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

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

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

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

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

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

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

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

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

KLCI




Source: Nextview



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



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



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

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

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

Strategy Update

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

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

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

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

Top Story : Technology - Poised for a stronger earnings recovery

Strategy Update

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

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

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

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

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

News Update

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

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

News Update

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

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

Results Preview

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

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

Results Preview

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

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

Sector Update

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

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

Sector Update

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

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

Overweight
Sector Update

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

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

b) affordability remains high; and

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

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

RHB Equity 360° - Top Story : Technical Highlights

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

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

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

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

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

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



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

- 10-day SMA: RM3.043

- 40-day SMA: RM3.054

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

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

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

Outperform

News Update

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

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

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




IJM Land : Mishap In Melaka Aeon Mall
Outperform

RHB Equity 360° - Corporate Highlights

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

New Coverage

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

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

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


Genting : Raising target price post initiation of Genting Singapore
Outperform

Company Update

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

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

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

RHB Equity 360° - Top Story : Telecom

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

Sector Update

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

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

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

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

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

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

Dubai risks being a mirage in the desert

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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