Monday, 30 April 2012

Economic Update - Mar monetary conditions – Slow and steady

Although credit growth edged up to 12.2% yoy in Mar, we still expect this year's growth in loans to be slow and steady, reflecting softer economic conditions and the tightening of credit. Loan indicators were mixed, signalling the likely easing of loan growth. We continue to expect loan growth to decline from 13.6% last year to 9-10% in 2012. The loan growth drivers are ETP projects and discretionary consumer loans.

Economic Update - US GDP – Is the recovery wavering?

The easing of GDP growth in the US from 3.0% in 4Q11 to 2.2% in 1Q12 does not shake our conviction in its continuing moderate recovery. Growth was pulled down by a slump in business investment and government outlays. The bright spot was the 2.9% growth in consumer spending. But households dipped into their savings, raising fears over the sustainability of consumer spending, especially with the recent rise in jobless claims and weak income growth. We maintain our full-year growth estimate of 1.5-2.0%.

Nestle (Malaysia) - No fizz from Pfizer deal

Target RM48.30

Nestle's 1Q12 results briefing revealed that capex is likely to stay high in FY13-14 due to its new factory in Shah Alam. Also, its parent's purchase of Pfizer Nutrition will have little impact as its sales in Malaysia work out to only 2% of Nestle's turnover.

Malaysian Pacific Industries - Time to place your chips

Target RM3.94

MPI's 3QFY6/12 briefing held no surprises as management's upbeat tone supports our view that demand is picking up. The company expects double-digit topline growth and a return to the black in 4Q given its customers' guidance of higher orders.

Daibochi Plastic & Packaging - Unwrapping new packages

Target RM3.25

Daibochi's briefing revealed that its efforts to diversify away from its traditional F&B customers are finally showing results. Though revenue contribution from new sectors is not much now, they have the potential to be major earnings contributors in the next few years.

Perdana Petroleum - Continuing its course without Petra Energy

We view favourably Perdana’s proposed sale of 26.9%-associate Petra Energy as Perdana lost control of the latter in FY09. The stake is valued at RM67m, which could help Perdana trim its debt and return to the black. We continue to rate Perdana a Trading Buy as we expect the sale of the stake to be a short-term catalyst for the stock. We impute a 10% premium in our RNAV calculation to reflect its improved prospects and the potential value of the stake to be sold.

Banks - Mar 12 banking tracker – A false positive?

The slight recovery in loan growth to 12.2% yoy in Mar 12 is, in our view, just a blip. We continue to expect it to moderate to 9-10% in 2012 given the slowdown in economic growth and tighter consumer lending. Our view is supported by the 2% yoy drop in loan approvals in Mar 12. We are positive on the improvement in asset quality which alleviates concerns over a spike in new credit costs. But margin squeeze remains a concern given the drop in lending yields in Mar. We retain our Neutral stance on the sector and continue to like Maybank for its attractive yield.

Dialog Group - Laying the bricks for Asia’s Rotterdam

Target RM2.95

The charming seaside town of Pengerang was a hive of activity during the recent groundbreaking ceremony for Dialog's tank terminals, which will come onstream in CY14. These facilities will put Pengerang on the map as Asia's Rotterdam, Europe's biggest port city. Our SOP-based target price drops as we reduce our FY6/12-13 profit assumptions, mostly for Balai as we had overestimated Dialog's value of works. We continue to value the businesses at 18.2x, a 40% premium over our CY13 target market P/E of 13x (prev. 12.6x). Potential contracts for the Rapid project and marginal fields underpin our Outperform call.

CIMB Daybreak - 30 April 2012

What’s on the Table...
  • Dialog Group - Laying the bricks for Asia’s Rotterdam
  • Banks - Mar 12 banking tracker – A false positive?
  • Perdana Petroleum - Continuing its course without Petra Energy
  • Daibochi Plastic & Packaging - Unwrapping new packages
  • Malaysian Pacific Industries - Time to place your chips
  • Nestle (Malaysia) - No fizz from Pfizer deal
  • Economic Update - US GDP – Is the recovery wavering?
  • Economic Update - Mar monetary conditions – Slow and steady

News of the Day...
  • MoF approves RHB Capital & OSK Investment Bank merger
  • Putrajaya to unravel the nine-month Malaysia Airlines -AirAsia alliance?
  • Khazanah launching S$7bn mixed development at Marina South by year- end
  • 7.4% Bumi Armada's shares transacted off-market deals on Friday at RM3.95/share
  • The ASEAN Trading Link is on schedule for launch in Jun this year
  • China's 2Q12 trade growth should stabilize at "low level", says Commerce Ministry

Click here for the full PDF report

ECM GLOBAL NEWS 30 April 2012

US: Consumer sentiment in climbs to highest level in year
Confidence among consumers climbed in April to the highest level in a year as Americans became more upbeat about the outlook for the economy. The Thomson Reuters/University of Michigan's final index of sentiment increased to 76.4 from 76.2 last month. The gauge was projected to hold at the 75.7 level initially reported earlier this month. (Bloomberg)

US: Inventories, weak business spending curb 1Q2012 growth
US economic growth cooled in 1Q2012 as businesses cut back on investment and restocked shelves at a slower pace, but the biggest rise in consumer spending in more than a year cushioned the blow. GDP expanded at a 2.2% annual rate, moderating from 4Q2011's 3% rate. Economists had expected somewhat firmer growth, but were taken by surprise by another big drop in defense spending. Still, growth was stronger than the 1.5% or less pace analysts had anticipated early in the quarter. (Reuters)

US: Government revises up February oil demand
The government revised up its estimate for the nation's oil demand for February by 2.44%, although consumption for the month continued to lag year-ago levels. The Energy Information Administration said in its Petroleum Supply Monthly report that oil demand for the world's top consumer hit 18.7m barrels per day in February, which was 446,000 bpd higher than previously estimated. Demand was off by 135,000 bpd, or 0.72%, from the 18.87m bpd posted for the same month last year. (Reuters)

China: Government says Q2 trade growth to stabilize at "low level"
China's trade growth in 2Q2012 should stabilize at a "low level", the Commerce Ministry said in a regular spring assessment of business conditions that cautioned tough times ahead. Without predicting when trade flows would recover, the ministry said the world's second-biggest economy still faced considerable headwinds and that price pressures were building despite slackening activity. But it noted that the Chinese economy, which grew at its slowest annual pace in nearly three years at 8.1% in the first quarter, was supported by good fundamentals. (Reuters)

IPO: Astro to be re-listed?

Ananda Krishnan is looking to re-list his pay-TV flagship Astro All Asia Networks plc without its overseas operations on Bursa Malaysia, sources say. "Astro is about ripe for re-listing, not immediately but later this year," a source said. "It is as the case for Maxis." The market had long speculated Astro's eventual return, an exercise expected to raise at least USD1bn (RM3.04bn), which could be channeled to grow overseas operations in India and Australia. (The Edge)

Property: Serious home buyers undeterred

Government measures to curb speculative property buying have been rather effective. The re-introduction of the 5% real property gain tax, the limit on loans for a "third house", and the more stringent lending policies imposed by banks have caused some buyers to postpone their purchases. It is interesting to note that serious homebuyers have not been deterred from signing sales and purchase agreements. (Financial Daily)

Property: Khazanah plans S$7bn project in Singapore

Khazanah Nasional Bhd is launching a prestigious project, estimated to be worth over S$7bn (RM17.19bn) at Marina South in Singapore by the end of this year or early 2013. The yet-to-be-named mixed use integrated project will be developed by M+S Pte Ltd (MSPL), which is 60% owned by Khazanah, and 40% owned by Singapore's investment arm Temasek Holdings (Private) Ltd. The project will feature four prominent residential and office towers, as well as a retail, podium and linked to the Marina and Downtown MRT lines. (Business Times)

Perdana Petroleum: IPIC keen on Petra Energy stake

A sovereign wealth investment firm from the Middle East is said to be among the interested parties eyeing Perdana Petroleum Bhd's 26.9% stake in Petra Energy Bhd, according to sources. International Petroleum Investment Company (IPIC), wholly owned by the government of the Emirate of Abu Dhabi, is said to be the strongest contender for the block of RM57.7m shares put up for sale by Perdana Petroleum on 26 Apr 2012. (The Edge)

Evergreen: US$50m claim exaggerated

Evergreen Fibreboard Bhd's (EFB) JV partner, Dynea Chemicals OY, is suing for damages of up to US$50m (RM152m) for alleged breach of their JV agreement and breach of a technology transfer agreement. The lawsuit in Thailand is expected to have a material impact on the company considering the amount involved is nearly one third of its market cap of RM459m, but the fibreboard manufacturer is unperturbed. EFB noted that the lawsuit does not specify or particularize what technology EFB has breached. (Financial Daily)

CMS: OM Sarawak signs deal with Hanwa

OM Materials (Sarawak) Sdn Bhd (OM Sarawak) has sealed an agreement with Japan's Hanwa Co Ltd for the sales and marketing of products from its manganese and ferro silicon alloy smelting plant in Samalaju Industrial Park, Bintulu. OM Sarawak is a 80:20 JV between OM Holdings Ltd of Australia (OMH) and Cahya Mata Sarawak Bhd (CMSB). The JV company will be investing US$500m (RM1.53bn) in the manganese and ferro silicon alloy smelting plant. Construction of the plant will start in the next few months for completion in 2013. (StarBiz)

Proton: Facing major shake-up

Proton Holdings is poised for a major shake-up as it exits the public domain following its privatization by DRB-Hicom Bhd. Company executives say DRB-Hicom has already put five of its top executives in key positions at Proton. For the new team, the task at hand is to stop Proton's hemorrhage. For the nine months to 31 Dec 2011, Proton was in the red to the tune of RM68.1m. "To stop the bleeding, among the first areas to look into is the production and vendor system," says the executive. (The Edge)

Carlsberg: Price hike cannot cover higher input cost

The hike on beer prices next month will not be sufficient to cover Carlsberg Brewery Malaysia Bhd's rising input costs. Managing director Soren Ravn said the brewery will have to grow its sales volume and to keep operating costs low to sustain earnings growth. Ravn said the 3% price hike accounts only for inflation. The price of malt alone has risen 20% since 2011, he said, hence Carlsberg has to count on prudent cost management by improving its product mixes and efficiency. (Financial Daily)
Proton: Facing major shake-up

Multi-Purpose: Selling insurance arm

Multi-Purpose Holdings Bhd (MPHB) is selling its insurance arm. There is no shortage of suitors, but pricing is an issue. Tune Money Group, which recently acquired Oriental Capital Assurance (OCA) is one of the parties interested in Multi-Purpose Insurans Bhd. "But the price that MPHB wants is too high," says an industry executive. Going by current valuations, Multi-Purpose Insurans is not going to be valued at anything less than 2.1x book, says a banker. "The days of general insurers being sold cheap are over," he adds. (The Edge)

MAS: Share swap off, MAS to raise RM3bn in bonds

The controversial share swap between Khazanah Nasional Bhd and Tune Air Sdn Bhd in respect of their partial shareholding in Malaysian Airline System Bhd (MAS) and AirAsia Bhd is respectively off, say sources. The move is seen as Putrajaya giving in to the pressure piled on by the unions at MAS, they add. However, the comprehensive collaboration framework that spells out the areas which the airlines would work together for their common benefit remains intact. Another matter that is likely to be deliberated at MAS' next board meeting is a proposal to issue RM3bn worth of Islamic perpetual bonds that will hekp bridge the gap for its RM6bn capex requirement this year. (The Edge)

MAS: Sabah, Sarawak to get major share in MASwings

Sabah and Sarawak will have a 60 to 70% share in the restructured regional airline MASwings, Sarawak Tourisms and Heritage Minister Datuk Amar Abang Johari Tun Openg said. "I cannot reveal too much as MAS (Malaysia Airlines) is a public-listed company. But it will give Sabah and Sarawak a substantial share in the airline," he said. MASwings, set up to operate the rural air services in the two states, is a wholly-owned subsidiary of MAS. Abang Johari, who started the push for the two states to have a controlling stake in the airline last year, described the talks as being quite advanced and added that the deal could be wrapped up before the year-end. He said the rationale for having control of MASwings was to give Sabah and Sarawak the right to exploit opportunities in the Asian travel and tourism business. (StarBiz)

Berjaya Land: Posco to seal deal with BLand

Berjaya Land Bhd (BLand) is close to inking a partnership agreement with South Korean steelmaker Posco Group on the acquisition of up to 20% in the former's US$3bn (RM9bn) project in South Korean. BLand is developing Berjaya Jeju Resort through its subsidiary, Berjaya Jeju Resort Ltd (BJR), on a 73.2ha site in Yeraedong in Seogwipo city, south west of Jeju Island. BJR director Tan u-Jiun expects to seal the deal with Posco by August or September this year. "Posco will not take more than 20% stake in the development and they will help to develop it," Tan said. (StarBiz)

Economics (Money and Banking): March 2012: Fiercer competition as annualized YTD loans growth slows.

March 2012 overall loans grew marginally faster by 12.2% y-o-y after growing 11.9% y-o-y in February. On annualized YTD basis however, there is a clear slowdown in total loans growth. The slower loans growth was due to the banks being more stringent in approving loans. At the same time, the banks became more competitive against each other as average lending rate fell by 34bps while cost remained the same. M3 remained accommodative. The OPR is expected to remain unchanged.

ECM Newz Bits 30 April 2012

Highlights of the day
§         Economics (Money and Banking): March 2012: Fiercer competition as annualized YTD loans growth slows.

Other Malaysian news
§         Berjaya Land: Posco to seal deal with BLand
§         MAS: Sabah, Sarawak to get major share in MASwings
§         MAS: Share swap off, MAS to raise RM3bn in bonds
§         Multi-Purpose: Selling insurance arm
§         Carlsberg: Price hike cannot cover higher input cost
§         Proton: Facing major shake-up
§         CMS: OM Sarawak signs deal with Hanwa
§         Evergreen: US$50m claim exaggerated
§         Perdana Petroleum: IPIC keen on Petra Energy stake
§         Property: Khazanah plans S$7bn project in Singapore
§         Property: Serious home buyers undeterred
§         IPO: Astro to be re-listed?

Global news
§         US: Consumer sentiment in climbs to highest level in year
§         US: Inventories, weak business spending curb 1Q2012 growth
§         US: Government revises up February oil demand
§         China: Government says Q2 trade growth to stabilize at "low level"

Click here for the full PDF.

Friday, 27 April 2012

Chartnexus: Technical Alert on GTRONIC

By looking at the technical chart, GTRONIC has broken the resistance level at RM1.19. The MACD and Stochastic indicators are showing bullish momentum to this stock signifying that it has high chances to test its next resistance level at RM1.26.

This stock is filtered by ESP Master using the rule named At Support.

ECM GLOBAL NEWS 27 April 2012

US: Labour market cools
More Americans than forecast filed applications for unemployment benefits last week, signaling that a cooling labour market may restrain household spending. Jobless claims fell to 388,000 from a revised 389,000 the prior week that was the highest since early January, Labour Department figures showed. Initial jobless claims reflect weekly firings and tend to fall as job growth-ameasured by the monthly non-farm payrolls report-aaccelerates. (Bloomberg)

US: Pending sales of existing homes increased 4.1% in March
Signed contracts to buy homes rose more than forecast in March as low interest rates drew buyers back into the market. The index of pending home purchases rose 4.1% to 101.4, the highest level since April 2010, after a 0.4% gain in February that was revised from a previously estimated 0.5% drop, the National Association of Realtors reported. The median forecast of 43 economists surveyed called for a 1% rise in the measure, which tracks contracts on previously owned homes. (Bloomberg)

Europe: Spain's ratings cut by S&P on deficit
Spain's sovereign credit rating was cut to BBB+ from A by Standard & Poor's on concern the nation will have to provide further fiscal support to the banking sector as the economy contracts. Spain's short-term rating was lowered to A-2 from A-1, while the outlook on the long-term rating is negative, New York-based S&P said. The nation's 10-year borrowing costs have climbed about 70bps this year as Prime Minister Mariano Rajoy struggles to convince investors he can control public finances amid soaring unemployment and a contracting economy. (Bloomberg)

Europe: Eurozone economic confidence drops
The European Commission said its latest index of economic confidence for April dropped to a reading of 92.8, its lowest level since the end of 2009 from a reading of 94.5 the previous month. The survey of businesses and consumers noted particularly sharp declines among manufacturers and services, with the outlook for order books and employment outlook deteriorating in both sectors. Consumer confidence also registered a sharp drop this month. Greece, Spain and Italy reported among the worst results for individual countries. (Wall Street Journal)

China: Data show impact of global woes
China's current-account surplus, the broadest measure of its trade balance, more than halved in the first quarter on weaker export growth. The surplus was US$24.7bn compared with US$60.5bn in 4Q2011. Chinese export growth, racing at 20.3% in 2011, slowed to an annual 7.6% in 1Q2012. China's capital and financial account-aa measure of net capital inflows-aswung to a US$49.9bn surplus in 1Q2012 from a deficit of US$29bn in 4Q2011. That shows that fears of a "hard landing" for the Chinese economy eased and foreign direct investment inflows continued, albeit at a slower pace than a year ago. (Wall Street Journal)

Singapore: Production declines as electronics, drugs output drop
Singapore's industrial production fell for the second time in three months in March as electronics and pharmaceutical manufacturers decreased output. Manufacturing fell 3.4% y-o-y after a revised 11.8% gain in February. The median of 18 economists surveyed by was for a 5.8% decline. From the previous month, output climbed a seasonally adjusted 2.7%. (Bloomberg)

Aviation: AirAsia dismisses 'not using KLIA2' talks

AirAsia Bhd has dismissed allegations it has opted to stay at the temporary low-cost carrier terminal (LCCT), and that it will not move to the KLIA2. Commercial director Jasmine Lee said the budget carrier had no idea of the new allegation, adding that even the top management was curious about the new claim, to which Malaysia Airport Holdings Bhd( MAHB) responded on Tuesday. She said "We do not know where it (the claims) came from. Even when we asked Tan Sri Tony Fernandes to comment on the allegation, he refused by saying MAHB is the right party to clarify as we have not made any recent remarks on KLIA2. (Financial Daily)

Oil & Gas: Big spin-offs from Pengerang terminal project

The RM5bn Pengerang Independent Terminal Petroleum Terminal (PIDPT) project, which will be completed in 2016 is targeted to contribute RM19.8bn in gross national income and create 14,100 jobs by 2020. The project had its ground breaking by Menteri Besar Datuk Abdul Ghani Othman. The project is being developed by Pengerang Terminasl Sdn Bhd, a JV company between Dialog Group Bhd, Royal Vopak and State Secretary Johor Incorporated. The Pengerang Terminal will be the second largest of its kind in Asia, with close to 1.3m m3 in capacity. (Business Times)

TA Global: Buys Phuket resort for RM277m

TA Global Bhd is buying the hotel and business of Movenpick Karon Beach Resort in Phuket, Thailand for US$90.21m (RM276.94m) from Saudi Arabia-based Kingdom Holding Co to expand its existing portfolio of hospitality properties into Thailand, the company announced yesterday. In a filing with Bursa Malaysia, TA Global said its unit Crystal Caliber Sdn Bhd had entered into a sale and purchase agreement to acquire Kingdom 5-KR-194 Ltd and Kingdom 5-KR-195 Ltd from Kingdom Holding. (The Sun)

Ramunia: Tweaks utilisation of rights proceeds

Ramunia Holdings Bhd, which needs to quickly wrap up the purchase of the Pulau Indah fabrication yard, is proposing tweaks to its fundraising plans. In a filing with Bursa, the O&G outfit proposed to vary the utilization of proceeds from its proposed rights issue. Ramunia said it would allocate up to RM80m from the proposed rights issue to "settle the balance purchase consideration of the proposed yard acquisition". (Financial Daily)

Perdana Petroleum: Calls tender for Petra Energy

Perdana Petroleum Bhd has put up its entire 26.9% block in Petra Energy Bhd up for tender. It said on Thursday it had appointed CIMB Investment Bank to undertake a restricted tender process for the proposed divestment of its 57.70m shares. Petra Energy closed 7 sen higher at RM1.14. The 57.70m shares are valued at RM65.77m. The proceeds from the disposal of its entire stake in Petra energy would likely help Perdana Petroleum trim back its borrowings and return to the black. (StarBiz)

JT International: Battles illicit cigarette trade

JT International Bhd (JTI) predicts a challenging year ahead as the tobacco products manufacturer battles with illicit cigarette trade for sales revenue and market share. JT notes that exorbitant taxes imposed on cigarettes have resulted in the high levels of illicit cigarette trade. Its CFO Thean Nam Hooi said excise tax increase has driven cigarette prices above inflation rates, resulting in Malaysia being ranked as the country with the highest levels of illicit cigarette trade in the world, according to the 2009 Goldman Sachs Global Tobacco Report. (Financial Daily)

DRB-Hicom: Gets 98.6% of Proton

DRB-Hicom Bhd has received acceptances of up to 98.66% for its takeover at Proton Holdings Bhd, whose shares will be suspended from 4 May. With the acceptances, DRB-Hicom will invoke the provisions of Section 222 of the Capital Markets & Services Act 2007, within the next 2 months, to compulsorily acquire the remaining shares in Proton and delist it from Bursa Malaysia. The offer to Proton shareholders remains open until 9 May. (Financial Daily)

MAHB: KLIA passenger traffic hit by MAS, AirAsia route cuts

KLIA underperformed regional airports in terms of passenger movement in the 1Q12, due to route cuts by Malaysia Airlines and AirAsia. KLIA saw passenger movement grow by 6.9% for the quarter compared with Changi's 12.8% and Jakarta's 18.4%. "The appetite for travel is still there but without the desired flights, passengers will use alternative airports in the region," Malaysia Airport Bhd (MAHB) CFO Faizal Mansor said. (Business Times)

Nestle: Sizable capex in Nestle's pipeline

Nestle (M) Sdn Bhd continues its expansion trail as the food and beverage manufacturer is operating at full capacity to feed the growing demand for its products. MD Peter R Vogt said Nestle was planning to invest a "sizable amount" in expanding its manufacturing operations in next two years, on top of the RM180m that has been allocated for this year. The expansion will be on the land beside its existing factory in Shah Alam. The Group bought the tract from British American Tobacco (M) Bhd in 2010. (Financial Daily) 

RHBCap-OSK: Merger believed to have received Bank Negara approval

The RHB Capital Bhd-OSK Holdings Bhd merger deal is believed to have received the nod from Bank Negara and is now awaiting approval at the Finance Ministry level, according to sources. Observers said that it will take probably another two weeks before an announcement is made. (StarBiz)

IPO: Felda Global offers 2.2bn IPO shares

Felda Global Ventures Holdings Bhd (FGVHB) is offering up to 2.2bn new shares for its IPO, according to the prospectus published on the SC's website. The prospectus stated that eligible employees, Felda settlers and persons who have contributed to the success of FGVHB and its subsidiaries can subscribe to 200.65m shares from the total 273.6m shares allocated for the retail portion, which is available for the Malaysian public. The IPO comprises an offer for sale of up to 1.2bn shares and a public issue of 980m new shares. (Financial Daily)

Comment: We will publish an IPO note for FGVHB in due time. (Aris Sharif)

Bumi Armada: Ananda pares down stake

Ananda Krishnan and his bumiputera partners will sell roughly 15% of Bumi Armada (BAB MK, Buy, TP: RM5.10) in private placements to local and foreign institutional investors in a deal that will raise close to RM2bn. Financial executives involved in the placement said that the sale of roughly 440m shares in Bumi Armada would cut the joint holdings of Ananda and his bumiputera partners to 55% in the company. "The deal will widen the shareholder base a raise a little money," said one financial executive, who declined to be named. He added that the shares would be placed out at a discount of between 3-6% of current trading price of Bumi Armada shares, which closes RM4.22 yesterday. (Financial Daily)

Comment: We view the placement positively, as it will increase the free float of the stock from 30% to 45%. The bookrunning agent is CIMB Investment Bank. The indicated price of the placement is between RM3.95 - RM4.09, based on the discount factor mulls in the news. The fundamentals of the company has not change, therefore we maintain our BUY call with TP: RM5.10. The placement price will have upsides of 25-29% to our TP. (Azree Azhar) 

CIMB: CIMB Niaga's 1Q profit jumps 29%

PT Bank CIMB Niaga Tbk's earnings rose 29% y-o-y to IDR937bn (RM311.62m) in 1Q ended 31 Mar 2012. CIMB Group Bhd (CIMB MK, Hold, TP: RM7.00) said its 97.9% CIMB Niaga's higher net profit was underpinned by a 30% y-o-y increase in operating income to IDR3.17trn. "This translated to earnings per share (EPS) of IDR37.26, higher than the corresponding period in 2011 of IDR29.30," it said. CIMB Niaga, which is Indonesia's fifth largest bank by asset size, said loans in all business segments, that is commercial, corporate and retail grew by 23%, 17%, and 11% yo- y, respectively. As of 31 March, loans grew by 18% to Rp129.83trn. Its non-performing loan (NPL) ratio (gross) of 2.69% as of 31 Mar 2012, was an improvement compared with 2.86% a year ago. (StarBiz)

Comment: While net profit growth of 29% is a strong start for the 1Q2012, and CIMB Niaga accounts for a significant 30% of CIMB's earnings, we would at this juncture not get overly excited about the implications for our CIMB earnings forecasts. The strong growth in net profit for CIMB Niaga came from a 69% y-o-y jump in non-interest income, specifically treasury income. There may be a non-recurrent element here, as the non-interest income/total income ratio jumped from 23% to 31%, which is exceptionally high for a mid-sized commercial bank (Hong Leong Bank, (HLBK MK, Hold, TP: RM11.50) which is strong in treasury operations, only has a non-interest income/total income ratio of 26%). Net interest income grew 18% y-o-y on the back of loan growth of 18% y-o-y and stable net interest margin at 5.67%. The 18% growth in loans was below the industry average of 21%, but more importantly, CIMB Niaga's annualised loan growth in the 1Q2012 was a slower 13% and the industry's annualised loan growth in the first two months of 2012 was zero, pointing to slowing loan growth momentum. Furthermore, while CIMB Niaga managed to maintain its net interest margin, net interest margin for the industry which had remained stable over the previous four quarters fell from 5.91% to 5.40% in the first two months of 2012. If industry net margins continue to compress, CIMB Niaga will find it hard to maintain its net interest margin. The slowing loan growth momentum and compressing net interest margins in Indonesia were two issues we mentioned in our Banking Sector Update on 24 Apr 2012. Hence, for now, we would maintain our earnings forecasts, valuation and recommendation on CIMB. (Hon Sze)

Genting Plantations (Company Update): FFB production set for steady growth

Downgrade to HOLD, TP: RM8.78

We expect Genting Plantations’ (GenP) FFB production to grow by 8% and 13% in FY12 and FY13 based on their historical plantings, and we forecast GenP to plant some 12,000ha annually. This is possible as we estimate GenP’s unplanted land to be 75,000ha, predominantly in Indonesia. We upgrade our TP to RM8.78 implying 14.5x PE, 1.8x PB and 1.4% net dividend yield, but we downgrade our recommendation from Trading Buy to HOLD. 

ECM Newz Bits 27 April 2012

Highlights of the day
§         Genting Plantations (Company Update): FFB production set for steady growth (Downgrade to HOLD, TP: RM8.78) 

Other Malaysian news
§         CIMB: CIMB Niaga’s 1Q profit jumps 29%
§         Bumi Armada: Ananda pares down stake
§         IPO: Felda Global offers 2.2bn IPO shares
§         RHBCap-OSK: Merger believed to have received Bank Negara approval
§         Nestle: Sizable capex in Nestle’s pipeline
§         MAHB: KLIA passenger traffic hit by MAS, AirAsia route cuts
§         DRB-Hicom: Gets 98.6% of Proton
§         JT International: Battles illicit cigarette trade
§         Perdana Petroleum: Calls tender for Petra Energy
§         Ramunia: Tweaks utilisation of rights proceeds
§         TA Global: Buys Phuket resort for RM277m
§         Oil & Gas: Big spin-offs from Pengerang terminal project
§         Aviation: AirAsia dismisses ‘not using KLIA2’ talks

Global news
§         US: Labour market cools
§         US: Pending sales of existing homes increased 4.1% in March
§         Europe: Spain’s ratings cut by S&P on deficit
§         Europe: Eurozone economic confidence drops
§         China: Data show impact of global woes
§         Singapore: Production declines as electronics, drugs output drop

Click here for the full PDF.

Thursday, 26 April 2012

Economic Update - Fed stays in wait-and-watch mode

The Federal Reserve kept its ultra-easy monetary policy, in synch with our expectations that it will need to keep interest rates at near zero until late 2014 to coax the economy into a stronger recovery. Still, the debate within the Fed on future policy moves is far from settled. The recent weak economic data rule out a tightening of the policy stance. But we also think that it is premature to expect another round of liquidity injection.

Sunway REIT - Turning the screws on interest cost

Target RM1.41

At 77% of our full-year forecast, 9MFY6/12 net profit was broadly in line as 4Q typically makes up only 24% of the total. During 3Q, the newly acquired Sunway Putra Place and Sunway Pyramid's higher rentals offset a seasonally slow quarter for the hotels.

Nestle (Malaysia) - An expensive toast to its 100th year?

Target RM48.30

Although Nestle’s 1Q12 net profit came in at 33% of our full-year forecast, we deem it in line as the remaining quarters should be weaker. Nestle typically incurs higher fixed costs in 4Q and marketing cost could rise due to its centenary celebrations this year. - Commendable performance and more capital management

Target RM3.75

DiGi’s 1Q12 core net profit was in line, being just 3% shy of our forecast and 1% below consensus estimates. The main surprise was the 6.5 sen capital distribution on top of a 5.9 sen interim DPS. 1Q performance was robust considering the typical seasonality. Its performance was unaffected by rising competition in IDD but we think that it is early days. We maintain our forecasts though DiGi indicated that the effective tax rate will be lower than previously guided. We maintain our DCF-based target price, forecast and Underperform call given its rich valuations. Prefer Telekom Malaysia.

Rubber Gloves - Stretch marks

The expected implementation of a minimum wage policy by end-Apr would reduce our core EPS forecasts by 2.0-8.9% assuming a floor monthly wage of RM1,000. We believe this is an opportunity for efficient glovemakers to gain share when smaller competitors fail. Our earnings estimates and target prices are unchanged as details are unknown. Key variables include the i) wage level, ii) treatment of foreign workers, iii) classification of ex-gratia payments and iv) timeline. We remain Neutral on the sector, with Hartalega being our top pick and Top Glove our top sell.

CIMB Daybreak - 26 April 2012

What's on the Table…
  • Rubber Gloves - Stretch marks
  • - Commendable performance and more capital management
  • Nestle (Malaysia) - An expensive toast to its 100th year?
  • Sunway REIT - Turning the screws on interest cost
  • Economic Update - Fed stays in wait-and-watch mode
News of the Day…
  • Minimum wage details to be unveiled on Monday
  • Felda to proceed with new IPO structure
  • TH Plantations to complete land deal in 3Q
  • Mudajaya to sign fuel agreement soon
  • Asia’s first Legoland to open on 15 September
  • Clement Hii, Navis to make joint takeover offer for SEGI
  • Scomi sets up JV with Brazilian partners
  • Ramunia closing in on RM170m Shell deal

Click here for the full PDF report

ECM GLOBAL NEWS 26 April 2012

US: Bernanke says Fed may name officials making rate forecasts
Federal Reserve Chairman Ben S. Bernanke said the central bank is considering identifying the interest-rate forecasts of individual policy makers as it reviews ways to improve its communications with the public. The Fed currently releases a chart showing dots which correspond to the interest-rate forecasts of its 17 policy makers and a table showing the range of their forecasts for inflation, growth and unemployment. The chart does not give the names of the policy makers. (Bloomberg)

US: Fed officials reduce 2012 unemployment forecast to 7.8-8.0%
Federal Reserve officials reduced their forecast for unemployment after payroll gains averaged more than 200,000 a month in 1Q, while policy makers affirmed a plan to keep the benchmark lending rate around zero at least through late 2014. Officials forecast the unemployment rate would average 7.8% to 8.0% in 4Q2012 versus a forecast of 8.2% to 8.5% in January. The new forecasts are still far above policy makers' estimates for full employment, which range from 4.9% to 6%. Unemployment is forecast at 6.7% to 7.4% in 2014. (Bloomberg)

US: Drop in durables orders masks investment gain
Orders for durable goods fell in March by the most in three years, depressed by a pullback in demand for aircraft that masked gains in business investment. Bookings for goods meant to last at least three years dropped 4.2%, more than forecast and the biggest decrease since January 2009, Commerce Department data showed. Sales of non-military capital equipment excluding planes climbed for a second month, prompting some economists to raise Q1 forecasts for GDP. (Bloomberg)

Europe: Draghi softens tone on inflation, calls for growth compact
European Central Bank President Mario Draghi softened his tone on the inflation outlook and called for a "growth compact" as the sovereign debt crisis weighs on the euro-area economy. While inflation will remain above the ECB's 2% limit this year, it will slow in 2013 and "underlying price pressures should remain modest," Draghi told lawmakers in Brussels. That is a contrast to the "upside risks" to inflation he warned of three weeks ago. Risks to the economic outlook remain on the downside, Draghi said. (Bloomberg)

Europe: UK succumbs to first double-dip recession since 1970s
The UK economy shrank in the 1Q2012 as Britain slid into its first double-dip recession since the 1970s, forcing Prime Minister David Cameron to defend his spending cuts in Parliament. GDP fell 0.2% from 4Q2011, when it declined 0.3%, the Office for National Statistics said. The median of 40 estimates in a survey was for an increase of 0.1%. A technical recession is defined as two straight quarters of contraction. (Bloomberg)

India: Investment grade rating at risk as S&P cuts outlook
India's sovereign credit outlook was lowered to negative from stable by Standard & Poor's, taking the nation a step closer to junk status. (Bloomberg)

South Korea: 1Q GDP 0.9% q-o-q, 2.8% y-o-y
South Korea's economic growth accelerated at the fastest pace in a year in the January to March period on a quarterly basis as solid industrial output, a pickup in demand and strong government spending offset softness in the construction and agricultural sectors. GDP rose a seasonally adjusted 0.9% in the 1Q2012 from 4Q2011, when the economy grew 0.3% (Wall Street Journal)

Global: Global food prices on the rise
Global food prices are rising again, pushed higher by costlier oil, strong demand from Asia and bad weather in parts of Europe, South America and the United States, the World Bank said. The latest World Bank food price index showed the cost of food rose 8% between December and March. In the previous four months, prices had declined. Even after the latest rise, food prices remain 1% below a year ago and 6% below the February 2011 historical peak, the World Bank said. (Reuters)

Ramunia: May bag fabrication contract

The short-term boost to Ramunia Holdings Bhd's share price will help jump-start the company's proposed fundraising exercise, which is crucial to its bid to secure a RM170m contract from Shell. Sources said that Ramunia has received a notice for a letter of intent (LOI) from Shell for fabrication works. However, the offer could be conditional upon Ramunia possessing its own fabrication yard, sources added. (Financial Daily)

Property: Iskandar Investment in tie-up

Iskandar Investment Bhd has entered into a collaboration agreement with MCT Group to develop properties in Medini Iskandar, Nusajaya. Medini Iskandar is a urban development project within the Nusajaya development zone. Under the agreement, MCT intends to develop buildings comprising SoHo/studio units, hotel and a boutique gallery there. (Financial Daily)

IPO: Felda to go ahead with IPO without cooperative

The IPO of Felda Global Ventures Holdings Bhd (FGVH) will proceed without Koperasi Permodalan Felda (KPF). Under the listing plan unveiled, Felda chairman Tan Sri Mohamed Isa Abdul Samad said KPF will not participate directly in the listing of FGVHB, which is set for late next month or early June. (Financial Daily)

Ingress: Honda’s RM27m contract for Ingress

Ingress Corp Bhd has received an award from PT Honda Prospect Motor through its subsidiary in Indonesia, PT Ingress Malindo Ventures, for the supply of doorsash worth RM26.6m. The commencement of supply for this project is expected to be within 1QFY14 ending 31 Jan, with a project duration of 5 years, said Ingress. It said the project is forecast to generate total revenue of around RM26.6m for the period while the total investment is expected to cost RM14m. (Financial Daily)

Ramunia: May bag fabrication contract

The short-term boost to Ramunia Holdings Bhd’s share price will help jump-start the company’s proposed fundraising exercise, which is crucial to its bid to secure a RM170m contract from Shell. Sources said that Ramunia has received a notice for a letter of intent (LOI) from Shell for fabrication works. However, the offer could be conditional upon Ramunia possessing its own fabrication yard, sources added. (Financial Daily)

KUB: Has no plans to sell A&W

KUB Malaysia Bhd has no plans to sell its fast food restaurant franchise business, A&W Malaysia, an industry source said. It was reported recently that the company would dispose one of its 45% equity in the fast food business to Ekuinas. According to the source, KUB has plans to develop the A&W Malaysia fast food restaurant under its present group MD Datuk Wan Mohd Nor. KUB has been the licensee of A&W in Thailand and Malaysia since 2002. Currently, it has 45 outlets in Malaysia and 43 in Thailand. (Financial Daily)

SEG International: Navis makes cash offer for Segi with Hii

Navis Capital Partners Ltd has made unconditional cash offer to privatize SEG International Bhd (SEGi), which it intends to turn into a regional education player. The firm made the unconditional offer through its investment firm Pinnacle Heritage Solutions Sdn Bhd (PHS) at RM1.714 per share and RM1.214 per warrant. Navis is making the general offer together with SEGi’s MD Datuk Seri Clement Hii, who is currently the largest shareholder with a 29.78% stake. PHS currently holds a 27.84% stake. Together, they hold a 57.62% in SEGi. (Financial Daily)