in its strong performance. But investors should not lose sight of the fact that key operating and financial trends appear to be more resilient in 2QFY09 and further room to grow with expectations of a strong capital market, volatility in forex market and low interest environment.

· BCHB’s shares is undemanding on FY10 ROE of 16% - The combination of BCHB’s strong investment banking business, coupled with its growing Indonesian presence in Rupiah lending business, positioned it very favourably to deliver above-average earnings growth and an ROE 14% by FY09 and 16% by FY10. We look at a few alternative valuation methodologies and conclude that BCHB remains undervalued and reiterate our Buy rating (see report dated 14th July 2009 titled ‘Buy Maintained’ for details).

· Maintaining BUY Recommendation with target price of RM11.60 –Upward rerating catalyst would be the securing of large IB deals which will yield significant non-interest income. BCHB is trading at 1.6x FY10 P/BV which is below our price/book versus regression model that is consistent with BCHB achieving the upper end of management’s goals of 12-16% ROE goal for 2009-10.

Plantation- CPO benefits from the commodities run

· Courtesy to stronger exports (+13.2% m-o-m) and crawling production growth (+3.0%), inventory unexpectedly fell 5.7% to 1.33m MT. Meanwhile, imports and disappearance numbers remained stable.

· July production posted a small m-o-m gain of 3.0% to 1.49m MT, still 4.5% yoy lower than 1.56m MT in July 08. YTD production of 9.41m MT is 3.6% below 7M08, with the shortfall mainly from Sabah (7M09: 2.81m MT vs 7M08: 3.16m MT). Production in Peninsular Malaysia was relatively flat (7M09: 5.60m MT vs 7M08: 5.64m MT) while Sarawak’s production was ahead of the pack (7M09: 0.99m MT vs 7M08: 0.95m MT).

· M-o-M exports surprised with a 13.2% mom jump to 1.45m MT, underpinned by strong uptake from China (+29.3%), India (+58.8%) and Pakistan (+66.2%). Both India and Pakistan defied expectations that vegetable oils’ imports should taper-off on high inventories accumulated. We reckon that traders could decide to retain the high stock levels due to dry Indian weather which could threaten crops supply.

· CPO price correction short-lived. Though we correctly forecasted the price weakness on the back of production recovery and inventory rise, CPO price however had since rebounded from the recent low of RM2002/MT to the current RM2400/MT, riding on the rise of crude oil and other commodities as global economic recovery gained pace. We expect near term CPO price to stay firm in tandem with commodities’ prices.

· Maintain neutral on the sector as plantation stocks under our coverage are already fully valued. Our 2009 CPO price forecast of RM2000-2200/MT remain unchanged. Our recommendations are: IOI (Trading Sell; TP:RM4.60), KLK (Trading Sell; TP:RM11.10) and Sime (Trading Sell; TP;RM6.20).

Dry bulk shipping update - Ten reasons why dry bulk will fly

• We have become more confident that the dry bulk rally has legs for the rest of
the year. As freight rates rise, asset values will rise and help lift the valuations of drybulk shares. Investors should take advantage of the current summer drift in the
Baltic Dry Index to accumulate dry bulk stocks. Here are 10 reasons.

• Reason 1: Crude steel production in China is expected to rise 8.2% to hit
540m tonnes as the economic stimulus measures take effect.

• Reason 2: China is expected to continue relying on imported iron ore for the
majority of its consumption because the current price premium of imported iron ore
over domestic sources is not excessive given the higher quality.

• Reason 3: China’s iron ore inventories at ports are low relative to its increased
consumption of imported ore, despite testing previous highs on an absolute basis.

• Reason 4: Brazilian iron ore exports may take off in 2H09 and increase tonnemile
demand. With Australian production already at close to full capacity, any
further increase in global iron ore demand could draw additional shipments from
Brazil and increase tonne-mile demand, thereby boosting dry bulk shipping rates.

• Reason 5: Europe, Russia, Japan and the US will restart blast furnaces as
apparent steel demand is higher than the current level of production.

• Reason 6: Growth of property starts in China has finally gone into positive
territory, suggesting that demand for construction steel is set to expand.

• Reason 7: China’s demand for and production of flat steel products should
also be boosted by continuing expansion of automobile sales and the recent
positive trend observed for sales of white goods.

• Reason 8: Steel inventories have declined across the globe while steel prices are
rising. These are powerful incentives for steel mills to restart production.

• Reason 9: China and Japan may see higher coal imports in 2H since Chinese
electricity production growth is back in the black while Japan’s coal imports should
start to recover with the expected expansion of industrial production in 2H.

• Reason 10: The idle fleet of bulkers currently stands at just 5% of the total fleet,with the vast majority being ships more than 20 years old. This means that the idlefleet of modern tonnage is just 1%.

• Maintain OVERWEIGHT on dry bulk shipping. We expect this current half year to
be very strong for dry bulk shipping for the above reasons. The BDI recently closed
at 2,623 points. We expect it to average 4,000 points in 2H09, implying at least 50%
upside to the current level and almost double the 1H average of 2,084 points.

Genting: Too big to ignore

Too big to ignore:
Following the opening of Resorts World at Sentosa (RWS), Genting Bhd will become one of the largest casino operators in Asia, and will offer investors a unique exposure to the still-fragmented Southeast Asian gaming market. Note that we expect casino earnings to contribute 80% of Genting Bhd’s revenue by FY11, while the overall group’s strong balance sheet position and extensive experience could position Genting to benefit from further liberalization in the region. Moreover, we think Genting Bhd is also the safest proxy to the Genting Group given the Lim family’s direct 43% stake in the company. Hence, interests of minority shareholders are aligned with those of the family.

We raise our PT to M$8.50, from M$6 previously. We roll forward our timeframe to June 2010 and raise our PT to M$8.50 to reflect our new PTs for Genting Singapore (S$1.20, initiated separately), Genting Malaysia (raised to M$3.50 from M$3.20), and Genting Plantations (raised to M$6.70 from M$5.30). Note that we have also revised our FY10E and FY11E earnings upwards by 3% to reflect our new Genting Singapore and Genting Plantations forecasts.

We expect the share price discount to narrow to SOTP: In arriving at M$8.50, we also narrow our SOTP discount to 15% from 20% previously (the discount has narrowed from 48% in mid-March to 24% currently). In the run-up to RWS opening, we believe that a further narrowing should take place as it should put Genting Bhd at the forefront of the Asian gaming market. A re-rating of Genting Singapore should be a key driver for Genting Bhd’s share price as Genting Singapore now makes up 40% of Genting’s RNAV. Key risks are a slower-than-expected recovery in casino markets and prolonged health scares.

IOI Corp.: Between the larger caps; IOI likely to outperform Sime

Mature plantations but efficient; long-term growth from Indonesia. Its mature estates mean that IOI’s CPO volume growth of 3-4% pa from FY10E will lag its peers. But IOI is the most efficient player with the lowest production cost. Its expansion into Indonesia the past 12 months, which will raise its effective land-bank by 77,000ha (52% of Malaysia's planted land-bank), is also expected to start to contribute by 2011/12.

Singapore property asset write-down if any, priced-in. Market price for IOI’s Sentosa Cove condo projects is currently below its break-even levels. We believe asset write-downs, if any from here, estimated at M$641MM (M$0.10/share) are priced-in. In the mid-to-long term, an improved economy and completion of the Singapore IR should enable launch of the projects at better prices to generate cash flows. At market prices, the projects would fetch GDV of M$2.4B versus construction cost of M$0.8B (land cost of M$1.9B has already been sunk in).

Proposed rights issue improves finances with minimal dilution. IOI’s finances have improved with the stronger ringgit and falling net gearing levels since Mar-09. The recent proposed M$1.2B rights issue will further reduce FY10E net gearing from 25% to 11%, and result in minimal EPS dilution of 2% if treasury shares are also cancelled. This, we believe, will provide greater flexibility in ROE management and/or acquisitions.

Upgrade to Neutral. We raise our Jun-10 PT from M$4.10 to M$5.00 on a 20% premium to SOTP to build in liquidity and weather risk premium from El Nino. IOI has under-performed Sime, and with its stronger management is likely the preferred stock when foreign funds return. IOI's premium valuations to peers are at historical mean, and the return to peak levels will likely occur upon fresh ROE management efforts, and improving returns with price recovery for its Sentosa Cove projects, in our view. We thus upgrade to Neutral.

Kuala Lumpur Kepong: Our top plantations pick

Best CPO volume growth profile. KLK has the strongest near-to-mid term volume growth profile with 49% of its planted trees in the ‘immature and young’ category, which will translate to volume growth of at least 8-10% pa by FY10E from 3-4% for IOI Corp. In 2008, KLK overtook IOI in terms of planted land-bank driven by its Indonesian expansion and acquisitions in Peninsula the past 2-3 years. With recent acquisitions and available plantable reserves, oil palm planted land-bank is expected to rise 23% from current 162,000ha to 200,000 ha by 2011.

Restructuring & disposal of non-core assets? The non-plantations businesses (i.e. Yule Catto, Crabtree & Evelyn (C&E), and China oleo-chemical unit) we estimate will suffer from asset impairment and restructuring costs of M$260MM for FY09, which are largely one-off items, and are priced-in we believe. The restructuring of loss-making C&E US, via a bankruptcy protection should help improve long-term profitability from the retailing unit as C&E Asia is profitable. The drag on manufacturing profits is mainly from the non-oleochemical units (i.e. Davos, wood-floor and household glove manufacturing), which KLK is looking to dispose off, while the oleochemical segment is profitable.

Best risk-reward in the sector. Our CPO price forecast is M$2,450/t over 2009-2010 (spot price: M$2,300/t). We have raised our Jun-10 PT from M$13.10 to M$16.00 based on a 20% premium to sum-of-the-parts as we have built in liquidity as well as weather risk premium from El Nino. Our PT implies a FY10E PE of 19x in line with the stock’s peak during the severe El Nino in 1997/98. Key risk to our PT is erosion in the PE premium attached should current El Nino developments reverse. In the event, downside is minimal as the stock should be well supported at our estimated SOTP value of M$13.10, a 4% share price upside.

Time to profit take, correction maybe due soon end of Aug/Sept (Q4 to rebound)

Aug. 10 (Bloomberg) -- Options traders are increasing bets that the steepest rally in the Standard & Poor’s 500 Index since the 1930s won’t survive September, historically the worst month for U.S. equities.

Traders are betting the VIX, a gauge of expected stock swings, will increase 13 percent in the next five weeks, according to futures prices compiled by Bloomberg. That’s the biggest spread since August 2008, right before the S&P 500 suffered the steepest two-month plunge in 21 years. The indexes have moved in the opposite direction 81 percent of the time over the past five years, Bloomberg data show.

VIX futures above the level of the index show investors expect fluctuations to widen and stocks to retreat. The S&P 500 has rallied 49 percent in five months, pushing valuations to the highest levels since December 2004. The S&P 500 gained 2.3 percent last week as reports showed home sales rose and the unemployment rate fell.

“It’s a danger sign,” said Ronald Egalka, a 36-year options trader who oversees $8 billion as chief executive officer of Rampart Investment Management in Boston. “People expect volatility to pick up in the future, and that implies that there’s going to be a downward movement in the market.”

History shows that U.S. investors lose the most in September. The benchmark index for American equities fell 1.3 percent on average since 1928 that month, data compiled by Bloomberg show.
profile.”

Kenanga Today

Result Note

· MAS- (HOLD; RM3.10; TP:RM2.26)- 2Q09 profit from derivatives gain

· MBM Resources (HOLD;RM2.37;TP:RM2.60)- Stronger earnings QoQ



News Highlights

· Malaysia and Brunei closer to inking deal on oil and gas joint venture

· F&N earnings up 49% to RM59m

· AirAsia defers delivery of 8 planes from 2010 to 2014

· SunCity may revive US$860m REIT

· AWC secures RM177.4m deal in Abu Dhabi



Foreign News

· Oil falls below $72 as energy supplies grow

· Government makes £1bn paper profit as market bets on healthy RBS figures

· New Zealand's unemployment rate at 10-year high

· US Treasurys fall as Govt announces record US$75b auction

KLCI +3 1183 Second liners moving... watch counters other than the Top 30

KLCI +3 1183 all those getting govt prj rise:

MUDAJYA +0.07 2.97 (TP 4.06 by OSK, heard v good results coming out)

NAIM +0.18 2.82

KKB +0.23 2.33

TSRCAP +0.27 1.39, also

NSTP +0.15 1.64 &

UTUSAN +0.115 0.87 (privatisation play),

KENCANA +0.13 1.97,

SUPERMX +0.06 2.53 (rubber counters cont to surge),

MPHB +0.11 1.83 (more room to grow, laggard gaming counter, div09 TBA)

Sime Darby - Revised Ramunia Offer for Cash

Price: RM8.23
Target Price: RM6.20
Recommendation: TRADING SELL

· RM560m cash for Ramunia’s yard. Sime Darby’s final offer for Ramunia’s 170 acres fabrication yard will be settled entirely by RM560m cash and the acquisition is expected to be completed by end 2009. We believe the acquisition price of RM75.6/ft2 which is 32% above the net book value of RM425m@RM57.4/ft2 is fair given the yard’s superior sea frontage.
· Slightly better offer. The final offer is slightly better than the previous offer of c.RM554m which includes RM232m offer and transfer of Ramunia’s net debt of RM332m (as of 30 Jan 09). The previous RM232m offer is to be part settled by RM46.2m cash and RM185.5m worth of new shares in Sime Darby Engineering (“SDE”). Current final offer translates into c.RM1/share (or RM0.58/share on a fully diluted basis for Ramunia).

· Ramunia to seek new business. Post disposal of its yard, Ramunia may be classified as affected issuer under PN16 as a “cash company” and PN17 for disposal of its major assets. Ramunia therefore needs to seek a new business with its net cash of c.RM292.2m after the disposal to maintain its listing status.

· Medium term earnings positive for Sime. Post acquisition, SDE will emerge as the largest fabricator in Malaysia as the acquisition will enlarge SDE’s yard space to 284 acres from 114 acres, while its yard capacity will almost double to 105,000MT from 55,000MT. Earnings impact however would only be felt in late FY10 as SDE expands its order book by bidding for more O&G fabrication projects.

· Maintain Trading Sell on Sime with unchanged target price of RM6.20. Buoyed by the positive market sentiment, Sime is currently trading at a pricey FY10 PER of 21.4x. Risks we suspect is biased to the downside should the market experience a correction.

Dialog Group Bhd: Looking 'deeper' into tank farms - ALERT

· Dialog is the largest independent tank farm builder / operator in Malaysia. Other smaller players include Dovechem (with approximately 50k m3 capacity in Kuantan with other capacity in Indonesia) and other oil majors / oil traders who own tank terminals for use in their respective operations.

· Major regional players are Vopak and Oiltanking: Vopak has global storage capacity of 27.6MM m3 globally, of which 3.9MM m3 is situated in South East Asia (including the 400k m3 JV with Dialog and Petronas in Kertih). Meanwhile, Oiltanking has 16.2MM m3 globally and 1.5MM m3 in South East Asia.

· Dialog to focus on Malaysia; excited about prospects of deepwater tank terminal: The company will focus on expanding its tank farm business in Malaysia first. There is a possibility of the company expanding overseas with its partner and logistics provider, MISC, albeit in a much longer-term horizon. Management is also very excited about the prospects of its newly proposed deepwater tank terminal in Pengerang, Johor as it will enable the company to venture into a new product i.e. crude oil. Note that the company's current storage facility in Kertih stores petrochemical products while its Tanjung Langsat terminals will be used for petroleum products.

· Demand for tank farms is likely to be high: The tank farms to be constructed in the state of Johor are complementary to the terminals available in Singapore. At present, we were made to understand that Singapore has approximately 10-11MM m3 of capacity (with limited space for expansion) while the proposed project in Johor will add 4-5MM m3 of capacity over the next 10 years. Moreover, with strong economic growth in Asia, including China, demand for crude oil / petroleum products will likely rise and hence, create demand for additional storage space. Note that with 400-500MM population in Europe, Rotterdam has capacity of 28.4MM m3.

· Catalysts for the stock from the tank division? (1) Successful commissioning of the 400k m3 capacity in Tanjung Langsat (expected March 2010); (2) Announcement of construction start date / customer for potentially an additional 100k m3 at Tanjung Langsat; and (3) Completion of feasibility studies / EIA for the deepwater tank farm project. We note that the regulatory risks should be minimal for this project as we were made to understand that the Johor state government is supportive and will take a 10% stake in the project.

New IPO - MULTISPORTS HOLDINGS LTD

THE INITIAL PUBLIC OFFERING OF 100,100,000 ORDINARY SHARES OF US$0.05 EACH BY MULTI SPORTS HOLDINGS LTD COMPRISING:-

(I) PUBLIC ISSUE OF 57,600,000 NEW ORDINARY SHARES OF US$0.05 EACH COMPRISING:-

• 18,000,000 NEW ORDINARY SHARES OF US$0.05 EACH AVAILABLE FOR APPLICATION BY THE MALAYSIAN PUBLIC; AND

• 39,600,000 NEW ORDINARY SHARES OF US$0.05 EACH AVAILABLE FOR PRIVATE PLACEMENT TO SELECTED INVESTORS;

AND

(II) OFFER FOR SALE OF 42,500,000 ORDINARY SHARES OF US$0.05 EACH AVAILABLE FOR PRIVATE PLACEMENT TO SELECTED INVESTORS

AT AN ISSUE / OFFER PRICE OF RM0.85 PER ORDINARY SHARE PAYABLE IN FULL ON APPLICATION PURSUANT TO OUR LISTING ON THE MAIN MARKET OF BURSA MALAYSIA SECURITIES BERHAD.

New IPO - TAS OFFSHORE BHD

PUBLIC ISSUE OF 77,000,000 NEW ORDINARY SHARES OF RM0.50 EACH IN TAS OFFSHORE BERHAD ("SHARES") AT AN ISSUE PRICE OF RM0.90 PER SHARE
PAYABLE IN FULL ON APPLICATION COMPRISING:-

I. 3,500,000 SHARES AVAILABLE FOR APPLICATION BY THE ELIGIBLE DIRECTORS AND EMPLOYEES OF TAS OFFSHORE BERHAD AND ITS SUBSIDIARY ("GROUP") AND PERSONS WHO HAVE CONTRIBUTED TO THE GROUP'S SUCCESS;

II. 9,000,000 SHARES AVAILABLE FOR APPLICATION BY THE MALAYSIAN PUBLIC;

III. 21,500,000 SHARES AVAILABLE FOR APPLICATION BY WAY OF PLACEMENT TO IDENTIFIED INVESTORS; AND

IV. 43,000,000 SHARES AVAILABLE FOR APPLICATION BY WAY OF PLACEMENT TO BUMIPUTERA INVESTORS APPROVED BY THE MINISTRY OF INTERNATIONAL
TRADE AND INDUSTRY

AND

OFFER FOR SALE OF 11,000,000 SHARES AT AN OFFER PRICE OF RM0.90 PER
SHARE AVAILABLE FOR APPLICATION BY WAY OF PLACEMENT TO BUMIPUTERA INVESTORS APPROVED BY THE MINISTRY OF INTERNATIONAL TRADE AND
INDUSTRY

IN CONJUNCTION WITH THE LISTING OF TAS OFFSHORE BERHAD ON THE MAIN MARKET OF BURSA MALAYSIA SECURITIES BERHAD

KNM Group Bhd: Adds M$777MM to orderbook - ALERT

· News: KNM has entered into a Memorandum of Agreement with The National Oil Company of Chad in Djamina, the Republic of Chad, to form a JV (60:40 split in KNM’s favor) to develop, operate and maintain the Sedigi Oilfield facilities in Chad. The concession period is for 5 years, commencing from the first date of production. KNM will undertake the EPCC contract with an estimated value of US$220MM (or US$777MM) for a duration of 24 months.

· Impact on KNM: KNM will see earnings contribution from two parts: (1) EPCC contract of US$220MM over 24 months; and post completion (2) maintenance works at the facility over a concession period of five years. The amount of maintenance work and the rates have yet to be determined. However, we believe that the EPCC contract is unlikely to affect FY09 or 1H10 earnings as the JV will need to secure financing for the project first, after formation of the JV, which should take place before the 31 August 2009. As a result, the contract is likely to start to affect revenue only in 2H10-FY11. This is, however, a high-margin project with gross margins likely to be in the 20-25% range. Note that the financing taken by the JV company will probably be off-balance-sheet for KNM. The oilfield has already secured off-takers for the oil.

· Although we view KNM securing the contract as good news, and stay Overweight on the stock, we believe that it is still too early to tell whether oil/oil-related companies will begin to accelerate their capex plans. Moreover, we have already factored in a recovery in earnings in FY11E (+70%). We still prefer the services segment to EPCC contractors in the Malaysian oil & gas space.