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