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Tuesday, June 30, 2009

Felda, (maybe in hot soup), to seek listing soon

This is just another way to pass the funds from the public,EPF,Khazanah,PNB and other national coffers into some connected napoleans.I am waiting for its prospectus.

But,why list FELDA now?

What about PN17 Malaysia Airlines? It's very funny how a national airline can be so badly managed until it goes into PN17 status.Let's compare with Singapore Airlines.

A quick analysis : It's the people that makes the difference !

Just FIRE the whole MAS's top management and replace it with top notch from all around Malaysia regardless of skin colour.

You will see a very BIG improvement ! That's the TRUTH that no one can deny.

Friday, June 26, 2009

Value Buy Mah Sing Group

This is another stock which I've recommended but it didn't go up much.Those who bought it at RM 1.60 in April 09 is making some quick 20% return @ current price of RM 1.76 plus RM 160 dividend.

Mah Sing Group involves in construction, management, and development of residential, commercial, and industrial properties in Malaysia. The company also involves in the manufacture, assembly, and sale of a range of plastic molded products in Malaysia and Indonesia.

Around 80% of its revenue originates from property development and another 20% from its plastic division.Currently,Mah Sing is in net cash position.In times of turbulence,”Cash is King”.
By comparison to other property developers,its landbank is small.Moreover,it does not have revenue from property investment unlike Sunway and IGB.It does not have a REIT as well.

With current financial strength,Mah Sing is well positioned to:

1) Buy cheap lands in M’sia and other countries. Take note that Mah Sing has not venture overseas unlike SPSETIA,GAMUDA and GUOCOLAND

2) Eat up competitors to enhance landbank because good lands are limited

3)Increase J.V projects and benefit from current low construction cost

4)Capital repayment and buy back shares if Mah Sing does not have any future plan which I doubt

If you check its shareholders, Tan Sri Leong owns around 40%,Capital Group 9.7% and Amanah Saham Bumiputra owns 14%.

What intrigue me was Amanah Saham Bumiputera has been accumulating Mah Sing ’s shares in an aggresive mode.Could there be insider news?

Currently,Mah Sing declared 16sen dividend for the year.This stock has little probability to fall to RM 1.25 level again due to high percentage of institutional owners which are actively investing in this company

Risk of investing in Mah Sing:
1) Weakening property industry outlook
2) Bad capital deployment strategy

Weighing its risk and reward,Mah Sing is a good buy at around RM 1.76

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Friday, June 19, 2009

Value Buy Astro All Asia Networks

Astro All Asia Networks plc is a Malaysia-based investment holding company engaged in the provision of management services. The Company’s business segments comprise: Malaysian multi channel television, which is engaged in the provision of multi channel direct-to-home subscription television and related interactive television services in Malaysia; Radio, which provides radio broadcasting services; Library licensing and distribution, which is engaged in the ownership of a library of Chinese filmed entertainment and the aggregation and distribution of the library and related content, and Others, which includes a magazine publishing business, interactive content business for the mobile telephony platform, Malaysian film production business, talent management; creation of animation content, television content aggregation and distribution, ownership of buildings, its regional investments in media businesses and investment holding companies
Astro is the sole provider of satellite DTH TV service in Malaysia with exclusive DTH rights until 2017. It's the biggest pay-TV operator in Southeast Asia with 2.56M residential subscribers. Its total penetration of Malaysia TV households is 44% todate. This is a highly cash-generative business which generates around RM 0.13 of cash flow per share - per year on average.
Astro is spreading its wings to India,Indonesia(but failed) and Middle East. Due to its sheer size of population,you'll go crazy to estimate its potential future cashflow derived from these countries.What you can estimate is the value of business in Malaysia. Its Malaysian DTH monopoly business is valued at RM 3.50 to RM 4.00 per share. But current share price is @ around RM 2.80 per share.At current price,it's selling at a discount because stability of Malaysian business and future potential is not included.
Major shareholders are Tan Sri Ananda Krishnan (42.4%), Khazanah Nasional Bhd (21.4%) and
Employees Provident Fund (7.3%).Recently,we heard rumuors that Astro,Measat and Maxis will be 'lumped' together for creating more value through cost savings and synergy.In fact,this rumuor is not new and has been circulating in the industry even before you guys know it through local newspaper.
This event is very likely to take place some time in the future if the share prices of Measat and Astro is staying too long at low valuation.If you have made money in my previous recommendations (Mah Sing,SP Setia,HIRO,BJLAND and others),Astro is the next place to diversify your investment to capitalise on its future potential.
Please read my previous posts on Astro ( to gain more knowledge on it.

Saturday, June 13, 2009

Genting Bhd is having money problem !

Genting Berhad, an investment holding company, engages in leisure and hospitality, gaming and entertainment, plantation, power generation, real estate, tours and travel related services, genomics research and development, and oil and gas exploration activities worldwide. The company operates in five divisions: Leisure and Hospitality, Plantation, Property, Oil and Gas, and Power. The Leisure and Hospitality division operates hotel, resort, gaming, and entertainment businesses; and provides tours and travel-related services, and other support services. The Plantation division involves in oil palm plantations, palm oil milling, and related activities. The Property division engages in the property development, and letting of land and premises. The Oil and Gas division involves in oil and gas exploration, development, and production, as well as sale of crude oil. The Power division engages in the generation and supply of electric power. The company also provides advisory, technical, and administrative services to oil and gas companies; risk and insurance management consultancy; project management services; information technology related services and marketing; research and development of software and consultancy services; and offshore captive insurance and financing. In addition, Genting involves in leasing and money lending; golf course and casino operations; manufacturing and trading of bio-oil; provision of cable car services; provision and sale of utilities consisting of treatment and supply of water; and management of loyalty program management services. Further, the company involves in the genomic research and development, fresh fruit bunches processing, and provision of IT/data centre and consultancy services, as well as Internet sports betting services.
Based on its historical earnings, Genting 's forward P/E ratio is around 17 times. This is a no-brainer stock because it consists of cash cow businesses such as casino,money lending,power generation,oil &gas,plantation etc With the rebound of commodities prices, Genting is well positioned to reap huge profit again. I still remember when Genting proposed 5:1 share split in 2007.Its share price shot to the roof almost touching RM 40 / share. At that time,it has not even bid for the construction of Sentosa Resorts World in Singapore or bought stakes in MGM.
After the share split,its price shot up from RM8 to 9.xx per share. At current valuation, Genting is cheap due to its diversification of businesses in all sectors which will produce huge cashflow when the economy recovers at the end of 2009.
This is not a stock for dividend yield but it is certainly a growth stock. Its cash coffer is growing too fast and Genting is facing the problem of having too much money. In addition to its own cash,its group of companies can easily raise cash from its shareholders/financial institutions.
At this juncture,Genting may
a) Declare special dividend (very unlikely because there
are so many bargains around the world)
b) Increase stakes in other big players such as MGM
(very likely)
c) Subscribe to convertible bonds/other issues
offered by other big players such as MGM,which is deeply in debt,with an
option to convert to share (very likely)
d) Related Party Transaction:Very unlikely because the
situation is too delicate now
e) Do nothing: Very unlikely because this is not the
characteristics of top management/Board in Genting
So,you have it. A list of potential action which may be executed by Genting to utilize its cash. There are signs of its baby steps from its acquisition of 3.2% stakes in MGM.
As investors,it's crazy to speculate when is the big announcement.
Let's get in now!

Maxis to relist?

We think so too. We think there is high likelihood of a relisting of Maxis. Firstly, RAM
has placed Binariang GSM’s long- and short-term ratings on rating watch with a
negative outlook. Binaring GSM is the company that acquired minority shareholders’
stake when Maxis was privatised in 2007. The rating watch is premised on RAM’s
growing concerns over Aircel’s eroding profitability and cashflow due to intensifying
competition, particularly when it its ramping up its capex programme. RAM Ratings
reported that “…management has represented that efforts are underway to obtain
equity support in the form of cash injection from shareholders that would be available
to the Group on a staggered basis over a few years. RAM Ratings views the timely
infusion of funds to be critical in preserving Binariang GSM’s debt protection
Secondly, our industry sources also indicate that Maxis may be seeking a relisting,
possibly as early as Sep 09. We also gather that there are no plans to inject Maxis
into Astro as speculated by the market.
Possible impact on listed telcos. We believe the entry of Maxis may be negative for
DiGi given its poor trading liquidity as well as for Telekom Malaysia (TM) which has
the smallest market capitalisation among the listed telcos. Investors may switch out of
these stocks in favour of a bigger-cap telco which is very likely to have better trading
If it seeks a relisting, we believe Maxis will position itself as a high-dividend yielding
stock given that it has gone ex-growth. Furthermore, its major shareholder will attempt
to extract maximum dividends to help fund Aircel’s capex. We do not think Maxis will
be listed without Aircel and Natrindo Telepon Selular as their large start-up losses will
be a large drag on Maxis’s earnings and will dampen the appeal of the company.
Among the listed telcos, Axiata should be the least affected by Maxis’s entry as it
offers growth and regional exposure, which the rest of the Malaysian telcos do not,
and has a large market cap and high trading liquidity.
Our back-of-the-envelope estimates suggest that Maxis could have a market
capitalisation of RM32bn-40bn based on:
• 13-15x forward P/E, a discount to DiGi’s 15-16x. This high multiple may be achieved
if its dividend yield is attractive. We estimate Maxis’s core net profit from Malaysia to
be about RM2.5bn-2.7bn vs. RM2.0bn in FY06.
• 7x forward EV/EBITDA, a discount to DiGi’s 7-7.8x. We estimate that Maxis
generates an EBITDA of RM4.5bn-4.7bn.
This will dwarf Axiata, Malaysia’s largest listed telco with a market cap of RM20bn,
and will place Maxis among the top 4 or 5 stocks on Bursa Malaysia by market cap

Consumer:High yielders and growth picks on offer

The defensives performed. No major surprises in the 1Q09 results in
the Consumer Sector. F&B manufacturers generally turned in another
solid quarter of net profit growth. After a difficult quarter, we believe the
worst is over for retailers and mixed players who now look poised for a
recovery in 4Q09, especially if the rebound in GDP proves to be
stronger than initially expected. Remain selectively Overweight.
The worst is over. Key indicators suggest consumer confidence and
hence, consumption bottomed in 1Q09. Although the worse-thanexpected
6.2% GDP contraction in 1Q09 pushed back expectations of
an earnings recovery in the broader economy, we believe the defensive
qualities of the Consumer Sector mean that sector earnings are very
close to, if not already at, a floor.
Manufacturers reaped solid gains. F&B manufacturers were standout
performers in 1Q09, generating net profit growth of 5-157% YoY vs. an
average of -24% for the sector as a whole. We attribute this mainly to
lower input costs coupled with the carrying-over of higher selling prices
from end-2008. We expect earnings growth to remain resilient through
2009-10 for most F&B manufacturers.
But retailers/integrated players not so lucky. As expected, 1Q09 net
profit growth for retailers and integrated players was significantly
affected by the slowdown in the economy and the reversion of
consumer expenditure to basic necessities over non-essentials.
Nevertheless, two of our stock picks, KFC and AEON Co, registered
creditable net profit growth. More importantly, all signs point to a
recovery by year-end that could well be stronger than initially expected.
Selectively Overweight. Our picks in the Consumer sector offer either
steady double-digit growth or consistently high dividends. AEON Co,
KFC Holdings and QL Resources are all on track to achieve doubledigit
annual growth over 2009-11. We also like JT International and
Guinness for their high dividend yields of 8-12%, and their defensive

Building:Foundations set for recovery

Positive outlook for 2010. The steel and cement sectors are prime
beneficiaries of government infrastructure spending, where projects are
expected to gain momentum in 2010. We are Overweight on Building
Materials. Buy Kinsteel and Lafarge Malayan Cement. Hold Ann Joo.
Steel: Slow but steady recovery. Steel millers grappled with low
selling prices in 1H09, but capacity utilization is expected to improve by
4Q09 from estimated low levels of 40%, with breakeven levels
expected by 3Q09. Recovery would stem from the resurgence in
domestic and regional demand as significant infrastructure projects are
rolled out towards end-2009/early 2010. Upstream steel players should
benefit significantly from larger-scale infrastructure projects.
Cement could recover faster. After the 7-8% YoY demand contraction
in 1Q09, 1H09 is expected to dip 2-3% YoY, and we expect modest
1.5% YoY growth for the full year as demand improvement skews
towards 2H09. We expect stronger 8% growth in 2010. Recovery
should be swift as smaller sized infrastructure and building projects
spark cement demand. The industry benefits from a broad base of
construction projects of various sizes, unlike the long steel players
which rely on large-scale infrastructure works to drive profit growth.
Buy Kinsteel and Lafarge, Hold Ann Joo. We continue to like
Kinsteel for its attractive valuations and integrated operations with the
ability to reap economies of scale. Lafarge’s dominant position in the
cement market places it at the forefront of the sector recovery.
Continue to Hold Ann Joo as valuations appear fair

O & G:Industry conference

Poor outlook. Panelists at the 14th Asian Oil & Gas Conference 2009
(AOGC) generally concurred with our views on declining E&P spending
as well as project cancellations, delays and replenishment risks as the
oil and gas sector navigates the global economic slowdown and
financial crisis. We maintain Underweight.
IEA says 2009 E&P spend collapsed by 21%. International Energy
Agency (IEA) director Nobuo Tanaka said E&P spending has fallen
21% to USD375b, USD25b worse than our assessment. Planned O&G
projects involving a total 2.0m bpd of oil and 1b cu ft / day of gas supply
were cancelled over the past 6 months. A further 35 projects affecting
4.2m bpd of oil and 2.3b cu ft / day were delayed by at least 18 months.
Industry is in consolidation. PETRONAS Chairman Hassan Marican
said small, independent and cash-strapped oil players are suffering
more than the Super majors and National Oil Companies in this
environment. He sees forced sellers among the weak players due to
cashflow and financial constraints.
Oil prices to remain volatile. Hassan Marican thinks oil prices will
remain volatile over the next few years. He questioned the foundations
of the oil price rally. Is it due to economic recovery prospects or
speculative investment in commodities on weaker USD views? He
added there is a real danger that continuing low investments could lead
to capacity shortages and another energy price spike.
Steady development needed to ease volatility. There is a need to
develop more O&G fields to moderate volatility in the industry cycle as
the current spare capacity and new output conditions indicate a repeat
of cycle volatility akin to the 1980’s. Spare crude oil capacity has been
tight, averaging 2.7m bpd over the past decade.
Maintain Underweight. We reiterate our view that values have
vanished following the recent share price run-ups. We are Sellers as
mid-cycle valuations are now reflected in the share prices of O&G
stocks. Prospects of global economic recovery remains hazy and global
oil demand needs to be sustained at a higher level of of 85-86m bpd
and move to a higher growth path to justify more expensive valuations

Media:Expecting another poor quarter

Maintain Underweight. The 1Q09 results of media companies in our
analysis were mostly below expectations due to the weak economic
environment. The 2Q09 total adex is likely to contract YoY on lack of
adex- friendly events this year. We revise our 2009 adex growth
forecast from -3% to -9%. Media Prima and Star remain Sells while we
downgrade Astro from Hold to Sell on rich valuations.
Dismal quarter. Except for Astro, the 1Q09 results of media
companies were mostly below expectations due to the weak economic
environment. We estimate that total adex and GDP growth are highly
correlated at 0.9. Higher discounts led to lower net adex revenues and
dashed hopes of recovery when the Mar ’09 gross total adex appeared
relatively unchanged (-1% YoY, +30% MoM).
2Q08 high, a tough feat to repeat. May and Jun ’09 total adex is
expected to be markedly lower YoY due to the high base set last year
by the Euro 2008 ad spend. This lull may continue into Aug ’09 due to
the high base set last year by the Beijing Olympics ad spend.
Therefore, media companies are likely to experience at least another
two quarters (2Q-3Q09) of net adex revenue contractions.
Expect total adex to contract 9% in 2009. Our economics team is
now expecting domestic GDP to contract by 3.8% this year (-1.3%
previously). An unchanged total adex growth/GDP growth multiple of
2.3x (Asian Financial Crisis multiple), led us to our revised 2009 total
adex growth forecast of -9% (-3% previously).
Rich valuations, added risks. We expect adex sentiment to improve
only in 4Q09 on better economic prospects. We would also be better
able to gauge adex sentiment for 2010 then. We maintain our
Underweight call on the media sector. Media Prima and Star are Sells
while we downgrade Astro from Hold to Sell. Rich valuations (8.3x
2009 P/BV), may pose a set-back for corporate exercise involving
privatisation, take-over of Maxis, or even a merger with Measat

Gaming:Key takeaways from G2E Asia 2009

A modest G2E Asia 2009. Last week, we attended the Global Gaming Expo
(G2E) and conference Asia at the Venetian Macau. This year’s event was on a
noticeably smaller scale than the previous two years, probably the effect of poorer
economic conditions and travel concerns sparked by the recent outbreak of the
A(H1N1) flu. Visitor arrivals and participation at the conference were also less this
time around.
• Informative conference. The three-day conference addressed various gamingrelated
topics ranging from gaming operations within the region to the
opportunities and challenges faced by casino operators in the current economic
climate. All in all, we found the conference enlightening as the main topics
discussed were relevant not only to the Macau and Asian gaming industry but
also to the current economic climate. We came away from the conference still
upbeat about Macau’s long-term prospects as Asia’s premier gaming hub. But we
do acknowledge that short-term concerns such as visa restrictions and the poor
economic environment are likely to cast a cloud over the near term.
• An eye-opening expo. We drew three key conclusions from this year’s expo: i)
Although the crowd was noticeably smaller, there was still a good mix of
representation from global and regional gaming equipment manufacturers. ii) We
were pleasantly surprised by the strong emphasis on Asian-related themes and
features in most of the machines on display. iii) Electronic gaming machines
appear to be the new wave in gaming, going by their increasing presence on both
the expo floors and our site visits to several casinos.
• Maintain OVERWEIGHT. Our earnings forecasts for all gaming stocks remain
intact. We continue to OVERWEIGHT the regional gaming sector and retain our
preference for the Malaysian gaming plays. Our top pick is Resorts World (RWB)
but we also like its parent, Genting Bhd. Both stocks remain OUTPERFORMs but
with higher target prices as we now remove the discount to their SOP values to
reflect the rising risk appetite and expectations of stronger newsflow on potential
regional M&As following the group’s subscription to MGM bonds and equity over
the past month. While we like Genting Singapore for its unique exposure to the
republic’s duopolistic gaming hub, we reiterate our UNDERPERFORM call due to
its expensive valuations. We see a cheaper indirect entry into Singapore’s gaming
and tourism potential via Genting Bhd. In the regional space, Galaxy remains a
NEUTRAL as many of the impending short-term positives have already been
priced in and there is still a risk of a medium-term funding gap. Meanwhile, we
continue to like B-Toto for the possibility of a bumper dividend. Dreamgate
remains an UNDERPERFORM with the potential de-rating catalysts being i)
lacklustre sales, ii) slower-than-expected deployment of its machines, iii) further
margin compression, and iii) more delays in the take-off of its maiden casino

Airline:Caught in a pincer

Higher crude oil price assumptions... Our regional oil and gas analyst Itphong
Saengtubtim is raising his crude oil price assumptions by US$15-20/barrel to US$60
in 2009, US$75 in 2010 and US$80 in 2011(Figure 1).
The new price assumptions are based on: (a) continued recovery in global economy;
(b) US dollar weakness; (c) speculators buying commodities; and (d) continued tight
supply from both OPEC and non-OPEC producers.
…and jet fuel prices too. We will eventually factor into our airlines’ earnings models
US$5-10/barrel increases in our jet fuel price assumptions to US$70 in 2009, US$85
in 2010 and US$90 in 2010 (Figure 2).
The size of the revision for jet fuel is lower than the revision for crude oil because of
the sharp reduction in crack spread. Our previous crack spread assumption was
US$20/barrel, which we now trim to US$10. The crack spread has narrowed
significantly from a high of US$45/barrel in mid-2008 to just US$6-7 currently, as
demand for jet fuel sags under the weight of poor aviation demand and capacity
cutbacks by airlines (Figures 3 and 4).

Banking:Foreign banks share the pain

Foreign boys not spared a 20% 1Q earnings decline. The combined net profit
of the five major foreign banks in Malaysia fell 19.7% yoy to RM824.6m in 1Q09,
worse than the 14% slide recorded by the local banks. Clearly, the foreign boys
are not spared the impact of the economic downturn, with earnings dents coming
primarily from (1) a 1.3% yoy drop in net interest income, (2) 25% slump in non-
interest income, and (3) 23% jump in loan loss provisioning (LLP).
• Foreign banks’ loan growth trailing local banks’. As expected, foreign banks
recorded slower net loan growth of 3.1% yoy in Mar 09 compared to 12% for
local banks’ domestic lending. The performance of foreign banks was pulled
down by a 6.8% contraction in Citibank’s loan base, due primarily to a drop in
property and business loans. Other major foreign banks registered single-digit
loan growth ranging from 3.3% (for UOB) to 8.7% (for OCBC).
• Higher NPL ratios and credit costs. Against the backdrop of a grim economic
climate in 1Q09, all major foreign banks saw a rise in their net NPL ratios. The
blended net NPL ratio of these five banks increased from 1.68% in Dec 08 to
1.81% in Mar 09, lower than the industry’s 2.2%. The hike in NPL ratios led to a
23% yoy surge in 1Q09 LLP.
• Better performance by local banks. In 1Q09, local banks outperformed their
foreign peers in the areas of (1) net profit – 14.2% yoy drop vs. 19.7% for foreign
banks, (2) non-interest income – down 7.1% yoy vs. 25.3% for foreign banks
despite their higher exposure to poor investment banking income, and (3) NPL
ratios – a few local banks, i.e. Maybank, Public Bank, AMMB and Alliance
managed to contain their NPL ratios while qoq rises were evident for all the
major foreign banks.
• Maintain NEUTRAL. Foreign banks’ poor 1Q09 financial results reflect the
adverse operating environment. We take heart in the outperformance of the local
banks during these difficult times as it suggests that the improvements in local
banks’ operations, especially in the area of risk management, have helped them
to weather the economic downturn. On this note, we are maintaining our
NEUTRAL stance on Malaysian banks as local banks may trump our and market
expectations in countering the slowdown in loan growth and the uptick in NPLs.
Our top pick for the sector remains Public Bank

Water: Juiced-up offers?

Yesterday, Kumpulan Perangsang Selangor’s (KPS) (KUPS MK, Not Rated) share
price spiked 36 sen or 20%, possibly on speculation of headway being made on the
consolidation/acquisition plans for water assets in Selangor. We followed up with
industry checks and were positively surprised to learn that the Selangor state
government may make fresh takeover offers to PNSB, Syabas, ABBAS and SPLASH
soon. The new offers are likely to be attractive.
We gather that the Jun 09 deadline for the state government to make alternative offers
to the four water concessionaires in Selangor is unchanged. Several meetings have
been held between the federal and state governments via a joint committee over the
past 2-3 weeks. The federal government is represented by the Ministry of Finance
officers, EPU and PAAB, among others. The state government is represented by the
state secretary and KDEB, among others.
An alternative valuation parameter by the state government has been agreed on and a
takeover offer is likely to be made within the next 1-2 weeks. The target acquirees are
unchanged – PNSB, Syabas, Splash and ABBAS.
Puncak is likely to be offered RM3.50-4.00/share, based on the sum of parts of PNSB
and Syabas. The price tags for Splash and ABBAS are likely to be much better than
the initial offers and more acceptable. The breakdown of acquisition values is not
available but it will apparently be roughly 1x BV + returns/premium. Indications are
that the derived value will not be too far off from the DCF method.
Borrowing/bonds held by the four concessionaires will be addressed. PAAB is likely to
take over the bonds while the state government takes control of the concessions. The
deal could shape up to a back-to-back deal, which could work

Oil and Gas:Collective approach at regional conference

Forecasts of US$75-80 per barrel by year-end. We left the 14th Asia Oil & Gas
conference feeling more bullish on the oil & gas sector. After a year of violent
swings, the industry is seeing signs of stability as crude oil spare capacity is on the
rise. Some experts at the conference forecast an oil price of US$75-80 per barrel by
year-end, in line with predictions by some OPEC members.
• Wave of M&As? Declining revenues, shrinking margins and higher costs are
buffeting some SMEs and could result in asset sales and industry consolidation.
The beneficiaries would be bigger, cash-rich companies which get to expand their
capacity at cheaper asset valuations. We are already seeing this in Sime Darby’s
proposed acquisition of Ramunia – a deal that could give Sime’s yard capacity a
tremendous boost.
• Malaysia’s stronger ties with IOCs. Malaysia is determined to further develop
untapped resources with international oil companies (IOCs). To date, Petronas has
signed more than 60 production-sharing contracts (PSCs) with the IOCs. Malaysian
oil & gas service providers, which include all companies in our oil & gas portfolio,
are definitely benefiting from the PSCs.
• Maintain OVERWEIGHT. The conference ended on a high note. Although there are
challenges to overcome, the sentiment is definitely upbeat, especially with the rising
oil price. Already, the companies in our oil & gas portfolio showed bottomline and
margin improvement in the 1Q09 reporting season. As 1Q is typically a weak
quarter, we expect an even better showing from most of the companies towards
year-end. We remain OVERWEIGHT on the oil & gas sector and continue to rate
Kencana as our top pick. All our forecasts, recommendations and target prices are

Oil And Gas: A slick 1Q09 performance

An improved performance. While the results announced by oil & gas (O&G)
companies in Mar-May 09 were a mixed bag, they leaned towards the positive,
unlike the previous quarter. A third of the six companies in our portfolio missed our
forecasts, an improvement on 50% in 4Q08. Half of the companies broadly met our
expectations (4Q08: 17%) and one (17%) surprised on the upside (4Q08: 33%).
Since 1 May 09, the share prices of O&G stocks under our coverage have jumped
by an average 28%, reflecting the overall encouraging reporting season.
• Three trends in 1Q09. 1) Margins picked up as companies climbed the value chain:
Except for Dialog, all the companies in our O&G portfolio showed margin
improvement, with average EBIT margin rising from 14% in 4Q08 to 20% in 1Q09.
2) Late delivery remains a problem for offshore support vessel (OSV) operators: In
total, Petra Perdana and Alam missed six vessel delivery dates due to assembly
line congestion and delayed shipment of parts. 3) Petroleum retailers and refiners
bounced back: The rising crude oil price supports the selling prices of products that
are not subject to automatic pricing mechanism (APM) and refiners benefited from
inventory gains.
• Service providers stand to benefit. YTD, the oil price has jumped 56%, reflecting
factors such as 1) a weakening US dollar, which encourages speculative money to
flow into the market, and 2) an increased risk appetite among investors who
anticipate an economic recovery. As a producing country, Malaysia is poised to
benefit from the upward march of the oil price. Petronas-licensed service providers
offering works and facilities such as yards, tank terminals, offshore structures and
maintenance job stand to win the most.
• Target price increases. There are no changes to our forecasts. However, we are
raising our target prices by 11% for Dialog, Kencana, SapuraCrest and Wah Seong
to reflect our recent index target upgrade. We now apply our revised target market
P/E of 15x to the stocks, instead of 13.5x. Our target prices for Alam, Petra Perdana
and Petronas Dagangan are maintained.
• Kencana replaces Petra Perdana as top pick. YTD, Petra Perdana’s share price
has risen by a whopping 120%, making the stock an outstanding performer in our oil
& gas portfolio. While we still like the stock, we are replacing it with Kencana as our
top pick. We believe Kencana’s newsflow and order book replenishment over the
next few months will be more exciting.
• Maintain OVERWEIGHT. We remain OVERWEIGHT on the oil & gas sector in view
of the potential re-rating catalysts of 1) M&As, and 2) more active newsflow. Also
unchanged are all our stock recommendations and earnings forecasts

Monday, June 8, 2009

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Economic Current in April

– February results continued the eight month decline in unit sales (avg -2.6%) across fast moving consumer goods (FMGC) as consumers continue to cut back on shopping trips in the U.S..– Additionally, while the percent change in basket ring increased 2.3% in the U.S., they are off from the January increase of 3.9% possibly due to declining prices as many retail channels did see enhanced shopping frequency in the 1st two months of the year – There was a noticeable up tick in store brands, given the 6.4% increase in unit sales across all store brands in the U.S.. This is the highest lift we have seen since August 2008 as the gap between branded items and store brands widened. – Despite the shift to store brands in the US, National Brands in Canada are still holding their share (81.2) as they capitalize on the consumers need for value through increased feature pricing activity. Over the past year unit sales on feature price increased 8% for National Brands to now account for 38.5% of unit sales. PL remained flat reporting a 1% decline in feature price sales.– Canadians are still shying away from multiple store visits. One stop shopping continues to expand – they are making 4% fewer shopping trips but once in store, they are spending 6% more, driven primarily by rising prices.– Expect March sales to be negatively impacted by the seasonal adjustment of Easter, which in 2008 occurred on March 23rd vs April 12 in 2009.

Saturday, June 6, 2009

Bank NPLs yet to peak. Underweight

Be cautious into 3Q. 1Q09 results of the six banking stocks we cover
were generally in line, with combined net profit down 2.1% QoQ and
13.1% YoY. However, the weak 1Q09 GDP suggests growing stress in
system loans over the coming months. We remain cautious on banks’
profits, especially from 3Q09. Underweight the sector.
1Q down a sharp 13.1% YoY. Other than AMMB’s positive surprise,
results were generally in-line. The combined net profit of our banking
universe was flattish QoQ but fell a sharp 13.1% YoY on lower treasury
and FX income and higher loan loss provisions. Net interest income
expanded, but the weak equity market continued to affect brokerage
income, which contracted for the 5th to 6th consecutive quarter.
Some signs of stress. Domestic loans continued growing at most
banks. QoQ loan growth at the major banks (Maybank, CIMB Bank and
Public Bank) outpaced system growth. Some loan segments, however,
have begun showing stress. Domestic NPL saw upticks in the
consumer (mortgage, autos) and working capital segments. Net NPL
ratios continued to trend down due to the expanded loans base.
Earnings to contract. There were no major revisions in our individual
earnings forecasts except for AMMB (FY09: +16%, FY10: +7%). Our
combined net profit forecast was upgraded by a marginal 0.1% for 2009
and 0.7% for 2010. We expect sector earnings to contract 9.9% in
2009, before recovering to 6.8% growth in 2010 (previously -10.1%,
+6.1% respectively). This excludes further impairment in the value of
long-term investments, merger costs and other one-offs.
Asset quality concerns. 1Q09 GDP (-6.2% YoY, -7.7% QoQ) should
be the weakest, suggesting that the worst may be over. However, we
expect economic recovery to be slow, with real GDP to return to the
3Q08 high only in 4Q10. There is a 3-6 month interval from GDP trough
to NPL peak. Hence, banks are set to report weaker profits on rising
NPLs and higher credit charges from 3Q09.
Mainly Sells. Against regional peers, the larger Malaysian banks are
pricey. The current liquidity driven market has pushed valuations up but
prospects for a strong economic recovery stay hazy. Sell into strength

Better bargains in 3Q?

Upping CPO price forecasts. In this report card on the recent results season, we
are raising our CPO price (cif) forecasts by 18% for 2009 and 8% for 2010 to
US$710 per tonne for both years. The reasons for our upgrades are Argentina’s
lower soybean crops, the slower decline in demand growth from key consumers
and a slower-than-expected recovery in palm oil output. Our new local CPO price
forecasts are RM2,280 for 2009 and RM2,250 for 2010.
• CPO price to pull back in 3Q before recovering in 4Q. We remain positive
about CPO price until end-2Q as the replenishment of stocks will require time,
India’s import duties on edible oils remain at zero and there is concern over the
delay in plantings in US. We expect CPO price to pull back in 3Q before
recovering towards the end of the year.
• Upgrading earnings forecasts and target prices. In view of our higher CPO
price forecasts and recent changes in our rupiah assumptions, we are raising our
FY09-10 earnings forecasts for all the planters in our coverage by up to 30%.
This, along with higher target P/Es following our upgrade of regional
stockmarkets, bumps up our target prices by 3-53%. We are raising Hap Seng
Plantations and Sampoerna Agro to Neutral given their recent underperformance.
• Upgrading Malaysian plantation sector to Neutral. We are raising our rating for
the Malaysian plantation sector from Underweight to Neutral as its valuation
premium over regional peers has narrowed following its recent underperformance,
selected plantations stocks will benefit from an increase in their weightings in the
new FBM30 indices on 6 July 2009, we are more bullish on the Malaysian stock
market and foreign shareholding levels have fallen.
• Staying NEUTRAL on regional plantation sector. Despite our CPO price
upgrade, we remain NEUTRAL on the regional plantation sector as the share
prices of most planters in our universe have done well YTD, reflecting the more
upbeat CPO price outlook and expectations of a correction of CPO price in 3Q
due to seasonally higher production and potential cutbacks in demand from major
consuming countries if crop prospects improve. There is also no change to our
Overweight rating on the Singapore plantation sector and Neutral call on the
Indonesian plantation sector. For exposure to the regional plantation sector, we
continue to recommend large-cap liquid planters. Our top picks in the region are
Wilmar, Sime Darby, Indofood Agri and London Sumatra.

External Trade A mixed bag of data

YoY export plunged back above-20% in Apr 09. It fell 26.3% YoY
compared with the slower 16% and 15.7% YoY declines in Feb and
Mar respectively after the 29% YoY collapse in Jan. The high base
effect last year was a factor (Apr 08: +20.9% YoY – one of the three
months of over-20% YoY increase in 2008), mostly from sharp gains in
commodity prices was a factor.
But YoY fall in imports eased, resulting in smaller trade surplus
for the month. Imports were down by a smaller quantum of 22.4%
YoY (Mar 09: -28.7% YoY), causing the trade surplus to narrow to
RM7.36b (Mar 09: +RM12.5b).
Overall “better” MoM trends. Although sequentially exports dipped
5.6% after the increases in Mar (+10.1%) and Feb (+3.4%), the decline
was mild relative to the average monthly drop of 11% between Oct 08
and Jan 09. Shipments of key exports like E&E, palm oil and chemical
& chemical products have now recorded MoM rises for 2-3 months up
to Apr. Meanwhile, lower oil & gas-related exports such as crude oil,
refined petroleum products and LNG in Apr versus Mar was mainly due
to maintenance works. Imports recorded their second consecutive
MoM increase, rising 8.8% after the 12.8% jump in Feb that ended five
straight months of declines.
Year-to-date numbers prompt revisions to full-year figures. For
Jan-Apr 09, exports and imports shrank by 21.7% YoY and 27.3% YoY
versus +12.6% YoY and +7% YoY in Jan-Apr 08. The trade surplus
during the period was RM40.1b (Jan-Apr 08: +RM39.1b). Factoring in
the data for the first trimester of the year, we have adjusted our full-year
forecast to 19.5 export contraction (previous: -16%; 2008: 9.6%),
24.5% import decline (previous: -13.2%; 2008: 3.3%) and a RM140.3b
trade surplus (previous: RM104.7b; 2008: RM141.9b).
Mixed bag of data suggests external trade activities are
stabilising. The mixed bag of data of late has a nicer ring compared
with the consistently negative YoY and MoM numbers between Oct 08
and Jan 09. This could which suggest external trade activities are
stabilising after the earlier plunges.

Friday, June 5, 2009

Don't Play Play: Fitch downgraded Genting Bhd’s outlook to negative

Fitch Ratings has today revised the outlook on Malaysia-based Genting Berhad’s (GENT.KL) (Genting) Issuer Default Rating (IDR) to negative from stable and affirmed the IDR at “A-”. At the same time, Fitch has affirmed the ratings on all senior unsecured debt issued or guaranteed by Genting at “A-”.Fitch says the outlook revision is driven primarily by the potential impact that the ongoing global economic crisis may have on visitor arrivals at Genting’s planned Integrated Resort (IR) in Singapore, which is scheduled to open in early 2010.
Fitch notes that tourists will form a significant target market for the IR, and that the Singaporean tourism sector has been affected by the economic crisis. Total visitor arrivals in Singapore for the first four months of 2009 were 11.8% lower compared to a year earlier.While Fitch acknowledges that the opening of the IR will attract more visitors to Singapore, the total may be lower than the level anticipated when the project was conceived.Genting’s negative outlook is also driven by the announcement of a 10% upward revision in the project cost of the Singapore IR to $6.6 billion and the significantly lower operating margins of its power division due to the inability of its Chinese operations to pass rising fuel costs on to its customers.Fitch says the outlook may be revised back to stable if the Singapore IR performs well and generates strong cashflow after opening and financial leverage looks set to remain below 1.0x.

Tuesday, June 2, 2009

The Wealth Report 2009

Welcome to the 2009 edition of
The Wealth Report, the third such collaboration
between Knight Frank and Citi Private Bank.
Over the past 12 months the economic outlook has
become even more uncertain. Most of the developed
world is now in recession, and even the emerging
economies have been forced to pause for breath. Every
commentator accepts 2009 will be tough. Our Attitudes
Survey (page 12) indicates clearly that HNWIs will look
to protect their wealth from the ravages of the
downturn with an emphasis firmly on security and
transparency rather than risk.
The tangible nature of property means it is well
placed to benefit from this shift in emphasis, and there
are signs that some mature prime property markets,
such as London and New York, have readjusted to price
levels that offer good value for purchasers. For some
emerging markets, the rollercoaster ride looks set to
continue. A full analysis of prime global markets is
included on page 26, and we recommend 10 locations
and sectors that offer potential for growth on page 23.
As property is just one aspect of wealth, we have
expanded the scope of The Wealth Report by including
an investigation into the performance of alternative
assets, from art and cars to wine (page 36), and an
assessment of the state of the philanthropy sector
(page 16). Influential thinkers, such as Alain de Botton
(page 20), also share their views on how the world will
adjust to life post credit crunch.
We hope you enjoy reading the report.

A few big winners, many losers

The majority down. 62% of our 72-stock universe suffered lower
sequential quarterly net profits, with 24% surprising on the downside.
The combined 1Q09 net profit of our research universe fell by just 3.5%
QoQ. But stripping out 5 large gainers, net profits fell a larger 13.6%
QoQ. Consumers and glove manufacturers’ defied gravity, but net
profits of virtually all stocks in nine sectors fell quarter-on-quarter.
A surprising combined result, but the devil is in the details. The
combined net profit of our research universe declined just 3.5% QoQ
despite an overwhelming 62% of companies reporting a sequential
quarterly decline. But excluding five companies, combined net profit fell
13.6% QoQ, an acceleration from previous quarters. A broad-based
earnings decline is being masked by a few companies, including some
Declines in nine sectors, but consumer sector unscathed. Every
stock in nine sectors, excluding monopolies Petronas Gas and KLCCP,
experienced a drop in quarterly sequential earnings. The sectors are
gaming, oil & gas, property, REITs, construction, building materials,
semi-conductors, plantations and toll roads. Consumer stocks and
glove manufacturers showed particular resilience.
An ‘energy dividend’ took effect; monopolies fared well. Lower oil
prices benefited heavy fuel users AirAsia and Tenaga. Their gains were
only partially offset by lower earnings at the oil & gas services
companies. Net profits of Telekom, Tenaga and Petronas Gas, all
effectively monopolies, improved on a quarterly basis although only
Petronas Gas raised prices in 1Q09.
The biggest disappointment and downgrade: 1Q GDP. First quarter
2009 GDP fell 6.2% YoY, against consensus expectations of a 3-4%
drop. We have revised our GDP forecasts to -3.8% in 2009 and +4.0%
YoY in 2010 (previously -1.3% and +3.5% respectively). The
government, to be ahead in the expectations game, is projecting 2009
GDP growth of -4% to -5%. The silver lining is the government is now
under greater pressure to implement its fiscal stimulus plans quickly.
A reversal of fortune ahead for construction, building materials.
Despite uniformly lower earnings this 1Q, we believe the construction
and building materials sectors are only 2-3 quarters away from
improved revenues. Share prices of stocks in these sectors will likely
be driven by newsflow from the fiscal stimulus rather than earnings

Not as bad as feared, worst over?

Not as bad as feared. Poor though the results were, the May results season was
not as bad as feared. In fact, there were reasons to be encouraged. The revision
ratio improved from 0.43x in Feb 09 to 0.6x, meaning that the earnings downgrade
momentum is not as lopsided as before. Some 60% of companies met
expectations (43% previously) and 25% failed to deliver (40% before). 15% did
better than expected, a slight pullback from 17% during the Feb results season. In
terms of sector performance, six disappointed while only two were above
• EPS forecast surprisingly raised. More significant than the actual number of
companies that surpassed or missed expectations is the fact that 2009 and 2010
EPS have been raised, rather than cut. This is a pleasant surprise. Since the Feb
results season, 2009 EPS contraction has been reduced from 8% to around 6%
while 2010 EPS growth has been raised from 16% to 19%. Upgrades came largely
from the plantation sector due to firm CPO prices, as well as big caps such as
Axiata and Maybank, which more than offset letdowns from smaller caps.
• The worst could be over. In our Apr strategy when we upgraded Malaysia to
Overweight, we thought 2Q could provide a buying opportunity due to 1) the
expected poor results season, and 2) announcement of a sharp contraction in
1Q09 GDP. We were only partially right on the first count as 1Q09 results have
turned out to be not as bad as expected and did not present any major shocks or
earnings downgrades. This means that there is a good chance we are past the
worst as upcoming quarters may be more balanced and EPS cuts could have
bottomed out. Fundamentally, this is hugely positive for the market.
• New KLCI target of 1,220. Although our economics team was spot on about 1Q
GDP being weak – it sank 6.2% – the market took the bad news in its stride. This
is an indication of how far market confidence has improved in the past two
months. We continue to believe the gradual reinvestment of institutional funds’
spare cash will sustain the market rebound in 2H09. In view of the better-thanexpected
1Q results season, continued positive newsflow during PM Dato’ Sri
Najib Razak’s first 100 days in office and the gradual return of foreign funds to the
market, we upgrade our year-end KLCI target from 1,060 to 1,220 points after
removing the 10% discount to its 3-year moving average P/E of 15x. We maintain
our OVERWEIGHT stance on Malaysia and our preference for cyclical bombedout
sectors including construction, building materials, property and oil & ga