Integrastock - What stocks to buy?

2008-09-26T19:18:00.000-07:00

Citigroup Asia Investment Daily 24 Sept 2008 - Malaysia Equity Strategy - More Dates to Watch after Sept 16

Malaysia Equity Strategy
More Dates to Watch after Sept 16

Investors holding out despite record cash holdings — Investors, especially locals,
are holding out even after long-awaited Sept 16 has passed – a date set by
opposition parties to take control of the government. This is despite the record level
of cash holdings by non-government-owned funds.

More dates to watch — Local investors remain sidelined ahead of party elections in
AGMs held by key component parties of the ruling coalition party starting from Oct
10-11 for Gerakan, Oct 18-19 for MCA and Dec 16-20 for the most-watched
UMNO. Divisional meetings or nominations for UMNO between Oct 9 to Nov 9 will
also be closely watched.

Even more dates to watch — The market is also wary of October 13 when
Parliament reconvenes after a one-month break. Opposition parties had earlier
called for an emergency session by Sept 23 to deliberate on a vote of no-confidence
against Prime Minister Datuk Seri Abdullah Ahmad Badawi’s leadership.

A convenient reason not to be active — It just doesn’t seem to end. From one date
to another, investors seem to keep looking for reasons not to be active in the
market. Political uncertainty is a natural convenient reason. In a world of
uncertainties surrounded by a string of unknown factors, it is handy to have
reasons not to be active. Political uncertainty is no longer the only factor damping
market sentiment. External factors dominate.

Play catch up to a potential bear market rally — In Asia, our regional strategist
highlights that markets are now looking oversold and with 4Q historically the best
time for equity markets as investors look forward to '09. Although the political
situation in Malaysia is unlikely to deteriorate further, whether investors see fit to
invest amid the ruckus in the near term is another question. We see Malaysia
eventually playing a catch-up game.

Politically Independent — Logically, most large cap investors’ favourites are largely
independent of politics. Our top picks IOI Corp, KL Kepong, Sime Darby, Public
Bank, BCHB, SP Setia, KLCC Property, and Media Prima have all succeeded
largely on their own merits, independent of politics.

2008-09-26T19:16:00.000-07:00

UBS : SP Setia - Dismal results, reiterate Short-term Sell

SP Setia

Dismal results, reiterate Short-term Sell

We had expected a weak Q308, but results still surprised on the downside
SP Setia reported a dismal set of results in Q3-FY08 with net profit falling 24%
YoY to RM41m. EBIT margins collapsed to 14.2% (the lowest level since 1999),
while revenues were flat QoQ. We think that the weak revenue performance could
be an indication of construction delays, as pre-sales figures were robust during the
quarter. 9M-FY08 net profit hit RM137m (-14%) or 60% of our FY08 forecast. No
dividends were declared, which is normal for the period.

We reiterate our Short-term Sell rating
We think the weak results could prompt downward revisions to consensus earnings
estimates (our FY08/09E EPS estimates are 9% and 17% below consensus,
respectively), potentially leading to the stock testing the low-end of its historical
discount to NAV (that is, 38% registered in early-2006). On our NAV estimate,
this implies a potential floor of RM2.65/sh for the stock in the near-term.

Flat earnings growth into 2009, as challenges drag on to Q1-FY09
We expect the next two quarters to remain challenging. However, we think that
solid pre-sales (at higher average selling prices) and management’s pro-active
measures to address higher building costs and construction delays should lead to a
bottoming of earnings possibly, by Q1-FY09.

Valuation: Our 12-month price target implies a 2008E PE of 14x
Our 12-month price target is set at a 25% discount to our 2009E revalued-NAV
(RNAV) of RM4.26 per share. Our RNAV is derived using DCF analysis on the
company’s existing projects, assuming a WACC of 9.5% and zero terminal growth.

2008-09-26T19:15:00.001-07:00

JP Morgan : SP Setia - 9M08 results below expectations; we prefer property investor IGB Corp

SP Setia

9M08 results below expectations; we prefer property investor
IGB Corp

3Q08 net profit down 24% Y/Y: 9M08 net profit dropped 14% Y/Y
to M$137MM and represented just 57% of our full year forecast
excluding the one-off profit gain of M$28MM from the sale of
construction arm, Loh & Loh, to be booked in 4Q08.

Key shortfall - margin pressure: Revenue was within expectations,
but the operating margin fell 8ppt from 23% to 15% in 3Q08 (a 3ppt
drop to 19% for 9M08). This was due to the provision for a rise in
construction costs on projects launched and sold at old prices after
efforts by management to assist in alleviating cost pressures faced by
contractors. Profits recognized during the period were also from
lower-margin projects in Johor versus Klang Valley in 2007. Margins
should improve by FY09 as the group effects a 10-15% selling price
increase for new projects, and also as the timing mismatch in cost
incurred this year for certain new projects should normalize by
FY09E as the projects start to contribute.

Property sales within expectations for FY08E but sales cut for
FY09E: Excluding the low-margin government projects, total
property sales of M$1.21B for the 10 months ended Aug-08 is within
our full year sales forecast of M$1.45B. However, in view of the
deteriorating global environment, we cut FY09E sales by 18% to
M$1.18B, a 20% Y/Y drop. Unbilled sales of over M$1B currently,
however, or over 1x historical revenue help provide some visibility.

Forecasts cut, maintain Neutral: Overall, we cut our earnings
estimates by 20% for FY08 and 14% for FY09. Our Jun-09 PT has
also been cut to M$3.00 (from M$3.50) based on a 30% discount to
our revised RNAV of M$4.40. In the property space, we continue to
prefer IGB Corp. SP Setia, however, should also be able to weather
the current downturn given its strong balance sheet, and it is
committed to a 50% dividend payout ratio. Key risk to our forecast
would be if Malaysia enters into a recession, which is currently not a
scenario that JPMorgan economists are projecting.

2008-09-26T19:13:00.000-07:00

HLG: Tanjong Plc - H108 results hit by one-offs (26 September 2008)

Tanjong Plc BUY

Price target RM16.70

Share price at 25 Sept RM12.90

Investment summary

H109 earnings were 10-15% below HLG/consensus expectations, due to one-off charges. However, this does not change our positive view on Tanjong: (1) 6% EPS CAGR over FY08-10E from the Globeleq IPP acquisition, which is superior to growth rates at other Bursa-listed power/infrastructure stocks. (2) Valuation multiple expansion due to the potential long-term spin-off of Tanjong's power division and the local investment vacuum created by the Malakoff de-listing. However, we are negative on the Malaysian power sector, given poor domestic growth opportunities and dividend yield.

Windfall tax resolved
We think the share price has found a base, following the resolution of the IPP windfall tax issue. However, upside hinges on policy stability from the gov't, which we think is at least 6 months away

2008-09-26T19:12:00.000-07:00

ASEAMBANKERS MALAYSIA BERHAD

Equity Focus
SP Setia (RM3.32): Sell
Another tough quarter
3QFY08 net profit of RM41m (-24% YoY, -15% QoQ) was below our and market expectations due to slow work progress, slower property handovers and lower margins.
We conservatively cut our FY08-10 net profit forecasts by 14.4-20.3% as prospects remain challenging both locally and in Vietnam.
Downgrade to Sell with a revised TP of RM2.70, as we roll over our valuations to FY10 from mid-CY10 (unchanged 11x PER target), as the stock lacks short term catalysts.

AEON Credit Service (M) (RM3.08): Buy
Watch this beauty go!
1HFY09 net profit rose 67.5% YoY, above our and market expectations.
Expect an even stronger 2HFY09, boosted by seasonal factors. We raise FY09-11 net profit forecasts by 7.5-15.4%.
Buy ACSM for above-market earnings growth; TP is unchanged at RM4.30 on a lower, 8x mid-CY10 PER target (previously 9x).

Results Analyser
Tanjong Plc (RM12.90): Buy
2QFY09 results better than expected

Other Local News
Politics: UMNO Supreme Council's "special meeting" today
Maybank: Raises Rm1.1b to prepare for BII deal
UBG: In oil and gas exploration joint venture with Mubadala
Encorp: Bags RM130.8m Ircon contract
MTD: Cost of Jakarta toll road to top RM1b
Widetech: To raise RM20m to expand e-gaming business
VS Industry: Group net profit eases 10.5% to RM63m
Nomura: Gets SC nod for Malaysia stockbroking firm
Iskandar Malaysia: Eyes Mideast funds

Outside Malaysia
U.S: Bailout talks hit snag after White House meeting, Senate's Dodd says
U.S: Home sales, goods orders drop, supporting Bernanke warning on economy
U.S: Congress shouldn't rush into adopting bank rescue plan, 150 economists say
Germany: Steinbrueck says U.S. will no longer be `superpower' of financial world
Germany: Consumer confidence unexpectedly rises on oil
Taiwan: Unexpectedly lowers rate; first cut since 2003
Japan: Export growth slows as U.S. shipments plunge
Crude Oil: Rose on bailout, fuel supply drop

Technicals
The market ended the day lower despite late bargain hunting in the afternoon session

2008-09-24T07:01:00.000-07:00

HDBSVR: Sunway Holdings, Maintain Buy

Sunway Holdings: Clinches RM1.1b new job

-Story: Sunway Holdings has secured a RM1.8b new job in Abu Dhabi from Mubadala CapitaLand Real Estate LLC. The building work comprises 5 residential towers, a 3-level podium, 14 townhouses, a clubhouse and approximately 1,208 car park spaces for the proposed Arzanah Development – Rihan Heights building project. Sunway Holdings holds a 60% stake in this project with an effective RM1.1b share of work. The JV partner is a local company, Silver Coast Construction and Boring LLC. The project will commence in November 2008 with a construction period of 25 months.

-Point: The new contract will enhance Sunway Holdings’ construction orderbook to RM3.2b (refer to Fig.1). We believe that the project risk is low as 1/3 of steel-bar required will be procured by the client, which is a 51:49 JV between Mubadala (100% owned by UAE government) and Capitaland. Sunway Holdings’ management also indicated that the tender price was based on high commodity prices in Jul 08 with little risk of further cost escalation. We estimate EBIT margin of 8% for this job with EBIT contribution of RM88m to be recognized over FY09-11. We upgrade our FY09-11F net profit by between 4-8% to factor in the contribution from this project.

-Relevance: We continue to favour Sunway for its attractive valuation at FY09-10 PE ratios of 3x and FY08-10 EPS CAGR of16%, supported by stronger contributions from construction, quarry and property divisions. Maintain Buy with upgraded SOP-derived target price of RM1.10 per share (refer to Fig.2) from RM1.05 previously after factoring in the increased construction contribution from this new Abu Dhabi project.

2008-09-24T07:00:00.001-07:00

HDBSVR: Daily Focus - 24 September

Highlights

Sunway Holdings

Clinches RM1.1b new job (Buy; RM0.78; SGW MK; TP RM1.10)

Sunway Holdings has secured a RM1.8b new job in Abu Dhabi from Mubadala CapitaLand Real Estate LLC. The building work comprises 5 residential towers, a 3-level podium, 14 townhouses, a clubhouse and approximately 1,208 car park spaces for the proposed Arzanah Development – Rihan Heights building project. Sunway Holdings holds a 60% stake in this project with an effective RM1.1b share of work. The JV partner is a local company, Silver Coast Construction and Boring LLC. The project will commence in November 2008 with a construction period of 25 months.

SP Setia

Another weak quarter expected (Fully Valued; RM3.30; SETI MK; TP RM2.60)

SP Setia (SPSB)’s 3QFY08 results this Thursday would likely be similar to 2QFY08’s RM48m net profit (-20% y-o-y, -1% q-o-q). Earnings is expected to show a YOY decline (vs 3QFY07: RM54m) given: a) slower construction progress due to volatility in raw material prices, b) higher overheads with SPSB’s diversification into high-rise, commercial, and Vietnam projects (contribution to earnings only from FY09 ), and c) higher interest expense. Sales momentum continued to be lacklustre, with 3QFY08 property sales (ex-Putrajaya) contracting 7% y-o-y, 15% q-o-q to RM270m despite contribution from new projects ie Setia Nexus 1 commercial (Klang) and Setia Eco-Gardens township (Johor). Monthly sales have been declining, hitting RM78m in Jul 08 (lowest ytd).

2008-09-24T06:51:00.002-07:00

Kenanga Today

COMPANY UPDATE

· SapuraCrest Petroleum (BUY; RM1.23; TP: RM1.54) - Stronger earnings momentum

SECTOR UPDATE

· Shipping – Dry bulk and tanker – Large deliveries to pressure rates

NEWS HIGHLIGHTS

· Sunway bags RM1.8b deal

· DRB-HICOM to strengthen Bank Muamalat role

· SBC plans two more projects

2008-09-24T06:51:00.001-07:00

ASEAMBANKERS MALAYSIA BERHAD

Equity Focus
Auto Sector: Neutral
A hazier 2009
August TIV softened to 47,227 units (-13% MoM, -1% YoY), the first YoY decline in 2008, reflecting seasonal weakness but mainly slowing demand, as economic momentum eases.
Reiterate Neutral call on the sector, as hazy 2009 prospects override cheap valuations. Meanwhile, maintaining 5-10% YoY TIV growth for 2008, factoring in soft 4Q08 sales.
A recent roadshow with UMW reinforces our view that the company remains our top auto sector pick, and that it can possibly beat 2008 consensus forecasts.

Sunway Holdings (RM0.78): Buy
Clinches a major job in Abu Dhabi
Sunway, in a JV, has secured a RM1.8b construction project in Abu Dhabi, from Mubadala CapitaLand Real Eastate LLC for Phase 1 of the proposed Arzanah Development.
This is the second major positive development in less than a month. Our FY09-10 net profit forecasts have been upgraded by 3-5%, as the project win has exceeded our expectations for new jobs in FY09.
Reiterate Buy with a revised RM1.90 target price (7x PER on mid-2010 valuations), as the stock trades at a low PER of just 2.8x for FY10.

2008-09-24T06:43:00.000-07:00

HDBSVR: Malaysia oil & gas, Maintain Positive

Malaysia oil & gas: Attractive buying opportunities

Current valuation reflects weaker crude oil price. We believe that the
current valuation for Malaysia's oil and gas sector, at an attractive
FY09-10 PE ratios of 9x and 7x, is reflective of the higher country
risk for Malaysia and the lower crude oil price. Nevertheless, the
selling is still unjustifiable: Malaysia's oil and gas players are
less vulnerable to the crude oil price as they are mainly services and
equipment providers and vessel owners and operators that benefit from
increased production activities. The sector's fundamentals are also
unaffected by local political uncertainties as it will continue to be
supported by Petronas' capex, driven mainly by deepwater developments,
asset replacement cycle and the need to maintain reserve replacement
ratio.

Compelling valuation against strong FY08-10 EPS CAGR of 37%. The oil
and gas sector is trading at an attractive FY09-10 PE of 9x and 7x,
down from forward sector PE of 18x in Sept 07. The sharp price
correction offers good accumulation opportunities given the stocks'
good earnings visibility with locked-in contracts, promising sector
outlook and attractive strong average FY08-10 EPS CAGR of 37%.

Maintain Positive stance. We maintain our Positive stance for the
sector. The earnings drivers for the sector will be Petronas capex- a
captive market for Malaysian players, sustainable global oil and gas
capex and growth from capacity expansion. The sector margin uptrend
also remains intact as these players are moving up the value chain.

2008-09-24T06:42:00.000-07:00

CIMB - What's on the table

Oil & Gas update - Give the sell-off the brush-off

We consider the recent sell-off of Malaysian O&G companies as unwarranted as these are service providers whose bottomlines are not directly dependent on oil prices. Lower oil prices have not deterred the flow of contracts, RM2.1bn of which has been awarded since Aug 08.

We retain our earnings forecasts but cut target prices by 8-34% as we no longer value the stocks at a premium over market given the change in sentiment on oil-related stocks. All the five stocks in our universe are now OUTPERFORMs following our upgrade of Wah Seong from neutral to OUTPERFORM. The sector remains an OVERWEIGHT and Kencana is replaced by Petra Perdana as our top pick for its lowest valuations and biggest share price upside.

2008-09-23T16:50:00.000-07:00

Stocks tumble on bailout woes
Wall Street ends a volatile session lower as investors consider the Senate hearing on the proposed bank rescue.

NEW YORK (CNNMoney.com) -- Stocks slumped Tuesday, as the heated debate in Congress on the proposed $700 billion bank bailout dampened hopes that the government would take faster action to mitigate the credit market crisis.

After the close, Goldman Sachs said Warren Buffett's Berkshire Hathaway will invest at least $5 billion in the company through a preferred stock purchase. Goldman shares jumped 8% in extended-hours trading. (Full story).

The Dow Jones industrial average (INDU) lost 162 points, or 1.5%. The Nasdaq composite (COMP) fell 1.2% and the Standard & Poor's 500 (SPX) index fell 1.6%.

In the wake of the worst financial crisis in years, economic officials and lawmakers are meeting on Capitol Hill this week in an attempt to hammer out an historic $700 billion bank rescue plan that would get bad mortgage bets off bank balance sheets and ultimately loosen up the credit markets.

The move is seen as critical for the stability of the financial sector as the 15-month-old credit crisis stretches on.

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee Tuesday that fast action is needed to stop a bigger financial meltdown.

Although Congress is expected to announce a deal by the end of the week, some lawmakers Tuesday questioned the size and scope of the current plan - and whether more provisions are needed to protect taxpayers. The House Financial Services Committee holds testimony Wednesday. (Full story)

"The equity and the credit markets are reflecting the uncertainty of whether this will go through," said John Davidson, president and CEO at PartnerRe Asset Management.

Stocks surged at the end of last week as news of the plan spread. But the intensity of the debate this week surprised some investors who were looking for a quick resolution.

"The euphoria last week was predicated on a belief that something would get done," Davidson said. "Right now, the worry is that it won't."

Stocks rose in the morning as the hearing got underway, slipped in the afternoon as the debate heated up, rallied again, and then sold off near the close.

A selloff in oil, gold and other safe-haven commodities caused investors to bail out of the underlying stocks. And General Motors continued to slump on worries about its cash position.

On Monday, the Dow fell 373 points as investors worried about the bailout plan and a jump in the price of oil - which saw its biggest one-day dollar gain ever. It was the fourth consecutive session in which the Dow ended the session with a change of at least 350 points in either direction, demonstrating the extreme volatility of markets.

Wednesday brings the August existing home sales report and the weekly oil inventories report.

Debate heats up: The current proposal would let the Treasury buy up bruised assets held by troubled financial firms at a discount, hold them, and then sell them later for profit. With these bad assets off their balance sheets, the hope is that banks would be willing to lend to each other again, loosening up the credit markets and removing one of the weights on the struggling economy.

However, there are questions about whether the plan would be able to accomplish this, as well as what it will mean for taxpayers and for the inflation outlook.

Secretary Paulson said it is imperative that Congress approve the bailout this week. He said that failure to do so would mean a continued series of bank failures and frozen credit markets, which threaten the health of the economy.

And Bernanke said that failing to bail out the financial industry could mean a bigger economic slowdown, a weaker labor market and more housing market weakness.

"Congress needs to get out of the way and worry about the extras later," said Dean Barber, president at Barber Financial Group. "They need to let the financial sector know they are going to secure the system now."

The uncertainty about the details of the plan is going to keep stocks in a narrow trading range for the next few sessions, said Peter Cardillo, chief market economist at Avalon Partners. But the longer-term outlook for equities will improve as long as some form of the proposal is passed that serves to restore confidence in the credit markets.

"The bottom line is that the market is looking for closure on this, whether it's $700 billion or $1 trillion," Cardillo said.

2008-09-23T06:02:00.000-07:00

HLG - Dow plunge 300+ points :

We have been telling people to wait for a pullback before re-entering markets, apparently one major pullback is here in the form of the Dow plunging 300+ points. It’s a big black candle and do expect some knee jerk selling at the opening bell.

Why is the Dow down so much? Because the USD is weakening from the bailout of Fannie, Freddie and AIG. Expect the USD to plunge in the next few weeks. Now that the pullback is here, and the fact is that it is too severe (black candle to long) has let us to think twice on whether to “buy in this weakness”.

USD weak

It is very hard for global equity markets to rally in an environment of weak USD. The key now would be to track the USD very closely. Last night the USD plunge 1% to the 105 level – not a good sign.

Strong commodities because of weak USD: Strong CPO

A weak USD will spur commodities upwards. Last night spot delivery prices for WTI oil spike up USD25 (a record) intraday before easing to 120. However, the 3 months contracts above registered gains, but not as drastic.

Soybean oil also went up and pierced the important 50 level. Expect CPO to follow suit. Expect a very strong CPO opening at 10.30 today, and expect a neutral to strong performance of CPO stocks which will cushion the fall of the KLCI today.

Conclusion :

It is hard to say whether there will be a continuation of a rally. Thus it is hard to say whether this pullback is a good buying opportunity. If you have to trade, limit your trades to oil and CPO stocks like KNM and IOI which will be cushioned by the weak USD. It is more prudent to wait for one more day to see how the Dow recovers from this pullback. Long commodities, short USD, Equities – WAS (wait and see).

2008-09-23T05:58:00.000-07:00

JP Morgan : Malaysia Strategy - Blowing with the wind

Malaysia Strategy
Blowing with the wind

Market earnings likely to fall further? Global macro conditions
appear to have further deteriorated given events in the past week while
on the domestic front, we appear no nearer to a political resolution.
This is likely to have negative implications on both consumer and
business confidence in the next 12-18 months. Despite having revised
down our earnings estimates over the past couple of months, we are reevaluating
our current earnings assumptions again and we should be
making necessary adjustments to our forecasts in the coming weeks.

However, after the sharp correction YTD, the KLCI has largely
reflected these concerns: The KLCI is down 30% YTD. In terms of
valuations, one-year forward market P/E valuations are currently at
11.7x (we recognize that there is still downside risk to this). Capital
flight from Malaysia has already occurred with the currency
depreciating from a peak of M$3.13/US$1 to currently M$3.46/US$1
while net equity portfolio outflows since 2Q07 has totaled M$37.6
billion (which is more than the net inflows between 4Q06 and 2Q07
of M$32.4 billion). Nevertheless, one key observation is that the
KLCI performance YTD has not been worse off than its regional
peers despite the muddy political situation.
•
Market direction outlook – Overwhelmed by external events with
domestic politics likely the only wild card: While we see value
emerging across the board, we acknowledge that macro events outside
Malaysia will likely dominate investor risk appetite unless we get a
domestic political resolution which may pique foreign investor
interest. Thus, the KLCI is likely to mirror the performance of
regional markets, albeit with reduced volatility as the downside is
capped by domestic buying support while upside is limited by lack of
foreign investor participation as low liquidity and political risk are
deterrents. Tactically, we continue to recommend investors take
positions in best-in-class companies when valuations look attractive.
The key macro trade is to switch out of commodity stocks and into
the domestic plays. On current prices, we would be accumulating
Tanjong, Resorts, IJM and BCHB while we continue to have UW
ratings on IOI and KLK.

2008-09-23T05:57:00.000-07:00

Deutsche Bank : IGB Corp - Deep value, defensive with growth

IGB Corporation Berhad
Deep value, defensive with growth

Underappreciated asset class; trading at implied asset yield of 10-12%
Cyclical property sector is not in favour. But we believe IGB stands out: (i) its share
price is back to the 2006 level despite an 82% increase in NLA; (ii) it offers
defensive growth (2-yr CAGR of 22%) with recurring rental accounting for 62% of
EBIT; and (iii) it is trading at implied asset yield of 10-12% plus undeveloped land
bank for free. Reiterate Buy, TP of RM2.25 -- i.e., >60% total return potential.

Share price is back to ‘06 level despite 82% NLA growth and higher RNAV
By year-end, IGB should have expanded its NLA by 82% to 4.7m sq ft. DB values
its two core retail assets (37% of RNAV) – i.e. the Mid Valley Megamall and the
Gardens – at more than IGB’s entire market cap. Assuming zero value for its
undeveloped land bank, IGB now trades at FY08-09E implied asset yield of 10-12%
(or 12.4%-15.6% if we were to value its land bank at book cost). We believe this is
too harsh relative to transacted asset yield of 5-6%.

Commercial property is the bright spot, accounting for 62% of IGB’s earnings
Despite a downturn in the residential property market, KL’s premium commercial
property space is still in demand. Based on our channel checks, premium office
rental rates are up 5-10% this year and are likely to sustain a similar upward trend
given <10% vacancy and limited new supply. Most recent en bloc office
transactions were done at a <5% cap rate. IGB’s office buildings at Mid Valley saw
15-20% rental growth.

62% RNAV discount unwarranted in our view; improving FCF = higher DPS
With the completion of Mid Valley Phase II development and fast-improving FCF,
we forecast a doubling in FY08E DPS. The company has also recently resumed
share buyback. We still expect a potential spin-off of mature property assets but
not in the near term. Our RM2.25 TP values IGB at a 40% discount to RNAV, close
to the historical three-year average. Key risks include lower rental revision,
occupancy risk and a further delay in property project launches.

2008-09-23T05:56:00.000-07:00

HLG: Economics Daily: USD continue to come under pressure; falling the most vs EUR in 9 years (23 September 2008)

Daily Market Watch

Macroeconomics
· WTI crude oil prices for Oct delivery skyrocketed by $25.45, its biggest intraday gain in history, to as high as $130/barrel before closing at $120.92/barrel in NY attributed to safe-haven buying and a sharp drop in USD. The market remained skeptical and jittery that the recent measures announced by US will not be effective enough to shore up the ailing financial sector, sparking flight to safe haven commodities like gold.
· Back to fundamentals, no indicators were released in the US, UK & Eurozone.
· In the Asia Pacific rim, Hong Kong CPI eased to 4.6% YOY, its lowest since March attributed to cooling fuel and food prices and temporary rent waiver on public housing. Expect CPI to moderate to below 4% over the next few months as allowance on electricity expenses given by the government effective from next month pushes inflation pressure lower.
· Back home, foreign reserves fell by 2.9% to $119.06bn as at end Sept-15 attributed to weakening MYR and portfolio outflows. The reserves position is expected to ease further albeit at a
slower rate moving forward.

2008-09-23T05:53:00.000-07:00

Traders’ Brief

Commodities calls fulfilled
CPO the kingmaker of KLCI

After a disappointing non-rebound on Thursday, the KLCI finally decided to hop off its solitary
island and join global markets in a huge rebounding wave on Friday. Why a rebound on Friday
and not Thursday? The difference maker is – Crude Palm Oil (CPO) prices.

Our commodities calls on the Bull’s eye
For the last several weeks, we’ve been making calls on commodities prices, focusing on Oil
prices, Soybean oil prices and CPO prices. Suffice to say, all of our commodities calls hit the
bull’s eye or got very close. Below is our assessment of the outlook of commodities in the near term.

CPO the king maker : Reached our target zone of 2000-2200 before rebounding
2314-2400 obstacle course coming
Why is CPO the king maker in the KLCI? This is because there is a heavy 15.7% weightage of
CPO stocks in the KLCI. That’s why on Thursday you see the KLCI been dragged to negative
territory by a plunge in CPO prices on Wednesday as well as Thursday morning.
Subsequently, CPO’s late Thursday rally as well as 74 point rally on Friday sparked a huge 34
point rebound in the KLCI on Friday.
CPO has now carved out a nice rebound uptrend pattern after breaking through the strong
2150 resistance level. It won’t be easy from here on as you’ll see a strong resistance level at
the 2314 level as well as the 2400 level, creating an 86 point resistance zone obstacle
course for the CPO bulls.
However, with the strong performance of WTI Oil prices and Soybean oil prices last
night, expect CPO to plow through this obstacle course with ease as commodities rally
from a weakening USD.

2008-09-23T05:52:00.000-07:00

CLSA : 15th Investors Forum 2008 - Genting
Genting at IF2008 highlights

Dato' Justin Leong presented to a packed room this morning, and as expected, gave a
very detailed and clear update on the company, together with a short video on the
construction progress at Sentosa. Mr Chong Kin Leong, Vice-President Finance, was also
present.

Key highlights:

UK. Genting is partnering NEC Group to develop a GBP90m leisure and
entertainment complex in Birmingham which should be up and running in 4-5 years.
He also indicated that their 11% stake in Rank towards end07 is a purely passive
investment for now.

Sentosa. Comfortable with development cost of S$6bn. If there are more cost
overruns, management will announce appropriately. Stressed that their fund raising
of S$4bn (completed earlier this year) through a 7-year term loan at 175bps over
Singapore swap rates, is completely hedged and was well-timed with the current
global credit crunch. On operations, he indicated that management is looking to hire
c.10,000 employees, with the hiring process to start in 2Q09/3Q09.

Asiatic. Quite happy to hold on to this asset, thus no immediate plans for sale just
yet, especially with buying of land in Indonesia recently. Also active in R&D through
JV with Dr Craig Venter of The Institute of Genomic Research, who coincidentally is
speaking tomorrow lunchtime here at IF08 too.

Power. Looking to divest when appropriate but with current global environment as
well as domestic political uncertainty, valuations may not be attractive - in no rush
to sell.

Oil & gas. Tough to think of divesting this asset as the full value has yet to be
realised with new blocks in Indonesia yet to start production.

Overseas acquisitions. Las Vegas is not an option for now as management
believes that the worst is yet to come in Las Vegas, and is moving their focus more
to Asia, particularly Macau - watching the market there closely for opportunities.

Vehicle for potential acquisitions. Dato' Justin stressed that Resorts does have a
cashpile of RM4.2bn. And to a question as what is the most tax-effective way for
Genting to access Resorts' cash, the answer is that it is not even an option, but, if it
had to be considered, it would most likely be through dividends.

2008-09-23T05:47:00.000-07:00

Deutsche Bank Notes : Asia Market Strategy – Stock Picks in Malaysia for Uncertain Times

Asia Market Strategy – Stock Picks in Malaysia for Uncertain Times

Genting (GENT MK, MYR5.00, Buy TP MYR7.20)
A global casino operator in the making whose share price is below end 2006 level despite
winning a S$6.0bn Singapore project. Ex-the Singapore project Genting trades at historical
low 09 EV/EBITDA of 3.9x implying a valuation of on going operations (Malaysia casino,
plantation, power etc) at distressed valuations (vs. average 8x EV/EBITDA of the last 10
years). Trading at close to 30% discount to SOTP vs. 15% after its regional gaming
transformation. Strong balance sheet and excess cash (at subsidiary Resorts World) put
group in good position to expand into new regional gaming ventures.

MISC (MISC MK, MYR8.25, Buy TP MYR11.00)
MISC is the world largest LNG transporter and the owner of the second largest fleet of
Aframax. Catalysts ahead for Offshore and Heavy Engineering from pickup in deepwater
fields through its offshore Oil & Gas solutions, and growth potential in Heavy Engineering.
LNG shipping offers stability (long-term charter contracts) and steady returns, plus growth
prospects with Petronas' expansion globally. Trades at 25% discount to SOTP vs. 8 year
average of 6.3%. Valuations are at trough levels despite the emergence of new growth
engines (offshore and heavy engineering). Foreign shareholding is at an all time low at 6%.
P/B at 1.6x is similar to mid-2006 prior to offshore and heavy engineering roll out.

Hong Leong Bank (HLBK MK, MYR5.60, Buy TP8.00)
HLB is in the final phase of its transformation into a regional player, building its footprint
beyond Malaysia, Singapore, Hong Kong and China. Three years of restructuring is yielding
positive results with a sequential pick up in profits. The bank has been gaining market share
in high-yield consumer loans for several quarters. M&A is possible with the chairman’s track
record of unlocking value in his investments HLB trades at 1.6x FY09E BV and 10.1x P/E. Post
Asian crisis, HLB traded at an average P/B of 1.8x, peak of 2.3x and trough of 0.9x.

KNM Group (KNMG MK, MYR1.24, Buy TP2.90)
Global demand for KNM's process equipment is unlikely to decline unless crude oil goes into
protracted downturn. The stock has suffered from late refinancing of an outstanding bridge
loan, but an imminent funding package should bolster sentiment and KNM remains proactive,
recently tying up JV with a leading gas processing equipment firm. At 6X FY09F earnings
KNM has de-rated substantially with earnings prospects strong & unchanged, we see a rerating
ahead. The last time it traded this low was in 2005 when it was just starting to move
into the global arena and now it has a global footprint with much stronger product portfolio

IGB Corp (IGB MK, MYR1.44, Buy TP MYR2.25)
IGB is back to 2006 levels despite adding property NLA by 82%. The capital value of its main
asset has appreciated 60% over the last 3 years, it is less cyclical with reduced exposure to a
property downturn (62% of projected EBIT from rental income), and more volatile property
development's contribution is now less than 20% compared to 40% two to three years ago.
Projected >20% earnings growth in FY09-10E underpinned mainly by NLA expansion and
rental growth. Trades at 65% discount to RNAV vs. average of 45% during the last property
down-cycle in 2005-06. (Analyst: Colin Bradbury)

2008-09-23T05:46:00.001-07:00

OSK - CPO Futures

Stronger Crude Oil futures is helping the CPO futures to extend gains today, as moderate speculative-led buying support started to flow into the market. Late selling caused the DECEMBER delivery contract slid RM39 to end at RM2305/MT.

Bullish momentum managed to push the DECEMBER delivery contract to test the overhead RM2.390/MT moderate resistance at the first session. However, optimism eventually gave way to heavy profit-taking related selling momentum, sending the market tumbling back towards the RM2’300/MT by late evening. That said, the last defence for the bulls will be pegged at the crucial support level at R2’167/MT for now. A convincing violation below this level will send the market crashing back towards the recent pivot-low area. Furthermore, the recent up swing is technical in nature, and do not indicate as yet, that a change-in-trend is underway.

Trade Ideas: Continued to short on up ticks.

2008-09-23T05:45:00.000-07:00

OSK - CI Futures

Asian and European stocks extended weakness on recession worries. The FKLI was underpinned by heavy speculative selling pressure throughout the day, as investors started to exit previous long positions. The SEPTEMBER contract fell 13 points to close at 1015.

The SEPTEMBER contract was unable to overcome selling pressure at the 1030.50/1028 resistance area today. This resulted in a slide back to the intraday support area at 1017 in the afternoon. From here, further sustained weakness below the 1017 level will attract fresh negative momentum towards the lower objective level at 1010/1009 in the near-term. The cash market was assisted temporarily by some recovering plantation stocks as Crude oil prices climbed higher. However, the 1028 overhead intervening resistance level should act as an effective upside barrier for now, and the market is expected to drift lower from here.

Trade Ideas: Sell into strength.

2008-09-22T06:50:00.000-07:00

OSK - CPO Futures

Steady Crude Oil futures price is fuelling extended gains in the CPO futures despite the weaker set of export data out today. The NOVEMBER delivery contract added RM85 to end at RM2’344/MT.

Powered by moderate speculative and short-covering related buying momentum, the December delivery contract managed to punch through an important resistance at RM2’320/MT at midday, heading towards the overhead staunch resistance at RM2’385/MT, and only extended strength above this will set-off extended rallies higher.

Meanwhile, this is not a good place for the bears to make its present felt now when positive momentum accelerated above the RM2’320/MT resistance level. This is a warning for further upside possibilities in the near-term.

Trade Ideas: Buy on dips.

2008-09-22T06:48:00.000-07:00

OSK - CI Futures

The FKLI erased early gains on US banks rescue plans worry and the softer Dow futures during the Asian trading hours. The SEPTEMBER contract fell a point to close at 1028.

The expiring SEPTEMBER contract slipped after testing intraday-high at 1039 and thereafter, continued to stall below the crucial 1028 level for most part of the day. However, moderate late buying momentum returned to shore up prices to test levels around the 1028 level.

Looking from the current standpoint, sustainability above this level will set the market charting new course towards 1039, 1044 and 1066 in the immediate-term. To support this near-term bullish view, the crucial 1017 support level must not be compromised in the coming sessions. Otherwise, the market will be opened up for a clear shot at the 1005 objective level.

Trade Ideas: Wait for a more favourable level to sell, this is a bear-market rally.

2008-09-20T19:15:00.000-07:00

CIMB - What’s Relevant

• US markets: Wall Stocks got off to a positive start as central banks attempted to calm concerns in
the banking system by infusing billions of dollars into the global financial system. The combined
influence of an announcement prohibiting short selling in the U.K. and reports that the Treasury is
considering a plan to create a Resolution Trust-like operation as a solution to the financial crisis
stimulated huge buying interest late in the day. Reports continue to speculate over the future of
Morgan Stanley and Washington Mutual. Consolidation is also taking place overseas. U.K. banking
giant Lloyds TSB Group announced it is acquiring struggling U.K. mortgage lender HBOS in an allstock
deal. The U.K. government brokered the deal, and is overriding anti-monopoly regulations.
• Asia: Asian stock markets regained much of their losses after a concerted effort by six central banks
to inject large amounts of liquidity into the world’s financial system. The Hang Seng closed 0.03%
lower at 17,632.5 after first appearing to have closed in positive territory. Earlier in the day the index
shed as much as 7.7% as investors panicked following the US$85bn rescue of the US insurer AIG
and switched from shares into bonds, gold, oil and other commodities. The yen weakened by 1% in a
few minutes following the announcement to Y105.6 to the dollar after reaching Y104.1 in morning
trading in Tokyo. Losses also quickly narrowed elsewhere in the region. The intervention came too
late to affect markets in Australia, Japan and China. The Nikkei 225 average ended 2.2% lower in
Tokyo at a 27-month closing low of 11,489.3, the Shanghai composite index closed 1.7% lower at
1,895.8.
• Malaysia: KLCI rebounded sharply in the afternoon session from its 22-month low of 963.29 to close
at 991.66, down 11pts or 1.1%. Plantation and financial stocks which were bashed down recently
recovered and lifted the index off its lows. Nevertheless, losers still outweigh gainers by 522 to 181
while another 225 counters were unchanged. Following the rally on Wall Street last night, we expect
the market to continue on its rebound today, probably testing the 1,000 and 1,021 resistances.
Trades for the Day
Technically…
–

2008-09-20T19:13:00.001-07:00

HDBSVR: Daily Focus - 19 September

Highlights

CB Industrial Product

Business as usual (Buy; RM3.02; CBP MK; TP RM3.75)

Following our recent revision in forecast CPO prices by 4-6% to RM3,220/MT, RM3,080/MT and RM2,930/MT for 2008, 2009 and 2010 respectively, we lowered our forecast earnings for plantation division by 6.6% for FY08, 12.4% for FY09 and 11.4% for FY10. Since plantation earnings consist of 45.1%, 46.1% and 37.9% of total Group’s earnings for FY08, FY09 and FY10, impact to Group’s bottom line is a reduction of 3.3%, 6.1% and 4.6% respectively. While the falling CPO prices will dampen CBIP’s plantation division’s earnings, it would enhance the sale of CBIP’s patented modipalm mill. These mills offer greater operating efficiency (less oil loss and better oil quality) and cost savings (some RM700,000 p.a. for a 40MT/hour mill).

Comments

Malaysia Airports

Ytd-08 passenger traffic growth still strong (Buy; RM2.33; MAHB MK; TP RM3.90)

Malaysia Airports Holdings (MAHB) recorded healthy passenger traffic growth of 6.2% y-o-y to 4.2m (vs 5.0% in 07) in July. This brings ytd-08 passenger traffic growth to 27.3m, up 7.8% y-o-y. The growth was considerably stronger than 2.9% y-o-y attained in the same period last year. Ytd-08 growth was helped by strong international passenger traffic in KLIA and domestic passenger traffic in all other airports which was 8.0% and 8.4% higher y-o-y respectively. This could be supported by new airlines that fly to Malaysia, more competitive rates offered by local airlines and growing rural air services.

2008-09-20T19:11:00.001-07:00

KLCI’s 1,000 psychological support broken. Yesterday, the KLCI declined as much
as 39.7pts to 963pts in the morning before snapping back and closing the day just
below the psychological support level of 1,000pts. Key resistance levels are 1,000 and
1,038. We would turn bullish in the medium term if the 1,080 major resistance is taken
out.

2008-09-20T19:07:00.000-07:00

CIMB - What's on the table
Alpha Edge - Asian equity technicals - Selling climax?

Asian stock markets probably witnessed a selling climax yesterday, followed by strong recoveries later in the day. Led by rebounds in Hong Kong and Singapore, other Asian markets including Malaysia, Indonesia and Thailand also recovered strongly. After a pronounced selling climax, markets usually experience a rebound for 5-10 trading days. We must see strong follow-through of the rebound of Asian equity markets over the next few days. If not, investors can expect weakness to continue once the rebound ends. Our worry is not about Asian markets but rather the US equity market. We did not expect the DJIA to break the 11,000 support level this week but the index dropped below 10,600 on Wednesday. Although the DJIA rallied last night, we would turn positive only if it smashed its immediate resistance at 11,460. We would be very bearish if the DJIA broke below the Sep 08 lows in the coming weeks.

Quick takes - Banking sector update - No US contagion

Our checks with Malaysian banks revealed that their exposure to the securities of US financial institutions is negligible. Only Maybank may have exposure to these instruments but the total value is estimated to be only US$10m, less than 0.3% of its shareholders' funds and 1% of net earnings. This is not a surprise as the operations of Malaysian banks are focused on Asia, primarily in the Asean region. On this score, we view Malaysian banks as a safe haven amidst the global financial turbulence. While we believe that the selldown of the banking stocks is overdone, we remain NEUTRAL on the sector in light of a potential slowdown in loan growth and uptick in NPL. Public Bank remains our top pick for its strong fundamentals and defensiveness to an industry downturn.

2008-09-20T19:04:00.000-07:00

Traders’ Brief - Titanic battle
504 points down, 449 points down, 410 points up. The extreme movements of the Dow is
normally symbolistic of a change in the tide, or an attempted change in the tide.

Apparently, the Federal Reserve and US Government backed bull is pulling out all the stops to
halt the downward advance of the bear, that’s why you see the huge inter-day swings. One
day the bears win, one day the bulls win, the million dollar question is who will prevail and
set the trend?

In this type of scenario, we would be looking for a bullish engulfing pattern to signify a real
change in direction/trend. The bulls nearly carved out a bullish engulfing pattern, however it
fell short by a few points when last night’s white candle could not exceed the black candle of
the night before.
To be fair to the bulls, the rally only begin late after lunch when traders received news about a
possible creation of an entity by the US Government to absorb and take out all the bad
debt out of banks’ balance sheets. If the news was received much earlier, it is highly
possible that a bullish engulfing pattern could have been formed.
A rebound : However, we still think that there will be a continuing rebound, but with a twist.
Instead of a 1-2 day rebound, we think this could be a significant rebound wave buoying global
markets in the short term. However, like all of the Fed’s past initiatives ( Term Auction Facility
loans, interest rate cuts, bailout of Feddie and Fannie etc..), these bailout solutions only serve
to ignite a temporary rebound. A more conclusive catalyst is required for a real true bullish
reversal.

KLCI : Political uncertainty
There are still elements of political uncertainty in the KLCI, which might prevent the KLCI from
joining a global rebound in equity markets. We expect a short term rebound in the KLCI
followed by a brief sideways trading period while the country attempts to sort out its
political uncertainty. After the brief sideways trading period, it is possible that the KLCI and
global markets will resume their downtrend, though it remains still too early to tell for certain.

2008-09-20T19:00:00.000-07:00

JP Morgan : WCT - A status check on Middle East

WCT Berhad
A status check on Middle East

Another M$2B of jobs, in our view: We recently spoke with management to tap their views on the construction business in the Middle East. Based on the current pipeline, we estimate WCT to accrue in the range of another M$2B of additional projects (given 50% effective JV stake) to their existing orderbook of M$5.6B. Again, this would outperform the M$2B replenishment target.

Impact of falling oil price: Management indicated that in an environment of falling oil prices, M/E property developers could face a shortage of liquidity, coupled with a pullback in property demand. Longterm spending in M/E could decelerate and limit replenishment opportunities. On the flipside, building material prices have "probably peaked", and construction margins should thus be preserved going forward.

Impact of falling Ringgit: Although margins should be fairly immune to translation gains / losses, since most of the construction-related costs are also incurred in AED, a devaluing M$ (to AED) bodes well in absolute terms -- we estimate that every 1% depreciation of M$ could boost FY09E operating profit by c.M$2MM (tax-free income).

Share price correlation with Dubai index: The Dubai Realty Index peaked in Jan-08, after which it declined by over 48% since. In similar fashion, WCT share price also peaked in Jan-08, after which it declined by 49% over the same period. Note that the correlation between WCT share price and the Dubai Realty Index is quite significant at 0.62x. The current share price is only pricing in P/E 3.4x for the construction business, implying DCF value of the construction business based on "jobs at hand only, and ignoring future replenishments". We remain Overweight with a Dec-08 SOTP-based PT M$4.10. Execution is a risk.

2008-09-20T18:58:00.000-07:00

Deutsche Bank Notes : Six defensive names to consider in the current turmoil

Six defensive names to consider in the current turmoil

Telekom Malaysia (T MK, RM3.50, Buy, TP RM4.70). Market Cap: US$3.7bn, Avg T/O:
US$6.8m

TM runs a fixed-line monopoly telecoms business in Malaysia.

Under-geared balance sheet: Net gearing stands at 8%, interest coverage at 16.6x. There
is more scope for the balance sheet to work harder, in our opinion.

TM is committed to payout at least RM700m or 90% net payout (whichever is higher) for
2008. Floor payout of RM700m implies 4.3% net dividend yield. But DB sees room for
improvement, forecasting 6.3% dividend yield.

Capital repayment catalyst: TM International (de-merged company) owes Telekom
RM4bn, payable by year-end or early 2009. Potential scope to repay RM0.30/share or
implying an additional 6.5% net yield, if it occurs.

Trading at attractive valuations: 4.1x EV/EBITDA, 12x PER, 1.2x P/BV, 8% FCF yield,
6.3% net dividend yield (vs. peers: 5x EV/EBITDA, 14x PER, 3.5% dividend yield).

Our TP of RM4.70 is based on DCF analysis with 9.7% WACC and 0% terminal growth
to reflect the long term growth potential of fixed-line telecom services in Malaysia. Risks:
fixed to mobile substitution, regulation and higher than expected capital expenditure.

DiGi.Com (DIGI MK, RM23.30, Hold, TP RM23.20). Market Cap: US$5.2bn, Avg T/O:
US$6.2m

DiGI is the 3rd largest mobile operator in Malaysia. The telco’s market share has risen
from 25% in 1Q07 to 27% currently.

DB forecasts net dividend yield of 4.5% (67% pay out ratio). The company has
consistently increased dividend payments since 2005, with dividend payout above 100%
for FY07 (inclusive of special dividend). Management is still focused on “optimizing
balance sheet”. Parent company Telenor owns 51% of DiGi.

DiGi is making headways into the traditionally weaker post-paid market, growing at 12%
QoQ. We believe DiGi (and the industry) is unlikely to be affected by Mobile Number
Portability, due for launch in early October.

Valuations: 7x EV/EBITDA, 15x PER, net dividend yield of 4.5%, 5.5% FCF yield, 70.1%
ROE, 10.1% EPS growth.

Our TP of RM23.60 is based on DCF based on 9% WACC and 1% growth to reflect our
long-term macro/industry view. Upside risk include benign competition and efficiency
gains. Downside risk include increased competition, a potential pull-out by Telenor and
higher than expected capital expenditure.

Berjaya Sports Toto (BST MK, RM4.40, Buy, TP RM5.10). Market Cap: US$1.7bn, 3M
ADTV: US$1.2m

One of three lottery operators (NFO) in Malaysia with the largest market share of c. 40%.

BST has dividend policy of at least 75% net payout. Earnings are relatively resilient
despite economic and market volatility.

DB estimates 6.4% dividend yield based on 89% payout. Dividend disappointments
unlikely unless affected by consistently high prize payout.

Over the last year, parent company Berjaya Land (BL MK, RM4.00, NR) has steadily
increased stake in BST by 2% to 50.3%, partially supporting its share price. So far,
Berjaya Land has utilized just 12% of its RM250m allocation buy BST’s shares.

Net interest coverage stands at 42.2x, net gearing level is not excessive at 43%.

TP of RM5.10 is based on 10% discount to DCF and adjusted for dividend and treasury
shares. Key risks include lower dividend payout, consistently high prize payout and
punitive regulatory changes.

YTL Power (YTLP MK, RM1.77, Hold, TP RM1.86). Market Cap: US$2.7bn, Avg T/O:
US$2.0m

Global utility player with overseas assets accounting for c. 80% of EBIT. Malaysian
assets account for c. 13% of Malaysian IPP generation capacity.

Company buys back shares almost on a daily basis and has spent RM300+m buying
back 3.2% of paid up capital so far.

Net dividend yield of 6.4% unlikely to disappoint, given steady utilities cash flow
generation. This has been helped further by the recent abolishment of the windfall tax.

TP of RM1.86 is on 5% discount to SOTP valuation. The latter values power operations
at DCF and UK Wessex at 1.1x RAB. Key risks include unfavorable regulatory changes
and water price control review in the UK. Upside risk could come from value-accretive
M&A or new projects.

PLUS Expressways (PLUS MK, RM2.67, Buy, TP RM4.05). Market Cap: US$3.9bn, Avg
T/O: US$1.8m

Largest toll operator in SE Asia & one of the largest in the world in terms of lane-km &
market capitalization.

Revenue stream at PLUS is resilient thanks to a relatively inelastic demand for PLUS’ toll
roads and secure concession terms. PLUS’ largest concession (the North-South
Expressway concession) is secure and has a remaining lifespan of 30 years (expiring in
2038). YTD July traffic growth numbers of 6.7% are already ahead of our 2% assumption
for the year, although we believe volumes will likely contract in 2H in tandem with
slower economic activity.

We believe the market is too harsh in discounting political risks on PLUS. The
government has approached PLUS on possible reduction in toll rates but any revision will
be fully compensated by the government, in our view.

Valuations are undemanding with PLUS trading close to its trough valuation. The
discount to DCF has widened to 32% as opposed to a 6 year average of 25% (maximum
discount is 37% in July 08).

PLUS offers a net dividend yield of 5.7%. Group is on track to meet its KPI targets of
25% revenue growth and 12% growth in dividends in FY08F. Payout ratio has been
averaging 58% in the past three years, though we forecast the FY08 payout ratio to rise
to 65% in line with the company’s dividend growth target of 12%.

Our TP of RM4.05 is based on DCF (10.9% COE, 2% growth). Risks include lower than
expected traffic growth, adverse changes in concession agreements and rising political
uncertainty.

QL Resources (QLG MK, RM2.55, Buy, TP RM4.00). Market Cap: US$244m, Avg T/O:
US$0.1m

QL Resources is Asia’s largest producer of Surimi (a highly sought-after fish paste) and
one of the largest animal feed ingredient traders and egg producers in Malaysia

QL is a diversified play on food demand, with a defensive earnings stream in consumer
staple - food products At the same time, QL provides growth opportunities with an
estimated EPS growth CAGR of 23% in FY09-11F – driven largely by capacity expansion,
regional growth and strong price fundamentals for fish, eggs and feed ingredients.

Downside is also protected by a share buyback scheme that started in June 2008 and
QL has since bought back 986,100 shares to date or 0.3% of shares outstanding and
growing.

The Malaysian government’s interest in lifting the agricultural industry also means that
QL should face minimal regulatory risks in the medium-term and QL should instead
benefit from positive incentives for the sector.

Our TP of RM4.00 is based on the Gordon Growth model. Current valuations are
undemanding, with QL trading at FY09F PER of 8x vs a 5 year average of closer to 9x.
Further, QL which trades at an FY09F PB of 1.9x (at an ROE of 26.1%) offers one of the
highest units of ROE per unit of P/B as compared to other stocks in DB Asia’s Consumer
Staple universe. QL however offers a sub-market FY09F dividend Yield of 3.3% (vs
market’s 4.7%). Risks include volatile fish supplies, avian flu, a stronger Ringgit and
abolition of diesel subsidies.

2008-09-20T18:57:00.000-07:00

UBS : KNM Group - Fundamentals and catalyst are intact

KNM Group
Fundamentals and catalyst are intact

A beneficiary of the expect energy shortage in Asia
UBS’s Q-Series®: Asian Structural Themes – Shortages Part 1—Energy: Which
sectors and stocks are the key beneficiaries? report, published on 19 September
2008, highlights that Asia may face a worsening oil shortage. We believe this
bodes well for an oil and mining services company like KNM, a manufacturer of
process equipment for the oil & gas and the mining industries. We expect KNM to
sustain strong order flow momentum over the next three years.

Current share price, however, implies a bearish outlook
We think KNM’s current share price implies a slowdown in order flow (including
Borsig) to 2006 levels (KNM standalone). A falling oil price is negative for
sentiment, but project development economics are usually based on an oil price
between US$60-80/bbl. In the unlikely case that KNM’s order flow is halved
starting from 2009 (ie, 2009, 2010, and 2011), we estimate the company would still
have sufficient backlog to deliver RM3.2bn in revenue and RM587m in earnings in
2011.

Committed to a quick resolution regarding refinancing of bridging loan
While KNM previously had received proposals for foreign funding, management
clarified that it is currently negotiating only with Maybank and remains committed
to finalising terms by end-September 2008. In our view, the financing cost is
secondary (KNM’s interest cover is over 10x). We believe the market desires a
quick closure to the refinancing issue.

Valuation: price target of RM2.70
Our DCF-based 12-month price target assumes a 9.3% WACC and 4% long-term
growth. At our price target, KNM would trade at 15.5x 2009E PE. We reiterate our
Buy rating.

2008-09-20T18:55:00.000-07:00

Macquarie : BJ Toto - Stable and growing cashflow Toto

Event
􀂃 We review BST’s prospects following a company visit.
Impact
􀂃 Revenue growth remains strong, driven by jackpots. The 1Q FY4/09
revenue growth of 9% YoY was even stronger on an underlying basis, as
revenue per draw grew 15%. We expect the number of FY09 draws as a
whole to contract by only 2.4% vs 4.8% in 1Q09, so we could see higher topline
growth in the remaining quarters. This has of course been driven by the
jackpot games, which remain unique in Malaysia to BST.
􀂃 Expenses to remain stable from 1Q. The NFO (number forecast operator)
division’s pretax margin of 16.7% in 1Q is sustainable for the rest of the year.
This is below the 19% achieved in both FY06 and FY07, and reflects the
increased promotional activity BST has undertaken. Because some of these
expenses are not tax-deductible, the effective tax rate has also risen. This is
the main driver of our earnings downgrade.
􀂃 Dividend payout to remain above 75% for FY09. The company reiterated
its intention to stick to its stated policy of keeping its dividend payout ratio
above 75%. This is lower than the 90% payout in FY08, because the
company has not decided whether to refinance its remaining RM330m term
loan. This is repayable at a rate of RM125m pa, or 31% of our net profit
forecast. Once the loan is repaid, or if the loan is refinanced into a more
permanent debt structure, the payout could return to 100%. Note that our
dividend forecast is gross for FY08 and FY09 and net for FY10-11 because
BST is transitioning to a single-tier tax system.
Earnings revision
􀂃 We have cut our FY4/09 and FY4/10 forecasts by 8% and FY4/11 by 6%. This
mainly reflects the higher promotional activity, which is also not tax deductible
and therefore also raises the effective tax rate. This has also led to a cut in
our target price from RM6.30 to RM5.80
Price catalyst
􀂃 12-month price target: RM5.80 based on a DDM methodology.
􀂃 Catalyst: Revenue growth could surprise in 2–4Q.
Action and recommendation
􀂃 Outperform maintained. BST remains one of our top picks in Malaysia. We
believe it has solid underlying revenue growth of 6-8% in the medium term, a
decent net yield of 7-8%, thus giving a total return of 13–16%, with relatively
low risk.
􀂃 Our DDM valuation of RM5.80 assumes a 100% payout ratio and puts the
stock on an implied PER of 17.4x calendarised 2009E earnings.

2008-09-20T18:54:00.000-07:00

JP Morgan : Dialog Group - Key takeaways from Corporate Access - ALERT

Dialog Group Bhd
Key takeaways from Corporate Access - ALERT

We hosted a corporate access meeting with Dialog’s senior management yesterday. Key takeaway points include:

CTF – The Tg. Langsat Phase 1 project is progressing well, targeting completion by Jun-09. The infrastructure constraint of the Tg. Langsat terminal is an impediment for Dialog’s expansion plans. Note that we have included neither the earnings, nor the value of Phase 2 in our estimates.

Catalyst handling – Dialog has recently completed two projects with Veolia in Houston, Texas. Management is still confident of achieving the US$100MM revenue mark in five years time, and is guiding for revenue contribution of M$80- 100MM in FY09. We estimate M$90MM contribution in our forecast, with GP margins of 20%.

EPCC – The current unbilled orderbook is M$700MM, and management foresees more. While management did not provide any guidance for future replenishment, they indicated that the Kimanis Terminal remains a key project that they are bidding for. We expect the re-tendering of the Kimanis project to be announced by 1Q CY09. Operating margins for EPCC are expected to hover around 8%.

Foreign exposure – Dialog has a 50% group revenue exposure to foreign currency, while most of the cost elements are still denominated in local currency.

Buybacks and treasury shares – With over 14.7MM treasury shares (average cost of M$0.55), Dialog has just sought to renew its buyback program. The company intends to specie-out the treasury shares eventually.

Dividend – Guidance is still pointing to a 40-60% payout ratio for now. At the current price, this translates to a 3-4% dividend yield.

Dialog has also announced an investment of M$3.75MM in ePayment technology. ePayment technology is developed to provide consumers the convenience and security of using chipbased smart cards, or MyKad, to purchase fuel at petrol stations. We do not anticipate significant enhancement to earnings as the technology is still in the early days.

2008-09-20T18:52:00.000-07:00

Macquarie : Genting - Multiple Catalysts "TP reduced to RM10.00

Genting Berhad

Multiple catalysts

Event
We review Genting Bhd’s prospects following recent developments.

Impact
Targeted Sentosa 1Q10 opening date maintained but delay risk remains.
The company maintains that its target is to open Sentosa in 1Q10. We believe
this is possible, but the risk of slippage is significant. We are now imputing just
two quarters of earnings in 2010 rather than three (see our separate flyer,
Genting International – The long play dated 18 September 2008).

The Malaysian leisure division remains robust, with underlying revenue
growth of 7–8% in 1H08. We are cautiously optimistic on the Malaysian
consumer, with wage growth and the recent budget tax cuts and subsidies.
In addition, despite sharply higher VIP hotel room capacity, occupancy
appears to have remained high. See our separate flyer, Resorts World –
Bombed out dated 18 September 2008.

For the plantation division, we have imputed actual achieved CPO prices to
date, which has resulted in an average US$900 assumption for the full year,
as well as higher production costs. For the power division, we have reduced
our forecast by 12% due to the lag in cost pass-through for the China plants.

Earnings revision
We cut our earnings estimate for FY08 and FY09 by 10% pa, mainly on lower
assumed plantation and power division earnings. We also cut our estimate for
FY10 by 14% mainly because we assume Sentosa opens in 2Q10 instead of
1Q10.

Price catalyst
12-month price target: RM10.00 based on a RNAV methodology.

Catalyst: VIP hotel room capacity tripling at Resorts in 2008, Sentosa risk of
cost overruns mitigated as project is executed, Tangguh 1st LNG cargo by
end 2008 could trigger sale/revaluation, potential gaming tax increase with
win-win solution.

Action and recommendation
Maintain Outperform. Our RNAV-derived target price has been reduced from
RM12.50 to RM10.00, due mainly to cuts in the targets prices for subsidiaries.
Our worst-case RNAV is RM7.00, which still gives 55% upside. At current
levels, all the non-gaming parts of Genting, ie, the plantations, power and
oil & gas are free.

Further upside to RNAV could come from at least three sources: new
production or transactions at the oil & gas division, higher revenue risk in
Singapore and revenue surprises at the Malaysian leisure division.

2008-09-18T05:59:00.002-07:00

Malaysia Strategy
A cocktail of negative trends; Underweight

A painful adjustment period for equities, fixed income and the currency

Not the time to own Malaysia; no quick resolution to political uncertainty
The market is going through pain not felt since the Asian crisis. We anticipate further risk to earnings (commodity slowdown, higher input costs and waning consumer spending), a weaker currency, higher funding costs for companies and further deterioration in the political landscape. We now expect the economy to grow at a slower pace of 5.8% and 5% for 2008 and 2009, respectively. But much of this assumes that commodity prices do not tumble further. Also, the lack of
policy direction and much needed reforms adds to what is already a fragile market,

Not at bargain valuations yet; inferior EPS growth (with more downside risk)
The market is not yet at bargain valuations. In fact, valuations look expensive with the market at just a 2% PER discount to the region at 12.3x PER and 1.9x P/B. The market should be trading at a wider discount considering inferior growth of 1.7% and 6.5% for 2008 and 2009, respectively (vs. the region at 6.8% and 17.8%).
Watch out for further EPS cuts as the street adjusts for falling palm oil prices, higher input costs from steel, fuel, etc., potentially higher cost of funds (spreads have widened by 100-150bps) and waning consumer spending. We think the worst is not yet over. Critical policy decisions should be made to reverse negative trends but there are just too many political distractions in the way for now.

Worrying trends: widening fiscal balance, weaker currency & wider spreads
The recent budget failed to restore confidence in the market. The overly generous handouts to soften inflationary blows and the big lifts in development expenditure (fiscal deficit to rise to 4.8% in 2008 vs. 3.2% in 2007) have sent the bond market worrying about the 'wall' of issuance from the Government. This has put pressure on the currency at a time of significant negative interest rates. Beneficiaries of a weaker currency are: MISC, KNM Group, YTL Power and QL Resources. Potential 'losers' are Tenaga, Lafarge, MAS, AirAsia, Proton and UMW.

Underweight maintained; KLCI target at 975, suggesting 9% downside
Our KLCI target of 975 is based on a 10% PER discount to the region, implying 8.5% downside or valuations at 11.3x and 10.7x for 2008 and 2009, respectively.
We are Underweight large cap sectors like banks and plantations. For investors who have little choice but to remain invested in Malaysia, we advocate defensive names like TM, PLUS, Berjaya Sports Toto and KLCC Property. For longer term investors seeking deep value, we like IGB, Gamuda and KNM. The key risks on the upside for the market are: (a) a sharp recovery in commodities lifting the palm oil sector, (b) resolution to the political uncertainty, and (c) Government policies to restore confidence in the currency and the domestic bond market. Underweight.

2008-09-18T05:59:00.001-07:00

Traders’ Brief

Only a rebound and no rebound

We were highly skeptical of the Dow’s rebound the night before and was proven right when
the Dow plunged by a significant 449 points again last night. Unfortunately, we were overly
optimistic of a rebound in the KLCI and were proven wrong when the KLCI actually plunged
instead.
The Dow : Reversal too easy to be true
We were actually tempted to begin calling a reversal in the Dow on Tuesday. Some chartists
were actually calling for a reversal as they subscribed to the maxim of “buy on the pinnacle of
bad news”, with the bad news being the potential collapse of AIG. But somehow, it seemed
too easy to be true, whence our skepticism.
Sometimes instincts and gut feelings play a very vital role alongside charting and
fundamentals in calling a market. And in Tuesday’s case, the charts smelled fishy as though
the white rebound candle may possess a long lower tail, its magnitude could not even surpass
half the length of Monday’s big black candle.
For now, last night’s black candle in the Dow almost landed exactly in our support zone of
10,660-10,700. Thus, this support might still have a marginal chance of holding. However,
realistically speaking, this negative black candle possesses virtually no lower tail whatsoever,
and paints a more ominous picture in the near term. Expect more downside for the Dow and
world markets in the near term.

KLCI : No rebound, next support 970 points
Our call for a rebound yesterday was like taking pie and throwing it back at our faces. The
stocks that were responsible for ruining the rebound were primarily Maybank and plantation
stocks. Apparently investors took the news of Maybank’s approved acquisition of BII badly and
proceeded to punish its stock price. Plantation stocks were also pummeled by the continuing
regressing of CPO prices.
Look out for the KLCI’s support of 1000 to be broken easily in the morning. The next important
support for the KLCI is at the 970 level.

2008-09-18T05:59:00.000-07:00

HLG: UMW - Headwinds in H208; HOLD (18 September 2008)

UMW Holdings Berhad HOLD

Price target RM6.00

Share price at 17 Sept RM5.75

Investment summary

We initiate coverage on UMW with a HOLD. We have mixed views on UMW: (1) We expect automotive sales to slow down in H208 on our view that consumer spending will weaken following the petrol price hike and higher inflation. (2) Management has deferred the listing of its oil and gas (O&G) unit and we think it is unlikely to happen until H209 at the earliest. Poor investors' demand for new equities has resulted in sharp decline in share price for IPOs (Perwaja, Vastalux); (3) UMW trades at 11x FY09E, 40% premium to local carmakers/assemblers and in-line with KLCI. We think the premium to auto peers is justified given its big-cap nature, diversified business groups and direct exposure to the O&G industry.

We are negative on Malaysia's auto sector, as we believe that higher inflation could hit the consumption of big-ticket consumer durables.

Challenging H208

Share price has declined -28% YTD, in line with the KLCI. We see few near term share price catalyst: (1) O&G unit listing has been deferred until equity market recovers; (2) we expect lower auto sales in H208 on deteriorating consumer spending, and absence of new major model launches.

2008-09-16T16:43:00.000-07:00

Stocks rise on Fed
Investors breathe a sigh of relief that the central bank's outlook was not more bearish. After the close, AIG plummets.

NEW YORK (CNNMoney.com) -- Stocks rallied Tuesday as investors focused on the positive implications for the economy in the Federal Reserve's decision to hold interest rates steady, and on diminishing fears about AIG's solvency.

The Dow Jones industrial average (INDU) gained 1.3%. The Dow had fallen to a fresh bear market trading low of 10,742.70 in the morning before bouncing back.

The Standard & Poor's 500 (SPX) index gained 1.8% and the Nasdaq composite (COMP) added 1.3%.

After the close however, AIG shares tumbled around 50% on a report that the government is considering conservatorship as a means of rescuing the troubled insurer. The government put Fannie Mae and Freddie Mac in conservatorships earlier this month, enabling it to oversee operations and protect the assets of the two mortgage lenders.

Following the reports, AIG issued a statement saying that its life insurance, general insurance and retirement services businesses are operating normally. The insurer reiterated that it continues to look for means of raising capital to address what it says are short-term liquidity issues.

Also after the close, reports said that Barclay's has agreed to buy some of the investment banking and trading operations of Lehman Brothers, which declared bankruptcy on Monday after failing to find a buyer. Lehman (LEH, Fortune 500) shares gained 43% during the regular session.

Additionally, Morgan Stanley reported better-than-expected third-quarter sales and earnings after the close Tuesday, one day ahead of schedule.

Tuesday's market: Stocks seesawed throughout the session as investors considered the prospects for AIG, the world's largest insurer. The company has seen its stock price and investor confidence plummet as it has struggled to raise cash amid the credit market fallout. Reports that the Treasury could step in helped the stock trim morning losses and gave the market a leg up.

Also helping Wall Street Tuesday: an ultimately positive reaction to the Fed's decision to hold the fed funds rate, a key short-term interest rate, steady at 2% - and not signal worsening conditions in its statement. Stock investors initially took a knee-jerk negative reaction to the Fed, before taking a more sanguine response.

Although a cut to the fed funds rate might have provided a psychological boost, the central bank is already providing a lot of liquidity to Wall Street, said Brian Battle, vice president at Performance Trust Capital Partners.

"That they didn't ease says that they don't think the economy has gotten worse, which is a positive," Battle said. "It also says they are saving their ammunition for when they need it going forward."

He said that the focus now is what happens to AIG. More so than Lehman Brothers, AIG represents a bigger threat to the financial system because of the depth of its business.

"If you want to talk about a domino, this is a domino," Battle said.

Much like Freddie Mac and Fannie Mae, which the government stepped in to save last week, AIG may be too big to fail, Battle said.

2008-09-16T09:54:00.001-07:00

GREED & fear - 7 Aug, 2008 - Look down under

There has been a freeze of redemptions in recent days locking up NZ$1.34bn of investors' money in New Zealand's property funds. The panic over the open-ended property funds shows concerns hitting more mainstream respected financial service franchises, at a time when the New Zealand domestic economy looks to be entering a free fall and in particularly its highly leveraged property market.

· The New Zealand situation is deteriorating at a pace that could precipitate depositor concerns about the health of the New Zealand banks. A financial crisis in New Zealand will directly ricochet into Australia since major Australian banks have 15-25% of their lending in New Zealand. Banks in both New Zealand and Australia have very high loan-deposit ratios, resulting in massive dependence on wholesale funding. There is also no formal deposit insurance scheme in both countries.

· GREED & fear continues to recommend a zero weighting in Australian banks. For like New Zealand, there has been a consumer debt-driven bubble of massive excesses in Australia further fuelled by the following wind from the commodity boom. The domestic economy is now unwinding just as the oil-led commodity complex is showing growing evidence of cracking.

· Macro investors should bet aggressively on falling interest rates and a weakening currency in Australia. But both trends will not be bullish for Australian banks which absolute-return investors should remain short of. As for relative-return investors in Asia Pacific the increasing likelihood of significant Australian dollar weakness over the next 12 months or more is another reason to run a massive underweight in Australia. This should be funded by an overweight in Japanese domestic stocks.

· The financial excesses of the credit bubble were not just confined to America. Rather this is a global phenomenon where the greatest excesses have been where the Anglo-Saxon free market model has been most vigorously practised. The model has been fatally compromised by the only too evident view of the relevant financial service sectors that the relevant governments and central banks will always bail them out of a problem.

· The break of oil below US$120/barrel surely signifies the commencement of a medium term correction in oil and the related commodity complex. GREED & fear would not be surprised to see oil now drift toward US$100 per barrel or lower during this medium term correction, a period during which commodity and other cyclical related stocks should be expected to underperform. This will occur in the context of a continuing recognition by investors that growth is continuing to slow.

· The oil correction is occurring as expected in the context of a strengthening US dollar. GREED & fear expects the dollar to rally more here because US consumption is slowing sharply and the US current account deficit is about to decline even more sharply than it already has done. Such a dollar rally will gain momentum if the American currency breaks 75 on the US dollar index.

· If the dollar does break out, it is only a matter of time before Billyboy resumes cutting rates again. For now investors should assume that the dollar can rally to the 1.25-1.3 level against the euro, and also rally sharply against the likes of sterling and the Australian dollar. The dollar rally will be much more muted against the yen and the Asian currencies.

· The break down in the oil-led commodity complex will curb the inflation scare in both the West and Asia that has generated so much noise this year. The scare never made any sense in the West, which is facing the biggest deflationary debt liquidation since the Great Depression. GREED & fear is now lowering the federal funds rate target from 2% to 1%.

· As for Asia, with the inflation scare about to disappear down the proverbial plug-hole, the asset allocation recommended for dedicated equity investors remains to get out of commodity and cyclical related stocks and into interest rate sensitive stocks which will be viewed as beneficiaries of a weaker oil price. The obvious structural underweight in Asia Pacific remains Australia.

· GREED & fear is going to remove the allocations in Russia and Middle East equities in the global portfolio, with the money put back into US Treasury bonds where GREED & fear retains the long-term target of 2.5% on the 10-year Treasury bond yield.

· Taiwan Fertilizer will be removed from the Asia ex-Japan thematic portfolio and replaced by doubling the position in China's ICBC. The investments in India and Indonesia in the relative-return portfolio will be raised by 1ppt each by shaving the overweight in Taiwan by 1ppt and by increasing the underweight in Korea by 1ppt.

· With Thaksin's wife charged with tax evasion and establishment voices calling for a "New Politics" where only 30% of the parliament would be elected and 70% appointed, it is clear that the stalemate in Thai politics continues to fester. The longer this stalemate continues, the bigger the risk it climaxes in a violent confrontation. For now GREED & fear will retain the zero weighting in Thailand.

2008-09-16T05:55:00.000-07:00

Financial Jitters In USA

Breaking News: Bank of America will buy Merrill Lynch. For John Thain to have to sell despite having sold tons of assets to try to remain afloat, tells me that if Merrill has to be sold, then those infected with toxic assets will have to be absorbed as well. It also looks like there won't be a similar bailout plan ala Bear Stearns. If ML has to be sold, then Lehman (which is in worse state) will have to declare bankruptcy. This will mean Washington Mutual, Suntrust and Wachovia will have a very high chance of being bought out in order to survive (in that order of likelihood).

Dealbook/WSJ/Bloomberg: The heads of Wall Street's biggest firms descended upon the New York Federal Reserve on Saturday to figure out how to shore up the American financial system.

The extraordinary meeting, including the heads of Wall Street's remaining investment banking giants, was covened to discuss options for Lehman Brothers, the faltering securities firm whose collapse could ripple throughout the global financial network.

Also weighing on the likes of Citigroup's Vikram S. Pandit and Merrill Lynch's John A. Thain were the troubles besetting the American International Group, the giant insurance company; Washington Mutual, the nation's largest savings and loan; and Mr. Thain's own firm.

Representatives from many other major firms were also present, including Morgan Stanley's John Mack, Goldman Sachs's Lloyd C. Blankfein, JPMorgan Chase's James Dimon, Credit Suisse's Brady Dougan, Bank of New York Mellon's Robert Kelly and UBS Americas's Robert Wolf.

Robert E. Diamond of Barclays, one of Lehman's potential buyers, was seen entering the New York Fed's employee entrance, clutching a briefcase. However Bank of America's Kenneth Lewis, another potential bidder, was not present.

Government officials there included Treasury secretary Henry M. Paulson Jr. and New York Fed president Timothy Geithner, who together led the discussions. Securities and Exchange Commission chief Christopher Cox was also in attendance.

It was in some ways a replay of 1998, when Wall Street's top executives were summoned to the same building to discuss plans for Long-Term Capital Management, the big hedge fund whose failing health similarly threatened the fragile financial network. Many recall one of the bitter ironies of today's situation: Lehman then was considered in danger of failing, owing to its large exposure to Long-Term.

As one can imagine, heavy security surrounded the building where the heads of global finance had gathered for most of the day.

Formal talks broke off at 6 p.m., and Wall Street's chiefs are expected to regroup at 9 a.m. on Sunday.

Comments: Well, it looks very likely that Lehman Brothers is a goner, and maybe Washington Mutual as well. The big banking unit that was predicted to fall, which was not mentioned in the above report, should very well be Wachovia. These developments will weigh heavily on financials in US and Europe. The Treasury and Federal Reserve would definitely try their hardest NOT TO BE seen as bailing out any more financials. Could see a run in USD if the bailouts were to be seen to continue. More bad assets will appear as collateral on Federal Reserve balance sheet.

2008-09-16T05:53:00.000-07:00

Traders’ Brief

Ugly Dow
US may cut rates to calm markets

Last night, the Dow Jones suffered its biggest loss since the 9/11 attacks, dropping more than
500 points on the worse of financial news. The news flows from Wall Street represents the
worse of financial news ever to hit the financial world :

- According to Times Online : “Lehman Brothers collapse sends shockwave around world”
- According to Bloomberg : “Washington Mutual Rating Lowered to Junk by S&P on
Mortgage Losses”
- According to Bloomberg : “American International Group Inc. is seeking a loan for as much
as $75 billion through Goldman Sachs Group Inc. and JPMorgan Chase & Co. after the
Federal Reserve balked at providing funding for the insurer, according to people familiar with the situation.”

Big black candle in Dow
With the huge 504 point loss last night, the Dow is now approaching its June and 2-year low of
10,827. It is hard to tell if this level will be broken. The big black candlestick with one of the
biggest single day volume ever represents the immense strength of the bears. But tonight is
the Federal Reserve meeting and the Fed may take the opportunity to cut rates to calm
markets down. If the Fed fails to cut rates, it is very likely that the Dow will pierce the June low
and head towards the 10,156 level which was the low of October 2005.

Tonight : US Rate cut possible but not guaranteed

It is very possible that this load of extremely negative financial news was deliberately
released the day before the Federal Reserve meeting, just in case the Fed have to cut
rates to calm markets down. Yesterday, the Fed Funds Futures odds for a 25bps rate cut
jumped dramatically from 9% to 40.2% in a single day. An absolute no-chance of a rate cut
yesterday has turned to a possible rate cut today.
Suffice to say, rate cuts are the only weapon left in the Fed’s arsenal to stem the plunge in the
Dow. Even last night, bond investors were buying up US Treasury bills, causing a plunge in
bond yields to price in a potential cut in the Fed Funds rate. If expectations of a rate cut is
not fulfilled, there may be another leg down for the Dow tonight and for world markets
tomorrow morning.

2008-09-16T05:52:00.000-07:00

Traders Brief HLG 16 Sept 2008

Strategy : Expect a 15-20 point drop in KLCI

Our KLCI will once again pay for the sins of a country located half a world away. However, the plunge won't be as drastic as the KLCI has shown that it is holding up well with a mere 12 point dip yesterday. Expect an approximately 15-20 points dip today in the KLCI.

Once again, we don't advocate selling at this point as it is already too late to sell and the fact that the KLCI is holding sufficiently well. The next support level for the KLCI is at the 970 level. If the Fed cut rates tonight, we may see a rebound tomorrow. A non-rate cut may signify another bad day tomorrow.

2008-09-16T05:51:00.000-07:00

Brokers’ Actions

LCL Corporation CIMB keeps OUTPERFORM with a target price of RM4.05.

Malaysian Bulk Carriers CIMB keeps NEUTRAL with a target price of RM3.43.

Malayan Banking CIMB keeps NEUTRAL with a target price of RM8.60

Aeon Co KAF keeps BUY with a target price of RM5.30

Malayan Banking AmResearch upgrades to HOLD with a higher target price of RM8.20.

UMW Holdings RHB keeps OUTPERFORM with a lower target price of RM6.62 (RM6.68
previously)

KFC Holdings RHB keeps MARKET PERFORM with a higher target price of RM7.60 (RM7.17 previously)

2008-09-16T05:49:00.000-07:00

HLG: Breakfast Brief: SunCity, Maybank, Sapura Crest (16 September 2008)

We recently visited SunCity (BUY, PT RM4.80)'s management, and came away with a view that SunCity has enough on its books to ride out current difficult property market conditions. Despite poor recent FY08 results, our BUY investment thesis remains intact:

(1) Prospective earnings are defensive due to RM1.1bn unbilled sales, vs. RM700m current annual billings.

(2) Valuations are cheap on a relative (FY09E PE of 7x, vs. 10-13x for big-cap peers) and intrinsic (future REIT asset value alone is worth RM4.95/share, and current share price does not price-in any future launches) basis.

Along with MahSing, SunCity is our top pick in the property development sector.

Newsbreak

Bapepam rejects Maybank's appeal for exemption from new ruling on BII

Maybulk gets invite from PCL to invest in POSH

SapuraCrest gets USD152m contract extension from Exxon

BHIC signs JV Turkey's Yonco to build vessels in Malaysia

MAS, Ethihad signs codeshare agreement

BLand, OYIA will jointly develop a USD2bn resort in Libya

TM needs six months to determine HSBB pricing

IJM Land's 454m new shares and 227m warrants will be listed today

Talam aims to get out of PN17 status by Jan09

2008-09-16T05:47:00.000-07:00

What's on the table
LCL Corp visit - Dubai to the rescue

From a recent meeting with management, we gathered that the outlook for LCL is mixed. It is doing very well in Dubai but has been slammed by the deferment or cancellation of projects on the local front since the Mar general elections.

We have assumed losses for the local operations, which fortunately, will contribute less than 10% of group revenue from next year onwards. Before year-end, LCL's orderbook should see a significant boost from Dubai by as much as DHM750m in new IFO jobs. LCL is looking to list its Dubai IFO operations on the Dubai Stock Exchange next year which would be very positive as Mideast investors are likely to understand better LCL's huge potential in the region.

Assuming a valuation range of 8-10x CY09 P/E, the Dubai spin-off would trade at RM4.15-5.18/LCL share. We maintain our earnings forecasts, target price of RM4.05 (20% discount to construction sector target P/E of 11.5x) and OUTPERFORM recommendation.

Quick takes - Malayan Banking update - Bye-bye to BII?

Quick takes - Malaysian Bulk Carriers - Buying offshore oil and gas assets

News of the Day
- Opposition leader claims his alliance ready to form new government
- Bapepam rejects Maybank's request to be exempted from new take over rule
- MSWG maintains stance against Maybank's acquisition of BII
- Telekom to sign HSBB agreement today, will not open HSBB to resellers

- Pacific Carriers offers to place out new shares in POSH to Maybulk

2008-09-16T05:43:00.000-07:00

Kenanga Today

COMPANY UPDATE

· Malaysian Bulk Carriers (TRADING BUY; RM3.06; TP: RM4.10) - Diversifying into offshore marine?

TECHNICALS

· KL Composite Index – Fasten your seat belts!; Dow Jones Industrial – Selling momentum gathers; Crude oil - Skidding

NEWS HIGHLIGHTS

· Jakarta rejects Maybank's (BUY; RM7.85; TP: RM9.20) appeal

· XOX and Celcom to provide new mobile service

· M3nergy takeover bid price too low: Group

· Berjaya Land in US$2b Libyan foray

· Boustead, Turkish firm to build vessels

2008-09-16T05:42:00.000-07:00

HDBSVR: Plantation Sector - No near term catalysts

No near term catalysts

Lowering CPO prices by 3.9 - 6.1%

We have lowered 08F, 09F and 10F CPO price outlook to RM3,220, RM3,080 and RM2,930 from RM3,350, RM3,280 and RM3,100 respectively. The main changes were forecast higher production (slightly lower Brazilian production, offset by stronger-than-expected US supplies) and lower projected demand growths for soybeans in major consuming countries (i.e. weaker US demand, partly offset by still resilient Chinese demand). These resulted in higher soybean stock/usage ratio than previously anticipated. Combined with improved rapeseed production in Europe, we now expect softer price prospects of oilseeds and palm oil than our previous forecasts. The extent of the price cut was limited by our crude oil price assumptions of US$113/bbl over the next two years. However, should oil price drop to US$60/bbl next year (equivalent of average CPO price of RM2,225), we should see stock prices drop to much lower levels (please see sector universe table on the right).

TP cut by 23-55%, near term weakness expected

Our revisions (including weaker regional currencies and higher fertiliser costs) would reduce plantation companies’ net profits by between 3.9% and 18.9% in FY09F and between 0.2% and 24.9% in FY10F. Although we expect palm oil prices to recover at the end of this year, we also foresee PE down-cycle on the sector to persist far longer. Historical data we gathered from previous three cycles suggested that a de-rating from peak to trough PE would last 14 to 18 months (depending on external influences). In the current PE cycle, the peak was reached in February 2008 – suggesting that sector PE valuation should bottom by April 2009 at the earliest or August 2009 at the latest. Hence in a worst-case scenario, a recovery towards mid-cycle PE objective may be stretched until early 2010 – beyond our 12-month outlook. Taking a more conservative approach, we now peg our target prices based on low-cycle PE, until such time we believe there is a reasonable expectation of a recovery within a 12-month outlook.

How low can they go?

We cut our ratings on IOI Corporation and Astra Agro Lestari to Fully Valued in light of the potential downside to our revised target prices; and lowered our rating on Sime Darby to Hold. Despite our downgrades, there are a few stocks that have been sold down more than the rest. These are London Sumatra, KL Kepong and First Resources. We believe they should offer upsides earlier than peers, as they are already trading below historical low-cycle PE’s.

2008-09-16T05:39:00.000-07:00

Aseambankers - Daily Technical Outlook

With the uncertainty after Lehman Brothers’ Chapter 11 filing in the
USA, world currency and equity markets would be very unstable.
The weaker supports for the KLCI are located at 1,021 and 1,000,
while resistance areas of 1,031 and 1,050 would cap any rebound.

Therefore, investors should continue to adopt a “sell into strength”
strategy, as gains are likely to be short-lived due to negative
readings. There could be a potential test of 1,021.20 quite soon.

With a sustained price break below 1,021.20, this would confirm our
longer-term bearish opinion of the KLCI. Our medium-term downside
targets for the KLCI chart are now 980 and 935. With the plunge of
504.48-points in the overnight DJIA Index, we would see the KLCI at
below 1,000-points very soon.

KLCI Line Chart KLCI: Key Points
 World turmoil and malaise to affect the KLCI
 Adopt a “sell into strength” strategy
 Support is much weaker at 1,021 and 1,000
 More weakness is expected

2008-09-16T05:38:00.000-07:00

ASEAMBANKERS MALAYSIA BERHAD

Equity Focus
Oil & Gas: Overweight
A double bogey, bogey and par scorecard

Despite improving fundamentals, 56% of O&G-related stocks have underperformed the market, underpinned by falling market liquidity, rising costs, and domestic political uncertainties.
Mid-term crude oil fundamentals suggest that prices should remain range-bound at USD100/bbl (vs. a high of USD146/bbl) which could bode well for consumers, in terms of lower petrol pump prices.
Still a wobbly sector outlook but an opportune time to keep an eye on quality stocks such as KNM Group, Dialog and Alam Maritim, whose share prices have taken a beating recently.

In The News
Sapuracrest Petroleum (RM1.26): Rating Withheld
Higher charter rates for T-9 rig

Malayan Banking (RM7.85): Not Rated
Indonesian authority rejects request

Other Local News

Maybulk: Venturing into offshore marine support services?
Berjaya Land: Libyan JV.
Boustead Heavy Industries Corporation: Turkish JV
Euro Holdings: Supply contract with One Office, India

Outside Malaysia

U.S: Industrial production fell more than forecast as automakers slumped
U.S: Stocks drop, S&P 500 sinks most since 2001 terror attacks
U.S: Fed expands lender of last resort role even as it draws line on bailouts
U.S: Paulson says Lehman rescue wasn't considered, loan to AIG not option
E.U: ECB, BOE join Federal Reserve in soothing markets after Lehman
China: Cuts rates as U.S. turmoil adds to global risks
Crude Oil: Drops to 7-month low as Lehman adds to demand concern

2008-09-16T05:36:00.000-07:00

KNN - Strategy: Market Outlook - 16 Sep 2008

Strategy: Market Outlook - Trading opportunities abound

· The recent sell down has presented some trading opportunities. We believe that the sell down which was triggered by the adverse financial news in the US has resulted in many funds taking a more conservative stance by locking in profits across markets and also selling down first to raise cash in light of redemption and cut losses.

· Domino effect taking grip. The overall weak regional markets following the sell down in DJIA. Systemic risk concerns arsing from counter party transactions where Lehman Brothers owes in excess of USD600bn to other banks could result in more write downs by banks. This in turn could result in ratings downgrade and increasing volatility in the bonds market while banks become risk adverse to lending stymieing capex and growth.

· The bright light – inflationary pressure is off. Falling commodities prices on the unwinding of future positions as well as structured products is now further exacerbated by expected falling demand due to economic slowdown. This takes the pressure off inflation and interest rates. China and New Zealand have cut their prime rates and more countries will follow as focus is turning to stimulating economic growth.

· Stick to the large caps with high trading volume. While we expect some selling in stocks that have high foreign shareholding, it presents good trading opportunities as it is supported by strong fundamentals. Valuations are attractive now.

· We like Maybank, BCHB, TNB and Genting out of the top ten largest market cap companies.

· We believe there is more downside pressure for commodities especially plantation. As such, IOI should look interesting below RM3.50 at 9x PER but Sime on the other hand could be consolidating at this level given the massive selldown previous weeks. As for MISC and TM Int, one should look to collect on further sell down. P Gas due to illiquidity remains an outperformer but investors should look to lock in profits. Similarly, PBB would be a key target for foreigner to sell out as it has outperformed.

2008-09-12T20:40:00.000-07:00

Three ways to value stocks

They are income, market and asset approaches

MOST stocks sell at a certain price level influenced by the companies' future income, the overall market conditions as well as the assets owned.

Three factors – income, market and asset approach – can be individually used to value a company.

Income approach: Under this approach, a company's value is dependent on the present value of its future cash flows, which can be in the form of dividends, profits or cash movements.

In Malaysia, we can use this approach on companies that are paying good and consistent dividends or companies showing strong future revenue and profits.

In most times, these will show stable stock prices regardless of market conditions.

The overall condition may be weak, but these companies will be selling at high value due to the potential of their future businesses as well as the certainty of future dividend payments.

Investors will hold them for the long term and will be quite reluctant to sell these stocks as they always reward them with handsome dividend payments.

In Malaysia, these companies normally have repetitive consumer needs with products that wear out fast, are used up quickly as well as have strong brand appeal.

Examples include powdered milk, instant noodles, condensed milk, infant formula, soft drinks, canned milk, dairy products, toiletries or healthcare products. Most of these products are consumed fast and have strong brands.

Given the present weak economic environment, despite higher operating costs, especially high raw material prices, these companies still enjoy good turnover and sales, as they are able to pass the higher costs to consumers.

Even though retailers need to fork out more money to pay for their products, it is necessary, as the products have already formed part of the essential items in most households.

As a result, their financial results may not be much affected by the weak economic environment. In fact, they will still be able to reward their shareholders with good dividends.

Hence, such stocks can be purchased any time, depending on the future outlook of their businesses rather than the overall market conditions.

If these stocks' outlook is promising and able to generate high turnover, profits and cash flows, retailers may buy them now even though the future remains bleak.

Market approach: Under this approach, the companies' value depends on the market prices of similar types of companies. In most instances, the fluctuation of the overall market sentiment can affect their stock prices.

For example, the stock prices for companies like Telekom Malaysia Bhd, Tenaga Nasional Bhd and Malayan Banking Bhd will fluctuate based on the overall market risks and returns. Even though these stocks do pay dividends, their price movements tend to follow the overall market fluctuation.

We use price-earnings ratio or price-to-book to value these stocks, which will depend on how many times the current market price is above their earnings or book value.

Then we compare these ratios with companies in the same industry. The timing to purchase this type of stocks is important, as we need to catch them when the market touches the bottom.

Unfortunately, predicting the market bottom is a very difficult task in view of the uncertainties of the market outlook.

Asset approach: We use asset approach on companies that own a lot of assets, like land banks, buildings or other fixed assets. Under this approach, the companies' value will depend on the types of assets owned by the companies.

Among the three approaches, this is the least important in evaluating any ongoing concern companies because they will not liquidate their assets.

When we buy into these operating companies, we are more interested in how much future cash flow that can be generated rather than to expect any cash proceeds from the disposal of their assets.

2008-09-12T20:38:00.000-07:00

HDBSVR: Malaysia Power, Maintain Positive

Malaysia power sector: One-off IPP windfall tax

I-year windfall tax payment and suspension of PPA talk. In a surprise move yesterday, the government announced that the 30% windfall tax imposed on the independent power producer (IPPs) is limited to a one-time payment that is equivalent to one-year of the special tax. The power purchase agreement (PPA) talk between Tenaga and IPPs is also suspended pending a detailed study on the restructuring of the power industry.

Cheers for IPPs. The development is positive for IPPs such as YTL Power (YTLP - Buy), Tanjong PLC (Tanjong - Buy), Genting (Hold) and MMC Corp (Not rated) as they will not be pressured to accept the less favourable terms under PPA negotiation. The windfall tax has negatively affected IPPs’ debt servicing ability, and MMC is the hardest hit among the IPPs given its estimated windfall payment of RM250m (refer to Fig.4). We believe that there will still be discussion on PPA over the longer term, as the first generation PPAs will expire from year 2015 onwards. The likely outcome will be a win-win situation for both Tenaga and the IPPs.

Upgrade target prices for Tanjong and YTL Power. We upgrade YTLP’s FY6/10-11 net profit forecast by 4% respectively and target price to RM2.45/share (from RM2.40 previously). Similarly, Tanjong’s FY1/10-11 net profit is upgraded by 9% respectively, with enhanced target price of RM19.40/share (RM18.25 previously).

Near term negative but longer term neutral for Tenaga. While Tenaga is unable to share the burden of rising coal cost with the IPPs, we believe that it will be compensated for the suspension of PPA negotiation with other forms of relief such as subsidy or tariff adjustments come 1 July 2009 (the date for next review of pegged gas cost). There is no change in our earnings forecast for Tenaga as we have yet to factor in any potential enhancement from PPA negotiation. For the power sector, there may be a cost pass through mechanism and/or power pooling system that allows for greater transparency and efficiency of the sector.

2008-09-12T20:36:00.000-07:00

KL Composite Index
“September 11-ed”

All regional markets were “September 11-ed” including KLCI. Supports were punctured with the uptrend line stretching from the Apr / May 2003 low unable to withstand the current onslaught. Next line of defense will be
nearer to the psychological 1,000 mark failing which 900 – 862 looms with the latter derived from the weekly “Head and Shoulders” breakdown. On the daily RSI, we see some additional downside risk.

IOI Corporation
Capitulating?

Counter had lost 49% in terms of market capitalisation since its Jan 08 high. Selling has been aggressive with the counter now resting on crucial 61.8% Fibonacci support as measured from the June 2005 low. Daily RSI indicates possible support at the current levels bu t the breaking of the uptrend line is a worry still. We maintain our cautious stance and see better long opportunities at the lower RM4.00.

2008-09-12T20:32:00.000-07:00

ASTRO All Asia Networks - Big loss but Indonesian saga to reach end (Results Note)

Price: RM3.20
Target Price: RM4.30
Recommendation: BUY

* 1H09 net loss was below expectations. 1H09 net loss of RM249.9m was below our FY expectation of RM84.8m and consensus' FY of RM117.2m as dragged lower by provisions of RM231.1m made relating to operations in Indonesia.

* Emphasising on the positive, 2Q09 revenue increased by 4.6% and 18.0% to RM742.5m QoQ, and YoY, respectively, attributed largely to higher MC-TV subscriber numbers (upped 101K QoQ and 360K YoY) and airtime sales from both TV and Radio. 2Q09 reported the highest ever net adds of 101.2K compared to 95.7K in 1Q09 and 28K in 2Q08.

* 2Q09 EBITDA however grew slower by 9.6% and 14.2% to RM177.0m QoQ and YoY respectively, partially offset by: (1) higher CAC per box of RM741 (1Q09: RM715, 2Q08: RM718) due to higher subsidies and marketing costs; and (2) higher content costs of RM233.2m (1Q09: RM215.6m, 2Q08: RMRM182.3m) due to investment in premium sports (on Euro 2008 and Olympic) and local contents.

* Net earning was affected by Indonesian business. 2Q09 net loss however was widened to RM247.3m being dragged down by RM231.1m of provision for commitments previously made (RM124.6m) and impairment of assets (RM106.5m) used in the provision of services to PT Direct Vision (PTDV).

* The Indonesian bleeding has been stemmed. Astro will supply supports and services to PTDV until 30 Sept 2008. Barring any unforeseen costs after end-Sept, the Group expects that the provision of RM231.1m incurred in 2Q09 is all the costs of services provided to PTDV covered until the date of termination of the trademark licence agreement.

* We are lowering our FY09 net earning to RM15.2m from RM84.8m mainly on the back of the RM231.1m higher-than-expected costs of provisions. We are also lowering our FY10 net earnings by 7.7% to RM344.6m from RM373.3m assuming higher overall cost. We are more optimistic than before given that the cash outflow for Indonesian PTDV has ceased which will provide a better earnings visibility moving forward with less negative surprises. A second interim tax-exempted dividend of 2.5 sen per share was declared, and we expect FY09 gross DPS of 12.sen to be paid translating to a 4% dividend yield.

* Maintain BUY, Target price of RM4.30 based on DCF valuation with 13% WACC for the Malaysian operations.

2008-09-12T20:30:00.000-07:00

HLG: Breakfast Brief: KNM, IJM Land, Astro (12 September 2008)

KNM's share price (-52% YTD) has fallen sharply over the past two months on concerns over the refinancing cost and write down of goodwill on Borsig deal. In the news today, management dismissed speculations on write downs and plans to complete the refinancing of its €150m loan by Oct08. In our view: (1) Completion of the loan refinancing will eliminate uncertainties over the quantum of earnings erosion. We estimate the higher financing cost by 300bps to lower FY08-09 EPS by 4-5% (2) Any potential write down for Borsig is non-cash and has zero impact on cash flow. KNM's managing director has increased his shareholding in the company by nearly 5m shares in the last four days.

We are positive on the oil and gas sector: (1) despite sharp decline in crude oil price (-29% from its recent peak), near/mid term demand for oil and gas assets remain firm given the threshold for exploration capital expenditure is USD60/bbl; (2) sector valuation at <9x FY09E PE is undemanding vs. 15-20% EPS growth.

Newsbreak

Government discontinues windfall tax on IPPs

Metrod receives RM85m takeover offer from Metdist

Harrisons shareholders advised to reject takeover offer by Bumi Raya

Astro Q209 net loss widens by 356% to RM247m

IJM Corp considering placing out its shares in IJM Land

2008-09-12T20:29:00.000-07:00

CIMB - What's on the table
Power sector update - Back to square one?

The Cabinet decided to immediately discontinue the windfall profit levy on IPPs while suspending PPA talks pending a comprehensive study. IPPs will instead make a one-off payment of one year's windfall profit. For the IPPs, this is a major positive as there is immediate clarity on the windfall tax impact.

However, it is negative for Tenaga as it raises uncertainties about the direction of industry reforms. While the earnings forecasts for the IPPs are raised by 5-14%, mainly to reverse our future year's windfall tax assumptions, Tenaga's FY08-10 core earnings are cut by 5-32%, largely to reflect our revised forex assumptions.

We turn less bullish on Tenaga given the emerging risks on the timeline of the next tariff review, halted PPA renegotiations and a weakening ringgit. We downgrade Tenaga from outperform to NEUTRAL based on a lower target price of RM8.80 (RM10.60 previously) after attaching a lower P/BV multiple of 1.4x (1.6x previously). Following our downgrade of big-cap Tenaga, we are now NEUTRAL on the power sector. [ PDF ]

Quick takes - Telecom sector update - HSBT keeps dialling [ PDF ]

Results - Astro 2QFY09 in line - Static in overseas broadcasts [ PDF ]

Economic news - Jul 08: IPI growth signals a weak start to 3Q GDP [ PDF ]

News of the Day
- PM surprised by Tan Sri Muhyiddin Yassin's disagreement with his transition timeframe
- Pakatan Rakyat unlikely to form federal government on Sept 16
- Government removes IPP windfall tax and suspends PPA renegotiations
- HSBT to submit detailed proposal on alternative HSBB network by end-Sept
- DiGi ups ante ahead of MNP with of free PA for subscribers with over 3 months' tenure
- IJM may place out up to 15% of IJM Land to institutions to unlock liquidity

- KNM to refinance euro150m loan by October if Maybank offers 5% interest rate

2008-09-12T20:26:00.000-07:00

Credit Suisse : Tanjong - Windfall Profit Levy discontinued; positive for Tanjong

Tanjong
Windfall Profit Levy discontinued; positive for Tanjong

The Malaysian Cabinet has decided to discontinue the Windfall
Profit Levy on the IPPs, including Tanjong, with immediate effect.
The PPA renegotiation has also been suspended.

This is positive news for all IPPs.

Tanjong is our top pick in the Malaysian power sector.

We upwardly revised our FY2010E and FY2011E net profits by
12% and 15%, respectively, while we raised the target price to
RM17.10 from RM16.50, suggesting 32% price-appreciation
potential. Maintain OUTPERFORM.

Tanjong is trading at the bottom of its historical forward P/E range,
close to trough valuations.

2008-09-12T20:24:00.001-07:00

ASEAMBANKERS MALAYSIA BERHAD

Equity Focus
Market Strategy
The turning point?

In a surprise move, the government scrapped the windfall profit levy on IPPs, although power producers would still have to make a one-time payment of one year's levy to the government.
This is probably the most positive development this year, which could mark the bottoming out of a deteriorating market sentiment on both the Malaysian equity and bond markets.
No change in our YE KLCI target, but we highlight possible earnings upgrades led by easing bond yields at banks and potential recovery of the Ringgit. Buy immediate beneficiaries: Tanjong Plc and Litrak.

Astro All Asia Networks (RM3.20): Buy
Biting the last bullet

1HFY09 core net profit of RM127m was above expectations, at 105% of our FY09 core net profit forecast of RM121m.
Astro acquired a record high 101k net subscribers in 2QFY09 in Malaysia alone thanks to the Beijing Olympics and Euro 2008.
Onerous relationship with PT Direct Vision that costs c.RM20m p.m. ends on 30 Sep '08. Maintain Buy call but trimmed TP to RM4.00.

Aviation: Neutral
Turbo-charged by twin catalysts

More clues emerge as to how Malaysia's two national airlines turned profits in 2Q08 thanks (in part) to proactive government policies.
Coupled with crude oil prices flirting with the US$100/bbl mark once again, prospects have brightened considerably.
By lowering our crude oil assumptions from US$120/bbl in 2H08-2010 to a range from US$105-US$115/bbl respectively, we are increasingly positive on the aviation industry's prospects.

Vastalux Energy (IPO RM0.75): Not Rated
'Vested luck'

Vastalux Energy, a local oil & gas service provider akin to Dayang Enterprise and Petra Energy will be listed on the 2nd Board today.
Vastalux has guided to deliver a 2-year net profit growth of >50% p.a. but we note its high payables, a poor reflection to credit risks.
Its listing PER is 10x for 2008, a high 25% premium against more established peers with stronger financial footings and track record.

Economic Trends
Industrial Production, July 2008
Drifting downward…

Industrial production growth drifted lower for the third month in a row in July to +1.8% YoY, led by the slower growth in manufacturing (+1.5% YoY) and electricity (+1.3% YoY), offsetting the rebound ni mining (+3.1% YoY) after two months of contractions.
The overall downtrend in industrial output growth so far this year is in line with our expectations of slowing quarterly economic growth in 2008, underpinned by the outlook of weaker global economy that impinges on external demand, compounded by the effects of the "food-and-fuel" inflation and political uncertainties on domestic demand, especially consumer and business spending.
Consequently, we maintained our forecasts of moderating annual real GDP growth to 5.4% in 2008 and 5.1% 2009 from 6.3% in 2007. On a quarterly basis, we see economic growth dipping to below-5% in 2H08 and 1H09 (1H08: +6.7% YoY), before a recovery back to above-5% expansion in 2H09.

In The News
IJM Corp (RM5.05): Hold
May cut stake in property unit to 60%

Other Local News

Tanjung Offshore: Letter of Award from Nippon Oil
Rexit: Agreement with Sompo Japan
Hartalega: Boosts output to meet surging demand
Metrod: MGO will not change listing status
Ingress: RM15.2m jobs
MSWG: Reject RM1.45 offer for Harrisons

Outside Malaysia

U.S: July trade deficit widened by a larger than expected USD62.2b
U.S: August budget deficit at USD111.9b, record YTD
U.S: Lehman said to be in discussions about potential sale
U.K: BOE will not provide banks long-term funding
U.K: Inflation expectations highest since at least 1999
Japan: Machine orders fell 3.9% MoM in August, second monthly drop
Taiwan: NT$181b (USD5.6 b) spending plan on economy, stocks
S. Korea: Bank of Korea leaves rate at eight-year high of 5.25%
New Zealand: RBNZ cuts rate by half point to 7.5%
Crude Oil: Price fell towards USD100/bbl

Technicals
The KLCI tumbled 2.04% or 21.63 points to 1,041.07 on selling in heavyweight stocks, and the FBM Emas shed 2.17% or 153.61 points to 6,922.94

2008-09-12T20:20:00.000-07:00

HLG - Traders’ Brief

New Lows : Bears happy

In our report “Will major oil supports hold” two days ago, we talked about how major oil
commodities are approaching critical support levels and that the likelihood that these support
levels will break.
Well it seems that since then, the bears have been gleefully stomping on these commodities
to squeeze out new lows out of them and in the process break through these support levels.
Unfortunately, the KLCI, which has a heavy weightage of 24.21% in CPO and oil and gas
stocks, will be dragged down by these stomped down commodities.

Soybean oil
Soybean oil is significant to Malaysian markets because of its high correlation with our own
Crude Palm Oil (CPO). Since breaking through the critical 50 level, it is consistently churning
out new lows each day as there is no major strong support level in sight until the 40-41 level,
which is an unfortunate huge 14% away from here. The downward threat of Soybean oil will
be a drag-down on CPO prices as well in the near term.

CPO : New lows – EU to curb use of crop based biofuel
Our call was proven right when CPO broke through its low support level of 2351. Now it too is
busy churning out new lows each day. Part of the reason for the new lows is the moves by the
EU to curb commodities products in biofuel.
As reported by the International Herald Tribune, yesterday the EU opted to cut the use
of crop based biofuel from a 10% target to 5%. To maintain the EU’s 10% target of biofuels
in vehicles, the other 5% biofuel will be focused on renewable energy sources such as
hydrogen and other non-food biofuel products like waste, algae and non-food vegetation.
This move by EU will have only a direct minor dampener on CPO prices as CPO biofuel is still
not yet widely used in Europe. However, other crop based commodities will be affected as
Europe is the largest biofuel consumer in the world. The regression in other commodities will
indirectly add to the negative drag down on CPO prices.
CPO is now heading to our target 2000-2200 zone. The next major support level to stem the
downward tide is at the 2150 level.

2008-09-12T20:17:00.001-07:00

KNN - Strategy: Market Outlook - Flip-Flop Again

* The government has announced that the windfall profit levy on IPPs will be scrapped and replaced with a one -ff payment equivalent to one year windfall profit levy which is estimated to be RM446m. Negotiations between IPPs and Tenaga has also been suspended pending an in depth study into the power sector in Malaysia.

* Immediate impact: reduced volatility in the IPP bonds which is positive for the market. Rating revision for these IPP bonds (removal of Rating Watch with Negative Outlook) may follow soon. The good news that some of these IPP bonds would continue to meet their debt covenants in the near future is a welcome relief for the investors. However, overall bond market volatility is not expected to change in the short to medium term given that it is also affected by other factors like:

o Political uncertainties,

o Weakening Ringgit with outflow of funds

o Widening negative real rate of return

o Split view on interest rate direction as government focus on growth instead of inflation

o Increased demand for MGS to fund the larger budget deficit 2009 may reduce the supply

* Policy Risk heightens. The flip-flop decision in 3 months could suggest that the policies were implemented hastily without significant due consideration and study being done on its impact on the whole economy. Worst still, investors could view that the policies can be changed when succumbed to significant pressure from certain quarters. This could lead them to conclude that there is a lack of political will and indecision in policy making which would continue to weigh down perception and add a risk premium to Malaysia.

* No mention of review of toll road concession agreements being suspended. Another sector which forms the benchmark bond yields and price of long term bonds are issued by toll concessionaires. We believe the bond market volatility would remain unsettled until the light at the end of the tunnel is clear that contractual sanctity in Malaysia remains intact.

* Immediate rerating for MMC (BUY: TP RM4.38), Tanjong and YTL Power. MMC should benefit the most being sold down most severely as the IPP windfall levy would have affected Malakoff's cashflow the most.

* New corporate bonds issuance still limited. Despite the liquidity in the market, we expect corporate bonds issuance to remain muted until some clarity on the above mentioned issues emerges. This in turn may hold back economic growth as projects to be undertaken may be delayed due to lack of funding. Syndicated term loan is becoming a realistic alternative to raising corporate bonds but could be more expensive.

2008-09-12T20:01:00.000-07:00

Kenanga Today

COMPANY UPDATE

* Tenaga Nasional (BUY; RM7.90; TP: RM9.63) - IPP windfall tax scrapped

* Spritzer (BUY; RM1.28 (RM0.48*); TP: RM1.50 (RM0.55*) *Ex-Bonus issue & share split - Bonus issue & share split

RESULTS NOTE

* ASTRO (BUY; RM3.20; TP: RM4.30) - Big loss but Indonesian saga to reach end

TECHNICALS

* KL Composite Index - "September 11-ed"; IOI Corporation - Capitulating?; Kuala Lumpur Kepong - Expect more volatility; Asiatic Development - Downside bias still

ECONOMIC HIGHLIGHTS

* Malaysia Industrial Production - Slowed to 1.8% YoY in July as momentum slows (Report to follow)

NEWS HIGHLIGHTS

* KNM to refinance loan

* DiGi: Plan for 3G roll-outremains on track

* Malaysia July industrial output index rises 1.8pc

FOREIGN NEWS HIGHLIGHTS

* U.S. Stocks Rally, Erasing Early Tumble; Banks, Transports Rise

* Yen Near 2-Year High Versus Euro on Concern About Lehman Sale

* Hurricane Ike Aims at Houston; Evacuations Called

* Fed's Kohn says no sign home prices stabilizing

* WaMu sees $4.5b loss reserve, tries to soothe

2008-09-12T19:52:00.000-07:00

HLG - Daily Market Watch

Macroeconomics

· Financial sector blues continue to jolt sentiments following worse than expected quarterly financial results announcement by Lehman Brothers (US's 4th largest investment bank), reigniting financial sector worries.

· Overnight economic newsflow was mixed. Initial jobless claims eased back slightly to 445k but ongoing jobless claims jumped from 3403k to 3525k, the highest level in 5 years while Aug import prices data was better than expected, easing to 16.0% versus 21.6% in July. In a separate report, July trade deficit grew more than expected, widening 5.7% to $62.2bn (Jul:-$58.8b), the deepest level in 16 months as costly oil bills offset gains in exports. A weak labour market and widening trade deficit coupled with easing inflation, fueled speculation that the Fed 's next move this year, if any, will be a cut.

· Back home, July industrial output grew 1.8% YOY (June: +2.2%), softest pace in 11 months, as demand for commodity-related and electronics output dwindled amid slowing global economy.

· This morning, Japan final 2Q08 GDP shrank 3.0% YOY (1Q08:+2.8%), far more than earlier estimates of a 2.4% decline attributed to slumping business spending, heightening recession fears. -

2008-09-12T19:51:00.000-07:00

OSK - On The Platter

RUBBER GLOVE (OVERWEIGHT) Sector Update: What Else if Not Malaysian Gloves?

The rubber glove industry is a world class Malaysian industry where 60% of global exports originate from Malaysia. This industry has been experiencing aggressive expansion in recent years due to strong global demand on the back of stringent regulatory standards on occupational safety and growing world population. Going forward, these companies will continue to grow at about 20% CAGR for the next 3 years underpinned by increasing global demand, capacity expansion and M&As.

The sector is currently trading at an undemanding forward PER of 7.6x and 6.5x for CY08 and CY09 respectively. With the positive earnings growth and recession proof nature of the business, we believe the sector does not deserve such a low PER valuation. Hence, we are upgrading the sector to an OVERWEIGHT.

2008-09-12T19:50:00.000-07:00

OSK - CPO Futures

The CPO future recovered on moderate technically-inspired buying support despite weaker energy prices. The NOVEMBER delivery contract surged RM74 to end at RM2’345/MT.

The NOVEMBER delivery contract rebounded on short-term technically-oversold conditions. The ability to maintain stability above the crucial RM2’350/MT level today has attracted extended buying momentum. This is paving the way for further gains towards the moderate cluster-resistance area at RM2’397/2’406/MT.

Beyond this, the market will be set to test gap-resistance at RM2’’452/MT. Most of the buying momentum came from short-covering activity above the RM2’350/MT resistance area. This up-move is just a technical-recover and the overall bear-trend is still very much intact.

Trade Ideas: Wait for clearer signal.

2008-09-12T19:49:00.000-07:00

OSK - CI Futures

The FKLI futures rebounded on technically-oversold condition amid mixed regional markets sentiment. However, trading is expected to be cautious in the coming sessions. The AUGUST contract gained 10 points to close the week at 1038.

The August contract recovered from yesterday’s low in a choppy session on technically-oversold status. The market needs to maintain stability above the 1032.50area for now, in order to entice further strength necessary for extended push towards the 1041.50/1043.50 and 1047 near-term objective.

Meanwhile, the downside support at 1028 will be the staunch defence for the bulls and only convincing breach below this will negate the short-term bullish views. However, trading sentiment is expected to continue to remain cautious next week on escalating political uncertainty.

Trade Ideas: Long on dips and lock-in quick profits.

2008-09-11T16:31:00.000-07:00

Stocks gain on Lehman buyout talk
Wall Street jumps on talk that the firm is shopping itself to would-be buyers. Report: A sale deal struck by the Fed and Treasury will be announced soon.

NEW YORK (CNNMoney.com) -- Stocks rallied Thursday after a report about potential buyers of Lehman Brothers - including Bank of America - gave investors some reassurance at the end of a choppy session.

After the close, the Washington Post reported that the Treasury Dept. and the Federal Reserve are putting together a sale of Lehman through a group of private firms, with a deal expected to be announced this weekend. The government and the Fed also teamed up to orchestrate the rescue of Bear Stearns in March.

Also after the close, Washington Mutual sought to reassure investors that its capital position and credit outlook were stable, amid escalating worries. Following the announcement, ratings agency Fitch downgraded the company's debt rating. (Full story)

The Dow Jones industrial average (INDU) gained 165 points, or 1.5%. The Standard & Poor's 500 (SPX) index gained 1.4% and the Nasdaq composite (COMP) added 1.3%.

Whether it's Bank of America or a different firm or firms that end up purchasing Lehman may not be that important, said Michael Sheldon, chief market strategist at RDM Financial Group.

"I don't think it matters who purchases them as long as their instability or the rumor of their possible demise is diminished," Sheldon said.

Sheldon noted that the session's trading volume has been improving of late and that it will be important to see if that continues, as higher volumes can be seen as a sign of greater conviction on the part of investors.

Stocks were mostly lower through the morning as Lehman and other bank stocks tumbled on worries about their solvency. Meanwhile, a steeper-than-expected jump in the U.S. trade deficit and a weak jobless claims report added to recession fears.

While bank shares remained under pressure in the afternoon, the selloff in oil prices gave a lift to companies that benefit directly from lower fuel prices, including transportation stocks. Consumer stocks benefited too, on lower inflation expectations. Meanwhile, the S&P 500 flirted with its 2008 lows and then managed to bounce back.

But the market spiked heading into the close after the Wall Street Journal Web site reported that Lehman Brothers is actively shopping itself to potential acquirers, including Bank of America.

The report boosted a number of bank stocks, but failed to lift Lehman Brothers, which slumped almost 42% on the session.

Partly the day's advance was a function of short-covering in some of the really beleaguered sectors of the market, said Tom Schrader, managing director at Stifel Nicolaus. Short-covering refers to the process by which traders, who have sold a stock short to take advantage of a falling market, buy the stock back.

Investors were also reacting to oil prices, which settled at a 5 1/2 month low.

For the past few weeks, falling oil prices have been seen as mostly a negative, in that they reflect a slowdown in the global economy. But Thursday, investors also seemed to focus on how lower fuel prices will help transportation and consumer stocks and also impact inflation expectations.

"The commodity crunch over the last few months has been across the board, and now it's all coming back," Schrader said. "Oil is down over 30% from the highs, natural gas is down over 50% and grain prices are coming down. Inflation expectations have got to come down too."

"That's the good news," he said. "The bad news is that it also means the global economy is weaker."

Lehman Brothers: Lehman (LEH, Fortune 500) shares plunged 42% Thursday, after having recovered some of those losses at midday.

On Wednesday, the bank reported a nearly $4 billion fiscal third-quarter loss, its biggest quarterly loss since it went public in 1994. Lehman also said it will spin off part of its commercial real estate business, cut its dividend and sell a 55% stake in its investment unit, which includes profitable money manager Neuberger Berman.

Investors initially took a lackluster response to the stock Wednesday, sending it 7% lower after boosting it right after the announcement. On Thursday, both Wall Street pros and investors sent the message that the restructuring moves seemed like too little, too late.

Goldman Sachs downgraded the stock to "neutral" from "buy," while Citigroup cut it to "hold" from "buy."

Lehman has struggled this year amid mounting losses related to bad mortgage bets and its inability to raise sufficient capital to continue operating its businesses properly. (Full story)

Investors have been particularly wary of the company in the wake of the government bailout of Fannie Mae and Freddie Mac announced last weekend and the near-failure and ultimate government rescue of Bear Stearns in March.

Banking: A number of other financial firms have sparked worries about their exposure to bad mortgage loans and their ability to raise money. AIG (AIG, Fortune 500) shares - as well as those of Washington Mutual (WM, Fortune 500) and Wachovia (WB, Fortune 500) - have been battered in recent days on such concerns.

AIG initially tumbled to a more than 13-year low on reports that the CEO may consider selling the consumer finance and reinsurance units to raise money. But the stock recovered with the broader financial sector near the close of trade. (Full story).

The hammering that AIG, WaMu and others are suffering is not to be taken lightly, said Joseph Saluzzi, co-head of equity trading at Themis Trading.

"It's a 'where there's smoke, there's fire' situation with what's happening to those stocks," he said.

But the sector bounced back by the close, with WaMu adding 21%, JP Morgan Chase (JPM, Fortune 500) adding 6% and Wells Fargo (WFC, Fortune 500) adding 7% among other gainers. The Philadelphia Bank Sector index gained 2.8%.

Among other movers, airline, railroad and trucker stocks advanced as investors focused on the positive benefits of lower fuel prices. The Dow Jones Transportation (DJTA) average gained 3.4%. Also helping was railroad CSX (CSX, Fortune 500), which boosted its 2008 forecast.

Automakers GM (GM, Fortune 500) and Ford (F, Fortune 500) also gained.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by eight to seven on volume of 1.45 billion shares. On the Nasdaq, decliners topped advancers by a narrow margin on volume of 2.34 billion shares.

Economy: In addition to the banking system woes, investors received two discouraging economic reports Thursday, on the trade deficit and the labor market.

The U.S. trade gap surged to $62.2 billion in July, its widest level in 16 months. Oil prices, which reached record levels in July before sliding the past two months, were the main reason for the increase. The report beat economists' forecasts for a dip to $58 billion versus a revised $58.8 billion in June.

The number of Americans filing new claims for unemployment fell 6,000 to 445,000 last week, beating forecasts for a bigger drop to 440,000, the government reported.

Fuel prices: Oil prices fell as slumping demand reflected concern about the economic outlook.

2008-09-11T05:00:00.001-07:00

Deutsche Bank : Berjaya Sports Toto - Defensive qualities; upgraded to Buy

Berjaya Sports Toto - Defensive qualities; upgraded to Buy

Defensive qualities should appeal given current market volatility
Following our Alert on B Toto yesterday, we now publish a more detailed note on our upgrade to Buy from Hold. Our target price of RM5.10 offers 17% total return at current levels. We like B Toto's defensive qualities, >6% yield and moderate 3- year EPS CAGR of 10%. We believe B Toto's gaming operation can withstand a significant economic downturn and will not be under threat even if there is a change in government.
B Toto delivered commendable 10% average sales growth
B Toto has consistently chalked up higher-than-industry sales growth, averaging 10% (on draw day adjusted) over the last five quarters, which we find commendable, given the current mature industry. The replacement of the 4/49 lottery game in July ‘07 with the minimum RM2.0m Mega 6/52 lottery jackpot game has contributed to the strong performance. A normalization of prize payout should also translate into stronger earnings growth in FY09E.

Parent slowly raised stake; now collectively owns 57.5% of B Toto
Over the last year, B Land has slowly increased its direct holding in B Toto by 2% to 50.3%. B Land has received shareholders’ approval to buy more shares in B Toto, a step to mitigate potential dilution from RM900m exchangeable bonds that is convertible into B Toto shares (at RM5.19). B Toto also has 7% of its paid up capital in treasury shares, at an average cost of RM4.27/share.

Target price at RM5.10, 10% discount to DCF; offers 17% current total return
We marginally lower our target price here to RM5.10 (from RM5.15) on rounding and updating valuation to 2009E DCF, DB’s latest COE, and adjusting for treasury shares. Over the last two years B Toto has traded at an 18% discount to DCF, but the wider discount reflected the inter-company debt issue, which has already been resolved. Key risks include lower dividend payout, consistently high prize payout and punitive regulatory changes.

2008-09-11T04:48:00.000-07:00

Foreign funds getting out

(KUALA LUMPUR) Foreign investors are moving their money out of Malaysia at
an alarming rate due to domestic political uncertainties and record
inflation rate, a local research firm said, local media reported yesterday.

'Funds are exiting the country at a worrying rate. In the first half of
2008, a total of RM125 billion (S$51.95 billion) in funds was withdrawn from
Malaysian shores. This first half 2008 outflow has already exceeded the
total outflows of RM92.3 billion for the whole of last year,' HLeBroking
Research wrote in its Traders' Brief to its retail customers on Monday.

'All in all, fund outflows are increasing drastically, while fund inflows
are decreasing drastically from last year,' the New Straits Times quoted it
as saying.

The effects of the outflow of funds can be seen from the selling out of
Malaysian bonds and the ringgit, the research firm said.

'As a result of plunging bond prices, bond yields for the three-year
Malaysian Government Securities is now at the alarming 4.18 level.

'Essentially, the loss of faith of foreign investors has increased the cost
of funds for Malaysia in general, making it hard for people to raise funds
to finance economic activities,' it added.

One factor causing international investors to withdraw their funds from the
country was the political uncertainty, HLeBroking Research said.

'The Kuala Lumpur Composite Index (KLCI) was sold down, with drastic changes
in foreign shareholdings, while prices of bonds begin depreciating sharply,
increasing yield and, at the same time, the country's cost of raising new
funds,' it said.

The country's inflation also rose to a 26-year high of 8.5 per cent in July,
following the fuel price hike a month earlier. - Xinhua

2008-09-11T04:47:00.000-07:00

HDBSVR: Plantation, Neutral

Plantation sector: Easing production, stronger export

-Story: The MPOB palm oil production data for August was in line with our expectations; while August exports went up faster than expected. These had consequently lowered August palm oil ending inventory by 6.5% m-o-m. Likewise, stock usage ratio had come down to 10.3% from 11.1% in July.

-Point: Despite the price-supportive indicators, CPO prices have continued to remain weak, due to continued weakness in crude oil prices. At the same time, Oil World report has recently indicated that the prospective global soybean supplies next year would be better than we previously expect; while demand projections also have come down below our expectations, probably on slowing global economy.

-Relevance: We are therefore reviewing our CPO price projections, with negative bias coming from potential cut in our soybean oil price forecasts. Our stance on the sector is NEUTRAL, as although we expect prices to recover from current levels, high-inventory hangover and seasonally slower winter demand through the remainder of the year to weigh in palm oil prices.

2008-09-11T04:34:00.001-07:00

CIMB - What's on the table

Kencana Petroleum visit - A kingdom of opportunities
Two highlights from our recent visit:

1) Kencana is bidding for the US$1.4bn EPCIC portion of Saudi Arabia's Karan project through a three-party consortium. There are at least seven contenders. Should the consortium secure the project, it would more than double Kencana's current orders and boost FY10 EPS by 38%.

2) We expect 4Q08 performance to be in line with our forecast of a new net profit high of RM85.2m. We retain our earnings forecasts but following our 2 Sep downgrade of the target market P/E from 13.2x to 12.2x, we lower our target price for Kencana from RM2.73 to RM2.51. The earnings bias is on the upside should the consortium clinch the Karan project. We continue to rate Kencana an OUTPERFORM, with the re-rating catalysts being a bigger order book and penetration of new markets.

Quick takes - Plantation update - Lower palm inventories offer short-term relief

Quick takes - MISC update - OPEC output cut could weaken tanker rates

News of the Day
- Umno suspends Datuk Ahmad Ismail three years for making racially offensive remarks
- Tan Sri Muhyiddin Yassin says PM's 2010 transition plan was too long
- Malaysian palm oil stockpiles fall 6.5% mom in August on exports pick up
- Selangor says the 20 m3 of free water for Selangor consumers is a long-term deal
- RHB Capital gets BNM nod for purchase a 49% stake in Vietnam Securities Corp
- Proton Holdings appoints ex-Audi MD as director of international sales and services
- MAHB to announce better incentives for airlines
- KNM trying to refinance a Borsig-deal bridging loan with five-year Ringgit loan
- Sunway Construction served with RM70m claim over work disputes in India

2008-09-11T04:31:00.000-07:00

Aseambanker - Daily Technical Outlook

The foreign sell-down also edged the KLCI down to its new 52-week
low of 1,061.57. A poorer tone for the DJIA overnight caused the
weakness in the local bourse. CPO Future rates remained volatile
and fluctuated wildly – causing great movements on the local
plantation stocks as well. The KLCI is poised for further downside
risks, very possibly towards the 1,060 and 1,049 support levels.
Despite the oversold nature of the market and the apparent bullish
divergent signals, investors should continue to adopt a “sell into
strength” strategy, as gains are likely to be short-lived. Despite the
DJIA rising a mere 38.19-points last night, the KLCI is poised to
head below 1,060 and test 1,049 soon.

KLCI Line Chart KLCI: Key Points
 KLCI could test its next 1,049 support
 More weakness is expected
 Support is much weaker at 1,060 and 1,049
 Avoid bargain hunting for now

2008-09-11T04:30:00.000-07:00

ASEAMBANKERS MALAYSIA BERHAD

Equity Focus
Plantation: Underweight
Closer to a turning point
Malaysia's inventory levels eased again in Aug '08 to 1.85m tonnes (-6.5% MoM, +27.8% YoY), boosted by stronger exports and marginal FFB production growth.
Although CPO prices could trend lower, prices should firm up in a seasonally lower production period in 4Q08. A potentially weaker US dollar and renewed demand for biodiesel could also lift prices.
Beaten-down large caps like Sime Darby, KL Kepong and Asiatic are good long-term bets. Our sector Underweight call is under review for upgrade (watch out for our detailed sector outlook next week).

In The News
Alam Maritim (RM1.83): Buy
Extends MV Setia Indah's charter at higher rates
Sunway Holdings (RM0.83): Buy
Served Statement of Claim by sub-contactor

Other Local News
Tanjung Offshore: Purchase order from J. Ray McDermott Asia
Grand-Flo: Buying Hong Kong's CL Solutions
Proton: Appoints new global sales director
Key West: Unit applies for listing on Canada exchange
APP: To start selling cookware in Japan
RHBCap: BNM nod to buy 49% stake in VSC
Ye Chiu Metal: Opts to exit Bursa
UEM World: Gains RM2.2m from compulsory acquisition

Outside Malaysia
U.S: Fed-Loan access gives Lehman Brothers breathing room Bear Stearns lacked
E.U: Cuts economic-growth outlook for 2008, forecasts recession for Germany
U.K: Economy contracts, lurches toward a recession
Japan: Government says economy is `deteriorating'
Japan: Wholesale inflation eases as oil prices drop
China: August inflation cools to slowest in a year as export growth weakens
Australia: Consumer sentiment gains for second month
Philippine: Exports growth slows as U.S. sales decline
Crude Oil: Falls as Gulf Coast supplies rise, refinery demand drops

Technicals
Selling pressure continued to dominate the market as investor remained on the sidelines following declines in the US overnight markets and regional market.

2008-09-11T04:29:00.000-07:00

HLG: Alam Maritim - New contract in Middle East (11 September 2008)

Alam Maritim Resources Bhd BUY

Price target RM2.60

Share price at 10 Sept RM1.83

Investment summary

Alam Maritim (AMRB) secured two contracts in Middle East from McDermott and Saudi Aramco for the charter of MV Setia Indah and MV Setia Sakti. Daily charter rate (DCR) for Setia Sakti came in above our assumption, re-affirming our BUY rating on the stock. Share price has fallen 26% YTD and now trades at 8x FY09E PE.
We are positive on the oil and gas sector: (1) despite sharp decline in crude oil price (-29% from its recent peak), near/mid term demand for oil and gas assets remain firm given the threshold for exploration capital expenditure is USD60/bbl; (2) sector valuation at <9x FY09E PE is undemanding vs. 15-20% EPS growth.

New jobs, wait for more
AMRB got its maiden contract with Saudi Aramco and enhances its presence in Middle East market. We think there are more jobs to come as AMRB takes delivery of 12 more new vessels from now till 2010.

2008-09-11T04:27:00.000-07:00

HLG - More on KNM next page…

Unfortunately, our call for KNM was proven right. On the 19th of August, we called for KNM to regress to the RM1.00-1.20 price
range. After a brief rebound recently, strong selling activity resumed and pushed KNM to closed at RM1.24 yesterday, which is very
near our targeted range.

There appears to be some fresh press coverage for KNM today. According to Financial Daily, Euro banks are said to offer KNM a
150 million Euro denominated term loan at a reasonable 5.5% interest rate. Some parties might be optimistic about this
attractive and lower interest rate as KNM is currently in talks to secure a Ringgit denominated loan at a much higher 8.8% interest
rate. After all, much of the sell down in KNM shares can be attributed to the high interest rate which it is negotiating for.

However, we are neutral on this Euro denominated loan. We understand the reason behind KNM’s opting for a higher-interest
Ringgit denominated loan as the ringgit has been weakening drastically over the last few months. There is now very low and
capped downside left for the ringgit once the political scenario in Malaysia nears an end. The Euro on the other hand has
appreciated much against the Ringgit, implying less upside for the Euro and more likely downside for the Euro ahead (the Euro
region recorded stagnant GDP growth for the last quarter). If KNM were to undertake the Euro denominated loans, the highly
possibly weakening Euro might negate the purpose of the lower interest rates.
Whence, we are neutral on the offer of this new Euro denominated loan. We think that there might be a little more downside left for
KNM as oil prices regress further. However, the downside for KNM would be capped, and the RM1.00 strong support level would be
a great level to accumulate this gem of a stock.

2008-09-11T04:20:00.000-07:00

HLG - Traders’ Brief

1064 at risk, but..
Our KLCI has created a new closing low at 1062 yesterday, two points below the previous low
of 1064. Basically this pattern suggests more downside ahead for the KLCI. The cause of this
new low may be attributed shaky global market conditions as well as some elements of
political uncertainty.

DSAI optimistic about political defections by 16 September
The Star reported that Datuk Seri Anwar Ibrahim (DSAI) remains optimistic that the political
defections will come about by the 16th of September, which is incidentally only 5 days away.
The report by the Star might signify a bit more political uncertainty ahead for the KLCI.

1064 support broken but hope still remains
Normally the breakdown of a critical support level (1064) would be a very negative sign for
chartists, as well as an affirmative signal for traders to immediately double up their short
positions.
However, firstly, the 1064 support is not entirely broken yet. To qualify for a real
breakdown, it is more appropriate to ascribe a 1% (10 points) margin of breakdown.
Technically, the 1064 is at risk but not broken yet and the KLCI still has a chance of
recovering above this level today, though we think a break is very likely.
Secondly, the current bear theme is near its end, and anybody would be hard pressed to
find a trader that would be doubling up his current status quo positions at such risky
circumstances.
Strategy : Suspend selling activity for now
As a conclusion, although we think that a break is very likely, the downside would probably be
capped in the near term. We expect the KLCI to hover marginally lower (10-20 points) in the
near term. As such, traders and investors are advised to suspend all selling activity in the near
term and wait and see how this political scenario plays out. The time of selling is already long
passed, now is the time to ride the wave with what you have.

2008-09-11T04:17:00.000-07:00

JPMorgan Securities - Malaysia Strategy
Corporate insiders: Reading between the lines

The market has corrected, but investors stay sidelined. With
the recent downturn of the KLCI due to the political situation and
the slowing external environment, there now appears to be value
emerging across companies, especially in the small and mid cap
space. However, it is frustrating that at present institutional
investors are unable to detach themselves from the “herd”
mentality of staying sidelined despite apparent value emerging for
risk of share prices falling further as sentiment continues to
weaken or that there are better perceived opportunities elsewhere
in other markets.

• Corporate insiders may give better perspective of value. One
way of attempting to ascertain “true” value in these difficult times
is to look at the share transactions of the corporate insiders as
intuitively these insiders have deeper knowledge of their
companies and the industries and by nature are longer term
investors. Thus, the intention of this short report is to identify the
companies within our coverage that have active insider
transactions and to discover which of these insiders have greater
insight into share price movements or understand better the
intrinsic value of their businesses.

• Insiders of 8 companies have good timing. We analyzed 18
companies in this report and we conclude that insiders of eight
companies have generally good market timing based on their track
record over at least a two year period. However, of the identified
eight, six have been active buying back their stocks since the
March 2008 general elections. The six stocks are KNM, IGB, Tan
Chong Motor, Hap Seng Plantations, YTL Cement and WTK
Holdings. Note that we have O/W ratings on all these stocks apart
from WTK Holdings and Hap Seng Plantations.

2008-09-11T04:14:00.000-07:00

Techtalk Oil & US$ – at the turning point?

Major resistance at 80. The Dollar Index (DXY Index) finally tested the major 80
resistance levels today. The Dollar Index experienced a huge rally from the 71-72
levels in Jul. The daily chart below clearly shows how overbought the RSI is, at 82. We
believe the US$ rally will pull back soon, likely over the next few days.
Only after this pullback, the US$ would rebuild its base gain over a few weeks and
then retest the 80 levels again. If the Dollar Index is able to convincingly break the 80
resistance levels, it could rise towards the 82-85 levels. However, in the long term, the
US$ remains in a long term bear market. After this peak, the Dollar Index is expected
to fall again.

Crude oil, signs of bottoming out. Crude oil price is showing signs of bottoming.
Daily chart shows a possible bullish declining wedge formation since Aug. Also, the
horizontal support trend line support is also at the US100-102/barrel levels. In addition,
the daily MACD & RSI technical indicators are showing positive divergence since Jul.

Weekly support trend line at 100! Crude oil weekly chart also shows a major support
trend line at the US$100-102/barrel levels. There is also support at US$103, which is
the 50% Fibonacci retracement level (refer to Figure 3). We expect a rebound from this
major support trend line and only likely to break the U$100/barrel the next time. As
long as crude oil does not break below the US$80/barrel levels, we maintain our view
of crude oil rallying back towards the US$150-200/barrel levels in 2009.

China equity finally bottoms? We were looking for the Shanghai Composite Index to
finally bottom this week and it is likely that the 2,102pts intraday-low in yesterday’s
trading could be the bottom of the year. Confirmation would come from the breakout
from its declining wedge formation since Apr this year, above the 2,450-2,460 levels.

2008-09-11T04:11:00.000-07:00

Credit Suisse : Air Asia - New Report - RM1.40 target price; Beneficiary of weaker oil prices

AirAsia
Survivor

Event: As the price of crude oil has fallen 27% from its July peak to under
US$106 bbl, AirAsia’s operating environment has improved. Moreover, we
are upgrading AirAsia’s target price by 27% to RM1.40 (from RM1.10), as
we have changed our valuation methodology from P/B to fleet value, in-line
with our European team’s LCC valuations methodology. The new target
price implies potential upside of 33%.

View: AirAsia is a survivor, with economies of scale and a low cost base to
face the current economic conditions, survive and flourish, as some rivals
cease operations. Demand remains strong, with 2Q traffic up 20% YoY,
despite increased competition from Malaysia Airlines’ ‘Everyday Low Fares’
campaign and weak consumer sentiment on the back of the petrol price hike
and political uncertainties.

Catalyst: The key catalyst for the stock is falling oil prices. More surprisingly,
oil prices continue to show weakness, despite tensions in the Middle East, war
in the Caucuses and an intense hurricane season in the US. Softening oil
prices will shine the spotlight on airline stocks, including AirAsia, which has not
hedged its fuel requirements beyond the end of June 2008, in our view.

Valuation: Valuations are compelling, languishing on a single digit FY09 P/E
of only 3x. Even excluding its sizeable tax write backs, the stock would trade
on 6x FY09E earnings. Moreover, the stock is trading 21% below the
Realisable Net Asset Value (RNAV) of its fleet. Not only is AirAsia trading
below its RNAV, but also 12% below its forward book value of RM1.19.

2008-09-09T16:47:00.000-07:00

Wall Street slides on Lehman fears
The Dow is down 280 points on talk that the brokerage won't be able to raise capital - Lehman shares, down 45%, hit a decade low. AIG & WaMu dropped 20%.

NEW YORK (CNNMoney.com) -- Stocks tumbled Tuesday, erasing most of the previous session's rally, as worries about Lehman Brothers' ability to raise capital, and about the extent of AIG's mortgage-related losses, exacerbated broad recession fears.

Late Tuesday Lehman Brothers said it will unveil "key strategic initiatives" for the firm, along with its expected third-quarter earnings Wednesday morning before the market opens.

Insurers and regional banks slumped in the aftermath of the government rescue of Fannie Mae and Freddie Mac. Meanwhile, falling oil prices added to worries about the slowing global economy and also dragged on oil stocks.

The Dow Jones industrial average (INDU) lost 280 points, or 2.4%, the Nasdaq composite (COMP) lost 2.6% and the Standard & Poor's 500 (SPX) index lost 3.4%.

Small caps were hit too, with the Russell 2000 (RUT) falling 3.5%.

In part, the day's decline was in reaction to the previous day's huge rally, when the Dow jumped 290 points after the government bailout of Fannie and Freddie.

While the initial reaction showed investors were relieved, Tuesday's reaction indicated investors are now sifting through the fine print, said Darin Pope, chief investment officer at United Advisors of Secaucus, N.J.

He said Tuesday's market response was a bit of a reality check.

"It's the day after, and yes, the ability of the consumer to get a mortgage is better," he said. "But the economy is still struggling, the consumer is still strapped and we still have more work to do on the housing and credit market mess."

A weak reading on pending home sales in July demonstrated the persistent problems in the housing market, while the battering of AIG and Lehman Brothers reminded investors that the credit crisis is far from over.

Meanwhile, regional banks and insurers tumbled in the wake of the government takeover of the two mortgage giants. (Full story).

In other news, Standard & Poor's said late Tuesday that Fannie and Freddie will be removed from the Standard & Poor's 500 index after the close of trade Wednesday. The news is likely to send the stocks lower tomorrow as managers of index funds need to dump the stocks and buy their replacements.

Also after the close, FedEx (FDX, Fortune 500) lifted its fiscal first-quarter earnings forecast, saying it now expects to earn $1.23 per share versus current expectations for a profit of 95 cents. Shares gained 5% after the close.

Financials get hit: Lehman Brothers (LEH, Fortune 500) skidded 45% on worries that its going to have a hard time raising capital now that talks with the state-run Korea Development Bank have reportedly ended. KDB was thought to be considering buying as much as a 25% stake in the troubled bank.

In response to the stock decline, ratings agency Standard & Poor's put Lehman's debt on CreditWatch Negative, meaning it could cut the company's ratings within months.

Lehman says it will release details about its third quarter Wednesday. The company is expected to post a loss of between $2 billion and $4 billion.

The stock has been sliding of late, as investors worry about the brokerage's ability to raise capital, and whether it can sell some or all of its operations. Lehman has also been struggling in the shadow of Bear Stearns, which the government had to rescue earlier this year, and in the wake of Fannie and Freddie.

Lehman is a different situation than Bear Stearns in that it has more value, said Thomas Nyheim, portfolio manager at Christiana Bank & Trust Co. He said that, at Bear Stearns, the bad loans ultimately engulfed their other assets. But although the circumstances are different, the concerns are similar.

2008-09-09T04:50:00.000-07:00

CS - Global equity strategy
STRATEGY
Sell into the Fannie/ Freddie rally

We would be selling into this rally as:
(1) US house prices probably need to
fall another 10% to 15%: it will take about 2 ½ years to absorb the excess
housing inventory and housing affordability is only at its 93-03 average levels
(even assuming 40bp off agency MBS spreads);
(2) This is the fourth
extraordinary measures from the Fed/Congress this year. Previous measures
have seen a 6% market rally over the following 8-10 days but clearly previous
measures have not been enough. More importantly tactically both risk appetite
and equity sentiment on Friday were not nearly as depressed as they were
ahead of Bear Sterns bail-out, Jan 21st 75bp Fed cut and GSE’s being able to
borrow from the discount window. (3) Historically, markets and banks have
tended to trough 3 months (Sweden) to 3½ years (Japan) after the
‘nationalisation’ of banks NPL’s. (4) The main concern over the summer has
been the realisation that Europe and the UK are close to recession yet there is
little evidence that either the MPC or ECB are willing to be proactive. Recall,
Europe and UK GDP’s is 15% greater than that of the US.

Fundamentally on equities, we stick to our view that the S&P 500 is likely
to trough around 1150-1,200 (S&P 500). Our long standing year-end target is
1,300 S&P 500 but would not recommend that clients buy equities until equities
are 10% cheap against this target. Our additional concerns:
(1) Value: equities
are cheap but not cheap enough. On our earnings numbers the equity risk
premium is now 4.3%. This is nearly 1% above its long-run average but critically
given where credit spreads and lead indicators are, the appropriate equity risk
premium is now just over 5%.
(2) Macro backdrop. The de-leveraging process
has hardly started in the US. All of US growth in 1H of year came from tax cuts
and net exports. On the global strategy team, we believe that US growth slows
to 1%, European GDP close to zero and UK GDP will contract by 1%.
(3) Earnings. Earnings are 15% above trend in Europe and 8% above trend in the
US (if we exclude resources and financials). Earnings typically trough around
15% below trend and the majority of the time, equities do not trough until
earnings are below trend.
(4)The average bear market if there has been a
recession is 28% for 13 months. Currently, this would imply 1,130 on the S&P in
Nov.
(5) Credit appears not to have turned. At major turning points credit has
tended to lead equity by a quarter.
(6) Our capitulation indicators do not show the level of capitulation seen at previous lows.

What would make us upgrade? One of three events:
(i) around 1,150-1,200 on the S&P 500;
(ii) ECB targeting growth not inflation (which could happen if oil
fell below $90pb but otherwise seems unlikely to occur until Q1 next year) or
(iii) capitulation on our tactical indicators.

There are three bits of good news overall on asset allocation:

First, we continue to believe that inflation is not a problem medium term.

Second, we still believe in the relative resilience of emerging markets- over the next month we would expect some form of policy response from China.

Third, as above, it is hard to find valuation measures that suggest that the S&P 500 ought to fall below 1,150. On sectors, we have been overweight defensives and
underweight cyclicals since Aug 2007 and we have added to three defensive
sectors in the last two months: telecoms, regulated utilities and food producers.

2008-09-09T04:21:00.000-07:00

CIMB - What's on the table
Berjaya Sports Toto 1QFY09 in line – An actionable idea

Bearing in mind seasonality and normalised luck, we were not surprised that B-Toto’s annualised 1QFY4/09 net profit was 15% and 17% short of our and consensus estimates. But the first interim DPS of 6 sen fell short though B-Toto will play catch-up in the remaining quarters. 1Q gaming revenue per draw was impressively 14.6% higher but profits were clipped by a normalised prize payout. Look forward to more impressive quarters, thanks to the growing popularity of its 6/52 Mega Jackpot and 4D game, coupled with a more favourable prize payout. We retain our FY09-11 and DPS estimates but shave the DDM-based target price (10% discount) to RM5.20 from RM5.55 as we raise the market risk premium assumption. B-Toto is an actionable idea for its low-risk earnings and defensive dividends amid current macro woes. Reaffirm OUTPERFORM call.

News of the Day
– PM "utterly unhappy" with Datuk Ahmad Ismail statement that was totally unacceptable
– High Court declares null & void election of Pensiangan MP Tan Sri Joseph Kurup
– Bursa Malaysia’s second technical glitch suspends trading on the derivatives market
– CIMB Bank wins SC approval to issue RM2bn of foreign currency-denominated debt
– MISC’s containership saved from pirates by the Danish navy in the Gulf of Aden
– Proton to increase Saga production to ease the long waiting list and pent-up demand
– Exercise prices of YTL Power warrants adjusted downwards following share distribution
– Coastal Contracts secures US$86.5m contract for sale of six OSVs
– India to auction 3G services for about US$10bn
– Perodua says market share decline is anticipated due to competitors activities

2008-09-09T04:19:00.000-07:00

HDBSVR: Malaysia Airlines, Maintain Fully Valued

Malaysia Airlines: Challenging times
-Story: Jet fuel prices have fallen by 33% since it peaked in early July at US$182/ barrel. MAS share price, (negatively correlated to the jet fuel prices), had risen by 26% partly tracking the jet fuel price movements. We expect the operating environment to be challenging for MAS despite recent correction in jet fuel prices. YTD average jet fuel prices remain 75% higher y-o-y at US$139/ barrel.

-Point: We expect demand for air travel to ease in the face of high inflation and slower economic growth. MAS’s load factor had fallen by 2.4 ppts y-o-y to 68.1% in 1H08 despite trimming down its capacity by 2.9%. On the domestic front, we believe there is limited room for domestic passenger yield to improve due to intense competition from low cost carriers such as AirAsia. We project FY08 core earnings to decline by 7% y-o-y to RM462.0m mainly dragged down by higher jet fuel costs and slowing demand. FY09 earnings are expected to grow marginally by 6% y-o-y to RM489.6m on the back of expected continued reduction in capacity, higher international passenger yield, and additional cost savings.

-Relevance: Maintain Fully Valued with a lower price target of RM3.05 (from RM3.20) based on 11x CY09 EPS, consistent with 15% discount to peers’ average of 12.9x. MAS currently trades at 13.8x CY09 diluted EPS and 1.6x P/BV, a premium against peers’ average of 1.1x P/BV. This is also below SIA’s CY09 EPS valuation of 11.8x. We remain concern on MAS given the unfavorable environment. Furthermore, MAS have among the lowest margins in the sector, providing limited buffer to absorb cost increases. Risk to our call is a further drop in crude oil prices that could reduce jet fuel costs.

2008-09-09T04:17:00.000-07:00

JP Morgan : IGB Corp - 60-80% larger asset base, but for the same
price

IGB Corporation
60-80% larger asset base, but for the same price

Falling commodity prices – a boon for the property sector? Falling commodity prices should help alleviate concerns of rising inflation/interest rates, aside from easing material cost for developers. But top line/demand visibility for property developers remains weak, and valuations are still at a 30% premium to historical trough levels (i.e., SP Setia). Hence, we maintain our preference for property investors given more visible or secured rental income streams. IGB is our key pick.

IGB - quietly executing & delivering: We believe the market earnings cuts for IGB (30% for FY08E, 18% for FY09E) since early-08 are largely behind us. IGB's positive dividend surprise in 2Q08 points to fresh capital management efforts and translates to net yield of 5.4-6.5% over FY08E-09E, the highest among large cap local peers.

2Q08 results point to improving fundamentals as start-up cost/rental rebates for new retail mall eased, and as benefits from its commercial expansion start to impact earnings, although more materially expected by FY09/10E. Interestingly, as per the title of this note, IGB's shares are back to the levels of two years ago, although its ‘Gardens’ expansion has raised its commercial asset base by 60-80%, with full completion recently in mid- 08. IGB is also disposing of non-core assets, and insiders have been accumulating the shares.

Maintain OW; stress test shows risk priced in: IGB has underperformed by 20% since early-08 and trades at 0.7x FY08E P/BV. The shares are not assigning any value to the ‘Gardens' expansion, in our view. Our Jun-09 PT is M$2.20 on 30% discount to base RNAV of M$3.00. Key risks are lower retail rentals and property development profits. But the shares are at a 31-38% discount to our stressed RNAV or floor value of M$1.93-2.15/share

2008-09-09T04:15:00.000-07:00

JP Morgan : Berjaya Sports Toto - 1Q09 dividends below expectations

Berjaya Sports Toto
1Q09 dividends below expectations
1Q09 dividends below expectations: BToto’s 1Q09 net profit fell 8% Y/Y to M$92MM due largely to the impact of a more favorable prize payout in 1Q08. On an annualized basis, the results came in slightly below our expectations, making up 21% of our full-year forecasts and consensus. This was mainly due to lower-than-expected interest income vs. our forecasts. The Group declared a 1Q09 net DPS of 4.5 sen (gross DPS of 6 sen in 1Q09 vs. 10 sen in 1Q08), which translates to 61% payout.

This was initially below our expectations, but after checking with management we believe dividend prospects are likely to be 2H08-loaded as management reiterated its dividend policy of maintaining at least a 75% payout. Management also explained that its more conservative payout in 1Q09 stemmed from the M$120MM worth of share buybacks last year, coupled with the absence of special draws to date.

Operationally solid with prize payouts seen normalizing in 1Q09: Despite having two draws less, 1Q09 revenues rose 9% Y/Y, which implies that revenue/draw was up 15% Y/Y. Management attributed the good performance to improved traction among customers thanks to the Mega 6/52 jackpot game introduced in 1Q08. Additionally, the results also demonstrate that the Group’s business remains resilient (small ticket item) despite the current inflationary pressures. Meanwhile, prize payouts have also normalized in 1Q09 with NFO margins at 16.6% compared to the 10.8% recorded in 4Q08.

Maintain OW: We continue to favor BToto as we believe the stock remains a defensive play given its attractive net yield of 6.5% in FY09E (85% payout). We also see good downside support thanks to the Group’s share buybacks (with 95MM treasury shares accumulated to date) coupled with its parent's (Berjaya Land) intention to increase its existing stake from 49.8% to 53.6%. We reiterate our OW rating with an April-09 PT of M$5.77 based on DCF. Key risk is unexpected regulatory changes.

2008-09-09T04:12:00.000-07:00

Kenanga : RCE Capital - BUY - 9 Sep 2008

RCE Capital - Acquisition of Mezzanine Enterprise (Company Update)

Price: RM0.445
Target Price: RM1.00
Recommendation: BUY

· Mezzanine Enterprise Sdn Bhd (MESB), a wholly-owned subsidiary of AmcorpGroup Bhd (Amcorp) involved in property trading, options, bonds and investments, was acquired by RCE Equity Sdn Bhd, an indirect wholly-owned subsidiary of RCE for a purchase consideration of RM1.00 and cash settlement of RM1.2m to Amcorp upon completion of the SPA.

· Property is the main purpose of the acquisition as RCE takes ownership of the 4-storey shop-lot that MESB owns in Bandar Tasik Selatan, KL. RCE is currently renting part of the property for office and storage purposes.

· MESB's strategic alliance with a credit co-operative an added bonus. Potential expansion of RCE's credit co-operative business with the addition of a new partner. We understand that MESB is in the preliminary stages of setting up a consumer financing business with a newly-formed co-operative.

· MESB has net liabilities of RM40.3m as at 31 July 2008, of which RM38.3m is from an advance by Amcorp. Following RCE's cash settlement of RM1.2m to Amcorp, MESB's remaining debt owing to Amcorp of RM37.1m will be assigned to RCE. RCE should not face any difficulty financing the purchase given its RM207.9m in cash and deposits as at 30 June 2008.

· FY09 and FY10 net profit forecast unchanged. MESB is not expected to be a significant earnings contributor in the near future.

· Re-iterate BUY recommendation and target price of RM1.00 based on 10x PER applied to FY09 FD EPS of 9.1 sen. We continue to favour RCE for its low-risk earnings profile and strong growth potential.

2008-09-09T04:05:00.000-07:00

HLG - Traders’ Brief
Freddie and Fannie

US bondholders heaved a sigh of relief recently when news of Freddie Mac and Fannie Mae’s
(FF) rescue by the US Government came about. The eye of the storm has passed.

Nationalization of FF
Last Friday, the government announced that it was taking over the badly shaken Mortgage
Lenders of Freddie Mac and Fannie Mae. This the most significant market shifting type of
news in months as the gist of the current market and economic woes in the US is caused by
these two companies.

Collapse of FF detrimental to US
Freddie Mae and Fannie Mae, along with overly low interest rates, is the cause of the current
housing bubble and subprime crisis that has hit the US. To date they own and guarantee more
than USD5 trillion of mortgages in the US. In the last few months, they were almost effectively
the only ones supporting the crashing US market by providing 70% of total borrowings. A
collapse of Freddie Mae and Fannie Mac will have an unimaginable negative impact to the US
economy.

Collapse of FF detrimental to other countries
FF has a very unique model of borrowing a large sum of its funds directly from other countries
to fund US home mortgages. So effectively, it is other countries which are funding a
substantial portion of US home mortgages – to the tune of USD1.5 trillion. Suffice to say,
record defaults in home mortgages (last week, it was reported that 9% of US homes were
behind in payments or in foreclosure) might jeopardize the status of these USD1.5 trillion
bonds, and bring the US housing malaise directly to the shores of these countries which hold
GSE (Government Sponsored Enterprise) bonds.

Market rally in reaction to great news
The nationalization of Freddie Mac and Fannie Mae, though at a very high cost of hundreds of
billions of USD, will help to put the US housing market on the path of recovery or at least
prevent it from falling further into the abyss.
Foreign investors will be more confident of lending to FF at lower rates, leading FF to be able
to offer lower Mortgage rates to US homeowners and stem the wave of escalating defaults.
We are already seeing that as the average interest rate of a 30-year fixed mortgage dropped
0.3 of a percentage point to 6.04 on Monday according to HSH Associates.
Yields rates across the board will generally recover to lower levels, signifying a slow recovery
in the lending markets which will enable the average American to borrow at more reasonable
prices to help them cope with the current US economic malaise.
Less mortgage defaults will also stem the wave of mortgage write downs by US banks, which
might prevent another wave of equity sell down of US banks.

KLCI still bogged down by political uncertainty

While global markets rallied (Hang Seng up 4.5%, FTSE up 3.9%, Dow Jones up 2.5%), our local KLCI could only manage a
positive 5.39 points upward move yesterday. It is obvious that the political factor is peaking and is taking a toll on our KLCI. While
the rest of the world digests the positivity of the nationalization of FF, it is most likely that we would still be encased in our political
cocoon and may retest our 1064 critical support in these two political weeks. The sooner we get out of this political rut the better.
And chances are that this political rut may not last much longer, either way the political pendulum swings.

2008-09-09T04:03:00.000-07:00

HLG: Coastal Contract - New record-high in unbilled orders (9 September 2008)

Coastal Contracts Berhad BUY

Price target RM3.80

Share price at 8 Sept RM2.30

Investment summary
Coastal Contracts's outstanding order book hit a new record-high of RM1.7bn with the sale of six offshore support vessels valued at RM299m. The orders were above our expectation and we raise our FY10 EPS by 13%. Our near term EPS forecast remain unchanged given the long dated delivery of the new orders. The higher-than-expected vessel sales re-affirm our BUY rating on the stock.

We are positive on the shipbuilding for offshore support vessel because:
(1) tight demand-supply for offshore support vessels (OSV) has created superior pricing power for shipbuilders;
(2) lagging vessel new-builds vs. replacement market offers opportunity for Coastal to replenish order book.

Orders above expectation
New RM299m job is above our expectation and we raise FY10E EPS by 13%. Share price is holding steady despite poor overall market conditions. We think there is little downside risk to share price as order book will last till FY11E. News flow on more vessel sales could re-rate share price.

2008-09-09T04:02:00.000-07:00

HLG: Breakfast Brief: UEM World, Coastal Contracts, BJ Toto (9 September 2008)

As predicted in our Feb08 restructuring note on UEM World (UEMW), unlisted parent UEM Group yesterday launched its Mandatory General Offer (MGO) on CIMA (at RM6.26/share, vs. RM5.90 currently), and UEM Builders (at RM1.42/share, vs. RM1.36 currently). This is in addition to last week's MGO for Pharmaniaga (at RM3.61/share, vs. RM3.58 currently) and Opus (at RM1.01/share vs. RM1.00 currently). All offers are on cash terms, and UEM Group will de-list the companies if it secures a 90% shareholding (implying a ~75% MGO take-up rate from minorities). We expect UEM Group to succeed in privatizing these companies, given an attractive offer price to minorities: the MGO prices UEMB/CIMA/Opus at their Jan08 peaks, vs. –30-40% share price declines for construction peers.
The RTO of UEM Land into UEM World is midway through completion: (1) The offer for sale of a basket of UEMB/Opus/CIMA/Pharmaniaga shares to UEM World minorities will go ex this Thursday 11/9. We advise minorities not to subscribe for the basket of shares, given expensive pricing. (2) For minorities, the remaining steps are the disposal of UEMW of its non-UEM Land businesses, and the cash distribution of RM1.24/share to UEMW shareholders. At UEMW's current RM2.47 share price, this would value UEM Land at RM1.23/share, or 4x FY07 PE, a discount to IDR-plays (KSL 5x, Crescendo 7x, Ekovest 7x).

Newsbreak
Coastal awarded RM299m contract, boosts order book to RM1.1bn
BToto Q109 net profit declines 8% to RM92m
CIMB obtains SC approval for RM2bn non-innovative tier one capital
Technical glitch on Bursa derivatives market disrupts Monday morning trading
Kencana wins RM13m contract
GPlus submits annual audited accounts, resumes trading today

Economics
UK: Producer price output dropped 0.6% MOM in Aug after a 0.5% gain in the earlier month, in line with the decline in prices of petroleum and several other major commodities.
EU: Sentix investor confidence fell more than forecast to -20.2 in Sept, after the 2Q GDP contracted and annual growth rate was revised downward by the ECB.
Japan: Econ Watcher Index revealed that sentiments in Aug fell to 28.3 compared to 29.3 in July, on poorer job prospect and economic growth. However, Econ Watcher Outlook increased to 32.0 from 30.8 in Aug.

2008-09-09T04:00:00.000-07:00

Brokers’ Actions

Berjaya Sports Toto CIMB keeps OUTPERFORM with a
lower target price of RM5.20. (RM5.55 previously)

Coastal Contracts Kenanga keeps BUY with a target
price of RM3.48 RCE Capital Kenanga keeps BUY with a target price of RM1.00

Berjaya Sports Toto OSK keeps BUY with a target price of RM5.10.

Digi.Com OSK keeps BUY with a lower target price of RM26.30 (RM27.20 previously)

Malaysian Airlines HwangDBS keeps FULLY VALUED with a lower target price of RM3.05
(RM3.20 previously).

Berjaya Sports Toto HwangDBS downgrades to FULLY VALUED with a lower target price of
RM4.30 (RM5.30 previously

2008-09-08T06:56:00.000-07:00

CIMB Bullish outlook?

In the midst of the current political uncertainty, Malaysia’s KLCI
surprisingly looks bullish in the immediate and medium term. Daily MACD and RSI
indicators are showing positive divergence since Mar this year. KLCI however might
test the 1,050-1,065 or even the 1,023-1,035 support levels first before bottoming out. Key breakout level for the KLCI is at 1,100, its major resistance trend line since Jan-08. Other major support levels are at 980, 950 and 920 levels. The rebound could possibly reach close to May highs.

2008-09-08T06:55:00.000-07:00

CIMB - What's on the table
Telekom Malaysia update - Flush with cash

We upgrade Telekom Malaysia (TM) from trading buy to OUTPERFORM as we are more confident that a hefty special gross DPS of 28.5 sen will be paid out by end-08. Our optimism stems from TM International's recent reiteration of its intention to repay RM4bn to TM by end-08 instead of the Apr 09 deadline. We expect TM to pay out RM1bn of the repayment as special dividend.

As our favourable view is mainly premised on its strong ability to return excess cash to shareholders, we remain positive on TM even though it is going ahead with the RM8.9bn highspeed broadband project. We adjust our FY08-10 core net profit estimates by -4% to +3% for the earlier receipt of cash from TMI and payment of special dividend. This raises our SOP-based target price by RM0.10 to RM4.10. The main share price trigger is TMI's repayment and more clarity on TM's plans for the money.

Quick takes - Industrial Concrete Products update - Going down the private road
ICP has received a VGO notice for all of the remaining 134.4m shares not already owned by parent IJM Corp. The offer price is at RM3.30/share, of which 92% would be in the form of IJM shares. Although there is a 16% premium over ICP's last traded price, we are slightly negative on the VGO as the offer price is 13% below our target price and the bulk of the consideration involves IJM's shares, on which we have a neutral recommendation.

No change to our earnings forecast but our target price is reduced to the VGO price of RM3.30 (RM3.80 previously). With limited upside coupled with the likelihood of an immediate re-rating closer to the VGO price on re-quotation, we downgrade ICP from Outperform to NEUTRAL. For exposure to the building materials sector, we advise investors to switch to Ann Joo (AJR MK, Outperform) or Lafarge (LMC MK, Trading Buy).

2008-09-08T06:53:00.001-07:00

HLG - Traders’ Brief

Funds exiting country

However, funds are still exiting the country at a worrying rate. In the first half of 2008 itself, a total of RM125 billion funds was
withdrawn from Malaysian shores. The total first half 2008 outflow has already exceeded the total outflows of RM92.3 billion
for the whole of last year. All in all, fund outflows are increasing drastically while funds inflows are decreasing drastically
from last year.

The effects of the outflow of funds can be seen from the selling out of Malaysian bonds and the Ringgit. As a result of plunging
bond prices, bond yields for the 3 year MGS is now at the alarming 4.18 level. Essentially, the loss of faith of foreign investors
has increased the cost of funds for Malaysia in general, making it hard for people to raise funds to fund economic activity.

Implications : Big down wave
Compared to the downtrends waves of the KLCI in the past, it is obvious that this time around the down wave will be very
significant as this wave is strengthened by foreigner dumping of Malaysian assets. Though the magnitude of the down wave
is not nearly as bad as the drastic plunge in the Vietnamese Dong and the Vietnamese Stock market earlier in the year, we do see
some disturbing similarities . Brace yourselves for this negative wave that is already hitting our shores.

2008-09-08T06:51:00.000-07:00

HLG - Traders’ Brief
Foreigners dumping assets

The nation appears to be in the midst of facing one of its toughest challenges in years. The
traditional twin emerging country threats of political uncertainty and inflation is now
hitting our monetary foundations very hard, causing investors to take their money out of
the country at a worrying rate.

Record inflation and political uncertainty
Following the fuel price hike, inflation rose to a 26 year high of 8.5% in July, putting pressure
on Bank Negara to raise rates to protect the Ringgit. When Bank Negara failed to do so,
investors begin discounting the value of the inflated Ringgit and immediately sold down
the ringgit.

The local political uncertainty gave investors more excuses to dump Malaysian assets. From
stocks and bonds to currencies, foreigners begin dumping Malaysian assets by the bucket
loads. The KLCI was sold down with drastic changes in foreign shareholdings while prices of
bonds begin depreciating sharply, increasing yield and at the same time the nation’s cost of
raising new funds.

Budget Deficit : Sovereign ratings in doubt
Putting further pressure on our currency is the widening budget deficit. In end August, the
Government announced a National budget crafted with the objective to spend more money to
drive the country’s slowing economy. Unfortunately the increase in spending comes at the
expense of widening the budget deficit from 3.1% to 4.8% of GDP.
Such a steep rise in the budget deficit naturally would have investors doubting the financial
discipline of the Malaysian Government, whence the increase in selling pressure in Malaysian
assets over the last one week alone.

Since April of this year, the steep sell down of the ringgit has evaporated 57% of the gains
which the Ringgit made against the USD since 2005.
Fortunately, S&P recently reaffirmed the sovereign ratings of Malaysia (foreign currency: A-/A-
2; local currency: A+/A-1). Whence, we are of the opinion that the major 3.5 resistance level
would hold for now.

2008-09-08T06:47:00.002-07:00

JP Morgan : IJM Corp - ICP privatization - a good bargain for a solid company

IJM Corporation - Overweight
ICP privatization - a good bargain for a solid company

Offer for ICP: IJM has made an offer to acquire the remaining 36.6% of
shares outstanding in ICP (134.39 mil shares), at a reference price of
c.M$3.30 per share. This will be satisfied by a combination of cash
(M$0.26 per ICP share, M$34.9 mil in total) and the issuance of IJM
shares (6 IJM shares for every 10 ICP shares, 80.63 mil IJM shares in
total). Although the reference price is c.M$3.30, the new shares will not
be entitled to the M$0.50 special dividend that IJM intends to disburse
by 2HCY08. As such, the theoretical value of ICP (ex-IJM spec div) is
c.M$3.00, which values the company at 8.7x / 7.4x FY09E/10E.

A good deal, but earnings neutral due to share-swapping similar
multiples: We hold the view that the acquisition is cheap at forward P/E
of 8.7x, compared to ICP’s average forward P/E of 12.8x since Jan-07.
The transaction is well-timed, however IJM is unable to fully capitalize
on the value due to the equally low-currency in its own share price
(Table 2). While the deal will result in a shareholding dilution of 8.6%, it
creates no meaningful earnings enhancement in over the next 2 years.
Notwithstanding, we still view the deal positively on the back of ICP’s
strong business model and long-term earnings trajectory given the
resilience of the spun-piles monopoly.

Grabbing the low hanging fruit: The poor liquidity of ICP is
unappealing to investors under current market conditions, and as such,
we do not foresee any impediments in the execution of this transaction
since IJM can comfortably muster a 75% shareholding level (friendly
parties own c.10% on top of IJM’s 63.4%), which further thwarts the
listing status of ICP (25% free float requirement). We maintain
Overweight on IJM, and consider this acquisition to be yet another
positive move in the right direction, and re-iterate our buy call on IJM,
with a Mar-09 PT of M$6.90 (unchanged, despite the deal) based off a
10% discount to SOTP. Materials inflation remains a risk.

2008-09-08T06:47:00.001-07:00

JP Morgan : ICP - "Downgrade to Neutral" -- Only 6% takeover premium, but does one have a choice?

ICP
Only 6% takeover premium, but does one have a choice?

M$3.00 VGO: IJM has made an offer to acquire the remaining 36.6% of
shares outstanding in ICP, at a reference price of c.M$3.30 per share.
This will be satisfied by a combination of M$0.26 cash per ICP share + 6
IJM shares for every 10 ICP shares. Although the reference price is
c.M$3.30, the new shares will not be entitled to the M$0.50 special
dividend that IJM intends to disburse by 2HCY08. Hence, the actual
value of ICP is c.M$3.00, which is a mere 6% premium.

The acquisition appears to be sharply undervalued, at forward P/E of
8.7x, compared to ICP’s average forward P/E of 12.8x since Jan-07.
Nonetheless, the saving grace for ICP remains the relatively lowcurrency
of IJM shares. Granted that IJM, at the current trading range of
M$5.00-5.50, is still trading at a discount to its BVPS of c.M$6.00, ICP
shareholders will participate in the share price upside in IJM. Based on
JPMorgan’s Mar-09 PT of M$6.90 per share for IJM, ICP shareholders
could potentially be getting a “blue-sky of M$4.10” (ex-IJM spec div).

But is there a choice really? However, ICP minorities may have been
presented with no choice but to yield in to the offer, since IJM can
comfortably muster a 75% shareholding level (friendly parties own
c.10% on top of IJM’s 63.4%), which then further thwarts the listing
status of ICP. As such, the likelihood of attaining a >90% acceptance rate
in order to trigger a Compulsory Acquisition will be high, in our opinion.

Sell into strength, downgrade to Neutral: Although at current share
price of M$2.83, ICP can be seen as a marginal 6.2% entry discount into
IJM, we still recommend investors to sell into strength for as long as ICP
share price does not deviate significantly below the c.0.6x IJM parity
ratio (ex M$0.26 cash, ex M$0.50 spec div). The poor liquidity of ICP is
unappealing to investors under current market conditions, and we
downgrade to stock to a Neutral, with a Mar-09 PT of M$3.00, based on
the implicit value of the VGO. IJM share price movement is a risk.

2008-09-08T06:39:00.000-07:00

HLG: Suria Capital - Challenging times; Downgrade to HOLD (8 September 2008)

Suria Capital Holdings Bhd HOLD

Price target RM1.85

Share price at 8 Sep RM1.80

Investment summary
We downgrade SuriaCap to a HOLD, due to difficult business conditions and relatively expensive valuations:
(1) H108 earnings were 20% below forecast and consensus due to higher port opex from the newly-commissioned Sepanggar Bay port, and construction order book exhaustion. This is unlikely to change in H208, and consequently, we cut our FY08-09E EPS forecast by 30-40%.
(2) Revised valuations of 10x FY08E PE and 4% net DY are not compelling, relative to SuriaCap's poor near-term growth prospects.
(3) Though potential catalysts such as the Jesselton Waterfront project and port tariff hike are closer to fruition, we worry EPS gains may be too long-dated for equity markets to appreciate.

Not the right time to buy
Brokers could cut EPS forecasts by 30-40% over the next 1-2 mths, and this could impact sentiment. In our view, SuriaCap remains an interesting Sabah GLC play, and could be worth a re-look once Federal/State politics normalize.

2008-09-08T06:35:00.000-07:00

ASEAMBANKERS MALAYSIA BERHAD

Equity Focus
Construction: Neutral
Riding the rough

Expect momentum of new construction works to pick up in 2009 on 9MP and regional development corridors implementation.
Easing of steel prices and government's compensation for higher building material costs have also lessen margins pressure.
Nonetheless, still early for a change in sector call as domestic political uncertainties override small positives – at least, for now.

IJM Corporation (RM5.10): Hold
Taking ICP private

An anticipated, IJM will take ICP private in an exercise that values ICP at RM1.21b or RM3.30/sh, a 16.5% premium to the last price.
This involves cash and share swap, which is fairly priced based on current weak market conditions.
The full benefits to IJM would however be longer term; we retain our Hold call. ICP shares may offer trading opportunities of up to RM3.30.
Other Local News
Tradewinds: Scraps plan for luxury homes at Penang hotel
Encorp: Plans project in Penang
Salcon: Eyes water job in India
Kulim: Plans REITs, unit IPO
MRCB: JV to develop agro-park
Plantation: Dollar-based CPO futures lightly traded in debut
Puncak Niaga: Sharing expertise with Pakistan firm
EPF: To restrain overseas investments
Property: Ascott may float Malaysian assets
Axis REIT: Appointment of new CFO

2008-09-08T06:29:00.000-07:00

HDBSVR : Bursa Malaysia, Fully Valued

Bursa Malaysia: Riding a downcycle

-Story: Bursa's share price has been battered, slashed 51% YTD, as the combination of waning local market activity and a trading hiccup on July 10 (in which a technical failure caused trading to be suspended for the day) exacerbated the unenthusiastic investor sentiment for Malaysia's bourse.

-Point: YTD average daily securities trading volume has slumped to a low of 323m shares traded, down 82% compared to FY08's peak of RM1.8bn in Jan-08. Average trading value also hit a recent low in Aug-08, at RM538m traded, down 75% from FY07's average daily trading value of RM2.2bn. We expect Bursa's trading volume and value to remain subdued for the rest of the year and possibly spill over into next year, as long as worrying concerns on investment sentiments and political uncertainties continue to weigh the market. We do not see any potential catalyst to shock the equity market into activity. Our average daily trading volume and value forecasts for FY08 are 607m and RM1.0bn respectively, and for FY09, 637m and RM1.1bn respectively. Our volatility assumption stands at 30%. YTD average daily securities trading volume is 605m shares traded, while average trading value is RM1.3bn YTD.

-Relevance: We initiate coverage on Bursa Malaysia with a Fully Valued
recommendation and RM6.10 price target based on 23x FY09 EPS. Our valuation is based on a target P/E multiple derived from a correlation relationship with market velocity, similar to that used in our coverage for HKSE and SGX. The target P/E of 23x represents the lower end of Bursa's PE trading band since FY05, when the stock was listed: Bursa's current P/E ratio is below its historical forward average of 26x. However, compared to bourses in the region, Bursa's earnings outlook looks bleak, and valuations are relatively unattractive vs. SGX and HKSE, which are trading at 17x and 16x forward PE respectively. Key risks to our call include a sharp improvement in market sentiment and more active capital management. Once the equity market turns positive, we believe Bursa would then be a proxy for a rebound play.

2008-09-08T06:25:00.000-07:00

Deutsche Bank Notes : KNM – Continues to “accumulate” new technology

KNM – Continues to “accumulate” new technology
KNM continues to enhance its product portfolio and technological know-how. On Friday, KNM announced a memorandum of agreement (MOA) to set up a 50:50 JV with Prosernat of France, a member of the IFP group. Targeting the natural gas extraction and processing industry, the JV with provide the following products and services exclusively in Southeast Asia:

Process technology, engineering, procurement, construction, commissioning, start-up, operation and maintenance; and
Field gas separation and gas treatment facilities including desalting, gas dehydration, gas sweetening, NGL recovery, sulphur recovery and modular units
The KNM announcement says that Prosernat supplies equipment and technologies to the natural gas industry with a 30 year history and more than 300 industrial references. Its know-how covers the whole range of gas treatment and a unique portfolio of advanced gas treatment solutions. Prosernat services can go from technology selection and process licensing to supply of complete turn-key units.

The JV is KNM's attempt to break into the LNG & gas treatment market, starting with KNM's home ground. KNM's major shareholder and Managing Director, Ir Lee Swee Eng, previously worked at Technip of France and prior to setting up KNM was Managing Director of Technip Geoproduction (Malaysia). It is likely that relationships struck with IFP/Prosernat during those times are now coming in handy.

Moreover, the MOA states that any sulphur removal and recovery business that the JV undertakes will use KNM's subsidiary KPS Technology & Engineering LLC. It was set up with a holder of patented technology last year. This gives KNM additional earnings potential and helps get this start-up up to speed.

The LNG market has one of the strongest growth profiles in oil & gas, notably as gas reserves exceed that of oil. Close to home, we hear that Singapore may be looking to set up an LNG receiving terminal. This is what Paul Sankey of our global oil & gas team said in the "Global LNG: Sink without a tap" report dated 18th June 2008:
"We have recalibrated our global LNG supply and demand model and find too much demand even for rapidly growing supply. The US market’s size, liquidity, diversity of supply and storage capacity make it the "sink" for LNG cargoes – but a shortage of global natgas has left the sink without a tap of supply.

The US "call on LNG" exceeds available supply. Long term it gets worse. The expected 2007 FID of nearly 90Mta of LNG capacity saw only 10Mta receive project sanction – i.e., a near-term supply growth breather in 2009 will give way to shortages post-2010.
While supply struggles, demand strength continues to surprise, led by earthquakes in Japan, droughts in Spain, and the emergence of new demand centers in Kuwait, Singapore, Chile and Argentina – the southern hemisphere now competes for US summer imports. Short supply has polarized returns, driving shipping & regas often below cost of capital, yet upstream returns to > 50% IRR."

The JV is in line with the objectives the firm recently stated for the longer term. To recap, it wants to increase exposure to the following areas (taken from the recent analyst briefing report):
Desalination. There are 2-3 makers of critical equipment for this sector today, according to KNM. They are already fielding inquiries as to whether they can start to deliver such equipment. However, KNM needs guidance and a partner to proceed.
Environment. KNM will focus on maximizing their presence via Borsig's foothold in this sector.

Total gas handling solutions and LNG-related equipment. KNM said it wanted to enter into the sweetening and NLG equipment space to complement its sulfur removal technology. This is what the Prosernat JV targets.
Oilsands. Their plant in Canada is already running at 70% utilization after receiving CAD72m worth of new orders soon after the plant was finished a few months ago. It is now looking to add another 10,000 MT in phase 2 of the facility. It is also looking to acquire a few more high-end technologies that are lacking in its portfolio.

Minerals. KNM wants to increase its exposure to this customer segment as it sees good appetite for expansion globally.
Nuclear. This is a totally new area and we believe it is only like to materialize in the longer term. KNM would have to enter into this equipment space via M&A.
Combustion technology. This will be an add-on to its suite of process equipment in the oil & gas space.
Sub-sea processing equipment. This is a major area that is lacking from KNM's oil & gas portfolio. It is looking for smaller players with products that could fit in with its portfolio.

We expect more news flow on these fronts over the next year.
The group has yet to provide guidance for earnings potential from this JV and we do not expect any as it is early days. Given minimal capital outlay and ability to leverage off a strong home market, KNM's return on investment is likely to be high. With increasing product breadth, KNM's potential to surprise positively in the medium to longer term is increasing.

We maintain the BUY call with target price RM2.90. Key risks are a prolonged slump in the oil price, inability to integrate Borsig and higher than expect funding cost for the re-financing of the Borsig-related bridge loan.

2008-09-08T06:23:00.000-07:00

Nomura : Malaysia Construction "Swing Factors"

Swing factors
Malaysian construction company stocks have been hit hard this year by runaway
inflation, domestic political upheaval and overseas economic risks. The likes of
Gamuda, IJM, UEM and Plus are hovering above their lows for the year, and we think
the demolition of earnings prospects, and therefore valuations, is not complete. The
big potentially positive swing factor was always going to be the Ninth Malaysia Plan
(9MP), but the chances are that delays in decision-making amid the political turmoil will
end up pushing a significant number of infrastructure projects into the next five-year
plan.

Our estimates suggest consensus numbers for 2009F could drop 16-36% in
earnings and 15-42% in fair value before all the risks are priced in. We retain our
REDUCE calls on IJM, PLUS and UEM and our SELL call on Gamuda (the extra
pessimism is for governance concerns). The only stock in the sector that we have a
BUY on is Lafarge. Fundamentals look strong with exposure to priority 9MP projects
and the removal of price caps on cement a couple of months ago; there is also a
potential capital repayment story with yield possibly equivalent to 6.8%.

-Sector growth: back in the doldrums
-SELL Gamuda, REDUCE IJM, UEM World, PLUS
-BUY Lafarge Malayan Cement

Our view
Runaway inflation, politics and offshore risks are stoking concerns on construction
sector profits and unforeseen provisioning for losses. Malaysia’s construction
sector may well be stuck in the doldrums until mid-FY10F, by which time it should
show signs of bottoming out. We remain Bearish on the sector.

Anchor themes
With the implementation of mega projects being deferred as a result of a cabinet
reshuffle and project cost reviews, 2008 is now unlikely to be a watershed year for
Malaysia’s construction sector.

Corporate Malaysia’s overseas venture is a theme that we like, but considerable
challenges loom given political uncertainty in emerging economies and the global
march of inflation. Among construction companies, mispricing of contracts appears
to be rampant, rendering some projects unfeasible.