Kenanga Today

RESULTS NOTES

· Gamuda (HOLD; RM3.23; TP: RM2.90) – FY09 Net Profit below expectations

· VS Industry (HOLD; RM1.22; TP: RM1.03) - Associate’s a drag



NEWS HIGHLIGHTS

· No premature pulling of plug on fiscal stimulus

· Najib to announce major Mideast investment in Malaysia today

· Sunway seures RM147m job

· Berjaya Corp to inject Singer, 7-Eleven into B-Retail ahead of listing

· Sime Darby plans RM4.5b Islamic debt notes

· Tanamas buys 51% stake in palm oil firm for RM24m

· Omar Ong appointed Petronas non-exec director

· E&O prepares for RM4bn property launches



FOREIGN NEWS HIGHLIGHTS

· U.S. stocks decline as technology slump offsets housing rebound

· Singapore's GIC recovers after last year loss

· Japan CPI in biggest fall in 28 years

Malaysia Strategy: Maxis IPO - Implications for the market

The Maxis IPO is on track: The re-listing of Maxis, Malaysia’s largest mobile communications service provider, on the local bourse will raise an estimated US$3.5B (based on today’s Edge newspaper report citing a share price range of M$5-M$6) for existing shareholders. In its draft prospectus posted on the Securities Commission’s website last Friday, the proposed IPO – the largest in the country in 15 years – will see 30% equity in Maxis being sold to institutional and domestic retail investors.

· Creating a buzz in more ways than one: The re-floatation exercise could see some institutional foreign fund flows back into the domestic market as investors refocus on Malaysia. Also, this high-profile listing could serve as a good case in point of PM Najib’s reform measures, especially on the recent policy changes on Bumiputera equity ownership for new listings on the equity market. Given PM Najib’s public supportive stance for this listing, we expect the government administration to maintain a relatively “conducive” environment for the market in the run-up to the IPO, which may include possible coincident positive news flow, such as: 1) positive vibes from the 2010 Budget in October; 2) announcements on the award of some key infrastructure projects to contractors, highlighting the pump priming agenda; and 3) encouraging sound-bites on a stronger 4Q09 economic outlook.

· On the downside, negative technical impact on the other large-cap stocks? Based on our back-of-the-envelope calculations, assuming M$5.00 per share (the low end of the range reported in the Edge newspaper), Maxis would have a market capitalization of approximately M$37B (US$10.9B), which would rank fourth on Bursa Malaysia. We calculate that Maxis’s weighting on the revised FBMKLCI would be around 7.5% based on an assumed 30% float, and would rank it 5th on the benchmark index. As investors ready cash to put into the potential M$11B IPO, we would expect some paring down of the other domestic large-cap stocks ahead of the listing unless we have significant foreign fund flows (see paragraph above). At greater risk, in our view, are the alternative dividend yield stocks (e.g. Digi, Axiata, Telekom, BAT, B Toto, Tanjong, PLUS, YTL Power, and MISC).

Breaking News: Budget 2010 will tabled on 23 October 2009

Budget 2010 will tabled on 23 October 2009

KNM Group -Poised for new tank terminal job from Kedah

Share price: RM0.805
Fair value: RM0.80
Call: HOLD (unchanged)

* KNM Group Bhd (KNM) appears poised to secure contracts up to RM500mil in Kedah from its joint-venture vehicle- Verwater Industrial Services (Malaysia) Sdn Bhd (VISM). KNM subscribed for a 50% equity stake in VISM for a token sum of RM100.

* Currently, VISM is privately owned by Verwater Paul Antonius - owner of Verwater Group of Companies based in the Netherlands. The Verwater Group are specialists in storage tanks and terminals design, construction and maintenance for almost 90 years in the Netherlands, Belgium, France, Singapore and Nigeria.
* In June this year, the Verwater Group signed a contract with UK-based Lenstar Investment Ltd to build an oil storage terminal in Yan, Kedah with a storage capacity of 1 million cu metre costing 220 million euro (RM1.1bil). We understand that Verwater could award contracts up to 180 million euro to VISM of which, KNM could secure 50%.

* In April this year, Lenstar signed a memorandum of understanding with Pristine Oil (M) Sdn Bhd to build storage tanks for holding up to 1.5 million barrels of oil and a 22km pipeline from Gurun to Yan, plus an 18km offshore pipeline to facilitate uploading of oil from vessels to tanks. Lenstar holds an 85% stake in the joint venture with Pristine. Newspaper reports claim that Lenstar has already purchased a 100ha piece of land and obtained the necessary permits to build the new tank farm and the pipelines.

* We understand that Verwater's project involves the US$10bil refinery project being proposed by Merapoh Resources Corp Sdn Bhd (Merapoh). In July this year, Merapoh and the Kedah state government signed a memorandum of agreement to revive the development of a refinery in Yan, Kedah. Project comprises development of a two-train refinery in the Sungai Limau Hydrocarbon Hub with a total capacity of 350,000 barrels per day.

* The Merapoh project - which is planned to be built over five years together with a 20 km pipeline going towards offshore Kedah for offloading of crude oil and loading of refined oil - involves reclamation of offshore land totalling 340 hectares and the use of 40 hectares on-shore land and building.

* We are sceptical of the viability of these projects due to: (1) Lack of an established track record from the local promoters of the project; (2) Potential delays in land acquisition for both pipeline and refinery projects as the states involved are controlled byopposition parties; (3) Absence of Petronas's participation, which could have lowered execution and financing risks; and (4) technical difficulties involving different grades of crude oil.

* If KNM secures the Verwater project, we estimate that the group's outstanding order book could rise from RM2.4bil to RM2.9bil- translating to 1.2x FY09F revenues. We maintain our FY09F-11F for now pending further clarification from management. As the stock currently trades at a fully valued FY10F PE of 11x vis-a-vis the oil & gas industry's 10x, we reiterate our HOLD call.

CONSTRUCTION : OVERWEIGHT

- Details of Ampang line extension out tomorrow

* Syarikat Prasarana Negara Bhd (SPNB) will release details of the Ampang Line Light Rail Transit (LRT) extension works from tomorrow, said Bloomberg. Details of the project will be open for public viewing from 15 Sept until 14 Dec.

* Scope of works entails construction of tracks and stations, a depot, carparks, procurement of new train sets, signalling, communications, power supply and automatic fare collection systems.

* Project forms part of the larger Klang Valley LRT extension program. This mainly consists of extension works linking the existing Ampang as well as Kelana Jaya lines with Putra Heights (USJ) at the southern tip of Klang Valley.

* The entire project - estimated to cost an initial RM7bil - will likely be funded by Federal-backed SPNB. Just last week, SPNB's RM2bil Islamic bonds were oversubscribed more than three-times.

* Bonds will be issued in two tranches - a 15-year RM500mil issue and 20-year RM1.5bil issue - with semi-annual profit rates of 4.85% and 5.07% respectively. We gather that SPNB plans to issue another RM2bil worth of Islamic bonds next year to kick-start the project.

* This validates our earlier conviction that contract newsflow on the Klang Valley LRT extension works is gaining traction. Prior to this, SPNB had already issued tenders for advance works (June 22) and clearing of tele-communication cables (Sept 8) for both rail lines.

* More importantly, SPNB managing director Datuk Idrose Mohamed was quoted in the Bloomberg report as saying that pre-qualification tenders for other main components of the extension works could be dished out next month.

* Based operating track record, we believe both IJM Corp Bhd (IJM) and Gamuda Bhd (Gamuda) are frontrunners for the LRT jobs. IJM - via Road Builder/Pati JV - was main civil sub-contractor for the existing Ampang/Kelana Jaya as well as KL Monorail lines.

* Gamuda's status as a tunnelling export and its successful deliverance of the high-profile Kaoshiung MRT project in Taiwan gives the group an added edge over its peers. We however, do not preclude possibility of a consortium being formed to facilitate entry of other local players at sub-contractor level, which may include WCT Bhd and Loh & Loh Bhd.

* Latest development validates our earlier stance that domestic contract flows are gaining momentum and reaffirms our OVERWEIGHT stance on the construction sector. Apart from LRT projects, tenders for the Bakun transmission cable project - estimated to cost RM10bil - could be out by 1Q10.

* We expect up to RM62bil worth of select cornerstone projects to be rolled-out over the next six to 12 months. In addition, there is now greater margin certainty due to a more stable environment in prices of building material as opposed to volatile prices during its peak in 1H 2008.

Oil & Gas Sector- Gorgon project on the way

Oil & Gas Sector - Gorgon project on the way
Call: Overweight (Unchanged)

* Chevron announced that it had agreed with its two partners, Shell and ExxonMobil on the final investment plan for the Gorgon liquefied natural gas (LNG) project in West Australia. Chevron announced that A$43bil would be used to develop the first phase of the Gorgon fields, which is expected to ship LNG to its clients in China, India, Japan and South Korea in 2014. Final hurdle was crossed after Shell approved the project at a board meeting held last Friday.

* Located on Barrow Island, about 130 km off the north-west coast of Western Australia, the Gorgon natural gas fields have about 40 trillion cubic feet of natural gas in reserve, equivalent to 6.7 billion barrels of oil reserve. Chevron will own a 50% stake in the liquified natural gas (LNG) venture while ExxonMobil and Shell will both have 25% stakes.

* The three partners are planning to build undersea pipelines with lengths of 865km connecting Barrow Island, a domestic gas plant, and a gas processing facility on the island with three LNG trains. Each train would be able to transport 5 million tonne of gas per annum, with a total production capacity of 15 million tonne a year. Each of the three partners will be responsible for marketing their own share of the Gorgon venture.

* Last month, PetroChina Co agreed to buy 2.25 million tonne of LNG per year from these gas fields in a deal worth A$50bil. Last week, Chevron and its partners announced further deals worth A$70bil to sell Gorgon gas to Japan and South Korea.

* Malaysian companies, which are bidding for jobs from Gorgon field are Wah Seong Corp (Wah Seong) and KNM Group (KNM). Currently, there are only two pipe-coaters who have been short-listed for the project, Bredero Shaw and Wah Seong. With value of the pipe-coating contract estimated at up to US$200mil, there is a high likelihood that the job could be split between the two players. We also understand that KNM is bidding to provide process equipment on tenders worth a few million US dollars for the LNG plant.

* There is another LNG project in Papua New Guinea involving a 440km pipeline, which is expected to be announced this year. Like the Gorgon project, only Bredero Shaw and Wah Seong have been short-listed for the pipe-coating job. There are another two significant LNG projects in Australia - the Browse filed of Western Australia's north-west coast and Ichthys - near Maret Island off Western Australia. Browse is expected to commence production by 2013-2014 with Ichthys by 2014-2015. Both Wah Seong and KNM are bidding for these projects. All in, including the Gorgon project, value of the pipe-coating contracts alone could be worth up to US$1bil.

* With the agreement on Chevron's investment plan, we expect the pace of announcement for the smaller packages to accelerate. Wah Seong had earlier expected that the Gorgon award to come in August-September this year. We continue to be positive on the O&G sector with our OVERWEIGHT call on the sector with top picks being Kencana Petroleum and SapuraCrest Petroleum. We also like Boustead Heavy Industries Corp, Coastal Contracts, Alam Maritim Resources, Sealink International and Wah Seong. Our HOLDs are Petronas Gas, KNM and Dialog Group. We have SELL calls on Scomi Group and Tanjung Offshore.

Mah Sing Group - Another land acquisition, 3 more in the pipeline

Price: RM1.84
Target Price: RM2.33
Recommendation: BUY

· 12.91ac freehold industrial land acquired in Bukit Jelutong, Shah Alam for RM21.3m (RM38psf) from Flextronics Technology Sdn Bhd. This is Mah Sing Group’s (MSGB) second land acquisition in 2009. Acquisition likely to be internally funded given its strong balance sheet; net gearing is 0.14x with RM159m cash balance at 30/6/09; additional RM235m inflow from completion of The Icon, Jln Tun Razak in 3Q09 will put MSGB in a net cash position.

· Triple frontage and strategically located in a matured industrial area. The site is within the existing Bukit Jelutong Business and Technology Park, implying ready infrastructures. Prime connectivity with accesses to the NKVE, Guthrie Corridor Expressway, ELITE and Federal Highway.

· RM100m GDV industrial development, named iParc, over 2 year period. 40 units of 3-storey semi-detached corporate warehousing units (flexible layout), with 5,400sf - 7,400sf built-ups, will likely be priced at RM2.4m-RM2.8m per unit. Price comparables are lacking as most of the buildings are terraced and old, with built-ups of >10,000sf. Based on the above, we estimate 250,000sf NSA, implying low yield per acre, and hence, we expect leaner GDP margins of 20%-22%. Although margins may not be as attractive, there is quicker profit recognition and recovery of land costs, along with better cash flow.

· Local light industrials looking to upgrade are MSGB’s main target market. We caution investors that industrial property demand could be soft in current economic conditions. However, as the economy recovers, MSGB can quickly capture the area’s pent-up demand as 1) iParc product is unique as these are semi-detached, not link units, allowing for better logistical planning 2) not many new products.

· No changes to our FY09-10E net profit of RM96m-RM100m since launch date is not firmed yet. However, under MSGB’s quick-turnaround model, launch is usually 6-9 months of land acquisition.

· Fair value of RM2.33 unchanged based on our FD SOP RNAV. We are valuing the land at purchase price given the lack of comparables. Near term catalysts are 1) 3 more land acquisitions by year end comprising of 1 township size land and 2 niche landbanks in Klang Valley 2) another en bloc deal for Southgate Apex blocks by year end 3) improved market sentiment. Our fair value implies 14.6x FY10E PER vs. 14.1x historical average. BUY.

SP Setia - 9M09 within ours, but below markets

Price: RM4.60
Target Price: RM4.25
Recommendation: TRADING SELL

· 9M09 net profits of RM114m was within our forecast but below street’s estimates, accounting for 74% of our FY09E net profit of RM155m and 66% of street’s RM173m. SP Setia (SP) results were mainly buoyed by the 5/95 home loan scheme
offered to its Klang Valley, Johor Bahru and Penang projects/townships.

· YoY, 9M09 net profits was 17% lower. Stripping out preceding period’s RM26m land disposal gain to AEON Co. (M) Bhd, 9M09 net profits fell 3% YoY. 9M09 EBITDA margins were compressed by 4.3ppt to 15.1% because of high building material cost (particularly in 1Q09), as well as, lower margin product mix (e.g. more Johor Bahru township products were sold in 9M09 vs 9M08).

· QoQ, 3Q09 pretax profits fell marginally by 1% to RM53m. Although 3Q09 topline grew 2% QoQ to RM317m, margins were compressed by the 5/95 home loan scheme promotional cost (e.g. interest over construction period).

· 79% take-up achieved for Sky Residence Phase 1 (211 units), at 31/7/09, since signage of SPAs in June 2009. Phase 2 (211 units) is open for preview sales/bookings; note that Phase 1 SPAs were signed upon 70% booking sales. Launch of Setia Walk Phase 2 (253 units) in June 2009 was very promising given 82% take-up in total (338 units).

· No changes to our FY09-10E net profit of RM155m-RM160m. Termination of the 5/95 home loan scheme promotions may cap future sales performance in the near term. Since ceasing promotions on 19/7/09, July 09 sales fell 23% MoM to RM217m (refer to 17/8/09 report). Nonetheless, SP’s 9M09 sales of RM1.3b have exceeded its FY09 sales target of RM1.1b. RM2.1b unbilled sales gives 1.5 years visibility. We do not discount possibility of new and more innovative promotional programs to boost FY10 sales.

· Maintain Trading SELL and fair value of RM4.25, based on FD SOP RNAV. We believe SP is expensive at 29x FY10E PER vs. 1) 2007 property bull-run year forward PER of 22x 2) 10x peer averages 3) 14x FY10E market PER 4) 11x historical averages. Similarly, 2.3x PBV is a premium to its 1.0x peer averages and 1.2x historical averages. We advice profit taking based on good news flow; (e.g. finalization of the China project, more Vietnam projects and improved sales, commencement of Abdullah Hukum project), we believe significant contributions will only be felt post FY10.

KNM Group- HOLD - 18 Sep 2009

KNM Group- Verwater tie-up; precursor of benefits to come (Company Update)

Price: RM0.805
Target Price: RM0.72
Recommendation: HOLD

KNM’s fully owned subsidiary - KNM International S/B announced a 50% stake acquisition in Verwater Industrial Services S/B for RM100.
The still dormant company’s principal activities include the business of relocating and jacking of tanks, catalyst change-out and chemical cleaning works. It is owned by the founder of Verwater Group of companies, Mr Verwater Paul Antonius. The group was awarded, in June this year, an RM1.1b (EUR220m) contract by Lenstar Investment Ltd, to construct a 1,000,000m3 storage terminal in Kedah. The tank farm will be used by the Malaysian company Pristine Oil for the storage of crude oil. Construction has yet to be begin, but all necessary permits and land (100ha) to start-up the built up has been secured

· Potential contracts to be awarded post tie-up. We were impressed by management, of potential contract awards for the fabrication of process equipment in the tank farm, within the year. Their tentative valuation of the project of at least RM500m would bolster current order book standing to RM3.3b (previously RM2.8b) but will not change its tender book as the project had not been part of the RM14b previously quoted. Based on our sensitivity analysis, assuming the project, at 15% net profit margin commences in FY10 and it takes 2 years to complete, FY10 EPS will accrete by 0.9sen (7.9x – 8.8x). However, we hold off on changing our estimates pending actual awards of the contract, which is likely to be end of this year.

· Results for Gorgon tender earliest by 1HFY10. At present, Oceania accounts for 17% of their tender book, coming to some RM2.4b worth of projects which would have included the above. We are maintaining our 15% strike rate assumption on the RM14b tender book as such we make no change to earnings in regards to the project. But active news flow of Gorgon project is positive.

· Chad deal still on pause. No approval from their Chadian counterparty for the bid of extension as yet. Management has stated they are treading carefully and efforts are to ensure all ground will be covered, given the significant risks involved. They have extended the finalisation of the salient terms of the project to 30 November 2009.

· Maintain hold and target price at RM0.72. We are positive both on the present news and the Gorgon project as risk of contract replenishment slowly ebbs.

Plantation - 17 Sep 2009

Plantation - Weighed by Supply Concerns (Sector Update)

· 2009 supply review. YTD production was disappointing at 10.9m MT (-4.0% yoy) with the largest output drop from Sabah (-11.4% yoy). Production from Peninsular Malaysia has picked up from April onwards with a smaller YTD drop of 1.2%. Meanwhile Sarawak plantation was not affected and had managed a 3.4% growth YTD.

· Lower 2009 production attributed to extreme rainfall in Sabah. Initially the production drop was assumed to be resulted from biological yield stress following a bumper harvest in 2008. Industry players later realised that they underestimated the rainfall impact in early 2009 which had led to inferior FFB and low OER up till Aug 09. We do not expect strong production recovery for the remaining 4 months in 2009 and anticipate 2009 CPO output at 17.0m MT (-4.0% yoy).

· 2010 production outlook. We envisage 2010 production to be sluggish still with low single digit growth. Impact from lower fertilizer usage will start to weigh by 1H10 while El-Nino will pressure yield from 2H10 onwards.

· Robust demand supported by strong exports. YTD imports from China, US and EU were relatively flat, but India and Pakistan’s intake had been very strong. Near term exports is likely to be softer as buying for Sept and Oct festivals had completed. India’s palm oil import however should stay buoyant and could surprise on the upside as the country’s crop is affected by worst drought in the decade.

· Neutral on the sector, switch to value picks. Our 2009 and 2010 CPO price forecast is RM2200/MT and RM2400/MT respectively. Our favourite stock for the sector is KLK (BUY; TP: RM15.00) which valuation still lags IOI (Trading SELL; TP: RM4.98) and Sime (HOLD; TP: RM7.90). Hap Seng Plantation (Not Rated) offers cheap valuation at only FY10 PER of 11x based on consensus forecast. Other BUY ideas include Sarawak Plantation (BUY; TP: RM2.60) and NPC Resources (BUY; TP: RM2.96).

STOCK FOCUS OF THE DAY

STOCK FOCUS OF THE DAY
Alam Maritim Resources : Underwater services to power earnings BUY

We maintain our BUY call on Alam Maritim Resources (Alam) with higher fair value of RM2.37/share pegging its FY10F earnings to a PE of 10x. While vessel chartering remains its bread and butter, underwater services would provide the next growth catalyst with a Swiber deal - to co-own a pipelay barge - completing the unit. We have increased our earnings estimates and we estimate an EPS of 20sen-27sen (+4%-11%) for FY09F-FY11F. Alam is trading at 9x, a 10% discount to the oil & gas sector PE average of 10x. We believe Alam deserves a multiple of at least 10x in line with the sector’s average as it is well positioned to ride the next upcycle with a strong record of accomplishment.

QUICK TAKES
AirAsia : Completes bookbuilding exercise BUY
YTL Power International : Short-listed for Bangladesh power project SELL
Oil & Gas Sector : Gorgon project on the way OVERWEIGHT

NEWS HIGHLIGHTS
Proton Holdings : Lotus takes BMW’s F-1 berth, returns after 15 years
MISC : Said to price RM1bil sale of sukuk
CIMB Group Holdings : Plans RM300mil Islamic fund
Hong Leong Financial : New product to drive HLB retail deposit growth

AmFraser Research
SingTel : Structural separation of Telstra bodes well for Optus HOLD

COASTAL (TP RM2.84– BUY) Company Update: Still The Same Coastal

Recently, we met up with Coastal’s management and gather that there is no change in the company’s business strategy of ‘build, then sell’. It also expects to expand its vessel chartering business to obtain recurring income. We maintain our Buy on Coastal with a target price of RM2.84, which is based a PER of 8x FY10 EPS. We like the company for its RM1.5bn-strong orderbook, which has proven to provide good quarterly earnings contribution.

AIRASIA (TP RM1.48– NEUTRAL) Company Update: Wraps up Fund Raising of RM505.4m
ADVENTA (TP RM1.87– BUY) 9MFY09 Results Review: Pinched by Forex Loss Again
TECHNICAL VIEW: FBM KLCI - Inching Up

AEON Credit Service (M) - On the up and up

AEON Credit Service (M) - On the up and up (Company Update)

Price: RM3.91
Target Price: RM4.35
Recommendation: BUY

· AEON Credit Service’s (ACSM) upcoming 1HFY10 results (to be announced on 17 September) is expected to register double-digit net profit growth YoY. This will be sustainable through FY10 as consumer sentiment improves (demonstrated by MIER’s Consumer Sentiment Index in 2QCY09 that is up by 35 pts YoY).

· Expect FY10 net profit growth forecast of 25% to be met underpinned by steady demand for easy payment schemes and significant growth in the credit card division. Stronger earnings are expected in 2HFY10 in-line with seasonality (Hari Raya and year-end festivities) and AEON card booster.

· Joint AEON credit card and loyalty J-Card biggest growth catalyst for credit card division. The co-brand card that was launched in August 2009 is expected to expand ACSM’s cardholder base by 38% to 180,000 by end-FY10 and result in break-even for the division.

· Easy payment schemes continue to be ACSM’s bread and butter accounting for more than 70% of group revenue in FY10. We anticipate double-digit sales growth for Motorcycle Easy Payment (MEP) in 1HFY10 and high single-digit sales growth for General Easy Payment (GEP) spite of lower sales growth compared with 1HFY09 due to exceptionally high demand for motorcycles in previous year with fuel price hike.

· Additional upside from alternative income streams. ACSM is seeing growth in its fee-based income as it promotes complementary insurance products more aggressively via cross-selling and telemarketing. ACSM is also deriving revenue from new sources such as used car financing (to be offered beyond Klang Valley to East Coast and East Malaysia) and loan collection agency (expected to begin operations in 4QFY10), that are likely to translate to material earnings growth in FY11.

· FY10 and FY11 net profit forecast unchanged. We have estimated FY10 net profit growth of 25% based on net receivables growth of 24% and FY11 net profit increase of 23% based on net receivables growth 22%.

· Raising target price to RM4.35 with rolling over to FY11 EPS of 62.2 sen and target PER of 7x (at 10% discount to regional average to account for lower trading liquidity). Our target price offers a potential upside of 11.3% and dividend yield of 4.3%. BUY.

Sime Darby Berhad: The China angle to provide the next up-leg?

China government to take-up 10% of Sime? On Bloomberg news, Second Finance Minister denied news (also on Bloomberg) that a 10%-stake in Sime is being offered to parties related to the Chinese government via issue of new shares. Subsequently, The Edge reported that the matter has already been discussed and approved by the Cabinet.

· Impact on operations/finances. A potential deal will enable Sime access to investment opportunities in the high growth China market, with prime acquisition targets likely in the downstream sector (i.e. refineries). In a scenario analysis, potential sale of 10% in Sime via new shares assuming a 0-10% discount to market price would raise M$4.6-5.1B, which is 65-70% of the M$7B budgeted capex in FY10E. This would cut FY10E net gearing from 21% to 0%, and result in 6.5-6.7% EPS dilution assuming no immediate contributing acquisitions. Sime’s downstream segment incurred a loss of M$173MM in FY09. Hence we believe execution is still crucial in any acquisitions in this area.

· Impact on valuations: A comparison with Wilmar (China agri-play). At 17x CY10E PE, Sime already trades almost at par with Wilmar (Figure 1 & 2). Wilmar is also a larger company with a much more focused agri-business strategy, while Sime continues to lack focus. China also accounts for 49% of Wilmar's earnings versus just 3% for Sime. Hence, we believe much of the potential good news if at all is priced-in, and further upside potential from here hinges on the value-add in terms of synergistic and/or earnings accretive acquisition opportunities which a potential deal may offer.

· Maintain Neutral. We assume CPO prices at M$2,450/t (spot: M$2,200/t) for 2H09-2010E. We believe a clearer, more immediate valuation upside is further improvement in plantations profitability after operational set-backs in FY09. Our Jun-10 SOTP-based PT for Sime is M$8.70. This could rise to M$9.30 (under similar methodology as our base case) if CPO yields and cost normalize to FY08 levels.

Public Bank- Well prepared for rate volatility (Company Update)

Price: RM10.10
Target Price: RM11.90
Recommendation: BUY


· Strong volume without sacrificing margins. In response to last year slowdown in customer demand and OPR cut, PBB has since launched a new pricing-led strategy for both asset and liability, to grow its market share. This is already delivering better volume metrics without a drag on margins, and growing net interest income by RM583m per annum. More encouraging, the move highlights the extent to which PBB’s business model relies on pricing to drive volume growth and pushing effectiveness of the vaunted cross-sell strategy. Despite a stronger top-line environment, PBB is pursing more aggressive cost targets (cost to income ratio of 33%), where its historical track record is stronger. We remain optimistic on PBB, and reiterate our BUY rating and RM11.90 price target.

· Volume trends picking up. The Malaysian banking sector offers little volume growth. Bank Negara Malaysia data indicates that property mortgages are again growing at moderate pace (+12.18% YoY) while hire purchase loans are lower at (+4.2% YoY). Momentum for deposit growth meanwhile has decelerated in July where some of the liquidity was diverted to the new government trust fund while the corporate bond segment remains quiet. Against this backdrop, PBB has turned more aggressive in both asset and liability growth, especially on the floating rate loan. This is starting to bear fruit and positioned PBB to benefit from the expected rate hike in 2HFY10.

· Margins pressure has stabilized. However, the upside of this volume turnaround is that it is price driven and comes at the expense of cost of funds without sacrificing of net interest margin. Margins in fact should moderate and pick up slightly in 2HFY09. Hence, with the volume growth we should expect stronger revenue growth. Management expects average borrowing/funding cost to be about 2% in 2010 from FY08’s 2.4%, despite a strong deposit growth.

ASTRO All Asia Networks- 1HFY10 results underwhelm (Company Update)

Price: RM3.65
Target Price: RM3.65
Recommendation: HOLD


· Below expectations. ASTRO All Asia Networks (ASTRO) registered 1HFY10 net profit of RM62.3m, accounting for 32% of our FY10 estimate and 30% of street forecast. This was primarily due to higher content costs and loss by associates. A second interim dividend per share of 2.5 sen tax-exempt was declared.

· Weak consumer sentiment still evident in 1H with lower net additions (down 32% to 135,000) and ARPU (down by 6% to RM79). 1HFY10 revenue rose a slight 4% YoY to RM1,515.6m due to higher sales contribution from MC-TV and TV programming divisions. However, EBITDA margin contracted by 1% as higher content and operating costs coupled with lower advertising and other income offset higher revenue and lower overhead and administrative costs. Having removed the RM11.1m provision for termination of Indonesian services (that is significantly lower than the RM376.8m provision in 1HFY09), 1HFY10 core net profit was 42% lower due to higher loss incurred by its Indian associate and higher taxation.

· Higher subscription and advertising revenue locally but loss from Sun grows. Revenue in 2QFY10 remained stable with small 2% uptick QoQ from growth in MC-TV subscriptions and higher airtime sales in the TV and Radio segments. 2QFY10 EBITDA was 8% higher QoQ largely because higher advertising income and subscription revenue, as well as lower content costs outweighed higher cost of sales and other operating expenses. Net profit excluding EI declined 11% QoQ due to greater associate’s loss and corresponding higher tax rate.

· HD-TV roll-out in FY10 as ASTRO seeks to retain viewer interest and market leadership. Cost of investment for the broadcast of HD-TV is pegged at RM450m in FY10 and RM350m in FY11.

· Earnings forecasts in FY10 and FY11 unchanged. We anticipate stronger 2HFY10, with earnings in 3QFY10 boosted by the RM12 sports package price increase and English Premier League, both of which take effect in August 2009. Our assumption of FY10 monthly ARPU of RM80, content cost at 36% of revenue and EBITDA margin of 22% is in-line with management guidance.

· Downgrade to Hold from Trading Buy as the stock has reached our target price of RM3.65 based on DCF valuation utilising WACC of 10% and terminal growth rate of 4%. While 2HFY10 is expected to post stronger earnings, we believe that the launch of HD-TV and foreign associate will put a drain on company resources. We believe that the stock is fully-valued at 37x PER.

Plantation- Inventory up again (Sector Update)

· Aug inventory edged upwards to 1.42m MT (+6.2% mom) as exports slowed (-9.5% mom). Production remains disappointing at 1.49m MT, with a marginal gain of 0.2%.

· YTD Sabah production fell 11.4% yoy to 3.24m MT as it is still enduring the brunt of extreme weather in early 2009. According to Genting Plantation’s (HOLD; TP:RM5.56) recent tele-con guidance, Sabah recorded >1200mm rainfall in 1Q, which was the highest rainfall in the past 5 years. Apart from deterring harvest activities, the harsh weather affected pollination and resulted in mildly formed fruit bunches with inferior weight and OER. While the weather effect is expected to last for 5-6 months, we opine that Sabah production will continue to be lacklustre for the rest of the year.-

· MoM exports dropped 9.5% to 1.32m MT on the back of slower intakes by China, India, Pakistan and EU. The lower exports suggested that buying for festive demand for Sept and October are mostly completed. Despite that, we note that Aug export was still higher than Feb-Jun monthly export figures.

· Volatile CPO price. CPO price reached the high of RM2515/MT in mid-August but had been sliding since in anticipation of higher oilseeds supply as soybean harvesting season for China, India and US commence in Sept. We believe near term CPO price will range bound between RM2100-2300/MT. CPO price is less likely to dip below RM2000/MT given the still tight supply condition.

· Go for value picks. Investors who wish to maintain exposure in the sector should go for laggards in view of rich valuation for most big planters. Our top pick for the sector is KLK (BUY; TP:RM15.00) which valuation still lags Sime (HOLD; TP:RM7.90) and IOI (Trading Sell; TP:RM4.98). Other BUY ideas include Sarawak Plantation (BUY; RM2.60) and NPC Resources (BUY; RM2.96). Hap Seng Plantation (Not Rated) also offers cheap valuation as it is trading at only FY10 PER of 11.1x based on consensus estimates. We maintain our 2009 and 2010 CPO price forecast at RM2200/MT and RM2400/MT respectively.

SapuraCrest Petroleum- 2QFY10 results shine

Price: RM1.70
Target Price: RM1.80
Recommendation: HOLD

· 1HFY10 results in line. 1H10 net profits surged to RM78m, meeting 54% of our expectations (RM144.5m) and 53% of consensus (RM147.7m). In line with historical trend, sequential improvement in 3QFY10 is expected. First interim DPS of 3.0sen declared in the current quarter.

· QoQ, net profit (RM52.4m) up 104.1%, driven by increase in operating margins of the drilling division and revenue from IPF division. Drilling division margins up 10.7ppts to 40.2% (from 29.5%) due to rate revisions for 2 rigs, T9 (USD135k per/day) and Teknik Berkat (USD121k per/day), whilst improvement in IPF division (107.8% up) was no surprise, as historically 1Q and 4Q are seasonally softer. Gearing levels improved to net cash (net debt of 0.3x previously).

· YoY, net profit up a significant 63.1%, again due to margin accretion of the drilling division. Associate earnings of RM1.7m (Q2FY09: loss of RM10.3m) also lent support to bottom-line, illustrating the JV (SapuraAcergy) earnings turnaround that management has guided.

· Large order book anchor earnings. Order book stands at a hefty RM5.3b (Sapuracrest: RM3.7b (ex Q2FY10 revenue); SapuraAcergy: RM1.6b (50% of awarded contracts) with contract expirations stretching up till FY12 thus providing earnings visibility. Tender book remains unchanged at c.RM4b-RM5b (guided since April 09).

· Petronas RM3b umbrella contract. There is much excitement on the 5-package umbrella contract that Petronas is dishing out on behalf of 11 production-sharing (PSC) operators. Besides Sapuracrest, there are 5 contenders and latest news (Upstream online), are for awards in October. Group’s strike rate should be high as they meet the ‘Malaysian’ requirement and have the necessary capacity to execute the contract. We have not factored any earnings into our forecasts as yet.

· Revise net earnings up 9% to RM157.3m for FY10 and up 8% to RM196.4m for FY11, with upward bias pending meet with management. For now, we revise our JV earnings to RM5m for FY10 (from RM10m loss expectations) as it is evident the turnaround is feasible. We also incorporate RM4.8m of Iwaki decommissioning project earnings to our FY11 JV contribution (now RM26.8m) and raise our FY11 operating margins’ assumptions of IPF to 5% (previously 4.5%) and drilling to 29% (previously 27%) to reflect the current margin appreciation.

· Upgrade to HOLD with target price of RM1.80 based on calendarised CY10 EPS of 15 sen on PER of 12x (previously 11x). We accord it a premium of 2x to the peer average, as it has finally shed off its ‘spotty execution’ reputation, whilst it key assets, ala the Sapura3000, and strategic ramp ups for other divisions (eg. GE Oil and Gas alliance; acquisition of 60% stake from Scomi Oilserve) will definitely pave the way should any new opportunities arise

CIMB: BJTOTO TP 5.95 GENTING TP 9.30

What's on the table

Media sector update – Jul 09 adex: Hold the applause
TV adex should stay resilient for the rest of the year. The Malay newspaper segment is likely to continue outperforming other languages. Although this trend is encouraging, there is a question mark over 4Q industry adex after an expected uptick in 3Q due to the double festivities. Taking our cue from the change in our 2009 GDP growth forecast, we reduce our forecast of 2009 adex contraction from 6.6% to 6.2%. Our 7% adex growth forecast for 2010 looks achievable, underpinned by the FIFA World Cup and Commonwealth Games. Although the leading indicators are pointing north, the absence of strong earnings visibility should cap share prices until year-end. We remain NEUTRAL on the sector. In view of the outperformance of the Malay newspaper adex which we believe is sustainable, we raise NSTP's FY10-11 forecasts by 41-50%, and DPS forecasts from 5-6 sen to 8 sen. We upgrade NSTP from Underperform to NEUTRAL with a higher target price of RM1.90 (RM1.34 previously), pegged to an unchanged 15x CY10 P/E. Continued weak data points for the English and Chinese newspaper segments should sustain the shift of ad dollars to Malay papers. Demographics, i.e. a growing base of Malay readers, bode well for NSTP.

Quick takes – Genting Bhd update – Call waiting

Results – Berjaya Sports Toto 1QFY10 in line – Lucky boost
News of the Day
– Genting’s Singapore unit announces S$1.63bn rights issue
– CIMB to finalise leaseback transactions
– CPO price drop on talk of weaker exports
– DRB-Hicom seeks partners for Saudi project
– Dayang buys two fifths of Brocos for RM132m

What's on the table

SapuraCrest Petroleum update – Expect a barrel of positives in 2Q
We highlight two issues in this note: 1) 2Q results, which will be released this week, are expected to be commendable and in line with our forecast, with a net profit of at least RM35m (+35% qoq and +10% yoy). The main catalysts are higher drilling charter rates, improved associate contribution and a new Shell contract. 2) Winners of the five-package, RM3bn transport & installation contract may be announced in Oct instead of Nov. Supported by in-house pipelay barges, SapuraCrest is gunning for all five packages. Although we maintain our forecasts and target basis of 15x P/E, our target price rises from RM2.07 to RM2.56 as we roll it a year forward to end-CY10. SapuraCrest remains firmly an OUTPERFORM, with the potential re-rating catalysts being 1) new contract wins, 2) success in new markets, and 3) a growing fleet of strategic assets.

Ann Joo Resources visit – Ready for blast-off

Economic news – Aug 09: Reserves rose by US$2.1bn

Economic news – Jul 09: Export contraction has hit the bottom
News of the Day
– Palm oil prices drop to near 6-week low amid output concern
– Government may decide on nuclear option by early 2010
– Sarawak Energy and Tenaga exploring funding options for Bakun
– Naza duo, partners raise offer price for Kumpulan Jetson to RM1
– Malaysia plans to review renewable energy tariff rates

JPM: Singapore Banks: Low season

Singapore banks appear to be wedged in a position of active inertia. The banks have means to deliver RoE growth but intensifying competition, lack of inorganic growth and a transition in strategy are stumbling blocks in the near term. This phase of curtailed activity should be further compounded by low rate/low credit demand environment. We expect limited catalysts for these stocks in the next three to six months, hence maintain an UW rating on the sector versus both Singapore and Asia ex financials universe.

· Margins for the sector should continue to remain under pressure as loan spreads have peaked and are on their way south. The pricing power of 4Q08/1Q9 has reversed as high system liquidity and improving risk appetite has led to return of competition. Liability spreads on the other end continue to remain almost negligible as benchmark rates are at record lows – and should continue there for at least rest of the year.

· Loan growth for the sector should pick-up only by 4Q09 as credit demand would lag the rebound in economy. As of now, loans are simply shifting from construction to mortgages as buildings get completed. The key to growth is revival in business loan demand. As of now, excess capacity and still misty outlook is preventing the corporate sector from gearing back up. Also, banks are still competing at the lower end of the risk curve. We expect both of these demand/supply factors to change over next two three months but financial impact should only be evident in 4Q09 results.

· Sector has missed lucrative opportunity of transformational inorganic growth in 4Q08/1Q09. The probability increasingly is of an uneasy trade-off between sustained low RoE and an expensive deal. At this point in time, opportunities do exist but few and far between with only sharp deal-making capabilities resulting in RoE enhancing transactions. While we view this more as an opportunity but waiting for Godot has not yielded positive returns, hence we would rather wait for any deal to be concluded before giving the banks any benefit of doubt.

· The banks are in transition stage, with DBS CEO designate Piyush Gupta joining in November, UOB making a shift from a significantly conservative outlook of last six quarters to a growth oriented one and OCBC aligning itself to a world of tighter spreads. These phases invariably lead to lack of significant game-changing initiatives but recently reported bid for ING Asian Private Banking business by DBS and higher competition by OCBC and UOB provide hope for a different (positive!) outcome. We maintain OW on UOB and DBS and Neutral on OCBC, with Long DBS/Short OCBC as a near term trade.

AMWATCH: STOCK FOCUS OF THE DAY

STOCK FOCUS OF THE DAY
Sunway City : Massive unsold stocks and possible REIT delay HOLD

We are initiating coverage on Sunway City Bhd (Suncity) with a HOLD rating and fair value of RM3.45/share based on 25% discount to our NAV estimate of RM4.60/share. Primary catalyst for Suncity continues to centre on the potential monetisation of its large portfolio of investment properties worth an estimated RM3bil - RM4bil via a REIT. We are forecasting earnings of RM175mil in FY09F (18 months) and RM139mil in FY10F. We have assumed dividend payout ratio of 20%, translating to a dividend of 5 sen - 6 sen/share over FY09F-11F. Management's decision to diversify its assets for the REIT is not appealing and we expect there will be continued delays in the listing of its REIT unit.

QUICK TAKES
Guinness Anchor : Maintaining the lead into FY10F BUY
Kulim Bhd : To sell stake in PNG? BUY
Construction Sector : PORR back on the cards? overweight

NEWS HIGHLIGHTS
IJM Plantation : Eyes downstream activities in India venture
Sime Darby : Stake offered to China?
Property Sector : Cash-rich AEON scraps REIT plan

AmFraser Research
Mobileone : Qala buy to boost strength in corporate broadband BUY
ComfortDelGro Corp Ltd : Growth opportunities support long-term prospects BUY

Las Vegas Sands to Raise $600 Million Before Asia IPO

Sept. 2 (Bloomberg) -- Las Vegas Sands Corp. is selling as much as $600 million in bonds that will automatically convert into shares of its Macau business when the unit is listed on the Hong Kong Stock Exchange.
The casino company is raising the cash as a “stop-gap measure” to avoid defaulting on its U.S. debt, Janet Brashear, an analyst at Sanford C. Bernstein & Co., wrote in a note to clients today.

Las Vegas Sands expects to issue the bonds on Sept. 4, and will pay 9 percent interest, the company said in a regulatory filing today. Las Vegas Sands spokesman Ron Reese, in an interview today, declined to say how the money will be used.
Lenders eased restrictions on Las Vegas Sands’ $3.3 billion Macau credit line last month, including permitting stock and bond sales in Asia in exchange for higher interest rates. Las Vegas Sands said Aug. 20 the Macau unit applied to the Hong Kong Stock Exchange for the IPO, without giving a date for the sale. Conversion of the debt into shares will be mandatory when the stock is sold.

The moves “have clearly helped to strengthen our balance sheet,” Las Vegas Sands President Michael Leven said in a statement today. The company also plans to sell malls and condominiums it has developed in Asia “when economic and capital market conditions are appropriate,” to help pay down debt, according to the statement.

Mothballed Casino
Las Vegas Sands needs cash from the Hong Kong IPO to restart work on mothballed lots at its $12 billion, 20,000-room hotel and casino complex on the Cotai Strip in Macau, the only part of China where casinos are legal. Construction stopped last year when revenue growth slowed and credit markets froze.

Las Vegas Sands, based in Las Vegas, rose 48 cents, or 3.6 percent, to $13.93 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have more than doubled this year.

Goldman Sachs Group Inc. is managing the notes offering, according to Bloomberg data.

What's on the table

What's on the table

Initiating coverage – Eastern & Oriental – Deep-value high-beta property play
This former investors’ darling has fallen off investors’ buy list over the past few years. While E&O’s execution track record leaves much to be desired, the share price has over-reacted to the bad news and ignored the company’s pluses, i.e. its strong brand name recognition and excellent landbank. The strong response to recent launches attests to the group’s marketing prowess, which it will flex with the aggressive launch line-up of over RM4bn worth of properties over the next 2-4 years. We initiate coverage on E&O with a TRADING BUY recommendation and a target price of RM2.18 as we tag a 30% discount to RNAV/share of RM3.11. E&O is not only a highly liquid deep-value stock but is also one of the highest-beta property stocks. It is now our top pick in the sector. Potential re-rating catalysts include

1) the unlocking of the hidden value of its assets,
2) strong earnings momentum, and
3) a return of investor interest in bombed-out liquid developers.

Banking sector update – 2Q09 results: Holding the fort
Malaysian banks’ ability to sustain 2Q09 core net earnings at RM2.91bn even in an economic downturn is heartening. The results are above our expectations as five banks beat our forecasts and only two undershot. The outperformance came mainly from lower-than-expected loan loss provisioning. We are projecting a minuscule 0.3% rise in banks’ 2009 net earnings, which will be supported by 7-15% increases in net and non-interest income. We are forecasting an unchanged loan growth of 5-6% and a rise in gross NPL ratio from Jul’s 4.4% to 5.4% (6.6% previously) for 2009. The sector remains an OVERWEIGHT due to the potential re-rating catalysts of

(1) revival of 2010 earnings growth,
(2) recovery of investment banking income,
(3) benefits of rejuvenation exercises, and
(4) strong growth potential for overseas operations. AMMB remains our top pick for the sector. Among the big-cap banks, we prefer Public Bank.

Economic news – Macro Pulse: Balancing acts to sustain a recovery

Malaysia Banks: 2Q09 results wrap: Upgrades across the board

2Q09 results stronger than 1Q09 due to capital market rebound whilst NPLs remain benign. Of the 5 banks under our coverage that reported 2Q09 results, four reported stronger than expected results whilst only Maybank’s numbers were impacted by the impairment of BII and MCB. The stronger quarterly results were mainly due to the Q/Q improvement in top line as a result of
1) stronger non-interest income levels driven by better than expected brokerage and wealth management income levels as well as "held-for trading" securities gains as capital market conditions improved despite net interest margin compression (due to recent OPR increases); and
2) absence of significantly larger loan loss provisions as NPLs remain benign.

· Improved outlook for next 18 months. With improved confidence and visibility that the domestic economy is likely to recover by 4Q09 coupled with recent measures by the PM Najib Razak administration to bolster capital markets, both JPM and consensus are expecting for bank earnings to be stronger in the coming months driven mainly by top line growth as NIMs recover from temporary compression of recent OPR rate decreases whilst loan growth holds steady at the 6-8% level and the fee-income business picks up momentum as a result of improved economic activity and better capital market conditions. Also, as fears of a prolonged recession abate, risks of significantly higher NPL levels are fast dissipating which reduces the risk of rising provision levels. Note that bank management is understandably cautiously optimistic vs street expectations over the earnings outlook at this stage given the recent u-turn of events compared with the previous quarter. The disconnect at this stage remains the risk that the economy fails to rebound in 4Q09 which puts top line expectations at risk while the possibility of higher NPLs re-emerge due to the slowdown.

· Our preference at this stage is for banks with strong wholesale banking franchises as the improvements in the flow business has yet to be fully captured, i.e. CIMB and AMMB are our top two picks. Although the consumer banking business will benefit from improved loan growth and lower loan loss provisions, the impact of the recovery on the bottomline is likely to only be felt at the earliest in 1H10, thus Neutral on Public and HL Bank. We are Underweight on Maybank as we believe its transformation program will take another 18 months to translate into meaningful profitability levels that justify current valuations.

Bintulu Port Holdings - BUY - 31 Aug 2009

Bintulu Port Holdings- Hit by one-off (Results Note)

Price: RM6.10
Target Price: RM6.75
Recommendation: BUY

· 1H09 net profit of RM67.5m was slightly below expectations at 47.8% and 46.6% of our forecast and street’s estimate respectively. Lower result was mainly due to one-off lease payment in 2Q09. As expected, group announced an interim single tier dividend of 7.5sen.
· QoQ, 2Q09 revenue declined 11.2% on lower cargo volume across all segments. We however take comfort that 1H09 LNG volume fell by only 3.7% yoy while other cargoes such as dry bulk, break bulk and container tumbled 23%-31% yoy. Pre-tax unexpectedly dived 58.5% due to the one-off lease payment (c.RM10m) which is not expected to recur in the subsequent quarters.
· YoY, 1H09 turnover dropped 4.1% to RM219.0m on lower volume handled. While port volumes fell, Biport Bulkers’ palm oil intake continued to increase as sales surged 79% to RM7.9m. Group’s pre-tax shrank 20.9%, owning to the one-off, reduced port volumes and lower interest income.
· Adjusting our FY09 forecast downwards by 7.6% to account for the one-off lease payment. Our FY10 net profit forecast is 1.7% lower after model refinements. Maintain BUY recommendation with unchanged target price of RM6.75. Yield is decent at 6.3%.

CIMB DAILY NEWS & COMMENTS - 31th August 2009 PART 1

Banking sector update – Acing any stress test
Banks’ loan growth was sustained at a yoy pace of 8.4% in Jul 09 (8.3% in Jun 09), supported by the rise in loans classified as “others”. But the annual pace for the key loan segments eased marginally. Meanwhile, the 3-month net NPL ratio inched down 10bp mom and 48bp yoy to 2.1% in Jul 09. Due to the still-benign NPLs, we are cutting our 2009 projection of industry gross NPL ratio from 6.6% to 5.4%. However, we are keeping our projected loan growth for 2009 at 5-6% as the momentum for business and consumer loans weakened in Jul 09. We maintain our OVERWEIGHT stance on the sector, predicated on the potential re-rating catalysts of (1) a revival of earnings growth in 2010, (2) recovery in investment banking income, (3) benefits of banks’ transformation programmes, and (4) growth potential in overseas operations. AMMB remains our top pick.

Results – Axiata Group 2QFY09 above – A strong 2Q across the board

Results – Bintulu Port 2QFY09 below – Hit by one-off storm

Results – Carlsberg Brewery 2QFY09 below – No reason to cheer in 2Q

Results – Kurnia Asia 4QFY09 above – TOPping expectations

Results – Lafarge Malayan Cement 2QFY09 in line – Share price on shaky ground

Results – LCL Corp 2QFY09 below – Decorated in red ink

Results – Metrod 2QFY09 below – Slow progress

Results – MRCB 2QFY09 above – At the start of the S-curve

Results – MTD-ACPI 1QFY10 in line – Finally in the black

Results – Nestle 2QFY09 in line – Easy-to-digest results

Results – Sime Darby 4QFY09 above – Outperforming its KPI

AXIATA Group – In line

Price: RM3.11
Target Price: RM3.05
Recommendation: HOLD

· Results in line. 1H09 revenue of RM6.03 billion came in at 49% of our forecast and consensus. Meanwhile, 1H09 net profit of RM590.7m was 53% of our forecast and 50% of consensus. Main driver Celcom had increased its revenue contribution to 50% (1H08: 47%) and 56% of EBITDA (1H08 : 50%). A more benign exchange rate environment had also uplifted the improved results especially in 2Q09 with a forex gain of RM532.1m;
· QoQ, group’s revenue up 10.3%, driven by Celcom (5% growth) and Excelcomindo (+14%). This is very commendable given the trying economic conditions. On a constant currency level, group revenue would have grown at 8.4%;
· YoY, group’s revenue up 8% driven by Celcom which grew 12% and Axiata Bangladesh at 26%. Net profit, growth of 46% due to forex gains recorded during the current quarter;
· Celcom the star with strong sequential 5% growth. Compare that to Digi’s -1.1% during the same quarter. Net adds continued to improve to 522,000 (1Q09 : 415,000), augmented by strong effective marketing. Management disclosed for the first time its mobile broadband subscribers numbering 420,000 or 67% of market share which contributes some 5% or RM140m to Celcom’s revenue. EBITDA % stable at 44.2% (1Q09 : 45%);

· Excelcomindo saw topline growing 14% sequentially despite total subscribers declining 1%. With a deliberate focus on customer quality and retention, ARPU improved to Rp165 for postpaid (1Q09 : Rp148) and Rp33 (1Q09 : Rp27) with combined MOUs moving up to 277mins (1Q09 : 260 mins). EBITDA grew a strong 31% (29% normalized) while margins jumped back up to above 40% mark to 44% (1Q09 : 38%).

· Dialog remained under pressure. While topline grew 4% sequentially and EBITDA by 25% (normalized), net however remained at a loss of SLR7.7b due to one off provision for accelerated depreciation amounting to SLR6b. Normalised, net profit was in fact up 56% on cost and rescaling initiatives. Axiata Bangladesh also saw improvement with net rising to BDT598m (1Q09 : BDT 21m) on the back of a 4% sequential topline growth. EBIDTA % jumped to 47% (1Q09 : 32%) mainly due to SIM tax pass on.

· Outlook improving on all fronts in particular Celcom which is guiding for the current strong momentum to be maintained. While Celcom’s margin is likely to be maintained at the mid-40s level, ample growth opportunities remained to be tapped in key markets where Celcom is lagging especially in the Central.

· India under the new Idea will be equity accounted fully in 3Q09 based on the initial 15% stake. On a proforma basis, the Indian unit could have contributed RM34m to group’s PATAMI. Management guides for a 20% equity account quantum by end of this year pending completion of the merger exercise.

· Forecast is maintained but target price is revised to RM3.05 (RM2.50 previously) based on a new Sum-of-Parts. A combination of lower discount factor and higher terminal growth rate for key operational units is driving a higher SOP. HOLD call maintained.

Genting Malaysia: 2Q09 results - business remains very resilient

1H09 core NP 63% of our FY forecast: Genting Malaysia reported 2Q09 net profit of M$330MM, up 8% Q/Q but down 14% Y/Y. 1H09 core net profit of M$636MM represents 63% of our full year forecast of M$1008MM and 51% of consensus estimates of M$1239MM.

· Business as usual despite swine flu, economic slowdown: Leisure turnover down 5% Y/Y in 2Q09 due mainly to weaker luck factor in the VIP business (normalizing luck factor translates to +13% rev). Business volumes in both VIP and grind market, however, exhibited double digit growth. Visitor arrivals in the 1H09 came in at 9.5MM vs. 9.52MM in 1H08. Hotel occupancy rate in 2Q09 was high at 90% and 88% in 1H09. F&B revenue also up 7% Y/Y in 2Q09 and 8% Y/Y for 1H09 due to an increase in covers and average spending. Theme park revenues, however, declined slightly, despite the 8% ticket price increase effective mid-2008, as fewer tickets were sold.

· Dividends; fair value gain from Star Cruises' share price rise: The company declared a net interim dividend of 2.25 sen, translating to a payout ratio of 21%. A fair value gain of M$311.2MM was recognized directly in equity as Star Cruises' share price closed higher at US$0.14 per share as at end June 2009 from US$0.08 per share as at March 2009.

· Maintain OW; June 2010 PT of M$3.50. We raise our FY09E net profit forecast by 13% to factor in the resiliency of the business despite the swine flu and economic downturn. Management is not expecting to increase its marketing budget significantly in 2H09 but will focus on more direct rather than general marketing strategies leading up to the opening of RWS. Cannibalization from the opening of RWS, if any, will likely be limited to the VIP market given Genting Highlands' high dependence on local day trippers. The VIP segment only contributes about 25-30% of the Malaysian casino's revenue. Local day trippers made up 72% of total visitor arrivals while of the remaining 28% hotels guests, 57% were Malaysians while only 21% were Singaporeans and 6% Chinese.

IPO:HALEX holdings bhd:Agrobased company IPO RM0.78 Closing 2nd Sept Listing 16 Sept underwriter OSK

Initial Public Offering (IPO)
Reference No GR-090819-31607
Company Name:HALEX HOLDINGS BERHAD
Stock Name :N/A
Date Announced:19/08/2009


Subject:INITIAL PUBLIC OFFERING IN CONJUNCTION WITH OUR LISTING ON THE MAIN MARKET OF BURSA MALAYSIA SECURITIES BERHAD COMPRISING:-

(I) PUBLIC ISSUE OF 10,000,000 NEW ORDINARY SHARES OF RM0.50 EACH ("SHARES") ALLOCATED IN THE FOLLOWING MANNER:-

• 2,000,000 SHARES MADE AVAILABLE FOR APPLICATION BY OUR ELIGIBLE EMPLOYEES WHO HAVE CONTRIBUTED TO OUR SUCCESS AND DEVELOPMENT;

• 2,000,000 SHARES MADE AVAILABLE FOR APPLICATION BY WAY OF PLACEMENT TO IDENTIFIED INVESTORS; AND

• 6,000,000 SHARES MADE AVAILABLE FOR APPLICATION BY THE MALAYSIAN PUBLIC

(II) OFFER FOR SALE OF UP TO 10,000,000 EXISTING SHARES MADE AVAILABLE FOR APPLICATION BY WAY OF PLACEMENT TO BUMIPUTERA INVESTORS APPROVED BY THE MINISTRY OF INTERNATIONAL TRADE AND INDUSTRY AT AN ISSUE/OFFER PRICE OF RM0.78 PER SHARE, PAYABLE IN FULL UPON APPLICATION.

Bintulu Port Holdings- Hit by one-off

Price: RM6.10
Target Price: RM6.75
Recommendation: BUY

· 1H09 net profit of RM67.5m was slightly below expectations at 47.8% and 46.6% of our forecast and street’s estimate respectively. Lower result was mainly due to one-off lease payment in 2Q09. As expected, group announced an interim single tier dividend of 7.5sen.

· QoQ, 2Q09 revenue declined 11.2% on lower cargo volume across all segments. We however take comfort that 1H09 LNG volume fell by only 3.7% yoy while other cargoes such as dry bulk, break bulk and container tumbled 23%-31% yoy. Pre-tax unexpectedly dived 58.5% due to the one-off lease payment (c.RM10m) which is not expected to recur in the subsequent quarters.

· YoY, 1H09 turnover dropped 4.1% to RM219.0m on lower volume handled. While port volumes fell, Biport Bulkers’ palm oil intake continued to increase as sales surged 79% to RM7.9m. Group’s pre-tax shrank 20.9%, owning to the one-off, reduced port volumes and lower interest income.

· Adjusting our FY09 forecast downwards by 7.6% to account for the one-off lease payment. Our FY10 net profit forecast is 1.7% lower after model refinements. Maintain BUY recommendation with unchanged target price of RM6.75. Yield is decent at 6.3%.