Wednesday, 31 October 2012

Oil & Gas - Equipment & Svs - Pahang’s gush of excitement

Long Term: Over Weight

The state of Pahang welcomes its first oil discovery which could increase Petronas’s annual production by at least 2.7%. It may not be substantial but every drop counts as the national oil company pursues sector-wide opportunities to reverse Malaysia’s production decline. We continue to have positive expectations for the oil & gas sector and maintain our Overweight call. Petronas’s 5-year RM300bn capex should keep the excitement level high in a sector that is a major revenue earner. Our top picks are SapuraKencana for big caps and Perisai for small caps.


Daibochi Plastic & Packaging - More orders not a stretch

Target RM2.90 (Long Term: Out Perform)

Daibochi remains bullish about its prospects in 2013. Its efforts to expand into Australia and the non-F&B sector are showing results. We would not be surprised if the company landed some major overseas orders in the coming months. We maintain our EPS forecasts and Outperform call. Our target basis remains 10.6x CY14 P/E, a 20% discount to our target market P/E. Further M&A developments in the flexible plastic packaging industry could catalyse the stock. Daibochi remains our top pick in the sector.


Malayan Banking Bhd - BII hits the ball out of the park

Target RM11.00 (Long Term: Out Perform)

The 66% jump in earnings from BII, Maybank’s unit in Indonesia, is a shot in the arm for Maybank’s 9M12 results which may be released next week. But we are lowering Maybank’s EPS by 3-6% and DDM-based target price (cost of equity of 11.3%; long-term growth of 5%) as we factor in its private placement of 412m shares and 173.1m shares issued under its dividend reinvestment plan. Maybank remains an Outperform, premised on its attractive dividend yield and good growth prospects.


Shipping Monitor - Capacity cuts push up AE rates

Long Term: Neutral

Container liners managed to push Asia-Europe rates up last week, as the cumulative effect of capacity cuts kicked in. Rates should rise again next week as CSCL announced new skipped sailings in November. We may be past the worst in rates for 2012, but 2013 will still be difficult.


CIMB Daybreak - 31 October 2012

What's on the Table...
  • Malayan Banking Bhd - BII hits the ball out of the park
  • Oil & Gas - Equipment & Svs - Pahang’s gush of excitement
  • Daibochi Plastic & Packaging - More orders not a stretch
  • Shipping Monitor - Capacity cuts push up AE rates

News of the Day...
  • IGB Corp consortium wins bid to build Taipei’s Twin Towers
  • Aeon Co (M) denies involvement in buying Carrefour's Malaysian operations
  • SEGi’s Clement Hii raise its stake in SYF Resources Bhd to around 19%
  • Edaran Tan Chong Motor aims to sell 50,000 Nissan cars by year-end
  • TH Heavy Engineering has been uplifted from the Practice Note 17
  • US S&P Case-Shiller home price index gained 0.5% mom in Aug (0.3% in Jul)

Click here for the full PDF report

ECM GLOBAL NEWS 31 October 2012

US: Home prices in 20 cities rise by most in two years
Residential real-estate prices increased in the year ended August by the most in two years, a sign housing will continue to boost U.S. economic growth. The S&P/Case-Shiller index of property values in 20 cities rose 2% from August 2011, the biggest year-to-year gain since July 2010, after climbing 1.2% the prior month. The median forecast of 25 economists in a survey projected a 1.9% gain. The stabilization in values is rippling through the economy after the housing slump helped trigger the recession, supporting gains in consumer confidence and spending. (Bloomberg)

Europe: October economic sentiment falls to three-year low
Economic confidence in the euro area fell for an eighth month to the lowest in more than three years in October, adding to signs the slump extended into the fourth quarter. An index of executive and consumer sentiment in the 17-nation euro area dropped to 84.5 from 85.2 in September. That is the lowest since August 2009. Economists had forecast a decrease to 84.4, the median of 27 estimates in a survey showed. (Bloomberg)

Europe: German jobs machine falters for first time since 2009
German unemployment rose twice as much as economists forecast in October and the jobless rate increased for the first time in three years as the sovereign debt crisis damped economic growth and investment. The number of people out of work climbed a seasonally adjusted 20,000 from September to 2.94 million. Economists forecast a gain of 10,000, the median of 31 estimates in a survey shows. The adjusted jobless rate rose from a two-decade low of 6.8% in August to a revised 6.9% in September and held there in October. (Bloomberg)

Europe: Greek coalition allies balk as Samaras says austerity talks done
Greek Prime Minister Antonis Samaras’s coalition partners said they still oppose parts of a budget and austerity package after the premier said negotiations required to secure more bailout funds had been completed. Greek Finance Minister Yannis Stournaras, who will submit the budget to parliament tomorrow and the austerity package next week, briefed Samaras on plans for a conference call by euro area finance ministers on Greek-related issues tomorrow. The measures are linked to approval for the payment of EUR31.5bn (US$41bn) of bailout funds from the European Union and International Monetary Fund. (Bloomberg)

China: Repo rate falls most since January as PBOC injects cash
China’s benchmark money-market rate dropped the most in nine months after the central bank pumped a record amount of cash into the financial system. The People’s Bank of China offered CNY290bn (US$46bn) of seven-day reverse repurchase agreements at a yield of 3.35% and CNY105bn of 28-day contracts at 3.6%, according to a trader who participates in the auctions. The CNY395bn injection is the biggest on record, according to data compiled by Bloomberg data going back to 2004. The money-market rate touched 5% earlier, the highest level since June 28. (Bloomberg)

Japan: BOJ offers unlimited loans to banks to increase demand
Japan’s central bank said it will offer unlimited loans at low interest rates to lenders to try to boost credit demand among companies and households. The money will be for terms of up to four years and based on the overnight call rate, currently 0.1%, the central bank said. The move was alongside a JPY11trn (US$138bn) expansion of the central bank’s main easing tool, its assetpurchase program. (Bloomberg)

Japan: Industrial output drop
Japan’s industrial production fell the most since last year’s earthquake and tsunami, bolstering the case for the Bank of Japan to add to monetary easing today to support an economy at risk of contraction. Output declined 4.1% in September from the previous month, when it dropped 1.6%. The median of 29 estimates in a survey of analysts was for a 3.1% slide. None forecast such a large decline. A separate report showed unemployment unchanged. (Bloomberg)

South Korea: Output rises for first time in four months on car makers
South Korea’s industrial production rose for the first time in four months as stronger sales of cars and electronics helped offset the effects of a cooling global economy. Output rose 0.8% last month from August when it dropped a revised 0.9%. The median estimate of 11 economists in a survey was for a 1.5% rise. Production rose 0.7% y-o-y. (Bloomberg)


O&G: RM2.4bn boost for Labuan

Some RM2.4bn worth of investments, mostly in the oil and gas (O&G) sector, will be poured into the International Offshore Financial Centre (IOFC) over the next few years, resulting in the creation of more than 3,000 jobs, said Tan Sri Muhyiddin Yassin. The Deputy PM said the investments also included the proposed RM263m expansion of Labuan Shipyard and Engineering Sdn Bhd and the construction of the RM250m jetty at the Asia Supply Base here. (StarBiz)


O&G: Petronas, Lundin Oil find new oilfields in Pahang

Petronas and Sweden-based petroleum firm Lundin Oil found additional oilfields off Pahang, a discovery that could potentially boost production of up to 20,000 barrels of crude oil a day. “Based on the findings of commercial and technical feasibility studies, crude oil production will begin at the oil fields in 3Q2014 with a projected output of between 17,500 and 20,000 barrels per day,” Prime Minister Datuk Seri Najib said. The new discovered oilfields are located at block PM307 of the Bertam oil field, 160km off Pahang. PM 307 is operated under a production sharing contract by Lundin Malaysia, which holds a 75% stake, while Petronas holds the remaining 25%. (Financial Daily)  


Latexx: Gek Seng buys 9.8% of company

According to Bursa Malaysia filings, Gek Seng Assets Ltd, a company incorporated in the British Virgin Islands, had acquired 21.89m shares in Latexx Partners, acquiring about 9.84% stake on 23 October at an undisclosed price. Latexx shares were mainly traded at RM2.28 a piece on 23 October, with just under two million shares changing hands. There were also no off market deals made on Latexx shares that day. (BusinessTimes) 


Tan Chong: Targets 50,000 cars for 2012

Tan Chong Motor Holdings Bhd (TCM MK, Hold, TP: RM4.16) hopes to see its car sales for 2012 reach 50,000 units, boosted by the newly launched Nissan Almera. “The response thus far has been overwhelming, and we have already received more than 2,000 bookings for the Almera, ahead of the launch. We are hoping to sell around 10,000 units during the first three months,” said Edaran Tan Chong Motor Sdn Bhd (ETCM) ED Datuk Ang Bon Beng. (Financial Daily) 


IGB: Bags RM8bn job in Taipei

According to Taiwanese news reports, IGB Corp Bhd’s consortium, Taipei Gateway International Development Co Ltd, has won the a TWD80bn bid to build Taiwan’s Twin Towers after a competitive process fending off challenges from two other companies. IGB’s other partners in the consortium are Japanese and Taiwan companies. The project, sited at Taipei’s Main Railway Station, is Taiwan biggest urban development initiative. (Financial Daily) 


Aeon Malaysia: Not involved in Carrefour deal

Aeon Co (M) Bhd (Aeon Malaysia) said it is not involved in any discussion with any party with regards to the proposed acquisition of Carrefour SA’s operations in Malaysia. Aeon Malaysia, however, did say it would make an appropriate announcement to the exchange should there be any further development on this matter. (Financial Daily) 


IOI Corp: Xiamen project to start contributing in FY15

Earnings contribution from IOI Corp Bhd’s (IOI MK, Hold, TP: RM4.72) first independent property development in Xiamen, China, is only likely to kick in about two years from now. The project, which is expected to begin next year, is estimated to have a GDV of RM2bn. It was reported that IOI Corp had recently acquired land in Xiamen for RMB1.2bn (RM585.7m) that will be converted into a mixed-development over the next 10 years. (StarBiz) 

ECM Newz Bits 31 October 2012

Malaysian news
§         IOI Corp: Xiamen project to start contributing in FY15
§         Aeon Malaysia: Not involved in Carrefour deal
§         IGB: Bags RM8bn job in Taipei
§         Tan Chong: Targets 50,000 cars for 2012
§         Latexx:  Gek Seng buys 9.8% of company
§         O&G: Petronas, Lundin Oil find new oilfields in Pahang
§         O&G: RM2.4bn boost for Labuan 


Global news
§         US: Home prices in 20 cities rise by most in two years
§         Europe: October economic sentiment falls to three-year low
§         Europe: German jobs machine falters for first time since 2009
§         Europe: Greek coalition allies balk as Samaras says austerity talks done
§         China: Repo rate falls most since January as PBOC injects cash
§         Japan: BOJ offers unlimited loans to banks to increase demand
§         Japan: Industrial output drop
§         South Korea: Output rises for first time in four months on car makers



Click here for the full PDF report

Tuesday, 30 October 2012

Alpha Edge - S&P500 to test 200-day SMA soon?

S&P500’s steep fall last week inflicted a lot of technical damage on the index. The weekly MACD has turned negative and the downtrend does not appear to be over. The index could soon test its 200-day SMA at 1,377. Meanwhile, the CRB Commodity Index’s near-term weakness continues but the index appears close to its bottom. We expect a strong rally in commodities after this consolidation. The US equity markets were closed yesterday due to Hurricane Sandy.


JobStreet Corp - Hard at work

Target RM2.32 (Long Term: Neutral)

Our meeting with Jobstreet's management reaffirmed our cautious view on its near-term prospects as the weak global sentiment will continue to dampen companies’ appetite for hiring. But its well-capitalised balance sheet offers potential for higher dividends. We maintain our Neutral call given the lack of rerating catalysts, rising costs from its overseas expansion and strong competition. Our forecasts rise by 1% after adjusting for a lower effective tax rate. Our target price also rises as we roll it forward to end-13 and apply a CY14 P/E of 13.6x, based on an unchanged 10% discount to the sector average. Switch to MY E.G.


DRB-Hicom - Honda gets the ball rolling

Target RM3.80 (Long Term: Out Perform)

Proton’s inking of a non-exclusive collaborative agreement with Honda Japan to explore opportunities in platform sharing and product development looks to be a prelude to a deeper relationship with Honda in addition to other foreign partners. DRB's priority right now is to get the utilisation rate at Proton up as fast as possible with minimum development cost, i.e. rolling out new models using foreign partner platforms which are key catalysts. Outperform maintained, along with our RNAV-based target price and EPS forecasts.


Power - Playing the waiting game

Long Term: Over Weight

The Melaka RGT may be delayed further to end-Jan 2013 due to EPC delays. As this is a wait of only one more month, the impact is minimal for PetGas. Any supply curtailments would impact the power sector first and Gas Malaysia last as the latter pays the highest gas price. The sector remains an Overweight and would be catalysed by sector reforms. Tenaga is the best proxy for this but remains a Trading Buy due to election risks. PetGas remains Neutral as expensive valuations offset LNG growth. For exposure to rising gas consumption, we prefer Gas Malaysia. The stock remains an Outperform and is our top pick.

CIMB Daybreak - 30 October 2012

What's on the Table...
  • Power - Playing the waiting game
  • DRB-Hicom - Honda gets the ball rolling
  • JobStreet Corp - Hard at work
  • Alpha Edge - S&P500 to test 200-day SMA soon?
News of the Day...
  • IOI Corp Bhd will embark on a RM2bn property development in China next year
  • Aeon announce purchase of Carrefour SA's Malaysian operations this week?
  • MRT Corp awarded three more systems work packages for SBK line worth RM107m
  • Indonesia cut export tax for CPO to 9% for Nov ( 13.5 in Oct)
  • US personal income rose 0.4% mom in Sep (0.1% in Aug)
  • Wall Street closed yesterday due to Hurricane Sandy

Click here for the full PDF report

ECM GLOBAL NEWS 30 October 2012

US: Consumer spending rises by most in seven months
Consumer spending climbed more than forecast in September, a sign the biggest part of the economy was picking up as the quarter drew to a close. Household purchases, which account for about 70% of gross domestic product, rose 0.8%, the most since February, after advancing 0.5% in August, a Commerce Department report showed. The median estimate in a survey of 71 economists called for a 0.6% gain. Incomes climbed 0.4%, the most since March. (Bloomberg)

US: Treasury lowers borrowing estimate by US$29bn
The Treasury Department lowered its net borrowing estimate for the current quarter, reflecting lower spending and higher revenue. The Treasury decreased its borrowing estimate for October through December to US$288bn, or US$29bn less than projected in July. Officials see net borrowing of US$342bn in the quarter starting Jan. 1. In the period that ended Sept. 30, the Treasury borrowed US$264bn. The estimates set the stage for the department’s quarterly refunding announcement on Oct. 31. (Bloomberg)

US: Labor Department will wait to decide on employment report status
The Labor Department will wait to gauge the full impact of Hurricane Sandy before determining the status of the October jobs report. The monthly employment report is currently slated to be released on Nov. 2 at 8:30 a.m. in Washington. The median forecasts of economists surveyed call for payrolls to rise by 125,000 workers in October and for the jobless rate to increase to 7.9% from a three-year low of 7.8% reached in September. (Bloomberg)

Europe: Germany supports ECB Greek debt buyback plan, rejects write-off
German Chancellor Angela Merkel’s government said it is willing to consider a European Central Bank proposal for a buyback of Greek debt, as it stepped up opposition to imposing more losses on Greece’s creditors. A restructuring of Greek sovereign debt held by its public sector partners “is out of the question” for Germany and “not in Greece’s interests,” Steffen Seibert, Merkel’s chief spokesman, said. At the same time, Seibert noted that Finance Minister Wolfgang Schaeuble said that a buyback “is worth serious discussion.” (Bloomberg)

Europe: Rajoy counters bailout split with Monti urging banking union
Italian Prime Minister Mario Monti and his Spanish counterpart Mariano Rajoy tried to mask a growing divide over Europe’s new bailout strategy by emphasizing their commitment to the timetable for banking union. While both urged their European partners to meet a year-end deadline to establish a single banking supervisor, strains emerged when a Spanish reporter asked Monti whether he would request a bailout alongside Rajoy. The Italian premier pushed back against formalizing ties between the nations and signaled Spain will probably have to go it alone in negotiations with the gatekeepers of Europe’s rescue money. (Bloomberg)

Europe: Juncker calls extra finance chief talks as Greece showdown looms
Euro-area finance chiefs are scheduled to talk three times in the next two weeks as the 17-nation bloc grapples over ways to fill Greece’s financing gap and ease concerns that it might have to exit from the euro. The gathering will take place between a Greece-related conference call and a regularly scheduled Nov. 12 meeting in Brussels. (Bloomberg)


Construction: More MRT jobs awarded

Mass Rapid Transit Corp Sdn Bhd (MRT Corp) has awarded three more systems work packages with a total value of RM107.3m following its meeting with the One Stop Procurement Committee (OSPC). A joint venture between A.F.S Engineering (M) Sdn Bhd and ST Electronics Ltd was awarded a contract, valued at RM23.24m for the supply of facility SCADA for the Sungai Buloh- Kajang line. SCADA is used to monitor and control industrial processes. (StarBiz)


O&G: Petronas to renew bid for Progress

Petroliam Nasional Bhd (Petronas) will renew a bid for gas producer Progress Energy Resources, Petronas sources said, seeking to assure the Canadian government the C$5.17bn (RM15.8bn) deal will benefit the country. Canada blocked Petronas’ bid for Progress this month after Industry Minister Christian Paradis said it was not likely to bring a “net benefit” to the country. He gave Petronas 30 days to make additional representations to amend its bid. Sources told Reuters the Canadian government wanted to approve the deal but was afraid that would tie its hands when reviewing a much more controversial US$15.1bn (RM46bn) bid by China’s CNOOC Ltd for Nexen Inc. Two Petronas sources familiar with the deal told Reuters the firm agreed on the extension and was eager to complete the acquisition despite the shock decision by Canada. (Financial Daily) 


O&G: Lundin makes third gas discovery offshore

Sabah Lundin Petroleum AB, a Swedish independent oil and gas exploration and production company has made its third gas discovery at Berangan-1 well offshore Sabah. In a statement, Lundin said the company has completed Berangan-1 well in SB303 Block, offshore Sabah as a gas discovery. Berangan-1 is a vertical well drilled to a depth of 1,709m in about 70m water depth. The well penetrated a gross gas column of over 165m in the target mid-Miocene aged sands, 10km to the southeast of the Tarap gas discovery made by Lundin Petroleum in 2011, and 15km to the south of the Cempulut gas discovery, also made in 2011. "An extensive data acquisition programme was completed, including fluid samples and a pressure profile indicating a single continuous gas column is present and defining the probable gas-water contact. Further work will follow to estimate recoverable resource ranges," Lundin said. (Business Times) 


Scomi Group: Abu Sahid strengthening control

In the ongoing tussle over Scomi Group Bhd, a question that many industry observers are asking is whether businessman Tan Sri Abu Sahid Mohamed and/or parties aligned to him have secured control over Scomi Group. Dealers said it was also possible other factions could be seeking to strengthen their position in Scomi. Dealers pointed to recent active trades in the shares and warrants of Scomi, noting that there was an indication of “accumulation activity” by buyers. (StarBiz) 


Mudajaya: Wins RM65m contract

Mudajaya Group Bhd through wholly owned unit Mudajaya Corp Bhd has been awarded a contract from TP Sepang Sdn Bhd, a member of Tune Group, to construct a Tune Hotel on Plot 5, part of PT 13 (HSD 7429) Low Cost Carrier Terminal, Kuala Lumpur International Airport. The contract sum for the construction and completion of the project is RM65m, with the project expected to be completed on Nov 22, 2013. (Financial Daily) 


Sarawak Oil Palms: Mulls plantations abroad

Sarawak Oil Palms Bhd (SOP) plans to expand its plantation landbank and is evaluating the feasibility of acquiring estates overseas although nothing has been confirmed yet. “We are looking at greenfield and brownfield acquisitions overseas,” said a senior official who declined to be named. He said SOP may form JV with government-linked or private entities to expand the company’s plantation landbank. However, he declined to specify which countries the company is targeting. These plans, he said, are in line with SOP’s goal of growing its plantation landbank locally and abroad to complement the group’s downstream venture. (Financial Daily) 


Aeon Co: May announce Carrefour buy this week

Japan-based Aeon Co will officially announce their purchase of France-based Carrefour SA’s Malaysian business operations this week. The deal is expected to be priced at around 20bn yen (RM764.8m), according to The Nikkei, as Carrefour has been struggling to come up with cash to cut debt and fund the revival of its struggling European hypermarkets. Aeon, which operates 29 stores in Malaysia, was in negotiations to buy Carrefour’s 26 stores, which would bring the former close to the top spot among retailers. (StarBiz) 


IOI Corp: To start China project next year

IOI Corp Bhd (IOI MK, Hold, TP: RM4.72) will embark on a RM2bn property development in China next year. "We've bought a piece of land in the Jimei district of Xiamen for 1.2bn yuan (RM587m). We have plans for a mixed development comprising a shopping mall, a hotel and office space. The residential space will be in the form of condominiums and villas," said IOI Corp Bhd executive chairman Tan Sri Lee Shin Cheng. "The development cost would be around twice the cost of the land," he told reporters. (Business Times) 


Petronas Gas: Delay in operations of RGT in Malacca

The commercialisation of Petronas Gas Bhd’s liquefied natural gas (LNG) regasification terminal (RGT) in Sungai Udang Malacca may be postponed to early next year due to the delay in engineering, procurement and construction (EPC). “We gather from various industry sources including the contractors that RGT could be operational by end-Jan 2013 instead of end-2012. “This is a one month delay versus Petronas Gas’s guidance of end-2012 and a five month delay from the initial start date of Aug 2012. (StarBiz) 


CIMB: CIMB Niaga records 30% rise in net profit

PT Bank CIMB Niaga Tbk (CIMB Niaga), a subsidiary of CIMB Group Holdings (CIMB MK, Sell, TP: RM7.80), recorded a 30% increase in net profit to 3.1trn rupiah (RM986.64m) for the 9M ended Sept 30 compared with 2.38trn rupiah a year earlier while net operating income was up 31% to 4.23trn rupiah. Its EPS increased to 123.42 rupiah compared with 95.10 rupiah in the previous year. CIMB Niaga, which is 96% owned by CIMB Group Holdings Bhd, said in a statement that corporate, commercial and treasury operations had contributed to the increase in operating income, hence the group’s net profit. In total, operating income increased to 9.59trn rupiah, up 25% from 7.65trn rupiah in the previous year. As at Sept 30, the Indonesian banking outfit saw loan growth of 14% to 138.91trn rupiah compared with 121.71trn rupiah last year. (Financial Daily) 


Maybank: Indonesia operations post record profit

PT Bank Internasional Indonesia Tbk (BII) which is 97.52% owned by Malayan Banking Bhd (MAY MK, Hold, TP: RM9.00), reported a record net profit for the 9M ended Sept 30 of 922bn rupiah (RM293.4m), up 66% from a year ago. BII booked strong loan growth of 22% during the first 9M of 2012 with total loans increasing from 62trn rupiah in September 2011 to 75.9trn rupiah in September 2012. Global wholesale banking loans which include corporate and commercial loans accounted for 37% of total loans, while SME and consumer loans contributed 28% and 35% respectively. (Financial Daily) 


DRB-Hicom: Proton to collaborate with Honda

DRB-Hicom’s (DRB MK, Buy, TP: RM3.45) wholly owned subsidiary, Proton Holdings Berhad, has entered into a collaboration agreement with Honda Motor Co. Ltd to explore opportunities in technology enhancement, new product line up, platform and facilities’ sharing. The agreement signifies the potential of a long-term strategic collaboration with Honda Motor. Having a strong and renowned global automotive player like Honda Motor as the foreign strategic partner will provide Proton and the DRB-Hicom Group the opportunity to grow as an Original Equipment Manufacturer. The collaboration agreement shall continue to be in force until the execution of the final agreements to establish the proposed collaboration unless the parties mutually agree not to proceed with the agreement. (Bursa Malaysia)

Comment: We view this collaboration positively and in accordance with the management’s plans to revive Proton. The sharing of platform and facilities will improve Proton’s cost efficiency as well as build up production at its underutilized plants. We understand that the new product line will likely include the Perdana replacement (which is long overdue) and production to take place at the Tanjung Malim plant. No further details were disclosed from the announcement. As such, we leave our numbers unchanged and maintain our Buy recommendation and target price of RM3.45. (Azida Nor-Azizi) 


Petronas Chemicals: Discontinues vinyl business

Petronas Chemicals Group Bhd (PCHEM MK, Buy, TP: RM7.69) will discontinue its vinyl business and as a result, it is taking a RM560m charge in its 4Q results ending Dec 31 for decommissioning and site remediation expenses, termination of contracts and impairment expense. The two plants in Malaysia are expected to commence decommissioning activities in 1 Jan 2013, to be implemented in stages over the next two to three years. From now till the end of the year, the company has to continue operations to fulfill existing contractual obligations with its customers. As for its plant in Vietnam, owned by Phu My Plastics and Chemical Co Ltd (PMPC), PetChem intends to divest its 93.1% interest in PMPC and thereby exit the business. (Financial Daily)

Comment: The RM560m charge would reduce our reported FY12 net profit by 13.6% from RM4.1bn to RM3.5bn and our reported EPS from 51 sen to 44 sen. The group’s vinyl business, comprising 3 plants, manufactures and sells two key products, namely vinyl chloride monomer (VCM) and polyvinyl chloride (PVC). VCM produced in the group is mainly used as a feedstock in the group’s production of PVC. PVC is subsequently marketed to industries that will convert it into a variety of end-use products, such as pipes, roofing tiles, wires and cables. We believe any earnings leakage from the production of VCM is minimal since production capacity of VCM is only 9% of total capacity in the olefins and derivatives segment. We leave our core earnings unchanged as the one-off charge is an exceptional item. (Raymond Choo) 


Gadang Holdings Bhd (Company Update): Meeting with management reaffirms Trading Buy

(Maintain TRADING BUY, TP: RM1.00)

Our meeting with Gadang’s management yesterday reaffirms our Trading Buy and target price of RM1.00. Despite yesterday’s weak 1QFY13 results, earnings should pick up strongly from 2QFY13 onwards, and our initial estimate of at least 10 sen EPS in FY13 from construction division alone is on track. (refer to report for details)

ECM Newz Bits 30 October 2012

Highlights of the day
§         Gadang Holdings Bhd (Company Update): Meeting with management reaffirms Trading Buy (Maintain TRADING BUY, TP: RM1.00)

Other Malaysian news
§         Petronas Chemical: Discontinues vinyl business
§         DRB-Hicom: Proton to collaborate with Honda
§         Maybank: Indonesia operations post record profit
§         CIMB: CIMB Niaga records 30% rise in net profit
§         Petronas Gas: Delay in operations of RGT in Malacca
§         IOI Corp: To start China project next year
§         Aeon Co: May announce Carrefour buy this week
§         Sarawak Oil Palms: Mulls plantations abroad
§         Mudajaya: Wins RM65m contract
§         Scomi Group: Abu Sahid strengthening control 
§         O&G: Lundin makes third gas discovery offshore Sabah
§         O&G: Petronas to renew bid for Progress
§         Construction: More MRT jobs awarded 

Global news
§         US: Consumer spending rises by most in seven months
§         US: Treasury lowers borrowing estimate by US$29bn
§         US: Labor Department will wait to decide on employment report status
§         Europe: Germany supports ECB Greek debt buyback plan, rejects write-off
§         Europe: Rajoy counters bailout split with Monti urging banking union
§         Europe: Juncker calls extra finance chief talks as Greece showdown looms


Click here for the full PDF report