Credit Suisse cuts target price on UEM World

SHARES of UEM World Bhd fell nearly eighth per cent after it announced plans to sell four listed units to focus on its soon-to-be-listed property arm, UEM Land.The shares, which started trading again after last week's suspension, closed the day 32 sen lower to RM3.80, in active trade.Although analysts were positive on the deal, Credit Suisse cut its target price on the stock and three firms told investors to reject the sale offer.The revamp enables shareholders to have direct participation in UEM Land, master developer of the Iskandar Development Region in Johor.It also gives them the option to hold shares in UEM World's other listed subsidiaries or cash out at a 15 per cent premium to their one-month weighted average market prices."This is positive for UEM World shareholders, who we expect to cash out for RM1.26 per share capital repayment and participate directly in UEM Land," said Credit Suisse in a note to clients yesterday.However, it cut its recommendation on UEM World to "neutral" from "outperform", and lowered its target to RM4.97 from RM5.88.It also reduced its forecast of the company's earnings per share by eight per cent to nine per cent, citing an uncertain global economic outlook."The perception of how rapid UEM World's land value will appreciate is also toned down, so we have revised our perceived future land price from RM31 per square foot (psf) to RM23 psf to arrive at (the lower target price)," it said.

Citi lowers target price for AMMB

CITI Investment Research is maintaining its "sell/low risk" rating on AMMB Holdings Bhd, citing slower-than-expected operating improvements.The foreign-owned research house is lowering its target price for AMMB shares to RM3.55.In a report, it said industry competition should limit net interest margin (NIM) expansion going forward, and AMMB's third-quarter results have highlighted the challenging environment to bring in low-cost current account and savings account deposits and reduce credit costs."We are reducing our forward EPS estimates by 10 to 15 per cent to account for tougher competition for low-cost deposits, car and mortgage lending and a higher charge-off rate," Citi said.On the positive side, the research house cites AMMB's overall improvement in asset quality indictors for the nine months ended December 2007.Gross non-performing loan (NPL) ratio declined to 7.9 per cent from 8.7 per cent in September on NPL sales and write-offs. Loan loss cover continues to rise, now at 69 per cent against the industry average of 73 per cent.There was also a 33 per cent surge in interest income from short-term deposits and securities held to maturity."However, we see this surge as unsustainable," Citi added.Issues highlighted in the report include AMMB's loan growth of 1.8 per cent, largely corporate driven; RM83 million impairment loss on securities due to weak capital markets; and proportion of low-cost deposits rose to 13.2 per cent from 12.8 per cent, slower than expected. -www.btimes.com.my

Kencana able to hold its own amid competition: OSK

AS CONTRACT flows focused on rival Ramunia Holdings Bhd of late, Kencana Petroleum Bhd is still able to hold its own given its track record and large contracts to be awarded in Malaysia over the next few years, says OSK Research Sdn Bhd.Media reports recently quoted unnamed sources as saying Kencana was close to securing a charter contract from Petroliam Nasional Bhd (Petronas) for its first tender drilling rig.The sources stated that it could announce the contract by late February this year."Based on our recent meeting with management, this is a possibility although March would seem a more likely date. Kencana would then begin the fabrication of its second rig once the charter contract for the first one is secured," OSK Research senior vice-president Chris Eng wrote in a report yesterday.Kencana remains confident of securing two charters, although the competition is increasing due to a recent slide in day rates for jack-up rigs."We are, however, paring down earnings estimates from rig fabrication as Kencana will only book in 75 per cent of the total contract as it owns 25 per cent of the rigs it fabricates," said Eng."Although Kencana's outstanding order book has slid to RM1.4 billion from RM1.8 billion previously, replenishment is happening via small-process equipment contracts currently."The RM7 billion to RM10 billion platform contracts to be awarded over the next few years should also keep every fabrication yard in Malaysia busy," he added, maintaining a "trading buy" call on Kencana with a RM2.99 price target. -www.btimes.com.my

Credit Suisse names 5 stocks with strong potential upsides

CREDIT Suisse is recommending to investors KPJ Healthcare and four other small stocks with significant potential upsides over the next 12 months, ranging from 42 per cent to 88 per cent.It has a RM5.80 target price on KPJ, Malaysia's largest and only listed private hospital group, implying an upside of 88 per cent from the stock's closing price of RM3.08 yesterdayThe other stocks it likes are E&O Property Development (target price of RM4.50), Salcon (RM1.72), Boustead Holdings (RM9.75) and Muhibbah Engineering (RM5.30).The foreign research house believes these companies could deliver strong earnings in 2008 against a backdrop of high oil and commodity prices and slower global economic growth, offset by Government infrastructure spending and moves to boost the domestic economy.It also noted that Middle Eastern oil money is flowing into Malaysia, seeking a home in property assets and other investments. "We have picked (those) companies because they are positioned favourably amidst this backdrop to deliver strong earnings growth in 2008," it said in a report dated January 17.It said E&O Property Development, a property developer in the Klang Valley and Penang, offers investors exposure to Malaysia's high-end property sector.The company has five upcoming launches with a gross devlopment value of more than RM1.6 billion in the Klang Valley high-end property segment. Conglomerate Boustead, meanwhile, has plantations and fabrication yards driving earnings, on the back of higher crude palm oil prices and a strong wave of shipbuilding activity, coupled with a potentially huge privatisation contract.The research house believes there is also hidden value in Boustead's prime property assets.It noted that KPJ is the cheapest hospital stock in the region, while water-related Salcon is a laggard. It expects oil and gas (O&G) company Muhibbah to ride on the back of global O&G exploration activity and infrastructure spending. The stock closed at RM3.74 yesterday, while E&O closed at RM2.60, Boustead RM6.30 and Salcon, RM1.07-www.btimes.com.my

Macquarie raises target price on KL Kepong stock

MACQUARIE Research has raised its target price on shares of Kuala Lumpur Kepong Bhd (KLK) as the strong palm oil price is set to fuel better earnings for the planter.The stock could reach RM21.30 by the end of 2008, it said in a report dated January 9. KLK shares closed 30 sen lower to RM18 yesterday."KLK's earnings are also sensitive to CPO (crude palm oil) price movements: every US$25/tonne (RM81.50/tonne) rise in the CPO price could increase the company's 2008 earnings by four per cent," Macquarie said.KLK made a net profit of RM694.2 million for the year to September 30 2007.Net profit could jump 57 per cent to RM1.1 billion in 2008 as the CPO price strengthens further. This is due to rise another 19 per cent to RM1.3 billion in 2009.Macquarie has raised its average CPO price assumption by 13 per cent to US$880 (RM2,869) per tonne for 2008. It predicts CPO price to increase further to US$950 (RM3,097) per tonne in 2009 and 2010.Macquarie has an outperform call on KLK's stock, and it is one of its top 10 picks in Malaysia."The company is in a low net gearing position, and there is potential for its ROE (return on equity) to increase if it uses more aggressive capital-management strategies," it said.-www.btimes.com.my

Forecast of 6% growth for Malaysia's GDP

KUALA LUMPUR, Jan 8 (Bernama) -- Citicorp Investment Bank (S) Ltd is maintaining its forecast of six percent gross domestic product (GDP) growth for Malaysia this year, to be driven by strong domestic demand with increasing emphasis on investment rather than consumption.Its Asia Pacific economic and market analysis vice president, Zheng Kit Wei, said firmer signs of investment revival have emerged but downside risks remained considerable.Despite expectation that exports may soften further on downshifting US growth prospects, he said Malaysia's economic corridors launched last year could be the driver for this year's growth.Even though the economic corridors are private sector-led investments, Zheng said there was a chance of public investment spending being ramped up further if private investments failed to pick up as anticipated."The government could ramp up development spending to aid the investment revival if private investment fails to pick up as anticipated. High oil prices will give the government ample space to increase development spending, especially if fuel subsidies are removed," he said.However, Zheng warned that inflation remained a key risk, with fuel price hikes likely to be implemented after the general election, echoing the widely held view of analysts of election being held within the next three months."In the worst case scenario, the consumer price index (CPI) could go up between 3.5 and four percent this year should the quantum of fuel price hike turn out to be larger than expected," he said."Right now, we are looking at a relatively modest quantum of increase, around 10 to 15 percent, which translates to around 20 to 30 sen. But given that crude oil price has already reached US$100 per barrel as opposed to budgeted assumption of around US$75 per barrel, I think we cannot rule out the possibility of a higher quantum of increase."According to him, the government will probably prefer to stagger the oil price hike.Citicorp has raised its inflation forecast to 2.8 percent from 2.5 percent, with risks tilted to the upside, Zheng said."But should inflation persistently step out of its comfort zone, Bank Negara Malaysia may be compelled to raise interest rate in the second half to keep inflation expectations under control," he said."However, we think that central bank may prefer a stronger currency to combat imported inflation."Citicorp, which forecast the ringgit to reach RM3.18 against the US dollar by end of this year, said over the longer term, the local currency will continue to appreciate gradually on the back of a weaker US dollar.BERNAMA

Expect a volatile Q1 for markets

ASEAMBANKERS Malaysia Bhd expects the first quarter of 2008 to be volatile as global markets remain affected by the US economic slowdown and escalating inflation.Although global bourses have made recoveries since the US subprime issue in August 2007, Aseambankers' report highlighted that many downside triggers have started to re-emerge since December 2007."These include stagflation symptoms - a spike in inflation readings coinciding with a sharp economic slowdown, a potentially disappointing fourth quarter result season, and escalating subprime non-performing loans," the report read.It said the Kuala Lumpur Composite Index's gain in the past few weeks were only driven by selected large market capitalisation stocks.In the meantime, commodity costs are expected to eventually ease with the external slowdown, causing an ebb in plantation stocks which account for about 18 per cent of the KLCI's market capitalisation.However, the second quarter of 2008 should see market volatility taper."The KLCI should be more resilient to external downturns, buoyed by potentially further US Fed easing and ample catalysts," it said. Such catalysts include the robust earnings growth outlook of 13.9 per cent for 2008, expectations of general elections by first half of 2008, fiscal stimulus driven by mega infrastructure projects, rising sovereign fund inflows and the ringgit's appreciation.The report highlighted favourable cyclical sectors such as oil and gas, properties and selected construction stocks.Two new investment themes which could provide adventurous gains for 2008 include the green theme on carbon credit generators such as TSH Resources and CB Industrial Product and the "petro-dollar" theme.The latter theme is a result of Malaysia starting to benefit from rising direct and portfolio investments by various non-traditional foreign investors from the Middle East, China and Korea. "We foresee rising fund inflows consisting of sovereign funds from the Middle East and China, and private funds from Middle East, China and Korea. "These funds are also gradually being deployed to portfolio investments, which will benefit the property, construction, building material and plantation sectors," said the report. www.btimes.com.my

Bullish on WinSun's-IPO view

CHANGES in China's economic environment will affect Mesdaq-bound WinSun Technologies Bhd's profitability, given that the bulk of its operations are carried out in China."With the bulk of WinSun's operations being conducted in China, the double-digit gross domestic product growth powered by foreign direct investments in China as well as the Chinese government's spending on infrastructure projects will have a positive impact on the profitability of WinSun," MIMB Investment Bank Bhd said in a report on Friday.However, there are several key risks that WinSun has to face, namely those related to Chinese operations; protection of intellectual property rights; dependence on key management and technical personnel, this being a knowledge-based industry; dependence on relatively narrowly-based products, services and markets; and lack of long-term contracts.Due to the risk in intellectual property rights, WinSun plans to transfer part of its research and development team and activities from China to Malaysia this year.The company also plans to expand its services into Vietnam by next year."Since Vietnam is one of the fastest growing economies in the region and is at a developing stage, the country will require the services of WinSun's technical and engineering knowledge in designing, installing, maintenance as well as support and training," MIMB said.Bullish with the prospects of WinSun, MIMB is projecting a fair value of RM0.34 ex-rights on the company that implies an upside of 19 per cent on the ex-rights price of RM0.283.Its RM0.34 fair value on WinSun is based on 1.28x price to sales ratio industry average, using expected financial year-end December 2008 sales."The potential upside of WinSun is therefore 19 per cent on the theoretical ex-rights price of RM0.283 upon completion of the 2-for-1 bonus issue, which successful initial public offering subscribers will be entitled to," MIMB said.WinSun is an investment holding company and conducts research and development, while its subsidiaries are involved in the provision and design of industrial automation systems.The firm specialises in the research and development of intelligent industrial control management system, which includes design of automated drive control systems.The company is also involved in intelligent field instrumentation, industrial engineering design, customised software programming, engineering and production, installation and commissioning as well as comprehensive maintenance, support and training. Its clientele covers 12 different industries, with its revenue mainly derived from the metal (21 per cent), machinery (19 per cent), chemical (16 per cent) and semiconductor (12 per cent) segments.WinSun is slated for listing on January 22. www.btimes.com.my

DiGi to power ahead

DIGI.COM Bhd should continue to see earnings growth in 2008 although competition would intensify, given that its competitors were disadvantaged by their cost structure, while lower rates would help stimulate usage, said CIMB Research.
The research house said DiGi was “not too concerned” about the new players in the short term because they had higher operating costs than mobile network operators (MNOs), as they bought wholesale minutes.
Except for TuneTalk given its association with AirAsia Bhd and TuneHotels, these new players did not have a strong band, it added.
It has maintained its outperform rating on DiGi at RM24.20 and discounted cash flow-based (DCF) target price of RM30. Key catalysts for re-rating were continued capital management and strong earnings and market share growth.
“We think the upstarts will have a lower ARPU (average revenue per user) than the incumbents given that higher-end subscribers are unlikely to switch to a start-up telco where the service quality and customer experience is unproven,” it said in a research note following a meeting with DiGi’s management last week.
CIMB Research said it expected U Mobile, TuneTalk and REDtone to launch their services in the coming months.
“U Mobile is a quasi-MNO and –mobile virtual network operator (MNVO). We believe it has rolled out its 3G network to some urban centres. Its customers will roam on Celcom’s 2G network in areas where it does not have coverage.
“TuneTalk and REDtone are pure MNVOs that buy wholesale minutes from Celcom. REDtone is expected to launch its service in 1Q08 (first quarter of 2008) while TuneTalk is reportedly applying for licences,” it added.
CIMB Research said lower tariffs were not necessarily a bad thing, as Malaysia’s tariffs were still above the regional average and usage was below the regional average.
“While DiGi believes that there may be pressure on prepaid tariffs with mobile number portability (MNP) and the entry of more players, there is still room for usage to increase.
“We note that DiGi prepaid ARPU rose from RM53 in FY05 to RM55 in 9MFY07 (first nine months of financial year 2007) and prepaid minutes of use (MOU) increased from 151 to 163 per month over this period,” it said.
The research house added that DiGi believed that postpaid tariffs were already fairly low and the company saw limited scope for them to move downwards.
“We believe the MNVOs buy wholesale minutes at a higher price than retail postpaid rates. Hence, we do not expect ARPUs to be significantly affected by competition.
“Instead, we think DiGi is likely to be a beneficiary of MNP as its strong brand, innovative marketing and 3G will appeal to postpaid subscribers. These will help it poach postpaid subscribers from Celcom and Maxis,” it said.
DiGi’s sub-brand, Happy, would be a positive contributor to the company and would take market share from its rivals, as Happy aimed at a niche market which made very short calls and long duration calls.
“The company thinks that margins from this brand may even be higher than its current margins given its very low-cost model,” it said.
The research house said DiGi remained its top pick in the telecommunications sector in Malaysia for the latter’s higher earnings growth, dividend potential and more attractive valuations.
It has projected DiGi to post net profits of RM1.06 billion in FY07, RM1.29 billion in FY08 and RM1.45 billion in FY09.
DiGi rose 40 sen to close at RM24.60 last Friday with 562,500 shares changing hands.