Annual Strategy 2011 “RUN RABBIT RUN”
With the speed and agility of the 'metal rabbit,' fourth in-line in a 12-year cycle of the Chinese zodiac, we aspire for a bountiful year.
Run, Rabbit! Run!
TA Securities A Member of the TA Group
(A Participating Organisation of Bursa Malaysia Securities Berhad)
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TA Securities
2011 Annual Strategy
A Member of the TA Group
2011 Market Outlook “RUN RABBIT RUN” Hey days are returning We expect 2011 to be a more vibrant year for the equity market, with domestic factors paying a more prominent role in the surge of the FBM KLCI. In the past, Malaysia used to garner a big premium over regional markets due to vibrant economic growth, political stability and a strong financial system. Expect the return of the premium valuation and stronger FBM KLCI based on 1) structural reforms undertaken by current administration; 2) projects underlined under the Economic Transformation Programme (ETP) that will boost private sector participation and earnings; 3) influx of foreign capital and 4) past rallies during an election year. As the global financial system is flush with liquidity, expect the current transformation programmes to attract foreign funds flows that will add to the positive outlook of the ringgit and the equity market. The still weak retail participation is expected to improve next year, in line with foreign participation. Vibrant FBM KLCI in 2011 The still strong earnings growth momentum, inflow of foreign funds and domestic political climate could provide the affinity to drive the FBM KLCI to a new all time high in 2011. We derived a 2011 year‐end target of 1,820 based on a 16.7x mid‐cycle 2011 and 2012 EPS of 108.84 sen. It is at 9% premium to our bottom‐up valuation of 1,666. The strength in liquidity flow is expected match the disparity between both valuation methods considering that the Malaysian market is only trading at a 6.8% premium to regional average of 13.4x. The Downside Risks Key downside risks to our bullish view are, 1) sooner than expected interest rate hike in the US; 2) a hard landing in China’s economy; 3) the ruling Malaysian government failing to secure a strong mandate in the snap general election; 4) slow progress in implementation of projects under ETP and 5) rising tensions in geo‐political hot spots, especially between North and South Korea, and the Middle East that could sour the relationship between their allies. Investment Strategy and Preferred Stock Picks The way to play the game forward is to increase exposure in big cap stocks, especially the GLCs that will benefit from the Government Transformation Programme. As such, GLCs dominate our top picks. Our top buys are JADI, KNM, MAHSING, MAYBANK, BSTEAD, CIMB, AXIATA, QL, GENTING, IJM CORPORATION, SIME and WCT.
Top Picks Company JADI KNM MAHSING MAYBANK BSTEAD CIMB AXIATA QL GENTING IJMCORP SIME WCT
Share Price (RM) 0.24 1.93 1.78 8.41 5.64 8.47 4.67 5.70 10.72 6.14 8.74 3.00
EPS (sen) FY11 2.4 20.2 16.9 70.4 49.0 57.0 37.2 30.1 72.0 29.6 51.0 25.5
FY12 3.0 29.5 22.1 80.7 59.0 66.1 41.4 42.0 79.3 35.9 56.5 26.9
PER (x) FY11 10.0 9.6 10.5 12.0 11.5 14.9 12.6 18.9 14.9 20.7 17.1 11.8
GDPS (sen) FY12 8.0 6.5 8.1 10.4 9.6 12.8 11.3 13.6 13.5 17.1 15.5 11.2
FY11 0.3 6.0 7.5 55.0 32.0 12.5 10.0 12.0 3.4 11.0 25.0 10.0
2011 Market Outlook
1
FY12 0.3 6.0 9.0 55.0 35.0 12.5 10.0 18.0 3.8 11.0 28.0 10.0
Dividend Yield FY11 1.3% 3.1% 4.2% 6.5% 5.7% 1.5% 2.1% 2.1% 0.3% 1.8% 2.9% 3.3%
FY12 1.3% 3.1% 5.1% 6.5% 6.2% 1.5% 2.1% 3.2% 0.4% 1.8% 3.2% 3.3%
Target Price (RM)
Capital Gain (%)
Total Gain (%)
0.38 2.80 2.48 11.30 6.94 10.80 5.90 7.00 13.11 7.36 10.25 3.45
58.3% 45.1% 39.3% 34.4% 23.0% 27.5% 26.3% 22.8% 22.3% 19.9% 17.3% 15.0%
59.6% 48.2% 44.4% 40.9% 29.3% 29.0% 28.5% 26.0% 22.6% 21.7% 20.5% 18.3%
TA Securities
2011 Annual Strategy
A Member of the TA Group
Table of Contents Page
Market Outlook 2011........................................................................................................ ….1 Government Initiatives: Value Creation.................................................................... 9 Snap Election around the Corner .............................................................................. 20 Foreign & Forex Boost................................................................................................ 27 Commodity – Flavour of the Year............................................................................ 34 M&A: Mosaic Theories .............................................................................................. 51
Stock Picks Axiata Group Berhad .................................................................................................. 57 Boustead Holdings Berhad......................................................................................... 59 CIMB Group Holdings Berhad ................................................................................. 62 Genting Berhad ............................................................................................................. 65 IJM Corporation Berhad ............................................................................................. 68 Jadi Imaging Holdings Berhad .................................................................................. 70 KNM Group Berhad .................................................................................................... 72 Mah Sing Group Berhad ............................................................................................. 75 Malayan Banking Berhad ........................................................................................... 77 QL Resources Berhad ................................................................................................. 80 Sime Darby Berhad ..................................................................................................... 82 WCT Berhad ................................................................................................................. 85
2011 Economic Outlook .......................................................................................................... 87 2011 Major Events .................................................................................................................... 94 Technical Outlook For 2011 ................................................................................................... 99 Technical Blue Chip Picks For 2011................................................................................... 106 Corporate Earnings Summary............................................................................................... 112
Disclaimer
The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to change
without
notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. for TA
2011 Market Outlook
2
S ECURI TI ES H OLDI NGS B ERHAD
TA Securities
2011 Annual Strategy
A Member of the TA Group
It’s a Marathon Run The index began 2010 on a positive note, but was dragged lower by concerns over China’s credit tightening measures and worries about escalation of the European debt crisis towards the end of 1Q10. In the following months much of the concerns about Europe dissipated after the Greece bailout and China’s move to let its currency appreciate against the dollar in June. The ensuing rally supported by a favourable outlook for the Ringgit and a good set of 2Q10 results continued into October when the government unveiled its Economic Transformation Programme (ETP). The ETP formed the basis for the New Economic Model that is designed to lift the country into a developed nation. Our top picks for 2010, which we highlighted in our 2010 Annual Strategy, outperformed the FBM KLCI with an average return of 26.3% (until 6th December) as opposed to an 18.7% expansion in the latter. The top performer among the 10 preferred picks in terms of capital gain (based on year’s high) is Unisem followed by Supermax and RHB Capital for the second and third position respectively. Although, the huge gain in the top two stocks did not last due to strengthening of the ringgit, investors that took our advice could have exited with hefty gains as our target prices were met. That aside, the FBM KLCI’s performance was among the best in the region with a YTD gain of 18%.
Figure 1: Performance of 2010’s Top Picks Stock
TA TP (RM)
GENTING GLOMAC KINSTEL KNM (X4) ori: 0.74 PBBANK QL RHBCAP SUPERMX TELEKOM UNISEM YTLPOWR FBM KLCI
9.20 1.90 1.32 3.84 13.50 4.60 6.60 6.60 3.60 2.50 2.70
3.12.2009 Closing 06.12.2010 52WK HIGH SHARE PRICE Share Price (RM) Share Price (RM) % Change Share Price (RM) % CHANGE 7.23 10.80 49.4% 10.82 49.7% 1.27 1.70 33.9% 1.74 37.0% 0.89 0.81 -9.0% 1.18 33.3% 2.97 2.14 -27.9% 3.40 14.5% 10.96 12.80 16.8% 12.98 18.4% 3.80 5.70 50.0% 5.95 56.6% 5.38 8.50 58.0% 8.65 60.8% 4.00 4.40 10.0% 6.60 65.0% 3.00 3.43 14.3% 3.60 20.0% 1.56 1.98 26.9% 2.72 74.0% 2.24 2.43 8.5% 2.76 23.2% 1272.35 1510.06 18.7% 1531.99 20.4% % Average Change 26.3% 39.5%
Figure 2: YTD Performance of Malaysia vs. Regional Markets Index
06.12.2010
Performance in % 1 Mth
YTD
2009
PER 2010
2011
Australia
3,813.7
-2.4%
-4.4%
30.0%
14.6
12.4
China
2,857.2
-8.7%
-12.8%
80.0%
16.3
13.4
Hong Kong
23,237.7
-6.6%
6.2%
52.0%
14.2
12.6
India
19,981.3
-4.9%
14.4%
81.0%
19.7
16.2
676.4
0.2%
35.7%
84.4%
18.3
15.0
Japan
10,167.2
5.6%
-3.6%
19.0%
13.9
15.1
Korea
1,673.8
3.6%
13.9%
51.5%
10.4
9.3
Malaysia
1,501.7
-0.7%
18.0%
45.2%
16.5
14.3
Philippines
4,223.1
-2.9%
38.3%
63.0%
15.0
13.6
Singapore
3,181.4
-1.8%
9.8%
64.5%
15.5
14.2
Taiwan
8,702.2
3.0%
6.3%
78.3%
14.0
12.7
721.5
-0.6%
38.6%
64.5%
13.7
12.2
15.2
13.4
Indonesia
Thailand Overall simple average:
2011 Market Outlook
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TA Securities
2011 Annual Strategy
A Member of the TA Group
2011: The Bull Charges The FBM KLCI’s strong performance year‐to‐date will continue in 2011. The structural changes that the current administration is trying to enforce, and the investment drive by the private sector through various point of entry projects mainly led by the GLC’s have the potential to rerate the FBM KLCI further to end 2011 with a loud bang. We envisage the following themes to feature prominently next year that in a way will be the drivers for the rally. Thus, our top picks evolve around these themes and are picked as potential beneficiaries. The major themes are, 1. Rollout of ETP Projects. On sectors specifically, Construction and Banking will be the biggest beneficiaries. There are ample projects in the pipeline that will benefit both small and larger construction players. The total allocation for the launch of six new highways; multibillion ringgit projects ranging from the MRT, Sungai Buloh Development to Warisan Merdeka; various road projects and public amenities in the states; and allocation for various growth corridors in Malaysia highlighted in Budget 2011 alone is expected to exceed RM110bn. While construction players will see the return of vibrant times with the launch of many of these projects that will have a huge multiplier effect on the broader economy, banks will benefit directly from the funding needs through lending, or fund raising in the capital market. With the PM stressing the rollout the multibillion ringgit MRT project by July next year, one can sense the urgency to get the ball rolling and the economic significance felt before the announcement of the 13th General Election. The long delayed LRT extension project also will add to the project galore when TRC Synergy (Not Rated) and Bina Puri (Not Rated) start works. 2. Election Play. Sarawak election (SE) is due next year and the possibilities are bright for a general election (GE) as well, although it is not due until 2013. The vibe on the ground is positive now with the economic recovery and the ruling coalition winning two by‐elections recently. The current disarray among opposition parties is a golden opportunity that the ruling coalition may not want to miss. The PM’s clarion call for the MRT project to kick‐off by July next year and the UMNO election scheduled next year to be postponed for 18 months to strengthen the party, are good enough indications for an early GE. In 2004, the index rose 22% in 6 months prior to the general election when Barisan Nasional (BN) won a strong mandate. It is in the interest of powers at play to ensure a vibrant equity market before a GE not only to create a feel‐good factor but also raise money for election expenses. A strong mandate for the ruling coalition with the return of two‐third majority may provide more upside for the index and it ensures continuity in government policies and development programmes. 3. Foreign Fund Flow. The global financial system is flush with liquidity following the second round of quantitative easing (QE2) in the US and various liquidity injections in European countries. Amidst softer growth prospects in the US and Europe, funds are looking for investment opportunities in higher yielding assets in emerging markets, including Malaysia. Foreign portfolio funds are attracted by Malaysia’s resilient economy, strong financial system and the impending programmes to spur domestic demand, which are expected to cushion the impact of any external slowdown on exports. 4. Stronger Ringgit. With our expectations of Bank Negara raising its Overnight Policy Rate by another 75 basis points in 2011 while the US maintains its current low rates on the back of continued Fed purchase of US treasuries, the Ringgit is poised to strengthen further in 2011. Our house view is that it will rise to RM2.80 per USD by end‐2011. The ringgit factor will sustain buying interest in the biggest beneficiaries like Tenaga (Buy, TP:RM10.60), MAS (Buy, TP:RM2.80) and Air Asia (Buy, TP:RM3.10) but the share prices of losers in the glove sectors like Supermax (Buy, TP:RM6.40) and Top Glove (Hold, TP:RM6.30) are expected to make a comeback after heavy selling as latex price dips and restocking begins. Anticipation of the central bank’s intervention to curb any further strength in the ringgit could be another reason for that. Historically, there has been a strong positive relationship between the ringgit strength and appreciation in the FBM KLCI index. 5. GLC Disposal & Rising Free Float. Reducing stake in government‐linked companies is one of the initiatives highlighted in the ETP. Reduction in government stake will raise the free float ratio and is positive in attracting foreign funds. This is positive for the index. 6. New Listing of Government Owned Companies. Listing of government owned companies like MMHE and Petronas Chemicals have the same impact in attracting fund flows. It may have the tendency to circulate within the market upon realization of profit in some stocks that is positive in increasing the velocity. The possible listing of Petronas Carigali, Malakoff, Jimah, Percetakan Nasional Malaysia Berhad, 1Malaysia Development Berhad, Syarikat Prasarna Negara and CTRM Aero Composites next year would add breath to the market. 2011 Market Outlook
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7. Rise of Commodity Plays. Prices of plantation shares are still far away from their peak levels and expect price recovery to be stronger next year on the back of increasingly bullish supply and demand outlook, biodiesel theme coming into play, and the looming risk of fight for acreage between oilseeds will lift the profile of CPO as a substitute play. Having the second highest weightage on the FBM KLCI, a rise in plantation counters will certainly push up the index as well. We have already raised our CPO price assumptions for CY11/13 by between 18% and 23%. Still, the average CPO price forecast of RM2,700/tonne in CY11 is considered conservative vis‐à‐vis current market price of RM3,600/tonne. 8. Mergers & Acquisition. The business climate has improved and cash‐rich companies have a huge war chest to acquire companies at fire sale prices. We believe undervalued companies that have strong free cashflows, low gearing and strong earnings visibility could become the acquisition target. The M&A story have the capacity to push up valuations and increase velocity.
Majors Risks that Could Derail the Party On the global front, economic numbers are akin to a knife that can cut both ways. Geopolitical tension is another dampener. 1. Unwinding of Dollar Carry Trades. A stronger than expected economic growth in the US can kick‐start the unwinding of dollar carry trades if the Federal Reserve intervenes to tighten the monetary policy that could cause the bubble to burst in emerging markets. 2. Weaker Than Expected Global Economic Growth. A terribly anemic growth in the global economy due to contagion effect from the European credit crisis and a slow pick up in the US economy would not insulate Malaysia from concerns over dwindling exports and weaker than expected economic expansion. This effect would trickle down to corporate earnings and affect valuations. As a result the risk appetite for equities would suffer. 3. Hard landing in China. The Chinese government has been taking various measures to cool down an asset bubble build up and an overheating in the economy ever since the injection of its multibillion stimulus brought overwhelming results. The worry is that an oversight with too much tightening can lead to a hard landing that could destabilize the current fragile global economic growth. 4. Escalation in geopolitical tension. The show of power between North and South Korea (or any other geo‐political hotspots) could turn ugly and become worse if that sours the relationship between their allies, which are China and the US respectively. On the domestic front, the key risks lie in government execution and political upheaval. 5. Delays in structural changes and project implementation. This could deal a terrible blow if market confidence is rattled by indecisiveness, backpedalling, inefficiency and government bureaucracy. For instance, according to the Land & Public Transport Commission (LPTC) the feasibility study for the MRT project will be completed within three month, which was by early September. It was postponed to end of September then early October. Later, it was postponed again to coincide with the 2011 Budget but until now we are still in the dark on the status. The status about the second study, which is the value management study, to determine whether this project is sustainable is not made known as well. 6. Election Uncertainty. Failure of the ruling government to regain its two‐third majority in parliament that was lost in the 12th general election and to wrest back some lost states will not be taken lightly. Worst still if the unexpected happens and the opposition force with no experience in managing a nimble multiracial economy comes into power. This is a major risk as it may affect the continuity of various measures undertaken so far to push forward structural and economic reforms.
2011 Market Outlook
5
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2011 Annual Strategy
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Valuation The FBM KLCI has seen a steady rise since July this year and managed to climb above 1,500 points on 29th October, driven by talks about the 13th general election. The positive market sentiment was sustained by active buying of foreign funds that led the index to the year’s high of 1,532 on 10th November. The inflow of foreign money was driven by the outlook for a stronger economy and ringgit vis‐à‐vis the slow growth prospects in the US and Europe. Continued monetary loosening and a second round of quantitative easing painted a weak picture for the US dollar and Euro that led foreign money to look for better yielding assets in emerging markets. Despite rising 18% YTD and trading at a FY11 PER multiple of 14.3x (based on consensus number for comparison purposes), which is a 6.8% premium to regional average of 13.4x, we believe there is further upside potential for the benchmark index. It will be driven by structural reforms that will lead to sustainable GDP growth and other growth drivers mentioned previously. Expectations for a stronger ringgit will play an integral part as it could induce the influx of foreign funds that could push up their current 21.7% ownership in the Malaysian equity market. Point to note, foreign ownership stood at 26.5% during the heydays of 2007.
Figure 3: Malaysia’s Forward Numbers vis‐à‐vis its Regional Peers Index
PER 2010 2011 14.6 12.4 16.3 13.4 14.2 12.6 19.7 16.2 18.3 15.0 13.9 15.1 10.4 9.3 16.5 14.3 15.0 13.6 15.5 14.2 14.0 12.7 13.7 12.2
06.12.2010
Australia 3,813.7 China 2,857.2 Hong Kong 23,237.7 India 19,981.3 Indonesia 676.4 Japan 10,167.2 Korea 1,673.8 Malaysia 1,501.7 Philippines 4,223.1 Singapore 3,181.4 Taiwan 8,702.2 Thailand 721.5 Overall simple average:
2009 205.4 154.4 1230.3 818.7 29.1 318.2 96.8 72.0 235.1 179.4 329.1 42.1
EPS 2010 260.4 175.7 1636.0 1015.0 37.0 730.8 161.5 91.1 281.7 205.3 621.0 52.7
2011 308.5 213.4 1850.3 1230.6 45.0 672.1 179.0 104.9 310.7 224.2 687.2 59.4
15.2 13.4
Earnings Growth 2010 2011 26.8% 18.5% 13.8% 21.4% 33.0% 13.1% 24.0% 21.2% 27.1% 21.8% 129.7% ‐8.0% 66.9% 10.8% 26.6% 15.1% 19.8% 10.3% 14.4% 9.2% 88.7% 10.7% 25.1% 12.7%
P/ BV (X) 2010 2011 1.73 1.60 2.03 1.79 1.75 1.59 2.73 2.35 3.17 2.73 1.21 1.13 1.25 1.11 2.05 1.89 2.16 1.91 1.66 1.54 1.78 1.70 1.88 1.70
1.95 1.75
*All the above forecasts are based on consensus.
ROE (%) 2010 2011 14.6 14.7 15.3 15.8 13.7 14.3 17.4 17.8 21.4 21.6 7.7 8.7 13.7 13.1 14.5 14.7 15.8 15.7 11.7 11.9 13.9 14.6 15.5 15.7
The FBM KLCI is trading at a forward CY11 PER of 14.5x (TA’s EPS of 103.24 sen), which is at a 13.2% discount to last 11‐year average of 16.7x. Nonetheless, it is at par with regional average of 13.4x as shown above. We derived at a CY11 year‐end target of 1,820 after applying a PER of 16.7x on mid‐cycle (2011/2012) EPS of 108.84sen. This valuation multiple is not excessive considering that it has traded closer to two standard deviations above its mean of 23.4x just recently. At 1,820, it represents a 9% premium to bottom‐up valuation of 1,666 points. The disparity is due to the fact that the mid‐cycle PER at end‐2011 looks ahead by 6 months into 2012 while the bottom‐up valuation represents a 12‐month target. Besides, there could be a rerating in valuation multiples as the months pass by due to inflow of foreign funds and earnings expansion from the various private sector driven projects. We have assumed an EPS growth of 19.6% (to 103.24 sen) and 10.8% (to 114.44 sen) in CY11 and CY12 respectively for the FBM KLCI component stocks under our coverage.
2011 Market Outlook
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2011 Annual Strategy
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Figure 4: KLCI Trailing PER
Figure 5: KLCI Trailing P/Bk
28
+2 Std=23.4x 23
Mean=16.7x
18 13
‐2Std=10x 1‐Jul‐10
1‐Dec‐09
1‐Oct‐08
1‐May‐09
1‐Mar‐08
1‐Jan‐07
1‐Aug‐07
1‐Jun‐06
1‐Apr‐05
1‐Nov‐05
1‐Sep‐04
1‐Jul‐03
1‐Feb‐04
1‐Dec‐02
1‐Oct‐01
1‐May‐02
1‐Mar‐01
1‐Jan‐00
1‐Aug‐00
8
Figure 6: Bottom‐up Target from Key Component Stocks Under TA Research Coverage Stock Current Price Target Price Capital Gain (%) Target Mkt.Cap (06/12/10) (Index Adjusted) (RM'mn) AMMB 6.26 7.40 18.2% 16728.7 AXIATA 4.67 5.90 26.3% 37369.8 BAT 45.48 43.72 ‐3.9% 6241.9 CIMB 8.47 10.80 27.5% 38143.1 DIGI 24.8 26.70 7.7% 8303.7 GAMUDA 3.76 4.24 12.8% 8537.2 GENM 3.34 3.42 2.4% 10041.8 GENTING 10.7 13.11 22.5% 36323.6 HLBANK 9.4 10.80 14.9% 6826.0 IOICORP 5.78 6.45 11.6% 32229.1 KLK 21.58 23.26 7.8% 12429.9 MAS 2.07 2.80 35.3% 2807.3 MAXIS 5.36 5.80 8.2% 13050.0 MAYBANK 8.41 11.30 34.4% 59982.8 MISC 8.6 9.30 8.1% 16605.3 PBBANK 12.8 13.70 7.0% 48387.4 PCHEM 5.39 5.70 5.8% 13680.0 PET.DAG 11.7 11.76 0.5% 3505.0 PETGAS 11.32 13.30 17.5% 7895.1 PLUS 4.38 4.60 5.0% 9200.0 RHBCAP 8.59 8.00 ‐6.9% 3445.6 SIME 8.74 10.25 17.3% 46109.5 TENAGA 8.44 10.60 25.6% 34364.4 TM 3.41 3.95 15.8% 10598.0 UMW 6.91 6.71 ‐2.9% 5668.2 YTLPOWR 2.44 2.85 16.8% 7818.8 FBM KLCI 1501.74 1,666 10.9% 524790.2
2011 Market Outlook
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2011 Annual Strategy
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Sector Strategy As we are bullish on the market outlook for 2011, we are naturally overweight on the index heavyweights; Banks, Plantations, Telco, Gaming and the Power sector. Banks will benefit from the economic up‐cycle that creates demand for loan growth to fund the expansion, as well as vibrant capital market activities due to fund raising exercises. The anticipated 75 basis point increase is another plus point that will help increase the margin spread. The Plantation sector is expected to enjoy a rerating due to lower carry over stock, weather anomalies that could constrain supply, pickup in demand for food consumption (China and India) and biodiesel, and the eventual strong CPO prices due to above factors and speculative interest in commodities as an asset class. Telcos will benefit mainly from Axiata’s overseas contribution and Telekom’s wider broadband penetration. In the Gaming sector, our top pick Genting Berhad will ride on Genting Singapore’s earnings growth potential and will be regarded as a cheaper proxy to the sector in this region. Although BST is a Sell, it will benefit from the reduction in payout ratio as it reduces cost. Demand growth in‐line with economic expansion will translate positively on the Power sector apart from potential PPA review that will benefit Tenaga. Apart from those, Construction, Property and the Oil & Gas sectors are also rated as overweight as they will benefit from the projects identified under the ETP. We also have most sectors under our coverage as overweight except for Building Materials, which is underweight due to less exciting steel prices. Consumer, Technology and Transportation are Neutral. We don’t expect much upside in the low beta Consumer sector during a strong market rally while Technology is unlikely to outperform when the ringgit is expected to strengthen. Transportation is neutral as we see little upside potential from current levels for MISC and MAHB.
Figure 7: Sector Call and Picks Sectors
Call
Top Picks 1
AUTOMOBILE BANKS & FINANCIAL SERVICES BUILDING MATERIALS CONSTRUCTION CONSUMER GAMING MANUFACTURING MEDIA OIL & GAS PLANTATIONS POWER & UTILITIES PROPERTY RUBBER GLOVE MANUFACTURING TECHNOLOGY TELECOMMUNICATIONS TRANSPORTATION
Overweight Overweight Underweight Overweight Neutral Overweight Overweight Overweight Overweight Overweight Overweight Overweight Overweight Neutral Overweight Neutral
MBM MAYBANK Nil IJM QL GENTING KIANJOO STAR PERISAI BSTEAD TENAGA GLOMAC SUPERMX UNISEM AXIATA MAS
Last Price (RM)
TATP (RM)
3.10 8.41
4.14 11.30
33.5 34.4
6.14 5.70 10.70 1.62 3.39 0.51 5.63 8.44 1.70 4.38 1.96 4.67 2.07
7.36 7.00 13.11 2.75 4.42 0.78 6.94 10.60 2.46 6.40 2.46 5.90 2.80
19.9 22.8 22.5 69.8 30.4 54.5 23.3 25.6 44.7 46.1 25.5 26.3 35.5
2011 Market Outlook
TP Upside (%)
8
Top Picks 2 PROTON CIMB Nil WCT KFC BJTOTO JADI MEDIAP KNM SIME YTLP KSL TOPG UCHTEC TM AIRASIA
Last Price (RM)
TATP (RM)
TP Upside (%)
4.84 8.47
5.93 10.80
22.5 27.5
3.00 3.79 4.25 0.24 2.34 1.93 8.74 2.44 1.73 5.55 1.34 3.41 2.61
3.45 4.25 4.58 0.38 2.65 2.40 10.25 2.85 2.50 6.30 1.60 3.95 3.10
15.0 12.1 7.8 58.3 13.2 24.4 17.3 16.8 44.5 13.5 19.4 15.8 18.8
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Government Initiatives Value Creation Themes: ROLLOUT OF ETP PROJECTS GLC DISPOSAL & RISING FREE FLOAT NEW LISTING OF GOVERNMENT OWNED COMPANIES The launch of the: 1) Government Transformation Programme (GTP) in January 2010, 2) New Economic Model (NEM) in March 2010 and, 3) 10th Malaysia Plan in June 2010, under Prime Minister Najib marks significant government transformation plans to attain long‐term sustainable growth. We are positive that these programmes will place Malaysia in a position to achieve several near‐to‐medium term milestones which, if met, will strengthen the role of the present Government and ensure victory in the upcoming General Election. As part of the federal government's Economic Transformation Programme (ETP), there will be a total of 131 initial entry point projects (EPP) and 60 business opportunities through a series of 12 New Key Economic Areas (NKEAs). These initiatives worth USD444bn (or RM1.39bn), will be implemented over the next 10 years, of which 92% (or USD410bn) are to be financed by the private sector and GLC’s while only 8% (or USD34bn) will be publicly funded. We think part of the government’s funding for the ETP may be generated from the disposal of their stake and divestment of non‐core assets in Government‐Linked‐Companies (GLC’s). Having said that, the Government may also raise funds through the issuance of Government notes. To ensure that investors are interested in purchasing the Government notes, Malaysia will need a vibrant capital market. As such, the new listing of more GLC’s and private companies in the equity market may help to attract more sovereign investors. In this section, we shall discuss several government programmes which we think are important and that investors should keep a watchful eye in 2011. These programmes would help ensure that stakeholders are committed and that the Government will continue to adhere to their promises. These enabling pillars are: i. Economy Transformation Program (ETP) which is part of the NEM ii. Plans to reduce the Government's stake in Government‐Linked‐Companies (GLC’s) and to divest off non‐core assets and; iii. Potential new listings/initial public offerings (IPO) on Bursa Malaysia
i)
Economy Transformation Program (ETP)
Prime Minister Najib is indeed working around the clock in transforming Malaysia into a high income nation. By creating a concoction of roadmaps like the ETP and NEM, Najib hopes that Malaysia would inch forward towards realising Mahathir’s Vision 2020. Specific to year 2011, we believe that the four most significant industries which would directly benefit from the Entry Point Projects (EPP’s) are the Construction Sector (Overweight), Property Sector (Overweight), Oil & Gas Sector (Overweight) and Telecommunication Sector (Overweight). Some of the indirect beneficiaries include the Banking (Overweight), Transportation (Neutral), and Tourism (Not rated) sectors.
Construction Sector Plans to build the RM36.0bn Klang Valley MRT are no longer strange to the general Malaysian public due to all the hype surrounding the project. The first exposure was given by Gamuda Bhd (Buy, TP:RM4.24) when it announced that it had developed and submitted a plan to the Government. The second major exposure was given during PEMANDU’s public viewing day at the Putra World Trade Center. In our opinion, we believe that the Gamuda‐MMC JV would benefit the most from this venture as they were the ones who initiated the plan. They are also vying for the coveted spot as project managers. In addition, they are eyeing for the tunnelling portion, which is worth about RM13bn. We believe the contract could be awarded sometime in 2Q2011 in order to achieve the targeted milestones. Another venture which we think would materialize sometime in 2011 would be the river cleanup project. This initiative is not something new as it was first mentioned back in 2007 when YTL Corp Bhd first won the project – only to be shelved later until it is mentioned again now. Early indications are that the river cleanup would incur up to RM1bn for treatment with an additional RM1bn for development. Further development subsequent to these cleanups would then translate to a potential Gross Development Value (GDV) of RM50bn. However, newer estimates have shown much higher costs associated with this initiative. Included in this initiative are four main ventures which need to be done. The first is of course the upgrading of sewerage system to decrease pollutants from entering the river. 2011 Market Outlook
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We believe that YTL Corp and pipe laying companies like JAKS Resources Bhd would benefit from this initiative. This could cost over RM3bn to materialize. The second and third course of action is to relocate squatters and upgrade drainage systems respectively. To achieve this, we believe that the demand for public housing would increase substantially, benefitting companies which utilize Industrial Building Systems method like Kimlun Corp Bhd. The upgrading of drainage systems would cost a further RM500mn. The fourth step is to then enforce water waste guidelines for residential and commercial establishments. The third EPP under the Greater KL New Key Economic Area initiative is to build iconic places/landmarks that would redefine Malaysia’s skyline. Permodalan National Berhad (PNB) has indicated that they will be going forward with the 100‐ storey Warisan Merdeka Tower in 2011. Putting economic feasibility aside, we believe this project would have a substantial impact on the construction sector due to its massive scale. Although we realise that the main contractor would possibly be either Japanese or Korean (like the Petronas Twin Towers), we strongly believe that local contractors would definitely stand a chance in getting some subcon action in the RM5bn project. Here, we envisage smaller cap construction plays like Ahmad Zaki Resources Bhd, Gadang Holdings Bhd, Binapuri Holdings Bhd, and TRC Synergy to benefit from these subcon works. Not forgetting the bigger boys like Gamuda (Buy, TP:RM4.24), IJM (Buy, TP:RM7.36), WCT (Buy, TP:RM3.45) and Sunway which could benefit from bigger ticket packages like ground works, foundation formation and pilings. The fourth EPP which we think would take off next year would be the development of an efficient and sustainable solid waste management. One key beneficiary which we think could benefit on a large scale would be the newly listed Cypark Resources Bhd. Prime Minister Najib has ordered an existing 112 unsanitary landfills to be closed and rehabilitated, and some to be upgraded to sanitary landfills. Housing and Local Government Minister Datuk Chor Chee Heung also mentioned that nine new sanitary landfills would be fully operational by 2012 to process some 17,000 tonnes of garbage a day in the country. These both create huge sustainable opportunities for Cypark.
Property Sector The property sector is expected to capitalize on the concept of transforming the Greater KL into a livable city that sprawls across KL, Putrajaya, Ampang Jaya, Petaling Jaya, Subang Jaya, Shah Alam, Kajang, Klang and Sepang. To do this, Prasarana has been given the green light to improve waterfronts and the transportation system (refer to construction sector). By 2020, seven out of 10 Malaysians are expected to live in urban areas like Greater KL and this is envisaged to spur demand for residential properties. To cope with the anticipated rise in demand, two areas have been identified for re‐development, i.e.: Sungai Buloh Rubber Research Land and the Sungai Besi Air Base. EPF has been asked to develop the Sungai Buloh Rubber Research Institute land and we believe EPF’s 41.6%‐owned MRCB will be appointed as the project manager and coordinator. IJM Land is expected to have a fair share of development after the proposed merger between MRCB and IJM Land. Separately, the development of the Sungai Besi Air Base land into a multi‐billion ringgit commercial project will be carried out by the JV between 1Malaysia Development Berhad and Qatar Investment Authority. We expect the JV to tap into foreign expertise, Mubadala Development Co’s experience in master planning the township development, and to award the construction works to local construction players. We do not expect the mass development in Sungai Buloh and Sungai Besi to pose a threat to Malaysian developers although the flurry of new supplies could dent property prices. We expect the master plan for the Sungai Buloh and Sungai Besi developments to be implemented in several phases to meet rising demand. In contrast, we expect the two developments and initiatives announced under the ETP blueprint to boost land value which would ultimately benefit developers with sizable land banks in Greater KL. Specifically, we expect the housing developments along the proposed LRT extension to prosper, i.e.: Sri Petaling, Puchong, Subang Jaya, USJ and Kelana Jaya. As such, existing township developers in these areas are likely to benefit; i.e.: I&P (Bandar Kinrara), Mah Sing (Bandar Kinrara), IOI Properties (Bandar Puteri), Sime Properties (Putra Heights and USJ) and Sunway City (Sunway). Similarly, the development along the MRT lines are expected to pick up and this will boost properties and land values higher. 2011 Market Outlook
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Figure 8: Areas with High Commercial Upside Areas with high commercial upside
Developers
Jln Bukit Bintang
TA Global, YNH
Pusat Bandar Damansara
Glomac
Dataran Sunway
Sunway City, Encorp
1 Utama, Curve
See Hoy Chan Group
Subang Bestari
Worldwide Holdings
Balakong
Country Heights, Hua Yang
Serdang
‐
Sg Besi
Mah Sing
MATRADE
Naza TTDI
RRI Sg Buloh
MRCB‐IJM Land
Kampung Bahru
Government Land
Areas with Low Commercial Upside Sg Buloh
MK Land, Sunway, Glomac
Jinjang
‐
Kajang
‐
Mont Kiara Solaris
Sunrise
Damansara Damai
MK Land
Kota Damansara
Sunway City, Encorp
Taman Tun Dr Ismail
Naza TDI, See Hoy Chan Group
Sentul West
YTL
Source: TA Research
Oil & Gas Sector On the oil & gas front, we expect Petronas to increase its domestic exploration significantly in 2011. Recently the government has also attempted to come up with tax incentives to boost production on less profitable (marginal) fields in Malaysia. Assuming crude oil price remains at current levels, these incentives could turn out to be a sweet deal for players in the E&P segment. Three EPP’s highlighted will overcome the projected decline of 1% to 2% in domestic oil and gas production capturing value from mature fields through enhanced oil recovery, using innovative solutions to develop small fields and intensifying exploration activities. In terms of providing solutions, the main beneficiary could potentially be Perisai Petroleum (Buy, TP:RM0.65) through its Mobile Offshore Production and Storage Units (MOPSUs) which are self‐installing and easily re‐ locatable without the need for a derrick barge or a jack‐up drilling rig. We also expect companies like Tanjung Offshore (Sell, TP:RM0.82) and Scomi Engineering to obtain a slice of the pie; Tanjung through the utilisation of its vessels and Scomi through its drilling fluids. In terms of larger exploration activities, we expect the prime beneficiary to be Sapura Crest Petroleum (Hold, TP:RM2.97). The group’s vessels namely the Sapura 3000 and LTS 3000 are capable of heavy lifts cum pipelays. To enhance growth in the downstream market, it is vital to build a regional oil storage hub and developing a regasification terminal by 2015 for imported liquefied natural gas (LNG) to capture the value created from increasing international flows of crude oil and refined products. In this category we expect companies like Dialog, Petronas Gas (Buy, TP:RM13.30) and KNM (Buy, TP:RM2.80) to be a beneficiary. Dialog, potentially being the largest beneficiary, has the capability to design, build, and operate storage tank terminals and supply bases. The group also has the capability to design, build, and operate centralised tankage facilities. 2011 Market Outlook
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Najib also aims to make Malaysia the number one Asian hub for oil field services. It has to attract multinational corporations, consolidate domestic fabricators to increase their likelihood of winning major contracts and partner with world‐class companies to establish a presence in the construction and installation portion of the value chain. Local fabricators such as Kencana Petroleum and Boustead Heavy Industries Corp could benefit from a consolidation in order to increase their capacity. Sime Engineering has taken the first step in this direction by purchasing Ramunia Holdings dockyard in Pasir Gudang. Big global players in the global O&G industry look to companies that can provide Engineering, Procurement, Construction and Commissioning (EPCC) services under one roof rather than companies that are specialized. Furthermore with the listing of Malaysia Marine and Heavy Engineering (MHB) (Sell, TP:RM4.16), we expect competitiveness to increase in the industry as comparisons will be made against other listed entities such as Ramunia and Kencana.
Telecommunication Sector The Telecommunication sector would be another beneficiary under ETP with 10 EPPs to drive the Communication, Content and Infrastructure industry. Note however, we believe the recent award of the 2.6GHz spectrum for nine players may be linked to the government’s plan in “connecting 1Malaysia”. The spectrum has the capacity for 4G network which will lead to an upgrade from 3G to LTE. PEMANDU has laid out its plans to be achieved by 2012, but we believe the telecommunication players have already ramped up their operations to meet the target. High speed internet has led to a convergence between telecommunication and media sectors. The sector is now entirely driven by the growth in data usage coupled with the increasing popularity of smart devices, such as the iPhone, BlackBerry and Tablets. These devices have created the need for “data‐on‐the‐go” which has led to an increase in demand for higher quality internet services. Thus, the high data usage forces the need for an upgrade to LTE since it provides greater spectral efficiency and lower operating expenses. Recently, YTL launched its WiMax services branded YES! and have seen positive response. YES! has wired up about 65% of the nation and this will gradually increase in the next 1‐2years. As mentioned in our previous report, WiMax would be more viable and economical in rural and remote areas given the relatively low costs to deploy a WiMax network. TM on the other hand has already seen positive take‐up of its HSBB branded UniFi at attractive price, which has subsequently lowered the pricing for Streamyx. To add, in the 4Q10, TM has been aggressively expanding its HotSpot coverage areas. Maxis is also in the midst of rolling out its own HSBB, which we believe will be done in 6 months time.
Figure 9: Projects expected to be completed by 2012 and we believe at least half of these would be seen by 2011
By 2012… 6000 schools connected (60%) 4500 medical institutions connected (50%) 50% of services online 150k additional fixed subs, 860k wireless 700k nonurban users (Additional 2.1m premises passed & 2k wireless sites) USD100m revenue from exports 6m users on E/Mpayments
Deploy KnowledgeNet platform to enable educators and students to access educational content and applications Connect medical institutions and patients to an integrated platform with useful healthcare applications Identify priority government transactions (ie high volume, need for transparency) and migrate these online Amend key federal laws by 2011 to ensure all new homes are broadband ready and acquire new users Private sector consortium in partnership with public sector to identify target areas for accelerated infrastructure rollout Sign co‐production treaties (Australia as pilot), hold international creative sector trade show, Deploy system that will be interoperable with other methods, but not require a bank account or point‐of‐sale terminal
Source: NEAC, TA Securities
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Banking Sector For the financial services segment, the ETP outlined 10 entry point projects (EPP) to: 1) create 275k new financial services jobs from 287k currently, and 2) boost the sector’s GNI by another RM122.3bn from RM58.8bn by 2020. Given the 10 year timeline, we believe the targets are reasonable and within reach. Here, we believe the sector would benefit from the huge need for funding since 92% (or USD410bn) of the entire ETP initiatives are to be financed by the private sector and GLCs while only 8% (or USD34bn) will be publicly funded. Other recommendations outlined to boost the debt market with an active secondary market include: 1) widening the credit spectrum of the fixed‐income market, 2) increase participation of foreign issuers and investors, and 3) increase retail participation – should bode well for the IBs and stockbroking companies. The possible internalization of the RM could also help spur trades and investments in Malaysia. Under EPP 9 and 10, local financial institutions will be encouraged to broaden their regional and global reach for both conventional banking and Islamic finance. This is to help cushion the local players against dwindling domestic growth and profitability as the market becomes more saturated. In reality, most of the local listed financial institutions in Malaysia have already established solid footing overseas. Some choose to grow organically (such as Public Bank (Hold, TP:RM13.70) in Cambodia and Hong Kong), while others acquired banking groups in Indonesia, Thailand, China and Pakistan (namely CIMB (Buy, TP:RM10.80), Maybank (Buy, TP:RM11.30), Hong Leong Bank (Hold, TP:RM10.90), RHB Cap (Buy, TP:RM9.50) and Affin). We maintain our views, assumptions and earnings estimates for the Malaysian banking system, at this juncture. As such, we continue to call OVERWEIGHT on the sector.
ii)
Reducing the Government Stake in GLC’s and Divestiture of NonCore Assets
In the past, the rise in financial liberalisation and the increase in instability in the global financial system, especially post 1997‐1998 Asian Financial Crisis has given rise to a greater need for the Government to better manage the economy and the financial system. The increase in ownership and control of the Government in several large and strategic corporations during that period was to execute Government policies and initiatives to achieve national economic development goals. Indeed, the Government, through GLC’s, has directly championed growth of some sectors. The Government’s control on GLC’s is achieved through several Government Investment Linked Companies (GLIC’s), which have invested their funds in GLC’s. These GLIC’s include Khazanah Nasional Berhad, Kumpulan Wang Amanah Pesara (KWAP), Permodalan Nasional Berhad (PNB), Employees Provident Fund (EPF), Lembaga Angkatan Tentera (LTAT) and Lembaga Tabung Haji (LTH).
Figure 10: GLICs
Khazanah Nasional Berhad
Kumpulan Wang Amanah Persaraan (KWAP)
Permodalan Nasional Berhad (PNB)
Employees Provident Fund (EPF)
Lembaga Angkatan Tentera (LTAT)
Lembaga Tabung Haji (LTH).
Source: Various, TA Securities
GLICs’ holdings in the listed GLC’s are substantial at approximately 43% of the total market capitalisation of the FBM KLCI 30 stocks (refer Figure 4). As such it is arguable that the local stock market has probably not been able to adequately garner foreign investor interest due to the illiquidity of their shares, the bulk of which is held by GLIC’s. On that note, the government is looking to pare down its stake in GLC’s to improve the liquidity of the stock market. This, in our view, will create greater market liberalisation, increase free float and improve liquidity of the respective Government linked shares. We believe Khazanah, EPF and PNB could be set to make further divestment of their stakes in large‐cap blue chips. From Figure 4, assuming the GLICs pare down their stake by 1% / 5% / 10%, the capital proceeds raised will be RM8,887mn /RM43,327mn/ RM69,569mn , representing up to 2% / 9% /15% of total market capitalization of FBM KLCI. 2011 Market Outlook
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The proceeds may help to fund part of Government projects proposed under the ETP. We believe GLIC’s will pare down their shares in MAS (Buy, TP:RM2.80), Axiata (Buy, TP:RM5.90), RHB Cap (Buy, TP:RM9.50), Sime Darby (Buy, TP:RM10.25), Maybank (Buy, TP:RM11.30) and CIMB (Buy, TP:RM10.80) due to their high shareholding level (>40%). Nonetheless, we doubt that the exercise will be completed in the short run as the Government will pare down its stake at a gradual pace, depending on market movements. Figure 11: FBM KLCI Components Stocks with Substantial GLIC’s Holdings (as at 30th Nov 2010) Market Capitalisation KLCI Weight New Holding after Paring down: Company Name GLICs % of Holding (RM mn) (%) 1% 5% 10% 1 Axiata Group Bhd 38678.8 6.17 Khazanah 42.92 41.92 37.92 32.92 EPF 15.74 14.74 10.74 5.74 PNB 6.38 5.38 1.38 ‐ 2 CIMB Group Holdings Bhd 63029.9 9.89 Khazanah 28.61 27.61 23.61 18.61 EPF 13.88 12.88 8.88 3.88 3 Gamuda Bhd 7523.8 1.58 EPF 8.35 7.35 3.35 ‐ PNB 7.03 6.03 2.03 ‐ KWAP 5.54 4.54 0.54 ‐ 4 Malayan Banking Bhd 61436.9 9.77 PNB 50.04 49.04 45.04 40.04 EPF 11.44 10.44 6.44 1.44 5 Malaysia Airlines System Bhd 6918.3 0.44 Khazanah 69.37 68.37 64.37 59.37 EPF 12.79 11.79 7.79 2.79 6 MISC Bhd 38835.0 3.29 EPF 10.95 9.95 5.95 0.95 PNB 6.09 5.09 1.09 ‐ 7 Petronas Chemicals Group Bhd 43200.0 2.73 ‐ ‐ ‐ ‐ ‐
Capital Freed (RMmn) 1% 5% 10% 386.8 1933.9 3867.9 386.8 1933.9 3867.9 386.8 1933.9 ‐ 630.3 3151.5 6303.0 630.3 3151.5 6303.0 75.2 376.2 ‐ 75.2 376.2 ‐ 75.2 376.2 ‐ 614.4 3071.8 6143.7 614.4 3071.8 6143.7 69.2 345.9 691.8 69.2 345.9 691.8 388.3 1941.7 3883.5 388.3 1941.7 ‐ ‐ ‐ ‐
8 Petronas Dagangan Bhd
11126.7
0.71
EPF
6.25
5.25
1.25
‐
111.3
556.3
‐
9 Petronas Gas Bhd
22280.5
1.41
10 PLUS Expressway Bhd
22150.0
1.88
11 RHB Capital Bhd
17141.7
0.73
EPF KWAP Khazanah EPF KWAP EPF
14.71 7.53 55.16 12.36 4.98 53.46
13.71 6.53 54.16 11.36 3.98 52.46
9.71 2.53 50.16 7.36 ‐ 48.46
4.71 ‐ 45.16 2.36 ‐ 43.46
222.8 222.8 221.5 221.5 221.5 171.4
1114.0 1114.0 1107.5 1107.5 ‐ 857.1
2228.1 ‐ 2215.0 2215.0 ‐ 1714.2
12 Sime Darby Bhd
52883.3
8.36
13 Telekom Malaysia Bhd
12127.4
1.95
14 Tenaga Nasional Bhd
37366.1
5.88
15 UMW Holdings Bhd
8062.2
1.27
PNB EPF Khazanah EPF PNB Khazanah EPF PNB PNB EPF
47.93 15.21 34.3 12.71 14.85 35.59 13.89 9.99 42.35 17.56
46.93 14.21 33.30 11.71 13.85 34.59 12.89 8.99 41.35 16.56
42.93 10.21 29.30 7.71 9.85 30.59 8.89 4.99 37.35 12.56
37.93 5.21 24.30 2.71 4.85 25.59 3.89 ‐ 32.35 7.56
442,760.6
56.06
Total Source: Bloomberg, TA Securities
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528.8 2644.2 5288.3 528.8 2644.2 5288.3 121.3 606.4 1212.7 121.3 606.4 1212.7 121.3 606.4 1212.7 373.7 1868.3 3736.6 373.7 1868.3 3736.6 373.7 1868.3 ‐ 80.6 403.1 806.2 80.6 403.1 806.2 8,887.0 43,327.4 69,569.0
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2011 Annual Strategy
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Figure 12: Top 5 Shareholding of GLICs
EPF
Company Name IJM Land IJM Plantation Malaysia Building Society RHB Cap MRCB
Market Cap (RM mn) 3324.6 2339.9 994.4 17141.7 2650.7
PNB
Company Name
% of Shareholding
CCM Bonia Ya Horng Electronic Triumphal Associates Tracoma
70.11 68.06 66.48 53.46 41.62
Market Cap (RM mn) 801.4 340.7 37.1 84.6 8.2
% of Shareholding 69.28 32.99 29.59 26.77 24.5
Khazanah
Company Name UEM Land MAS Plus Time Dotcom MAHB
Market Cap (RM mn) 7685.2 7018.5 22000.0 1645.0 6776.0
LTH
% of Shareholding
Company Name
77.14 69.37 55.16 54.78 54
TH Plantations Theta Edge BIMB Pelikan Ramunia
LTAT
Company Name Boustead Holdings Affin DKSH Al‐Hadharah Boustead REIT Tien Wah
Market Cap (RM mn) 5011.1 4752.8 119.8 779.8 159.2
Market Cap (RM mn) 765.8 62.5 1280.1 615.4 281.7
% of Shareholding 66.64 63.76 51.47 30.05 25.17
% of Shareholding 59.28 35.66 15.00 13.82 11.79
*Included direct and indirect shares Source: Bloomberg, TA Securities
On the other hand, all GLC’s are also required to divest their non‐core assets and consultation services. We should actually see this coming to fruition in the coming years as we see more news flow on M&A proposals taking place since the beginning of this year. GLC’s such as Sime Darby (Buy, TP:RM10.25) could create some excitement from the divestment of non‐core assets. We believe Sime Darby (Buy, TP:RM10.25) is among the key GLC’s that need to dispose of non‐core assets and focus on building up their core businesses. We understand that the company regards all its plantation, property, oil & gas, heavy equipment and motor distributorship units as core businesses. Their non‐core businesses include healthcare, insurance, hypermarket, tyres, hotels and home products. We do not rule out the possibility for Sime Darby to divest its non‐core and non‐profitable businesses in order to fund and concentrate on its core strength. Sime Darby has signalled its intention to sell its non‐core businesses (except healthcare). We understand that this non‐core business merely contributes up to 2% of total net profit for FY09. We have done a simple back‐of‐the‐envelope calculation and derive that the market value for the non‐ core businesses is worth around RM900mn (exclude tyres and healthcare), based on FY09 results.
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Figure 13: Sime Darby Business Structure
Plantation Oil & Gas Core
Property Motor Heavy Equipment
Sime Darby
Healthcare Insurance Hypermarket
NonCore
Tyres
Potential for Divestment
Hotel Home Products
Source: Company, TA Securities
iii)
Potential new listings/initial public offerings (IPO) on Bursa Malaysia
In 2010, we witnessed the listing of two Government Linked Companies (GLC’s) in the form of Malaysia Marine and Heavy Engineering Bhd (MHB) and Petronas Chemical Group Bhd (PCG). With the KLCI hitting a new high this year and the upbeat momentum expected to remain intact, we expect this strong upward trend to continue into 2011. By the looks of it, the government seems to be favouring oil & gas (O&G) plays possibly to leverage on the country’s large reserves. However, for 2011 this trend could spill over into other industries to unlock the value of Malaysia’s jewels, enabling them to have access to more capital in the process. In this section we discuss the possible impact of the new GLC listings in their respective sectors. Having said that, we believe the banking sector (overweight) will benefit as an indirect beneficiary from the IPO’s as some banks could see significant amounts of underwriting fees from these deals. We particularly like Maybank (Buy, TP:RM11.30), CIMB (Buy, TP:RM10.80), RHB Cap (Buy, TP:RM9.50) and AMMB (Buy, TP:RM7.40) for their investment banking status, enabling them to capitalise as IPO underwriters. We scoped out some potential candidates likely to be listed namely; i. Petronas Carigali Sdn Bhd ii. Malakoff Sdn Bhd iii. Jimah Energy Ventures Sdn Bhd iv. CTRM Aero Composites Sdn Bhd (CTRM) v. Syarikat Percetakan Negara Sdn Bhd vi. Syarikat Prasarana Negara Bhd Equipped with a competitive advantage, some of these companies notably Petronas Carigali, Malakoff and Jimah are significant players in the oil & gas and power sectors respectively. The general perception is that IPO’s like these are aimed at easing financial constraints for new investments and promoting reform process. The potential success of these IPOs relies largely on pricing and investor perception, especially foreign investors. Regardless of their success, the important point is that the government is reaching out to the capital market rather than keeping its doors shut. These listings could be used by the government as a marketing tool to increase the level of foreign direct investment (FDI). We note here that the majority of these listings have been substantiated mostly on market talk apart from Jimah and CTRM in which the government has expressed its interest in listing. 2011 Market Outlook
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A Brief Description of These Candidates i) Petronas Carigali (PCSB) is the exploration and production subsidiary of the Petronas Group. PCSB works alongside a number of petroleum multinational corporations through its production sharing contracts (PSC) to explore, develop and produce oil & gas in Malaysia. PCSB currently contributes to approximately 24% to the Petronas Groups top line earnings. Figure 14: Revenue Contribution to Petronas Shippings LPG 4% 3%
Others 4%
Petchem 5% Natural Gas 6%
Petroleum Products 36% LNG 18%
Crude Oil (PCSB) 24%
Source: Petronas/TA Securities
ii)
Malakoff Corporation Berhad is the one of largest Independent Power Producer’s (IPP) in Malaysia with total and net effective installed capacity of 7,253 MW and 5,020 MW respectively. The company owns 5 power plants and an associate stake in another (PD Power), which commands approximately 25% market share of the generation capacity in P. Malaysia. The group also owns stakes in some foreign utility assets.
Figure 15: Malakoff’s Utility Assets Domestic
Overseas
IPP IPP Lumut Port Dickson GB3 Kapar Prai Tanjung Bin IWPP Shuaibah Shuaibah Expansion Tlemcen CEGC For Power For Water
Installed Capacity
Shareholding (%)
Effective Capacity
1,303 MW 440 MW 640 MW 2,420 MW 350 MW 2,100 MW 7253 MW
93.8 25.0 75.0 40.0 100.0 90.0
1,222 MW 110 MW 488 MW 968 MW 350 MW 1,890 MW 5028 MW
900 MW & 880,000 m3/day 150,000 m3/day 200,000 m3/day 1,680 MW 9,833 MW 1,230,000 m3/day
12.0 12.0 35.7 12.8
Source: Malakoff/TA Securities
105 MW & 105,600 m3/day 18,000 m3/day 71,400 m3/day 214.2MW 5,350MW 195,000 m3/day
iii) Jimah Energy Sdn Bhd owns and operates a 2 x 700 MW coal fired power plant located near Port Dickson, Negeri Sembilan. The first unit of 700 MW achieved COD on Jan 1, 2009 followed by the second unit on July 1, 2009. Amongst the major IPP’s, Jimah is the smallest and only owns a single power asset. The major shareholder had stated publicly of their intention to list Jimah by mid‐2011 to diversify capital source, in preparation of the tender for the second 1,000 MW new capacity in 2011/12 (the first 1,000 MW was awarded to TNB Janamanjung S/B).
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iv) CTRM Aero Composites (CTRM) was incorporated in November 1990. It is a GLC with the Ministry of Finance Incorporated as its major shareholder. CTRM is a composites parts maker for aircraft manufacturers. The company is also part of a global supply chain for composites aero structures, and supplier to major aircraft manufacturers such as Airbus and Boeing. v)
Syarikat Percetakan Negara Sdn Bhd (PNMB) has vast experience in the printing industry as it was first known as JPN (Jabatan Percetakan Negara) on its debut opening during the British occupation in Malaya in 1888. The company provides printing services in the areas of general printing, variable data printing, security printing and digital imaging with in‐house design services.
vi) Syarikat Prasarana Negara Berhad and its group of companies are asset‐owners and operators of several public transport providers, namely the Ampang and Kelana Jaya lines, KL Monorail system, bus operations in Klang Valley and Penang, as well as the cable car services in Langkawi. Both the LRT, Monorail and bus services are operated by Rangkaian Pengangkutan Integrasi Deras Sdn Bhd (RapidKL), a subsidiary of Prasarana. RapidKL provides an integrated public transport system in the Klang Valley incorporating rail and bus services. Motive and Impact We estimate PCSB could potentially be valued at approximately RM200bn based on a forward multiple of 16x. With a market cap of this size, it will make up almost 42% of the FBM KLCI’s current market cap and will definitely stir some interest from investors globally. If PCSB were listed, the stock price will largely be determined by the price of crude oil. Earnings will in turn be more volatile. Inevitably this will be a driver for foreign funds to participate in the trading of the stock. Foreign investors will not just stop at PSCB but could look to invest into the other O&G service providers and other sectors as well. PCSB will emerge as the largest listed company on Bursa Malaysia and can influence greatly the direction of the FBM KLCI. Another motive behind the listing of the subsidiaries with huge capital expenditure requirements would be a way to foot costs. In 2009, Petronas issued US$4.5bil in Islamic bonds, its first issuance in years as it tapped the global markets to fund its expansion activities after the price of crude oil plunged from its highs in 2008. One of the more significant impacts of this particular listing on the O&G sector as a whole is a clearer level of communication between Petronas and local O&G players in the industry. By Petronas Carigali being publicly owned, it will be subject to clarity in its direction and further capex expenditures domestically. This will in turn allow local O&G players to position their business models accordingly. This will strengthen the conviction on the Overweight O&G sector. If rumours turn out to be true, Malakoff is set to be relisted on Bursa Malaysia. That said, we think there is added incentive to re‐list next year due to two key reasons, i) favourable market condition. Our house target is the FBMKLCI to hit 1820 by end 2011. A timely IPO would enable the major shareholder to partially unlock value of its investment in the company, and ii) better investment appeal as another IPP, Tanjong plc was recently delisted. Presently, there are only two power stocks listed on Bursa Malaysia, i.e. Tenaga Nasional and YTL Power. On the downside, the financial performance of Malakoff has not been particularly inspiring. The group reported revenue of RM1.9bn and pretax profit of RM710.0mn in FY06 – the last available Annual Report prior to delisting. In FY09 however, Malakoff made revenue of RM5.2bn (increase due mainly to Tg. Bin) and a pretax profit of RM380mn. That translates into a 46.5% reduction in pretax profit. We suspect the lower profits could be partly due to higher interest cost, i.e. Tg. Bin and possibly refinancing of some of the other power assets, as well as operating issues at Kapar power plant. The major shareholder had stated publicly of their intention to list Jimah by mid‐2011 to diversify capital source, in preparation of the tender for the second 1,000 MW new capacity in 2011/12 (the first 1,000 MW was awarded to TNB Janamanjung S/B). The estimated cost to raise the capacity is RM4bn. Assuming a replacement cost of USD1.2mn/MW, we estimate Jimah could be worth RM3.8bn. The power sector had generally underperformed the KLCI in 2010. The low beta nature of the sector is partly to blame. That said, the lack of investment options in the Malaysian power sector (only Tenaga and YTL Power are listed – Tanjong plc was delisted in Sept 2010) is a major hurdle to investors, in our view. In this perspective, the listing of Jimah and Malakoff would certainly be viewed positively by the market.
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As for CTRM Aero Composites (CTRM), with the expected tremendous growth of maintenance, repair and overhaul (MRO) business in Asia Pacific, it has expressed desire to move up the value chain as a major manufacturer (Tier 1) within 15 to 20 years' time. Thus, the government may need private funding to undertake investments in technology, training of workforce as well as mergers and acquisitions. As the government intends to divest its holding in CTRM, the possibility of an IPO remains high. Based on average industry PER of 15x (20% discount to its Singaporean counterpart Singapore Tech Engineering of 18x) and net profit of RM30mn in 2009, the market capitalization will be around RM450mn. The government has identified the aerospace industry, particularly aerospace MRO services, as a new growth industry for Malaysia to exploit. Thus, the listing of CTRM could be the start of a more exhilarating phase for the Aviation industry (Neutral). We believe that as the country’s fleet of aircraft continues to grow, the demand for parts and equipment used for routine maintenance and repairs will follow suit. We are positive with the listing of PNMB as there is only one listed printing company, Pelangi Publishing Group Bhd on Bursa Malaysia. Thus, the listing of PNMB may diversify its customer base and create a monopoly industry by itself – Printing Industry. Besides, there remains a possibility that some of the printing and publishing giants could outsource some of their printing business to PNMB due to higher industry connectivity. Thus, this will generate additional income for PNMB. Assuming a hypothetical situation where Prasarana were to be listed, we believe that they would first need to restructure their loss making assets by either selling it off, listing only potential profitable units or make a 180‐degree turnaround into a profitable company (which is unlikely considering fare increments are unlikely). We do not think that foreign funds would be interested with loss making infrastructure companies with little room for revenue growth, apart from the increase in ridership. Why are Japan’s monorail systems running at a profit whereas Malaysia’s monorail is running at a lost? Hence, the attractiveness for such a stock would be small. Prasarana can be considered, in a broad sense, a public service transport operator whose immediate aim is to not make profit, but rather to serve the community. Thus, in all likelihood, we rebut the potential listing of Prasarana.
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Snap Election around the Corner Theme: Election Play
A snap election next year seems increasingly probable although it is not due for another five years after the last general election on 08 March 2008. With a 18‐month delay in UMNO party election it is clear that the PM does not want any party infighting caused by scramble for party posts within UMNO to weaken Barisan Nasional’s prospects in the general elections. The opposition is in total shambles now with rampant finger‐pointing and top leaders jumping ship in Parti Keadilan Rakyat after its recent party election. DAP is at loggerheads again with PAS over Islamic law. It appears that they can never act in concert without PKR playing the mediator role. PM Datuk Seri Najib could have viewed this as a golden opportunity to seize. The obvious strategy to win any election is to trumpet past achievements while ensuring the relevance of those achievements to prevailing conditions. To do that, facts and figures about economic progress have always been used as vital ammunitions in the election pitch. To show the relevance, swift launches of domestic projects have always been the trump card. It will be no different this time. The fact that he has instructed the government machinery to ensure the MRT project is kicked off by July next year emphasizes the point. Economic Recovery Conducive for an Early Election The global economy has rebounded from its worst moments in 2008 and Malaysia too has bounced back strongly after a brief flirtation into negative growth territory in 2009. So far, the first two quarters of 2010 have seen strong economic growth of 10.1% and 8.9% respectively. Although the growth momentum has tapered off to 5.6% in 3Q, it is projected to register a strong growth of 6.7% this year before marking an acceptable growth of 5.4% in 2011. A strong mandate from the people is crucial for the PM to press ahead with his reform measures aimed at fixing the structural issues in the economy, which include subsidy cuts in stages, revamping affirmative measures that hinder progress, finalizing the implementation of GST, liberalization of outdated policy decisions that stunts growth and creativity, etc. So, the timing can be sooner rather than later to deprive the opposition from having ample time to reorganize themselves from the recent two defeats and internal party issues. In our view, the various Entry Point Projects (EPP) under the ETP will take centre stage as we roll into 2011 to achieve this growth target. The launch of highway projects and the smaller parcels for rural infrastructure development also will be expedited to ensure the more than 20,000 class F bumiputra contractors are happy and the multiplier effect spread fast enough to keep the man on the street feeling content. It is no secret that the big blow of losing two third majority in the parliament for the second time in 2008 after losing it in 1969 will haunt the ruling coalition in the coming election. So, positive indications and timing are crucial to sustain big victory and if possible to regain the lost glory. Just basing on past thirteen by‐elections post the 12th GE will not paint a bright prospect for the BN as it won only five of the thirteen contested. However, PM’s policy initiatives are gaining acceptance and the confidence level in him seems to be improving. The BN’s victory in four of the last five contested seats could be a testimony to that with the ruling coalition wrestling back a parliamentary and a state seat from the opposition. News on the ground has it that the Sibu parliamentary seat in Sarawak slipped through their fingers due to growing unhappiness of Chinese voters against the current administration.
Figure 16: By Election Results since 12th General Election in Mar 2008 Constituency Permatang Pauh, Penang Kuala Terengganu, Teregganu Bukit Gantang, Perak Bukit Selambau, Kedah Batang Air, Sarawk Penanti, Penang Manek Urai, Kelantan Permatang Pasir, Penanag Bagan Pinang, Negeri Sembilan Hulu Selangor, Selangor Sibu, Sarawak Galas, Kelantan Batu Sapi, Sabah
2011 Market Outlook
Nature Date Incumbent Parliamentary 26‐Aug‐08 Opposition Parliamentary 17‐Jan‐09 BN Parliamentary 7‐Apr‐09 Opposition State 7‐Apr‐09 Opposition State 7‐Apr‐09 BN State 31‐May‐09 Opposition State 14‐Jul‐09 Opposition State 25‐Aug‐09 Opposition State 11‐Oct‐09 BN Parliamentary 25‐Apr‐10 Opposition Parliamentary 16‐May‐10 BN State 4‐Nov‐10 Opposition Parliamentary 4‐Nov‐10 BN
BN PAS PKR DAP AKIM SAPP 15,524 31,195 92 30,252 32,883 19,071 21,860 10,229 12,632 3,907 2,053 6,052 5,283 5,348 5,067 9,618 8,013 2,578 24,997 23,272 18,447 18,845 5,324 4,134 9,773 3,414 2,031
20
Independent Majority BN Status 15,671 Loss 193 2,631 Loss 62 2,789 Loss 1,326 2,403 Loss 1,854 Won 942 5,558 Loss 65 Loss 4,551 Loss 5,435 Won 1,725 Won 232 398 Loss 1,190 Won 6359 Won
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Land Slide Victory in Sarawak is Crucial It is imperative for the BN to secure undivided victory in Sarawak state election as the outcome would have implications on the parliamentary election. The state has the highest number of parliamentary seats (31 or 22.1%) of the total 140 seats. BN lost five states in 2008 to oppositions parties before securing back Perak. Take note in the Figure 2 that it only secured more than 60% vote in three states and it risks losing Negeri Sembilan if not careful.
Figure 17: Barisan Nasional's State Seat Tally in 2004 and 2008 GEs As % of total seats % Votes State 2004 2008 Change (%) 2004 2008 2008 Perlis 14 13 ‐7.1% 93.3% 86.7% 61.5% Kedah 31 16 ‐48.4% 86.1% 44.4% 47.4% Kelantan 21 6 ‐71.4% 46.7% 13.3% 43.6% Terengganu 28 24 ‐14.3% 87.5% 75.0% 55.0% Penang 38 11 ‐71.1% 95.0% 27.5% 41.0% Perak 52 31 ‐40.4% 88.1% 52.5% 47.4% Pahang 41 38 ‐7.3% 97.6% 90.5% 57.4% Selangor 54 21 ‐61.1% 96.4% 37.5% 43.8% Negeri Sembilan 34 21 ‐38.2% 94.4% 58.3% 53.3% Melaka 26 23 ‐11.5% 92.9% 82.1% 56.3% Johor 55 50 ‐9.1% 98.2% 89.3% 63.1% Sabah 59 57 ‐3.4% 98.3% 95.0% 62.1% Total 453 311 ‐31.3% 89.7% 61.6% 51.3% Total Seats 505 505 Percentage of seats held 89.7% 61.6% PN. We did not include 61 state seats that BN holds in Sarawak out of the total 70 as the state election was held in 2006. Seat tally in 2008 has been adjusted to include by elections & party hopping
Figure 18: Results of 12 GE by Parliamentary and State Seats STATES F.T. Kuala Lumpur F.T. Labuan F.T. Putrajaya Johor Kedah Kelantan Malacca Negri Sembilan Pahang Penang Perak Perlis Sabah Sarawak Selangor Terengganu Total
[ P ] [ P ] [ P ] [ P ] [ P ] [ P ] [ P ] [ P ] [ P ] [ P ] [ P ] [ P ] [ P ] [ P ] [ P ] [ P ]
[ S ] [ S ] [ S ] [ S ] [ S ] [ S ] [ S ] [ S ] [ S ] [ S ] [ S ] [ S ]
BN 1 1 1 25 4 2 5 5 12 2 13 3 24 30 5 7 140
PARLIAMENT (P) OPP OTH 10 ‐ ‐ ‐ ‐ ‐ 1 ‐ 11 ‐ 12 ‐ 1 ‐ 3 ‐ 2 ‐ 11 ‐ 11 ‐ ‐ ‐ 1 ‐ 1 ‐ 17 ‐ 1 ‐ 82 0
BN ‐ ‐ ‐ 50 14 6 23 21 37 11 28 14 59 ‐ 20 24 307
STATE (S) OPP ‐ ‐ ‐ 6 21 39 5 15 4 29 31 1 1 ‐ 36 8 196
OTH ‐ ‐ ‐ ‐ 1 ‐ ‐ ‐ 1 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 2
The crucial decision is to whether to have the 13th GE simultaneously with Sarawak’s state election, or later. The Sarawak state election should be held before July next year. Holding it at the same time will dampen opposition’s abilities to mobilize their thin resources across country and divert their attention of making inroads in Sarawak. However, BN may want to test the waters in east Malaysia first before going for the final battle in Peninsular Malaysia. In our view, the Sarawak election could be held first in 1Q11 followed by the GE in 2H11.
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Figure 19: Parliamentary Seats and Votes Garnered Since 1959 – 12 GE the Worst for BN Since 1969
Government*
Opposition
Total seats
Election
Year
1 2 3
1959** 1964** 1969
Seats 74 89 95
% seats 71.15 85.58 65.97
% vote 51.7 58.5 49.3
Seats 30 15 49
% seats 28.85 14.42 34.03
% vote 48.3 41.5 50.7
4
1974
135
87.66
60.7
19
12.34
39.3
154
5 6 7 8 9 10 11 12
1978 1982 1986 1990 1995 1999 2004 2008
130 132 148 127 162 148 198 140
84.42 85.71 83.62 70.55 84.38 76.68 90.41 62.61
57.2 60.5 55.8 53.4 65.2 56.5 63.9 52.2
24 22 29 53 30 45 21 82
15.58 14.29 16.38 29.45 15.62 23.32 9.59 36.93
42.8 39.5 41.5 46.6 34.8 43.5 36.1 47.8
154 154 177 180 192 193 219 222
* " Government " means Alliance Party between 1959 and 1964 inclusively; Alliance and Sarawak United People's Party for 1969; and Barisan Nasional since 1974 ** Sabah and Sarawak did not participate in respective elections.
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104 104 144
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Figure 20: Seat Tally by Party for Last Three GEs
2008
2008 MIC 1.4% MCA 6.8%
GERAKAN 0.6%
MIC 1.4%
GERAKAN 0.9%
SABAH 5.1%
MCA 6.3%
SARAWAK 13.5% SABAH 5.0%
UMNO 47.3%
DAP 14.5%
DAP 12.6%
UMNO 35.6%
PAS 10.4% PKR 14.0%
PARLIAMENT
PAS 16.4%
PKR 7.9%
STATE
2004
2004 MIC 4.1%
GERAKAN 4.6%
MIC 3.8% MCA 15.0%
PPP 0.5%
MCA 14.2%
GERAKAN 5.9%
SARAWAK 12.3%
SABAH 5.1%
SABAH 5.0%
UMNO 59.8%
DAP 5.5%
UMNO 49.8%
PAS 7.1%
DAP 3.0%
PAS 3.2% KEADILAN 0.5%
PARLIAMENT
1999
STATE
1999
MIC GERAKAN 3.1% Direct 3.6% 0.5% MCA 15.0%
MIC 3.8%
MCA 17.5%
GERAKAN 5.3%
SARAWAK 14.5%
DAP 5.2%
UMNO 36.8% PAS 14.0%
KEADILAN 1.0%
UMNO 44.7%
KEADILAN 2.6%
PAS 24.9%
STATE
PARLIAMENT 2011 Market Outlook
DAP 2.8%
SABAH 3.1% PBS 1.6%
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KLCI Performance in Election Year The historical trends showed that a rally was more apparent in the first four weeks before any general election than late. Chances of rally was more prominent in the last two weeks as shown in Figure 6The best upside to the run‐up of a general election was seen in 1978 followed by a post‐election rally in 1986. The next big pre‐election rally was in 2004 when BN won in a big way by capturing 90.4% of the parliamentary seats (see Figure 4). In 2004, the push already came three months before the election as the market viewed the handover of the baton to Abdullah Ahmad Badawi from Mahathir as a positive sign. As expected, Badawi delivered the biggest ever win for BN since its inception (see Figure 4) but the FBM KLCI corrected post election as the result was expected. 2008 was unique as contraction was seen throughout the pre and post election, as market took notice of the growing voters’ dissatisfaction against the ruling government in the months prior to the election. The loss of two‐third majority in the parliament added to the loss of five states and caused market to tumble in the following months. The global credit crisis made the situation worse.
Figure 21: Past General Election Performance 6 Mth
Before G. Eelction 3 Mth 1 Mth
46.0% ‐8.7% 3.9% ‐12.0% ‐3.6% ‐0.4% 21.5% ‐0.8%
27.7% ‐12.8% 26.1% ‐23.8% 0.5% ‐2.5% 17.5% ‐9.6%
Occurance Rally Correction Chances for Rally
3 5 37.5%
4 4 50.0%
17.6% 4.0% ‐0.7% ‐6.0% 1.8% 0.4% 5.0% ‐8.4% 5 3 62.5%
2 weeks
8.7% 2.9% 1.4% 1.4% 2.0% 2.3% 2.1% ‐5.3%
G. Election Date FBM KLCI 8‐Jul‐78 165.07 22‐Apr‐82 318.52 3‐Aug‐86 214.22 21‐Oct‐90 476.79 24‐Apr‐95 975.05 29‐Nov‐99 745.91 21‐Mar‐04 904.45 8‐Mar‐08 1,296.33
7 1 87.5%
2 weeks
‐1.2% 1.4% 1.5% 4.0% ‐2.4% 3.1% ‐1.6% ‐8.3% 4 4 50.0%
After G. Eelction 1 month 3 Mth
5.4% 1.0% 13.4% ‐0.2% 6.6% 7.9% ‐4.5% ‐5.8% 5 3 62.5%
‐1.0% ‐16.0% 27.0% 1.1% 7.6% 31.7% ‐8.7% ‐5.0% 4 4 50.0%
6 Mth
‐1.8% ‐9.1% 35.0% 24.9% ‐2.0% 21.6% ‐4.3% ‐17.0% 3 5 37.5%
However, economic conditions have improved greatly since the contraction in 2009. Plans mooted by the BN leaders so far since the big defeat in 2008 appeared sincere in addressing the root cause of the socio‐economic malaise. Malaysians are beginning to show interest and be part of transformation programmes mooted by Datuk Seri Najib and this was apparent on the launch day of the Economic Transformation Programme where the presentation hall was packed to the brim. Anticipate the market to take a precautionary stance starting from two to three weeks before the election next year, but expect a strong build up in momentum prior to that (assuming a general election in 2H2011) driven by positive news flow related to various entry point projects under the ETP. If BN wins back its two‐third majority and some of the four loss states (excluding Perak), the market would react very positively as it not only ensures continuity in various transformation initiatives that was mooted this year but also gives BN the right to the amend the constitution. Anticipate share prices of most GLC’s and beneficiaries of various programmes under Budget 2011, especially banks, construction, building material and property players to fly if BN strikes a major victory. However, if it wins the election again with a not so encouraging simple majority, this could have a long‐term negative implication on the economy as well as BN component parties due to delays in the decision making process and politicking. Emergence of new power plays and struggle for party leadership could rob away precious time that is needed to be spent on economic matters and implementation of projects in certain states could continue to be a long outstanding issue such as the Pahang‐Selangor interstate water transfer.
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Figure 22: Potential Election Stocks
PER (x) Name Peninsular GAMUDA AZRB SPSETIA KENCANA UEMLAND KNM IJM MEDIA STAR CIMB MAYBANK MRCB MHB Sarawak CMSB UBG ENCORP HSL Sarawak Cable Sarawak Plantation Petra Energy DAYANG NAIM
Cl Price T.Price (RM) Upside (06.12.10)
Rating
FY11
FY12
3.76 1.08 5.24 2.01 2.29 1.93 6.14 2.34 3.39 8.47 8.41 2.01 4.90
4.24 1.55 4.32 2.25 2.94 2.80 7.36 2.65 4.42 10.8 11.3 2.26 4.16
12.8% 43.5% ‐17.6% 11.9% 28.3% 45.1% 19.9% 13.2% 30.4% 27.5% 34.4% 12.4% ‐15.1%
Buy NA Sell NA NA B uy Buy Buy Buy Buy Buy NA Sell
17.4 8.3 24.3 17.5 84.8 9 .6 20.8 15.5 13.0 15.4 13.5 36.5 20.9
13.3 7.2 19.4 14.5 61.9 6 .5 17.1 10.0 10.9 13.5 12.0 33.5 17.9
2.60 2.48 0.915 1.80 1.20 2.47 1.48 2.69 3.49
3.00 3.00 1.58 2.21 NA 2.53 1.55 3.34 4.92
15.4% 21.0% 72.7% 22.7% NA 2.3% 4.7% 24.3% 41.1%
NA NA Buy NA NA NA Sell NA NA
11.8 NA 4.2 10.8 NA 13.0 11.4 11.5 7.9
11.3 NA 3.6 9.9 NA NA 9.2 10.0 6.3
*Stocks highlighted in Red are Not Rated. Data provided are based on consensus.
Of course, the most unexpected outcome is BN’s defeat to the opposition. Initial market response to this could be negative due to uncertainties related to continuity in government policies and various planned projects as there was no precedence of opposition parties or their alliance ruling the country since independence in 1957. With the three Pakatan Rakyat parties having three different ideologies and their own agenda, market is expected to take a sharp correction and pause until confidence in the new government is restored. That depends very much on who will lead the government, how realistic and visionary are their socio‐economic directions, and how well they can reunite the splinter groups within the government machinery.
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Figure 23: Graphical Illustration of Recent General Elections
2008
2004
1999
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Foreign & Forex Boost Themes: FOREIGN FUND FLOW STRONGER RINGGIT Overview The Malaysian economy has remained healthy despite the uncertain global economic environment. Key indicators signal that GDP growth is moderating in line with the stabilization of the economy. On a whole, we expect: (1) continued inflow of funds; (2) modest inflation growth for 2011; (3) expectation for strong Ringgit next year; and (4) full normalization of interest rate by year‐end 2011. Focusing on these main areas, our recommendations are as follows. 1) Ringgit expected to appreciate Our 2011 year‐end target for the Ringgit is RM2.80. Here, we believe that the domestic economy is favourable and constructive for a strong Ringgit underpinned by a combination of: 1) commendable level of international reserves held at BNM (USD105.8bn as at 15th October 2010), 2) healthy trade surplus and continued exports acceleration, 3) labour market to maintain full employment, 4) consumer prices will continue to be in check, and also 5) full normalisation of OPR to 3.50% in 2011. As shown in the following chart, there is a positive correlation between a strengthening in Ringgit and market rally as foreign investors take position to seize the forex gain potential. Figure 24: Ringgit Strengthening and FBM KLCI
2000
4
1500
3
1000
2
500
Index rose when RM appreciate
1
Index down when RM depreciate
0
FBMKLCI Index (LHS)
MYR Curncy (RHS)
Dec‐10
Jun‐10
Dec‐09
Jun‐09
Dec‐08
Jun‐08
Dec‐07
Jun‐07
Dec‐06
Jun‐06
Dec‐05
0
Overall earnings unaffected by stronger Ringgit The stronger Ringgit may not have any material impact on overall earnings. Based on our earnings estimates, average CY11 EPS would rise by a marginal 0.1% while CY12 EPS should dip by around 0.1% for every 10 sen the Ringgit appreciates vis‐ à‐vis the USD. Here, glove manufacturers, freight & tankers and semiconductor players would suffer from substantially reduced earnings since a significant proportion of revenues are denominated in USD. Average EPS for the O&G‐based companies are also estimated to decline by some 1.8‐1.9% since manufacturing orders and vessel contracts are based on USD. On a positive note, telco, consumer, auto, plantation and media players such as Amway, TM, Axiata, Maxis, Tenaga, Proton, Boustead, KLK and Sime Darby, Media Prima and Star stand to gain from a Ringgit appreciation due to savings from imported foreign content, fertiliser costs and newsprints, which are all priced in USD while in the Aviation industry, the stronger Ringgit could help pare down costs the purchase price of jet fuel for MAS and AirAsia.
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Figure 25: Impact from 10 sen appreciation in MYR vis‐à‐vis USD
Company AMWAY MAS TM AXIATA MAXIS GUINESS AIRASIA UMW TENAGA KFC KINSTEL MEDIA PROTON STAR NESTLE CARLSBG F&N BSTEAD KLK IOICORP SIME PANTECH QL GENTING PETGAS PENERGY YTLPOWR TGOFFS COCOLND KNM PETDAG SAPCRES
Change (%) EPS FY11 EPS FY12 10.8 11.2 9.8 10.1 14.6 9.2 10.5 7.5 8.7 7.2 3.5 7.2 6.3 7.1 5.5 5.1 5.1 5.0 1.5 4.0 5.3 3.1 4.4 3.8 3.9 3.7 3.5 2.9 2.8 2.0 1.7 1.6 1.0 1.4 0.5 0.4 0.4 0.4 0.3 0.3 0.2 0.2 0.0 ‐0.4 ‐0.1 0.1 ‐0.2 ‐0.1 ‐0.4 ‐0.5 ‐0.5 ‐0.5 ‐0.7 ‐1.3 ‐1.0 ‐0.9 ‐1.1 ‐2.3 ‐1.4 ‐1.5 ‐1.8 ‐1.9 ‐2.2 ‐2.2
MISC PETRA
‐2.7 ‐3.0
‐2.3 ‐3.7
MAYBULK JADI PERISAI UCHITEC UNISEM MPI SUPERMX TOPGLOV
‐3.1 ‐4.6 ‐5.6 ‐6.9 ‐8.2 ‐10.6 ‐16.8 ‐23.9
‐3.0 ‐4.4 ‐5.7 ‐7.3 ‐8.8 ‐11.4 ‐15.9 ‐22.1
Positive/Negative Reasons Positive. 80% of purchases are in USD Positive due to USD‐based jet fuel and high USD borrowings Bulk of borrowings in USD Bulk of borrowings in USD Bulk of borrowings in USD Neutral. Natural hedge from exports/imports. Positive due to USD‐based jet fuel and high USD borrowings Positive. 80% of imported foreign content is USD based Lower coal cost Cheaper raw materials cost Positive. 45% of cost is USD based Overseas content & NSTP's newsprint denominated in USD Positive. 8.8% COGS is USD based Cheaper Newsprint Price translates to lower cost Cheaper raw materials cost Neutral. Natural hedge from exports/imports. Cheaper raw materials cost Lower fertiliser cost Lower fertiliser cost Lower fertiliser cost Lower fertiliser cost Negative. Manufacturing orders n USD Exports may be affected Neutral Negative. Some commercial business in USD but marginal Negative. Vessel contract in USD Lower associate contribution Negative. Vessel & Rig contracts in USD 40% sales are for export market Negative. Most fabrication contracts overseas in USD Negative. Some commercial business in USD Negative. Vessel & Rig contracts in USD Negative. Sales are mostly in USD term. Impact cushioned by cost based on USD Negative. Vessel contract in USD Negative. Sales are mostly in USD term. Impact cushioned by cost based on USD Negative. Sales are denominated in USD. Negative. Vessel contract in USD Negative. Sales are denominated in USD. Negative. Sales are denominated in USD. Negative. Sales are denominated in USD. Negative. Close to 100% of revenue are denominated in USD. Negative. Close to 100% of revenue are denominated in USD.
Source: TA Securities
2011 Market Outlook
28
TA Securities
2011 Annual Strategy
A Member of the TA Group
2) Full normalisation of OPR in 2011 Ahead of next year’s MPC meeting, we anticipate a gradual normalisation of rates to pre‐crisis level of 3.50% by the end of 2011. We expect three separate increases in the OPR of 25bps each during the MPC meets in 1Q; 3Q; and 4Q11. The MPC meetings will convene six times a year based on the following schedule shown in the figure below. Figure 26: Schedule of Monetary Policy Committee Meetings for 2011 MPC Meeting No.
Dates
TA's Expectations
1st
27 January 2011 (Thursday)
2.75% (unchanged)
2nd
11 March 2011 (Friday)
3.00% (+25 bps)
3rd
5 May 2011 (Thursday)
3.00% (unchanged)
4th
7 July 2011 (Thursday)
3.25% (+25 bps)
5th
8 September 2011 (Thursday)
6th
11 November 2011 (Friday)
3.25% (unchanged) 3.50% (+25 bps)
Sources: Bank Negara Malaysia, TA Securities
Higher OPR positive for overall earnings While an increase in borrowing costs as a result of an upward shift in OPR should not be positive for earnings, we estimate that overall earnings of all the stocks under our coverage should grow by a marginal 0.7%. We believe this is largely due to positive earnings impact for heavyweights, namely the banks, which we envisage would see a 3% expansion in earnings for every 10 bps increase in OPR. Elsewhere, bulk of the stocks under our portfolio is not expected to be adversely affected by the OPR hike since: 1) most borrowings are term loans or bonds, 2) some companies are in net cash position, and 3) several companies hold debts in foreign currencies. Nevertheless, we believe the plantation and O&G players could see earnings weaken by higher borrowing costs. Other counters saddled with relatively high debt include IJM, WCT Puncak and Tenaga.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)
2011 Market Outlook
29
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2011 Annual Strategy
A Member of the TA Group
Figure 27: Impact from 10 bps increase in OPR
Company STAR EON Cap HLBANK PBBANK RHBCAP AFG PROTON AMMB MAYBANK COCOLND CIMB AMWAY KFC SAPCRES AEON F&N PETDAG BJTOTO PANTECH KLK KNM IOICORP SIME CARLSBG AXIATA WCT PERISAI NESTLE MEDIA PETRA TENAGA GUINESS PENERGY BSTEAD IJM MAXIS QL PUNCAK TM
Changes (%) EPS FY11 EPS FY12 12.7 10.9 4.4 4.1 4.1 3.9 3.7 3.4 3.5 3.7 3.2 3.2 2.9 2.9 2.6 2.5 2.5 2.5 2.3 1.2 1.7 1.7 1.2 1.3 0.4 0.4 0.2 0.2 0.1 0.1 0.1 0.3 0.1 0.0 ‐0.1 0.5 ‐0.1 ‐0.1 ‐0.1 ‐0.1 ‐0.2 ‐0.2 ‐0.2 ‐0.2 ‐0.2 ‐0.2 ‐0.2 ‐0.4 ‐0.3 ‐0.3 ‐0.4 ‐0.4 ‐0.4 ‐0.4 ‐0.5 ‐0.4 ‐0.5 ‐0.4 ‐0.5 ‐0.4 ‐0.5 ‐0.4 ‐0.6 ‐0.6 ‐0.6 ‐0.4 ‐0.6 ‐0.5 ‐0.7 ‐0.3 ‐0.7 ‐0.4 ‐1.2 ‐0.9 ‐1.5 ‐0.7 ‐1.8 ‐2.0
Positive/ Negative Reasons Star is in a net cash position Positive. A 75 bps hike in OPR next year could enhance NIM. Positive. A 75 bps hike in OPR next year could enhance NIM. Positive. A 75 bps hike in OPR next year could enhance NIM. Positive. A 75 bps hike in OPR next year could enhance NIM. Positive. A 75 bps hike in OPR next year could enhance NIM. RM1.7bn cash pile with minimal borrowings Positive. A 75 bps hike in OPR next year could enhance NIM. Positive. A 75 bps hike in OPR next year could enhance NIM. Neutral Positive. A 75 bps hike in OPR next year could enhance NIM. Neutral Neutral Positive. Net Cash Position Neutral Neutral Positive. Net Cash Position Neutral. No borrowings denominated in USD. Negative Higher borrowings cost Negative Higher borrowings cost Higher borrowings cost Neutral Neutral Negative ‐ Net gearing Negative Neutral Negative Negative Higher borrowings cost Neutral Negative Higher borrowings cost Negative ‐ Net gearing Neutral Neutral Higher borrowings cost Neutral
Sources: TA Securities
3) Foreign exposure increases for Malaysia The shift in global liquidity has resulted to the considerable inflow of capitals into mainly the emerging economies. According to the United Nations Conference on Trade and Development (UNCTAD), FDI into Malaysia had registered a net inflow totalling RM11.0bn in 1H10. We also note that the international reserves level at BNM had improved through to November 2010 underpinned by the inflow of short term funds. On a yearly basis, total reserves at BNM had advanced by 10.1% YoY, amounting to USD105.8bn as at 15th November 2010. 2011 Market Outlook
30
TA Securities
2011 Annual Strategy
A Member of the TA Group
Figure 28: International Reserves at BNM
Figure 29: Inflows and Outflows of Foreign Investment
130
12
125
10
120 115
5,000
20,000
0
15,000
8
‐5,000 10,000
110
6
‐10,000 5,000
4
USD/ bn (LHS)
Months of Retained imports (RHS)
FDI into Malaysia (RM/mn)(LHS)
Dec‐2009
Mar‐2009
Jun‐2008
Sep‐2007
Dec‐2006
Mar‐2006
Sep‐2004
Jun‐2005
‐25,000 Dec‐2003
‐5,000
‐20,000
Mar‐2000
15‐Jul‐10
0
30‐Sep‐10
30‐Apr‐10
15‐Feb‐10
30‐Nov‐09
30‐Jun‐09
15‐Sep‐09
31‐Jan‐09
15‐Apr‐09
31‐Aug‐08
15‐Nov‐08
15‐Jun‐08
31‐Mar‐08
15‐Jan‐08
85
2
Jun‐2002
90
‐15,000 0
Mar‐2003
95
Sep‐2001
100
Dec‐2000
105
Malaysian Investment Abroad (RM/mn) (RHS)
Sources: Department of Statistics, TA Securities
Sources: BNM, TA Securities
Figure 30: Modest Price increase in 2010 and 2011
Figure 31: Ringgit vs. USD, GBP, EUR, JPY, AUD and SGD
120.0
6.0
5.50
115.0
5.0
5.00
110.0
4.50
4.0
105.0
4.00
3.0 100.0
3.50
2.0
CPI (LHS)
yoy % (RHS)
Sources: Department of Statistics, TA Securities
3.00
USD
GBP
EUR
JPY100
AUD
12/11/2010
3/11/2010
26/10/2010
18/10/2010
8/10/2010
30/9/2010
22/9/2010
2/9/2010
13/9/2010
24/8/2010
16/8/2010
6/8/2010
29/7/2010
21/7/2010
5/7/2010
13/7/2010
25/6/2010
9/6/2010
17/6/2010
2.50
2011f
2010e
2009
2008
2007
0.0 2006
85.0 2005
1.0
2004
90.0
1/6/2010
95.0
SGD
Sources: Bank Negara Malaysia, TA Securities
Foreign inflows to boost equity participation We see inflow of foreign interest and equity participation to likely boost the market ahead of the rollout of ETP projects and to capture potential gains from a stronger Ringgit. Here, we undertake a study to analyse the impact of the rise in foreign trading via their equity participation in the market vs. the KLCI’s performance. We note that the average foreign trading participation was at a 10‐year high in 2008 when the KLCI peaked to a high of 1,516.22. By 4Q 2008, the market started to weaken due to the credit crisis. This resulted in a sell down by foreign investors as the equities trading participation in the market plunged to 27% by end‐2009 from 43% at end‐2008.
2011 Market Outlook
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2011 Annual Strategy
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Figure 32: KLCI vs. Foreign Trading Participation KLCI (LHS)
Foreign trading participation (RHS)
1600
50 45 40 35 30 25 20 15 10 5 0
1400 1200 1000 800 600 400 200 0 2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Sources: Various, Bloomberg, TA securities
Figure 33: KLCI PER vs. Foreign Trading Participation 25.0
PER (LHS)
50.0
Foreign trading participation (RHS)
45.0 20.0
40.0 35.0 30.0
15.0
25.0 10.0
20.0 15.0 10.0
5.0
5.0 0.0
0.0 2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Sources: Various, Bloomberg, TA securities
Figure 34: KLCI vs. Foreign Ownership KLCI
Foreign ownership
1600.0
30.0
1400.0
25.0
1200.0 20.0
1000.0 800.0
15.0
600.0
10.0
400.0 5.0
200.0 0.0
Sources: Bloomberg, TA securities
2011 Market Outlook
32
Sep‐10
Jul‐10
Mar‐10
May‐10
Jan‐10
Nov‐09
Jul‐09
Sep‐09
Mar‐09
May‐09
Jan‐09
Nov‐08
Jul‐08
Sep‐08
May‐08
Jan‐08
Mar‐08
Sep‐07
Nov‐07
Jul‐07
May‐07
Jan‐07
Mar‐07
0.0
TA Securities
2011 Annual Strategy
A Member of the TA Group
Foreign interest could push KLCI to new highs Based on our analysis, we find that the movement of the foreign trading participation does not directly correspond with the KLCI. However, we observe that the participation would increase when the KLCI’s PER valuations are on a downtrend and vice versa. At current price levels, the KLCI is currently trading at PER FY11 of 14.5x – attractive vis‐à‐vis the market’s average 11‐ year PER cycle of 16.7x. We believe this could be a possible catalyst in driving the KLCI to new highs of 1,820. High beta blue chip stocks on the radar screen We believe high beta blue chip counters will stand to benefit from the influx of foreign funds. We note that the participation level for some of these stocks have been climbing over the past year. Banking stocks such as CIMB (Buy, TP:RM10.80), Maybank (Buy, TP:RM11.30), PBB (Hold, TP:RM13.70) and AMMB (Buy, TP:RM7.40) traditionally garners strong foreign interest. Construction counters such as Gamuda (Buy, TP:RM4.24) and IJM (Buy, TP:RM7.36) could also see keen interests due to the rollout of ETP projects next year while plantation and O&G stocks such as KNM (Buy, TP:RM2.80), Perisai (Buy, TP:RM0.65), KLK (Buy, TP:RM22.23) and Sime Darby (Buy, TP:RM10.25) could gain from rising commodity prices. Elsewhere, we also foresee the pickup in consumer and investor sentiments to augur well for the consumer, property and gaming sectors. Here, we note that counters such as Supermax (Buy, TP:RM6.40), Carlsberg (Hold, TP:RM6.16), Guinness (Hold, TP:RM8.88), Aeon (Hold, TP:RM6.50), Nestle (Sell, TP:RM44.10), BAT (Sell, TP:RM43.72), Genting (Buy, TP:RM13.11), Mah Sing (Buy, TP:RM2.48), SP Setia (Sell, TP:RM4.32) and KSL (Buy, TP:RM2.50) are stocks on most of the foreign investors’ radar screen. Tabulated below are some of the counters with strong foreign following and their respective foreign shareholding levels.
Figure 35: Foreign shareholding levels Company
Company
Foreign shareholding level
2007 BANKS & FINANCIAL SERVICES AMMB 38.1 CIMB 51.0 MAYBANK 20.1 PBBANK 33.0 BURSA 41.6
2008
2009
Current
30.1 32.0 10.8 29.1 21.3
29.6 42.4 10.9 26.5 17.6
31.0 41.6 15.0 26.3 18.9
Foreign shareholding level 2007
2008
2009
Current
MEDIA MEDIA
54.3
45.1
34.0
27.4
OIL & GAS KNM PERISAI KLK SIME
20.0 0.0 n.a. n.a.
20.0 0.0 n.a. 13.1
20.0 25.0 16.0 14.2
20.0 45.0 19.0 14.0
PROPERTY MAHSING KSL SPSETIA
31.5 <10.0 43.7
18.6 <10.0 27.3
17.7 <10.0 23.5
16.4 15.0 23.8
POWER & UTILITIES TENAGA 23.3 YTLPOWR n.a.
13.1 7.0
9.4 5.0
12.7 9.0
CONSTRUCTION GAMUDA IJM WCT
n.a. 60.0 27.0
n.a. 31.0 19.0
n.a. 32.0 9.0
40.0 40.0 14.0
CONSUMER GUINESS AEON NESTLE BAT
8.0 38.7 22.0 17.0
13.3 31.7 21.0 18.6
20.8 39.5 21.0 16.6
22.0 n.a. 23.0 25.1
GAMING GENTING GENM
42.0 39.0
35.0 33.0
36.0 31.0
37.0 33.0
TELECOMMUNICATIONS DIGI 11.6 MAXIS n.a. AXIATA n.a.
7.8 n.a. 12.2
4.0 30.0 6.7
9.0 30.0 16.1
INDUSTRIAL SUPERMX TOPGLOV
<10.0 34.0
6.0 33.0
11.0 36.0
20.0 31.0
TECHNOLOGY FRONTKN
27.0
27.0
26.0
24.0
TRANSPORTATION AIRASIA 48.8
37.9
50.4
52.6
Sources: Various, TA securities
2011 Market Outlook
33
TA Securities
2011 Annual Strategy
A Member of the TA Group
Commodity – Flavour of the Year Theme: RISE OF COMMODITY PLAYS Commodity Play to Extend Into 2011 Commodity is one of the top performing asset classes in 2010 amidst the lagging recovery in the real estates and the slow recovery in the developed nation’s economy in the general. We believe commodities will continue to be favoured in 2011 driven by: 1) large liquidity in the global economy as a result of quantitative easing policies in the US and bank bailout program in the EU, 2) resilient demand, 3) unattractive potential returns from alternative assets classes, and 4) hedging instrument against depreciating value of USD. QE 2 – Another Liquidity Boost Similarly, we expect the so called QE 2, which is essentially the second round of US Federal Reserve initiatives to stimulate the economy will continue to be a boon for commodity prices. To recap, the US Fed announced on Nov 3 that it will spend USD600bn to buy longer‐term Treasury bonds with an option to increase this amount further should the need arise. The bonds purchase will amount to USD75bn/month and will be extended until end‐June 2011. Given the relatively weak economic outlook in the developed countries, we think this additional liquidity will likely to be invested in commodities as well as equity and fixed income of the emerging markets. What Was The Impact Of QE1? The original quantitative easing measures, dubbed QE1 were announced on March 18, 2009 with a view of lowering the long‐ term interest rates, considering that the benchmark rate is already close to zero. These measures coupled with successful outcome of bank stress test, undertaken by the US Treasury were widely credited to the recovery in global equity markets. The two key measures implemented in QE1 are: 1) buying up to USD1.45tn in mortgage‐backed securities and (2) buying up to USD300bn in US Treasuries. Given the lacklustre US economy and the weak USD, investors had shifted interest towards the commodities’ market. Major commodities had experienced soaring prices throughout 2009. Namely, crude palm oil, copper, gold, crude oil, cocoa and rubber had advanced and ended higher by the end of 2009 on the back of the rising demand for commodities. We note the following trends in worldwide commodities, which include: Crude palm oil rose to a high of RM2,887 on 13th May 2009 before settling lower by year‐end 2009. For 2009, it rose by more than 50% in 2009 to end the year at RM2,590 per metric ton on 31st December 2009. Gold price has also gone up steadily to USD1,096 per troy oz in December 2009 (or by a considerable 24.4% in 2009). Note that gold prices registered a low of USD811.7 on 14th January 2009, and a high of USD1215.7 on 2nd December 2009. Copper price rose by an overall 120.5% to USD7,346 per tonne at December 2009. It was highest on 31st December 2009 and lowest on 22nd January 2009. Crude Oil price rose to USD85.15 per barrel in December 2009 from below USD70 per barrel in May 2009. It reached its highest level on 4 November 2009 and lowest on 13 July 2009 respectively. Cocoa price has been going up steadily from USD2450 per metric tonne level at May 2009 and end the year at USD3298 per metric tonne. The highest level of the year was USD3477 per metric tonne in the month of December 2009 and the lowest level of the year was USD2410 per metric tonne in the month of May 2009.
2011 Market Outlook
34
TA Securities
2011 Annual Strategy
A Member of the TA Group
Figure 36: Rally in global commodities was partly attributable to liquidity boom arising from Fed’s quantitative easing measures i) Crude Palm Oil (RM/ tonne) ii) Gold price (USD/ ounce) 3300
1500
3100
1400
2900
1300
2700
1200
2500 2300
1100
2100
1000
1900
900
1700
Sources: Bloomberg, TA Securities
Crude Oil Price (USD/ barrel)
iv)
25‐Sep‐10
17‐Jun‐10
06‐Aug‐10
28‐Apr‐10
09‐Mar‐10
Sources: Bloomberg, TA Securities
iii)
18‐Jan‐10
29‐Nov‐09
10‐Oct‐09
21‐Aug‐09
02‐Jul‐09
24‐Mar‐09
02‐Feb‐09
25‐Sep‐10
6‐Aug‐10
17‐Jun‐10
28‐Apr‐10
9‐Mar‐10
18‐Jan‐10
29‐Nov‐09
10‐Oct‐09
21‐Aug‐09
2‐Jul‐09
13‐May‐09
24‐Mar‐09
2‐Feb‐09
13‐May‐09
800
1500
Cocoa price (USD/ metric ton)
3600
95
Sources: Bloomberg, TA Securities
Sources: Bloomberg, TA Securities
v)
22‐Oct‐10
2‐Sep‐10
14‐Jul‐10
25‐May‐10
5‐Apr‐10
14‐Feb‐10
26‐Dec‐09
6‐Nov‐09
20‐Apr‐09
31‐Jul‐10
23‐Nov‐09
15‐Aug‐09
17‐Sep‐09
2200 29‐Jul‐09
2400
60 19‐Sep‐10
2600
65
11‐Jun‐10
70
22‐Apr‐10
2800
3‐Mar‐10
75
12‐Jan‐10
3000
4‐Oct‐09
80
26‐Jun‐09
3200
7‐May‐09
85
9‐Jun‐09
3400
90
Copper Price (USD/ tonne) 9000 8000 7000 6000 5000 4000 3000 25‐Sep‐10
6‐Aug‐10
17‐Jun‐10
9‐Mar‐10
28‐Apr‐10
18‐Jan‐10
10‐Oct‐09
29‐Nov‐09
21‐Aug‐09
2‐Jul‐09
13‐May‐09
24‐Mar‐09
2‐Feb‐09
2000
Sources: Bloomberg, TA Securities
Will QE2 Have The Similar Impact? We believe there will be a close correlation between the impact of QE2 and QE1 on commodity prices. We see similarities between the economic condition when QE1 was implemented back then and now, that drove up commodity prices more than a year ago. Essentially, the economic outlook in the western hemisphere remains depressed and therefore, investors would be likely to search for higher return elsewhere. While recent US economic data is showing signs of improvement, unemployment rate is still high and likely to cause risk adverseness to USD assets. In the EU, sovereign debts crisis and government budget cuts would likely drive subpar economic growth in the years ahead. 2011 Market Outlook
35
TA Securities
2011 Annual Strategy
A Member of the TA Group
Figure 37: Benign US economic growth.....
4.0 3.0 2.0
Jul‐10
Mar‐10
Nov‐09
Jul‐09
Mar‐09
Nov‐08
Jul‐08
Mar‐08
Nov‐07
Jul‐07
Mar‐07
Nov‐06
Jul‐06
Mar‐06
‐2.0
Nov‐05
‐1.0
Jul‐05
0.0
Mar‐05
% YoY
1.0
‐3.0 ‐4.0 ‐5.0
Figure 38: .....but unemployment and weak property market are still key hurdles
The Side Effect of QE – Weaker USD The spin off effect from QE is a relatively weak USD. The US authorities’ effort to push interest rates lower would widen the gap with other countries and therefore benefits currencies of the latter. There are also risks the USD carry trade would increase ahead as investors borrow in USD and invests the money in other higher yielding market/assets. Traditionally, commodities, particularly gold, metal and soft commodities are viewed as hedging instruments against a weak USD. The value of commodities in USD denomination would have to increase to compensate raw material producers, mostly in Australia and emerging markets for the otherwise forex losses or gains they have to incur. In any case, commodities will likely emerge as a key beneficiary of weaker USD going forward. Strong RM Boon to CPO Our economist forecast RM to strengthen to 2.80/USD by the end of 2011. The current rate is RM3.14/USD. Key factors supporting our view includes: 1) extended period of low interest rate policy in the US, 2) normalisation of Malaysian OPR next year, 3) stronger domestic economic fundamentals, 4) stronger Chinese Yuan would benefit regional currencies, including RM, and 5) capital control measures in neighbouring countries, including Indonesia, South Korea, Taiwan and Thailand may indirectly benefit from the RM. 2011 Market Outlook
36
TA Securities
2011 Annual Strategy
A Member of the TA Group
Key Risk Factor – China’s AntiInflationary Measures Dampening Growth, And Sentiments The key risk factor to commodity plays could stem from the recent Chinese government’s anti‐inflationary measures, in our view. The Chinese government had voiced its concern on rising prices, particularly food products. Some of the measures implemented so far to fight inflation are as follows. 1. Raise bank reserve requirement twice in two weeks – a 50 bps increase each. Experts estimate the second hike alone could drain USD53bn from the credit market. 2. Raise interest rate by 25 bps – the first since 2007. There are speculations that the government may increase the rate further, possibly by this December if inflation is not contained. 3. Raise margin and daily price limits for metals trading in the Shanghai Futures Exchange. Margin for copper, aluminium, gold and fuel oil raised by 10% and daily price limit for all products widened by 6%. 4. The Dalian Commodity Exchange has also implemented measures to curb abnormal trading to prevent price manipulation, including void any trades where buyers and sellers are the same entity (via related accounts), or if the trades are frequently placed and cancelled. More recently, the exchange increased the deposit on soybeans (including derivatives), CPO and corn to 10% (7% previously) while the daily price limit has been revised upward to 6% (5% previously). How to Ride on This? In the Malaysian investors’ perspective, we would recommend investors go overweight on Plantation and Oil & Gas sectors. Both sectors are beneficiaries of commodity plays. In the Plantation segment, we have Buy recommendations on all the stocks under our coverage except for IOI Corp (Hold, TP:RM6.45). We like companies with young palm age profile, such as IFAR (Buy, TP: SGD3.55) and KLK (Buy, TP: RM22.23). In addition, both companies also own sizeable tracts of rubber estates (KLK: 26k ha, IFAR: 22k ha). Rubber price has rallied recently and we believe prices will remain high due to supply shortage as well as strong demand from the automotive sector, particularly in India and China. Another stock that we like, which is included in our 2011 top stock pick list is Boustead. We project net profit to grow by an impressive 28% YoY and 24% YoY in FY11 and FY12 respectively. While higher CPO is a catalyst for growth, its non‐plantation segments are also expected to turn in strong profits over the next 3 years. The heavy industries business received a boost recently after receiving a Letter of Intent to build the 2 nd batch of patrol vessels, potentially worth as much as RM8bn. The property development arm saw declining fortunes in the past 3–5 years due to maturing existing projects and lack of prime land bank. That is set to change as the group is close to securing a deal to develop two prime land banks via the government land sale program, with a combined estimated GDV of up to RM16bn – RM18bn. As for Oil & Gas, we particularly like KNM (Buy, TP:RM2.80) for its exposure to a global recovery in capex cycle and the rising oil prices. The group could also win contracts for the regasification plant in Malacca. We also like Perisai (BUY, TP: RM0.65) for its capability to undertake exploration and production activities on marginal fields which could kick start next year and the possible injection of assets from its shareholder Ezra Holdings. We also like the long‐term growth prospects of Petronas Gas (Buy TP:RM13.30) with the construction of a new regasification plant in Malacca that will increase the volume of gas transported through its PGU pipeline network. This cash cow is already on track to grow its earnings by 50% in FY11.
2011 Market Outlook
37
TA Securities
2011 Annual Strategy
A Member of the TA Group
Plantation Sector (Overweight) Another Bullish Year? Overweight View on the Sector We are Overweight on the Plantation Sector, underpinned by bullish supply & demand dynamics and the potential upside from RM play. Our current earnings forecasts are based on CPO price assumption of RM2,700/tonne in CY11 and RM2,650/tonne in CY12. These price assumptions could turn out to be rather conservative if upside from two wild cards, i.e. weather and crude oil price, materialises. Supply & Demand Outlook Weather Risk to Supply The unusually hot weather (El Niño) in 4QYC09/1QCY10 and the current La Nińa (above average rainfall) will have significant impact on supply going forward. Two key impacts are highlighted below. 1.
2.
Lower carryover stocks. In Malaysia, the lag impact of El Niño is impeding the natural stocks replenishment in the Aug/Nov period and therefore, CPO stocks will remain low entering into 2011. Data published by MPOB shows Jan/Oct production declined by 1.0% YoY while stocks were only 1.79mn tonnes compared with 1.96mn tonnes in Oct 2009. In Indonesia on the other hand, 1H10 production was affected by unusually high amount of rainfall and the lag impact of fertiliser rationing by smallholders in 2008. While there is no official data available, industry consensus is that CY10 production would only increase by 1.0mn – 1.5mn tonnes in CY10 as compared to a projection of 2.0mn – 2.5mn tonnes increase earlier. Negative impact on soybeans production. There is real risk that soybean supply would disappoint as the inverse of La Nińa in the northern hemisphere may result in lower production and yield. In the US, USDA has been on revising downward soybeans yield estimate for the past three months. In its November monthly report, the agency cut yield estimate by 1.1% and ending stocks by 30.2%. In South America, planting season is being delayed, particularly in Brazil due to the dry weather. Current meteorological forecasts indicate La Nińa phenomenon would continue until 1Q11. This coincides with the crucial period of soy growing stage, i.e. flowering (Jan/Feb) and pod development (Feb/Mar). Historically, dry weather during these stages would result in lower yield when the oilseeds are harvested.
Figure 39: CPO S&D outlook Oct/Sept
2005
2006
2007
2008
2009
2010E
2011F
Opening stocks Production Indonesia Malaysia Total supplies
4.4 33.5
5.1 36.0
37.9
41.2
5.8 37.8 16.9 15.3 43.6
6.1 42.8 19.1 17.6 48.9
7.5 44.3 20.5 17.3 51.7
7.3 45.9 21.5 17.8 53.3
7.3 48.7 23.5 18.1 55.9
Net imports Consumption
0.0 32.8
0.0 35.4
‐0.2 37.4
‐0.2 41.2
0.3 44.7
‐0.1 45.9
0.1 48.6
Ending stocks Stock/usage ratio
5.1 15.7
5.7 16.2
6.1 16.2
7.5 18.1
7.3 16.5
7.3 15.8
7.4 15.2
7.5 8.1 11.9
5.0 5.5 5.4
13.2 10.3 23.3
3.4 8.3 ‐1.5
3.7 2.9 ‐1.2
6.0 5.9 1.9
% growth Production Consumption Stocks Source: Oil World, TA Securities
2011 Market Outlook
38
TA Securities
2011 Annual Strategy
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Figure 40: Soybeans S&D outlook Oct/Sept
2005
2006
2007
2008
2009
2010
2011F
Opening stocks
40.8
52.3
59.3
71.5
59.6
45.3
67.1
Production N. Hemisphere S. Hemisphere
216.7 116.8 99.9
222.3 117.6 104.8
237.6 121.4 116.2
220.5 104.8 115.7
211.3 114.7 96.6
261.0 125.2 135.8
258.8 127.8 131.1
Total supply
257.4
274.7
296.9
291.9
270.9
306.2
325.9
Disappearance Ending stocks
205.1 52.3
215.4 59.3
225.5 71.5
232.3 59.6
225.6 45.3
239.1 67.1
258.9 67.0
Stocks/usage
25.5%
27.5%
31.7%
25.6%
20.1%
28.1%
25.9%
2.6 5.0
6.9 4.7
‐7.2 3.1
‐4.1 ‐2.9
23.5 6.0
‐0.8 8.3
Growth: Production Consumption Source: Oil World, TA Securities
Labour Shortages is A Long Term Structural Issue According to industry sources, the weak YTD CPO production in Malaysia was partly attributed to labour shortages in the country. We think this is a long term structural issue as there appears to be a mismatch between the government’s aspiration to increase opportunities for the domestic workforce (due to political and social considerations), low affinity of local jobseekers to take up jobs in the agricultural sector and plantation companies preference for low cost import of human resources. Without a political compromise, we believe the issue is likely to persist ahead. The net impact on production however is difficult to quantify, although discussions with few plantation companies indicates crop loss of < 5% in general, as a result of labour shortage. Tight Supply Implies Low Stocks/Usage Combination of lower carryover stocks, risk to forward supply and strong demand will ensure stocks/usage of vegetable oils remains low next year – This is positive for price. Oil World estimate stocks/usage ratio for 8 major vegetable oil will decline to a multi‐year low of 11.0% in 2010/11 marketing year. Production is expected to grow by 6.0% which is barely enough to cover the 5.9% growth in demand. The S&D dynamics implies there is little room for further crop loss due to weather factor. Based on past years experience, this is hardly the case. Hence, we think even a slight changes in the production pattern is likely to have significant impact on prices.
Figure 41: Stocks/Usage ratio of 8 major oils on declining trend 12.4 12.2
12.2
12.0
11.9
11.8 11.6
11.9
11.6
11.4 11.2 11.0
11.0
10.8 10.6 10.4 2007
2008
2009
2010
2011E
Source: Oil World, TA Securities
2011 Market Outlook
39
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2011 Annual Strategy
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More Supply Being Diverted to Biodiesel Higher mandated biodiesel blending next year in few countries means more supply of vegetable oil being diverted into the biodiesel sector, and 2) higher correlation between CPO and crude oil price. Interestingly, the key propagators of higher biodiesel/ bioethanol blending are also some of the largest producers of vegetable oil, particularly the US, Brazil and Argentina. Hence, while domestic production is expected to increase, there will be little left to meet export, especially from India and China. For example, we estimate that 84% of the combined incremental supply in Brazil and Argentina will be diverted as a feedstock for biodiesel. In Malaysia too, the government is planning to implement B5 biodiesel blending on a mandatory basis from June 2011 onwards. The roll out will begin in four states (KL, Selangor, Negeri Sembilan and Melaka) as well as the administration capital, Putrajaya. A B5 mandatory blending throughout the nation would require 500k tonnes of CPO annually, which will cut CPO stocks by almost 30%. That said, market has yet to discount this possibility into the CPO price, possibly due to execution risk, in our view. Some outstanding issues are subsidy, which the government has yet to clearly communicate to the industry, warranties on vehicle using biodiesel, and who will bear the logistical cost China Cooling Measures – Resilient Demand But Negative for Prices We believe the recent measures imposed by the Chinese government will unlikely hurt demand but instead cap speculative rally in commodity prices. Some of the measures imposed include price limits on food, crackdown on speculation in commodity futures and food subsidies. China accounts for close to 25% of Malaysia’s CPO exports and it is the largest importer of vegetable oil in the world. We think demand will remain resilient as China’s per capita consumption is still considerably below developed nations. In 2008, exports to China rose 1.2% despite equally strong anti‐inflation measures imposed back then. In addition, there is also the risk of declining supply of competing oils (mainly soybean oil and to a lesser extent, rapeseed oil) ahead which have to be compensated by higher import of CPO. Hence, we view the measures would have more decapitating impact on speculative rally in commodity prices, including vegetable oils. In fact, the measures itself were designed to curb excessive speculations and commodity price manipulation. RM Would Continue Favour CPO Our economist estimate RM could strengthen to 2.80/USD by end CY11. Key factors supporting our view includes: 1) extended period of low interest rate policy in the US, 2) normalisation of Malaysian OPR next year, 3) stronger domestic economic fundamentals, 4) stronger Chinese Yuan would benefit regional currencies, including RM, and 5) capital control measures in neighbouring countries, including Indonesia, South Korea, Taiwan and Thailand may indirectly benefit from the RM. Historically, commodities are viewed as a hedge to depreciating value of USD based assets. An alternative point of view is that price of CPO in USD would have to appreciate in value to compensate producers for the unrealised forex losses arising from a stronger RM. Historical data analysis too suggests a strong negative correlation between RM and CPO price.
Figure 42: Negative CPO – RM correlation
3.90
4,500
3.80
4,000
3.70
3,500
3.60
3,000
3.50
2,500
3.40
2,000
3.30
1,500
3.20
1,000
3.10
500
3.00
0
Jul‐05
Jul‐06
Jul‐07 RM/USD
Jul‐08
Jul‐09 CPO
Source: Bloomberg, TA Securities
2011 Market Outlook
Jul‐10
40
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2011 Annual Strategy
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Stocks Recommendation Stick with Upstream Exposure No change to the investment strategy we propagated in our sector update report dated Oct 28, 2010. We continue to like upstream players such as KLK and IFAR. Both companies boasts relatively young palm trees age profile a sizeable tract of rubber estates (KLK: 26k ha, IFAR: 22k ha). Rubber price had rallied recently due to supply shortage and strong demand from the automotive sector. We also like Sime Darby, which is one of our top ten stock picks for 2011. We believe the worst has past for the group. We expect market concern over transparency and accountability within the group should be allayed by internal restructuring and new management structure. There is more upside risk in our view, if the new leadership delivers on value accretive corporate restructuring, including disposal of non‐core assets and spinning off the property segment.
Figure 43: Comparative valuations
Call
Malaysia (RM) IOI Corp KLK Sime Darby Boustead
Price
TP
PER FY12 (x)
FY11 (x)
P/BV FY12 (x)
Dividend Yield FY11 FY12 (%) (%)
ROE FY11 FY12 (%) (%)
(RM)
(RM)
FY11 (x)
Hold Buy Buy Buy
5.78 21.58 8.74 5.64
6.45 22.23 10.25 6.94
20.0 17.9 17.1 11.4
18.2 17.0 15.5 9.6
3.6 3.5 2.4 1.3
3.3 3.3 2.2 1.2
2.8 3.3 2.9 5.7
2.9 3.5 3.2 6.2
17.7 20.5 14.4 11.7
17.5 19.9 14.9 13.2
6.04 2.91
8.18 3.55
14.2 13.9
13.1 13.0
2.0 2.2
1.8 1.9
2.3 0.0
2.5 0.0
16.3 17.1
15.6 15.6
Singapore (SGD) Wilmar Buy IFAR Buy
Oil & Gas Sector (Overweight) Out of Slumber Encouraged by oil prices averaging USD80 per barrel for much of 2010, capex in the Oil & Gas (O&G) exploration and production is expected to increase in 2011. A stronger demand and supply dynamics are expected to stabilise crude oil prices. We could expect oil prices to average between USD85 to US95 in 2011 whilst noting the risk of a potential sudden spike in oil prices following a potential military dispute between North Korea and South Korea. We anticipate sustained strength in demand in 2011 to be the key driver for rising oil prices. In 2011, we expect the domestic O&G exploration activities to increase in which will benefit local service providers. In this section we will discuss the macro and micro aspects of the O&G industry and how local players in the sector will benefit. The following are factors that will drive the O&G sector: High Crude Prices. Crude oil prices could trend higher spurred by a consumption growth in the Asian economies. Prices are expected to average between USD85 to USD95 unless a double dip recession hits the US and European economies. High prices will inevitably lead to a greater Exploration and Production (E&P) activities which will then have a positive impact on service providers.
Large Global Capex. More than USD400bn in annual capex expected globally will be pumped by oil majors into exploration and production activities to ensure sufficient global reserve replacement and refining capacity to meet growing demand that will benefit domestic companies with external exposure.
Increasing Domestic Capex. Petronas remains committed to its 2011 capex expenditure budget, estimated at approximately RM35bn to RM40bn.
Deepwater Activities. Domestically, E&P activities will be focused on deepwater activities in East Malaysia. The Kikeh field in Sabah has already been in operation since 2007. Malikai, Jangas, Ubah Crest, Pisangan and Kamunsu deep water fields could reach the production stage from 2011 to 2015 (refer to Figure 54)
2011 Market Outlook
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Development of Marginal Oil Fields. High oil prices will lead to development and commercialisation of marginal oilfields. There are approximately 90‐100 marginal oil fields for development in Malaysia. Furthermore the government intends to offer tax incentives to encourage exploration in these fields to compensate explorers for higher drilling costs at these fields.
High Crude Oil Prices According to an oil market report by IEA, the demand for crude oil is expected to grow by 1.4% or 1.2mn barrels per day in 2011, lower than the 2.5% or 2.1mn barrels per day (mb/d) (coming from a lower base in 2009) in 2010. Apart from the recent 2004 peak, global growth last reached such high levels in the late 1970s. For 2011, growth is assumed at +1.2 mb/d or +1.4% YoY, with demand averaging 88.5 mb/d. The IEA expects projected OECD oil demand for 2010 and 2011 to be adjusted up by 130 kb/d and 100 kb/d respectively, with September readings significantly exceeding preliminary indications. Assuming that the Pacific’s sharp weather‐related surge was exceptional, European heating oil deliveries may moderate with German inventories tracking their five‐year average, and North American underlying demand is slightly stronger than previously thought, OECD demand is currently expected to average 45.9 mb/d in 2010 (+440 kb/d or +1.0% year‐on‐year). Total oil product demand is projected to resume its structural decline in 2011 (‐320 kb/d or ‐0.7% versus the previous year).
Figure 44: QoQ Global Oil Demand
Source: IAE, TA Securities
Figure 45: QoQ Global Oil Supply & Demand vs. Crude Oil Price
‐6.0%
40 20 0
SS Growth
DD growth
Crude Oil USD/bbl
Source: IAE, TA Securities 2011 Market Outlook
May‐10
Jul‐09
Sep‐08
Jan‐07
Nov‐07
‐4.0%
Mar‐06
‐2.0%
May‐05
60
Jul‐04
0.0%
Sep‐03
80
Nov‐02
2.0%
Jan‐02
100
Mar‐01
4.0%
May‐00
120
Jul‐99
6.0%
Sep‐98
140
Nov‐97
8.0%
Jan‐97
160
Mar‐96
10.0%
42
TA Securities
2011 Annual Strategy
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Figure 46: NYMEX WTI vs. S&P 500
Source: IAE, TA Securities
Figure 47: NYMEX WTI Forward Curve
Source: IAE, TA Securities
Large Global Capex Despite current tight demand and supply balance, the global reserve replacements are still below 100%. Consequently, the need to explore and produce oil is more pressing now that oil majors are expected to pump in US$8.2tn into exploration and production capex in the upstream as well as downstream sectors until 2030. This encompasses various investments in the upstream O&G sector, refineries and petrochemical plants that will benefit Malaysian companies with global exposure like KNM Group (Buy, TP:RM2.80), Scomi Group, PetraPerdana (Sell, TP:RM0.43) and Sapura Crest (Hold, TP:RM2.97).
2011 Market Outlook
43
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2011 Annual Strategy
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Utilisation Rates Figure 48: Total Rig Utilisation
Source: ODS‐Petrodata, TA Securities
Figure 49: Total Fleet Increasing
Source: ODS‐Petrodata, TA Securities
With 108 out of 143 mobile offshore drilling units under contract, fleet utilization for Asia/Australia has declined slightly to 75.5% whereas in the Middle East fleet utilisation has increased mildly by 1%. For 2011, we expect fleet utilisation to increase. We believe the driver for this will come from the increase in demand for oil and higher oil prices. On a positive note, total fleets globally have remained steady and will likely stay above a healthy 95%.
2011 Market Outlook
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Figure 50: Total Fleet Increasing
Source: ODS‐Petrodata, TA Securities
The ODS‐Petrodata Deepwater Rig Day Rate Index is slightly down but within the range seen for most of 2010. Fleet utilisation has softened, but remains well above 95%. A weak US Dollar In early November, the US Federal Reserve announced a second round of asset purchases, dubbed ‘Quantitative Easing 2’ or QE2. The question remains as to the likely effects of QE2 on oil demand and prices. One possibility is that QE2 works as intended and that the US recovery is vigorous, supporting the global economy and therefore oil demand and prices. Another outcome is that risk aversion persists or that investors focus on returns, in which case QE2 would then simply encourage capital flows into commodities. Emerging countries would be obliged to choose the lesser of two evils – currency appreciation or inflation, particularly for those with a dollar peg. This would boost oil demand in due course. There have been previous episodes of capital flowing into commodities – notably from the mid 2000s, culminating in oil prices surging to almost $150/bbl by mid 2008. Increasing Domestic Capex. Petronas remains committed to its 2011 capex expenditure budget, estimated at approximately RM40bn to RM45bn. Petronas maintained a healthy domestic capex of RM37bn in FY10. Out of the bulk of this sum RM24bn was devoted to exploration and production (E&P). This reflects in the group’s efforts to replenish the nations maturing hydrocarbons resource through exploration and development activities locally. As evidenced by the group’s capex in 2010, the trend has now shifted to focus on domestic capex. We expect this trend to continue into 2011 and beyond. Shell and Exxon Mobil remains committed to expand its investment in Malaysia in view of the potential of deepwater activities. Shell has already invested approximately RM90bn over the past 4 decades in E&P, and the downstream business in Malaysia. Figure 51: Petronas Domestic Capex Continues to Dominate Foreign Capex (RMbn) 50 45 44 45 37.5
40
37
32
35 30
26.2
25
21.1
20 15
11.6
20.2
26
20
14.7
10 5 0 FY2006
FY2007
FY2008 Domestic
FY2009
FY2010
FY2011E
International
Source: Petronas, TA Securities 2011 Market Outlook
45
TA Securities
2011 Annual Strategy
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Figure 52: Producing Oil Fields in Malaysia
Source: Petronas, TA Securities
Figure 53: Developed and Producing Fields
Source: Petronas, TA Securities
Figure 54: Major O&G projects >USD11bn (over next 4 years) Estimated Value USDmn RMmn 770 2417.8 2000 6280 1000 3140 1000 3140 500‐1000 1570‐3140 500‐1000 1570‐3141 100‐500 314‐1570 1000 3140 500 1570 300 942 1100 3454 930 2920.2 1000 3140 600 1884
Projects Petronas SOGT PetroSaudi infrastructure and energy production ExxonMobil/PCSB Tapis PCSB/Shell/Conoco Kebabangan Cluster Shell/PCSB/Conoco Malikai Petrofac/PCSB/Petrovietnam/KUFPEC Cendor Phase 2 Carigali‐Hess Bumi, Bulan and Suriya Gas Fields Petronas LNG Terminal Petronas Dulang Petronas Sepat Petronas Topside maintainance & hook‐up & commissioning Petronas LNG regasification Petronas Chemicals may invest in facility in Sabah Tokuyama Polycrystalline Silicon Plant Shell Project Hijau Gasoil Phase 1
Source: KNM, TA Securities 2011 Market Outlook
46
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2011 Annual Strategy
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Deepwater Activities Petronas is committed to grow the domestic oil production by 3% per annum over the next five years and is steadfast in exploring the opportunities in deepwater. Currently, about 40% of Malaysia's 5.2bn barrels oil reserves are concentrated at deepwater, which are exceeding 1,000 metres in depth. With Petronas targeting about 25% to 30% of its production to originate from deepwater blocks by 2012, we anticipate capex into the planned seven deepwater blocks to gain momentum. We forecast more than RM40bn to be pumped in for the development of these fields alone.
Figure 55: Upcoming Developments
Source: Petronas, TA Securities
Production work for the Gumusut‐Kakap project located offshore Sabah was expected to begin in 3Q2012. However according to ODS‐Petrodata, the installation of this project could potentially be delayed until 2013 because fabrication of the semi‐ submersible has just started. The Malikai field is located at 800 metres subsea offshore Sabah. Shell is the operator of the field with a 35% stake, in partnership with ConocoPhillios and PETRONAS with 35% and 30% stake respectively. The project is currently under the development concept selection stage and the go‐ahead is expected in 2011. The operator had decided that a Tension Leg Platform (TLP) will be used in Malikai field. MMHE (Sell, TP:RM4.16) (could be viewed as the top candidate to construct the TLP as it is the only fabricator in Malaysia with previous experience in building deepwater fabrications, i.e. Kikeh (SPAR) and Gumusut‐ Kakap (Semi‐submersible). We believe the Malikai’s TLP job could possibly add some RM2bn to RM3bn to MMHE’s order book going forward. The Kebabangan field is not a deepwater field but plays an important role in the deepwater development. The Kebabangan Cluster is a major component in the Sabah Oil and Gas Terminal project and is supposed to receive oil and gas from the Gumusut‐Kakap, Kinabalu Deep and East, and Malikai fields as well.
2011 Market Outlook
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Figure 56: Shell’s Deepwater Field Activities in Sabah
Source: Shell, TA Securities
Figure 57: Deepwater Development Options
Source: Shell, TA Securities
2011 Market Outlook
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Figure 58: Potential beneficiaries of deepwater jobs in 2011 Category Fabricators
Company Kencana Petroleum
MMHE
Sime Ramunia
IPF (Installation of Pipelines and SapuraCrest Facilities) Pipe Coating Wah Seong Pipelay & innovative solutions
Perisai
EPC
Dialog KNM
OSV (Offshore Support Vessels) Hook‐up & Commissioning
Alam Petra Perdana Tanjung Offshore Petra Energy Dayang
Comments Has a good reputation with Petronas & PSC contractors. Only fabricator with a deepwater fabrication yard in Malaysia Ample capacity to be utilised and a need to turn the business around The largest pipelaying vessel in Malaysia (Sapura 3000) Fully integrated deepwater pipe coating plant Ezra may inject deepwater assets & could benefit from marginal fields Building and managing terminals One of the world leaders in fabrication of process equipments. Large fleet of new 5k bhp OSV Large fleet of 10‐12k bhp OSV Small fleet of new 5k bhp OSV Have vast experience & track record Both Dayang & Petra Energy are strong candidates for the Sarawak Election play
Source: Petronas, TA Securities
Development of Marginal Oil Fields The potential from these marginal oil field developments could prove to be profitable seeing that the government has come up with a tax incentive to encourage more players to develop these oil fields. Under a proposed plan also aimed at boosting flagging foreign direct investment, foreign oil players that have tie‐ups with local companies will be encouraged to undertake independent exploration and production in marginal oil fields. In Malaysia alone, there are about 90‐100 marginal oil fields with another 100 plus in Indonesia. We understand that there are more than 300 such marginal fields in this region that are not attractive in the eyes of oil majors due to lack of economies of scale. This provides good opportunities for smaller players that have the technology to venture further into this overlooked area. The key beneficiaries here would be EPCIC (engineering, procurement, construction, installation and commissioning) such as MMHE (Sell, TP:RM4.16) and Kencana. The media has also made known the fact that Kencana, SapuraCrest (Hold, TP:RM2.97) and Dialog may be invited to become equity holders in marginal field clusters with global players such as Talisman, Newfield and Petrofac. In our opinion, players that can provide a combination of self installed and re‐locatable production system will also benefit most in the development of new marginal fields as engaging FSO, FPSO or semi‐submersibles may not be cost effective. Tanjung Offshore (Sell, TP:RM0.82) could benefit here as the group has experience in this through its Mobile‐Offshore Production Unit (MOPU). Apart from that, Perisai (Buy, TP:RM0.65) has the capability to undertake exploration and production activities on marginal fields by using its very own hybrid platform known as SIRPS (Self installing, Relocatable, Production and Storage unit) using a combination of features from a jack‐up rig to an FPSO(Floating, Production, Storage and Offloading) unit. These players could benefit significantly in 2011 but once again the price of crude oil is crucial here. Online newsflow has reported that the Petrofac‐Kencana Petroleum JV has emerged as the front‐runner to secure a turnkey project for the turnkey project from Petronas in the Sepat marginal field worth USD250mn (RM785.8mn). The Sepat job scope involves the use of floating production storage and offloading vessel (FPSO) and a floating storage and offloading vessel (FSO) with a wellhead platform. Enhanced Oil Recovery (EOR) The governments, through the ETP’s have encouraged EOR’s. To recap Pertonas Carigali and Exxon Mobil entered into a EOR joint venture (JV) project in 2009 worth USD2.1bn (RM6.6bn). The maiden domestic EOR project is located at Tapis as well as 6 other local oil and gas fields, namely Seligi, Guntong, Semangkok, Irong Barat, Tabu and Palas. Under the terms of the Production Sharing Contract (PSC), the JV partners will commence with the rejuvenation of facilities as well as development and drilling activities in the fields. These projects will involve the fabrication of gas compressors. This could see the likes of KNM (Buy, TP:RM2.80), Wah Seong and Dialog benefiting. 2011 Market Outlook
49
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2011 Annual Strategy
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Malacca Regasification Petronas and Petronas Gas (Buy, TP:RM13.30) are now forging ahead with their maiden LNG regasification project in Malacca. The facilities to be located in the vicinity of Sungei Udang Port include two floating storage units to receive and store LNG, an island jetty and onshore regasification units. The contract for the floating storage units has been awarded to Petronas' subsidiary, MISC (Hold, TP:RM9.30). The vessels will be constructed by MMHE (Sell; TP:RM4.16). Currently Kencana Petroleum, Dialog and KNM (Buy, TP:RM2.80) are among the contenders for the contract for the onshore structures. Sources say that Dialog could possibly be the frontrunner to win this project as it is already building a large oil terminal at Pengerang. The feasibility studies for the Malacca project are expected to be completed by year‐end and construction is anticipated to be wrapped up by 31 July 2012. This massive increase in volume will also benefit Petronas Gas (Buy, TP:RM3.30). The focus for the group will slowly shift from its traditional processing business to the gas transmission business. Petronas Gas, will remain a monopoly in peninsula Malaysia. Maintain Overweight Recommendation We are maintaining the O&G sector as overweight. We note KNM (Buy, TP:RM2.80) and Perisai (Buy, TP:RM0.65) are potential dark horses in CY11. The former has the abundant capacity and a renowned expertise to ride in the much anticipated capex recovery cycle whilst the latter could benefit from an injection of assets with its Singaporean major shareholder Ezra Holdings Bhd. On the fabrication side, we expect MMHE (Sell; TP:RM4.16) to benefit significantly from deepwater activities as it is the only fabricator equipped with the necessary experience.
Figure 59: Peer Comparison Company Perisai Pantech Penergy Tanjung SapCrest Petra PetGas KNM PetDag Pet Chem MMHE
Call Buy Sell Sell Sell Hold Sell Buy Buy Sell Sell Sell
Price Tgt.Price (RM) (RM) 0.50 0.65 0.63 0.61 1.48 1.55 1.37 0.82 2.82 2.97 0.77 0.88 11.32 13.30 1.93 2.80 11.62 11.76 5.39 5.70 4.90 4.16
Upside Market Cap (%) (RM mil) 30.0 331.2 (2.4) 413.3 4.7 288.6 (40.1) 395.6 5.3 3600.4 14.3 346.6 17.5 22399.2 45.1 1931.9 1.2 11543.9 5.8 43120.0 (15.1) 7840.0
PE (x) CY10 34.74 8.50 19.22 (124.55) 18.36 (5.19) 21.14 13.11 15.09 24.58 22.35
CY11 9.35 10.00 11.44 5.39 15.38 32.28 15.76 9.56 14.55 20.46 18.60
PBV (x) FY10 FY11 1.33 1.17 1.78 1.69 0.90 0.81 1.05 0.95 3.39 3.07 0.60 0.60 2.79 2.65 1.01 0.95 2.55 2.47 2.26 2.12 6.46 3.63
DPS (sen) FY10 0.00 4.20 2.00 6.00 7.00 1.50 50.00 1.50 60.00 15.72 0.00
Source: Petronas, TA Securities
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)
2011 Market Outlook
50
FY11 0.00 1.82 3.00 6.00 7.00 1.50 55.00 1.50 85.00 18.50 5.46
ROE (%) FY10 FY11 3.8% 12.5% 21.7% 16.3% 4.7% 7.1% 7.6% 11.4% 13.5% 17.1% -11.1% 1.8% 11.7% 16.8% 13.6% 10.0% 16.7% 16.8% 13.1% 14.7% 25.7% 34.5%
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2011 Annual Strategy
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M&A: Mosaic Theories Theme: MERGERS & ACQUISITION There has never been a dull moment in the stock market since early this year with a flurry of dramatic merger and acquisition (M&A) news. For starters, Hong Leong Group’s proposal to takeover EON Bank has received much challenge from the Primus Group, leading to the change in EON Bank’s board members. Besides that, UEM Group and EPF’s joint‐proposal to take over the most profitable toll roads in Malaysia, ie: Plus Expressways, sprung market surprise as the parties have never been in the contenders list aside from MMC and Asas Serba. Lately, UEM Land’s proposal to acquire Sunrise has kick‐started the first round of consolidation in the property industry with the merger of MRCB‐IJM and Sunway Holding‐Suncity to follow suit. The Carlyle group and Tan Sri Halim Saad‐Datuk Che Mokhtar Che Ali‐led Idaman Saga have made competitive offers for QSR’s share at RM6.70/share, which have been rejected by QSR’s board.
Figure 60: Completed and on the run M&A proposals Rationales Acquirer Priavtising a listed subsidiary which Tanjong Capital Sdn Bhd is undervalued Measat Global Network Systems UEM Group + EPF
Acquiree Tanjong Plc
Status of M&A Completed
Measat Plus Expressways
Fending off competition
Hong Leong Bank
EON Capital
Completed Pending shareholders' approval on the disposal of the group's assets and liabilities. Pending on the final outcome of Primus‐ EON Cap court case
Horizontal integration to increase product range
Media Prima
NSTP
Completed
Pharmaniaga Sunrise MRCB & IJM Land Sunway Hld & Suncity QSR
Completed Pending on the despatch of offer documents Pending board approval Pending board approval Rejected
QSR
Rejected
Boustead Holdings To achieve economies of scale and UEM Land enhance market share Newco Newco To seek control over a cash cow Tan Sri Hamim Saad & Datuk Che company Mokhtar Che Ali Carlyle Group
Next year, we expect the market to continue riding on M&A catalysts to climb higher. Here, we typically highlight 3 sectors, which we think would undergo a consolidation phase, ie: Property (Overweight), Banking (Overweight), Oil & Gas (Overweight). Besides that, we expect to see some M&A activities in the consumer sector (Neutral) too. (THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK) 2011 Market Outlook
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2011 Annual Strategy
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Property: We expect the industry to undergo a second round of consolidation following the recent proposals from UEM Land to acquire Sunrise, MRCB to merge with IJM Land and Sunway Holdings to merge with Sunway City. However, we do not think the consolidation is to be broad‐based, but limited only to those big‐cap companies with annual sales of more than RM1bn. The M&A is deemed essential given the local demand is insufficient for those big‐cap property companies, like SP Setia and Mah Sing, to repeat >RM1.0bn sales every year in the future due to land scarcity in prime areas in Malaysia. Therefore, these companies would have no choice but to venture into overseas market to sustain its yearly sales. Having said that, we understand that the competition landscape in overseas markets, especially in China and Vietnam is stiff and uneasy for our “new & small” Malaysian companies with market cap of less than USD2bn. As such, these companies would need to expand via M&As. We believe SP Setia and Mah Sing would be open to the idea of M&A (refer to Table below). This will not only improve the size of the companies, but would also improve its chances to be a member of FBM KLCI. Note that the combined UEM Land‐ Sunrise, MRCB‐IJM Land, and Sunway Holdings‐Suncity market capitalisation will increase to RM9.0bn, RM7.2bn and RM3.9bn respectively, ranking 18th, 22nd, 28th in FBM KLCI component stocks by market cap. Figure 61 1)
Property SP Setia + I&P Our mosaic theory
:
Common shareholder, ie: PNB Both companies have solid profit track record SP Setia has yearly sales of RM2.1bn for FY10. SP Setia needs to replenish its land bank and I&P could offer its 5,000 acres underveloped land bank in Malaysia. The combined shareholders' funds amounting to RM4.9bn will be larger than UEM Land (post Sunrise acquisition) of RM3bn. The combined‐entity will likely be admitted to FBMKLCI
2)
Sime Darby Property + Mah Sing
:
Common shareholder, ie: PNB Both companies have solid profit track record Sime Property has yearly sales of RM1.6bn for FY10 while Mah Sing has recorded RM1.1 bn sales for 9MFY10 Sime Property has undeveloped land bank of 17,000 acres and Mah Sing has undeveloped land bank of 720 acres Sime Property is focusing on township development and Mah Sing fits into its models as the latter focus on fast‐turnaround and has the expertise in high‐rise development Sime Property has a total shareholders' funds of RM5.9bn in FY10 while Mah Sing's estimated FY10 shareholders' funds at RM960mn. The combined entities would have shareholder's funds of RM6.4bn, which is larter then UEM Land (post Sunrise acquisition) of RM3bn. The combined‐entity will likely be admitted to FBMKLCI
2011 Market Outlook
52
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2011 Annual Strategy
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Banking: Small to mid‐sized banks are beefing up their asset base while at the same time, cleaning out their books. This, we believe, could simply suggest that these smaller financial institutions are gearing up to completely especially with the entrance of new foreign players. It could also suggest that these small to mid‐sized banks are priming up their books to attract and get good values from potential takeover offers, going forward. 1) Take over by larger banks We see a possibility for CIMB or Maybank tying up with other government linked banks such as RHB Cap. We believe that the group’s major shareholder, Abu Dhabi Commercial Bank (ADCB) would be willing to give up its 25% stake for the right price. Elsewhere, we see synergies between PBB and HLBB due similarly in their customer base. We also envisage M&A opportunities among banking groups with standalone IBs and/or stockbroking companies. Here, we believe the rumoured acquisition of OSK would not only augur well for Maybank’s IB and wealth management divisions, but also allow it to tap into OSK’s entrenched network in the region. This, we opine, would address one of the challenges posed where PEMANDU suggested that some of these segments remained “highly fragmented” and “lack the scale, to scale up in domestic markets, let alone to establish a meaningful position in regional markets.” 2) Merger of same sized banks to boost economies of scale The issuance of 5 new commercial banking licenses back in June 2010 (and another two licenses for mega Islamic banks) should help elevate Malaysia’s status as an international financial hub. Nevertheless, we believe the presence of these global banks would pose some threat to the local banking system, in particular those with huge exposure to the capital market, wealth and asset management. As such, we think it would make economic sense for the small to mid‐sized players to combine forces ‐ like the proposed acquisition of EON Cap by HLBB ‐ to boost economies of scale. On that note, we also see synergies between AMMB and RHB Cap. 3) Acquisition by a foreign player Although management has on numerous occasions denied that common shareholder, Temasek, is looking to merge with Singapore‐based DBS Group with AFG, we think the possibility of a combined entity would augur well for both parties. For AFG, the potential is huge from DBS’ capital and network point of view. For DBS, AFG has a good and ready platform for DBS to penetrate the Malaysian market. 4) More overseas M&A Under the ETP, local financial institutions will be encouraged to broaden their regional and global reach for both conventional banking and Islamic finance. This is to help cushion the local players against dwindling domestic growth and profitability as the market becomes more saturated. In reality, most of the locally listed financial institutions in Malaysia have already established a solid footing overseas. Some choose to grow organically (such as Public Bank in Cambodia and Hong Kong), while others acquired banking groups in Indonesia, Thailand, China and Pakistan (namely CIMB, Maybank, Hong Leong Bank, RHB Cap and Affin). HLBB has also always said that they are keen to acquire one or two smaller banks in the region. 2011 Market Outlook
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Oil & Gas: A flurry of M&A could be on the cards in 2011. Our example of Alam Maritim and Tanjung Offshore (refer to Table below) could kick start increasing M&A activities as players in the O&G industry will get more competitive in order to be a one stop service provider. The idea is that a synergistic merger could stabilise company earnings allowing them to capitalise on the various stages of the deepwater activities in Sabah and Sarawak which could span some 20 to 30 years. The government through the ETP’s has encouraged players in the fabrication business to merge in order to create regional fabrication champions. MMHE with its net cash position of approximately RM1bn is likely to be the candidate to kick start these activities. Once again, competition in the industry could force other players to follow suit in order to win bigger contracts and be more competitive globally. Figure 62 1)
Oil & Gas Alam Maritime + Tanjung Offshore Our mosaic theory
:
‐ Synergistic business that can provide equipment (Tanjung), installation and pipeline and vessel supply (Alam Maritime)
:
‐ Ability to be a one stop service provider from exploration to development to production ‐ Both will create a strong Bumiputera company ‐ Alam Maritim trading at 7.1x FY11 earnings ‐ Tanjung Offshore trading at 10.1x FY11 earnings
2)
Acquirer Potential takeover target Potential takeover target Our mosaic theory
2011 Market Outlook
: : : :
Malaysia Marine and Heavy Engineering Bhd (MMHE) Brooke Dockyard Boustead Heavy Engineering ‐ Government has called for the creation of a regional fabrication champion ‐ MMHE in a net cash position of RM1.1bn ‐ Indication in the past of possible acquisitions of fabricators ‐ MMHE would increase its market share of annual tonnage capacity to 30% from 27.3%
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54
TA Securities
2011 Annual Strategy
A Member of the TA Group
Consumer: The consumer sector has always been perceived as a defensive sector with resilient earnings. M&A stories are scarce as consumer companies are tightly held by MNC or individual families, which may not let go its controlling interests. Companies that could attract buying interest are usually running businesses, which are cash‐generating. Having said that, we believe QSR/KFC would eventually be acquired. Besides that, we believe F&N will utilize its spare cash to acquire a new business to replace its discontinued glass operations. The board of QSR has rejected the RM6.70/share offers from Tan Sri Halim Saad on the acquisition of QSR’s assets and liabilities as well as its business undertaking. Concurrently, Kulim has rejected Carlyle group’s RM6.70/share offer on its 58% stake in QSR. We believe these two acquirers would not shy away by revising the offer price higher. If Kulim agrees to the disposal of QSR, we think it will trigger MGO’s for the remaining shares of QSR as well as KFC given that the QSR is currently holding more than 50% stake in KFC. The million dollar question here is that at what price would Kulim consider selling QSR and KFC (refer to Table below)? F&N’s M&A story should be more straightforward. After disposing its glass units and returning part of the proceeds to shareholders, F&N is still net with >RM400mn cash. According to management, the company would utilize the balance proceeds to acquire businesses which will fuel its future earnings growth, or return the balance proceeds to the shareholders. Our channel check indicates that the company likes the snack food business which will complement its soft drink division. (refer to table below).
Figure 63 1)
Consumer Acquirer Potential takeover target Our mosaic theory
: :
1) Tan Sri Halim Saad; 2) The Carlyle Group QSR & KFC JCorp, Kulim, QSR and KFC have common board members. Therefore, the possible disposals would have to be agreed by JCorp JCorp purchased a total of 881,000 QSR shares directly in the markets on 22nd‐25th of Nov. The company also purchased a total of 343,000 KFC shares directly in the market on 18th‐24th of Nov QSR's closing price was in the range between RM5.39‐5.61 on 22nd‐25th of Nov while KFC's closing price was in between RM3.92‐4.00 on 1/th‐24th of Nov The offer of RM6.70/QSR share is perceived to be low, at least from JCorp's point of view. Benchmarking to the highest price that JCorp paid to purchase QSR shares in the market recently, ie RM5.61, and applying a premium of 20% for the controlling power, we believe JCorp may consider selling QSR at RM7.30/share
2)
Acquirer Potential takeover target Potential takeover target Our mosaic theory
: : : :
F&N Holdings Mamee‐Double Decker Apollo Food Holdings ‐ F&N is cash rich after disposing its glass division. ‐ F&N has a balance of >RM400mn disposal proceeds after the payment of special dividend . ‐ The management is on the lookout for takeover target, targeting snack food company. ‐ F&N is currently trading at 18x FY11 EPS. ‐ Mamee‐Double Decker has a cash pile of RM35.7mn or 24sen/share with no borrowings. ‐ Mamee's 1H10 YoY earnings growth is moderating to 6% from 84% in FY09 and 72% in FY08. ‐ Mamee‐Double Decker is currently trading at 9.3x FY11 EPS, which is below F&N. ‐ Apollo Food has a cash pile of RM56.9mn or 71sen/share with no borrowings. ‐ 1Q11 YoY earnings dropped 24% YoY. FY10 earnings grew +18% in FY10 vs ‐3% in FY09 and ‐15% in FY08. ‐ Apollo Food is trading at 12.5x annualised FY11 EPS, which is below F&N.
Besides all those completed and on‐the‐run M&A proposals, there are some speculative M&A plays which have been widely published in local newspapers. These include: 1) Lau family to privatise Hap Seng Consolidated Holdings; 2) Proton to acquire Perodua; 3) Maybank to takeover OSK 2011 Market Outlook
55
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2011 Annual Strategy
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Figure 64: Speculative M&As Rationales
Priavtising a listed subsidiary which is undervalued
Fending off competition
Horizontal integration to increase product range
Acquirer
Potential Acquiree
Current shareholding Comment in acquiree (%)
Lau Cho Kun Family
Hap Seng Consolidated
73.16
Proton
Perodua
0
We are positive on the tie‐up between Proton and Perodua, if materialized, as production capacity is expected to increase after the restructuring of plant utilisation. However, we are of the opinion that the merger would not likely materialize in the near future given that the collaboration partners of Proton and Perodua may stand to block the merger to avoid the leakage of technology know‐how to competitors.
Maybank
OSK
0
The rumoured acquisition of OSK would not only augur well for Maybank’s IB and wealth management divisions but also allow it to tap on OSK’s entrenched network in the region.
The family has privatised M‐Mosaic and market is expecting the family to privatise Hap Seng, which the current value is lower than the group's net asset per share.
(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)
2011 Market Outlook
56
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2011 Annual Strategy
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TP: RM 5.90 (+26.3%) BUY
Axiata Group Berhad
Last Traded: RM 4.67
Big In Asia
Background Axiata is a product of TM‐demerger back in 2007 and was previously known as TM International. Currently, Axiata is one of the largest Asian telecommunication companies, focusing on high growth low penetration emerging markets. Axiata has controlling interests in mobile operators in Malaysia, Indonesia, Sri Lanka, Bangladesh and Cambodia with significant strategic stakes in India, Singapore and Iran. India and Indonesia are amongst the fastest growing telecommunications markets in the world. The Group, including its subsidiaries and associates, has over 130mn mobile subscribers in Asia and serves the needs of Asia by providing affordable and innovative mobile services covering over 1.5bn people across 10 countries. Axiata’s vision is to be a regional champion by 2015 by piecing together the best throughout the region in connectivity, technology and people, uniting them towards a single goal: “Advancing Asia”. Investment Themes XL Axiata is expected to be the main earnings contributor to Axiata for FY11‐13. We are expecting revenue contribution to be in the range of 45‐ 48% whilst EBITDA at >50% contribution. Looking forward, XL is expected to focus on strategies to attract high‐end value‐added customers. Thus, we expect XL’s ARPU to expand to Rp200 from Rp191. Robi Bangladesh has been performing really well this year despite a highly challenging environment and issues concerning the tax structure on SIM tax of BDT800(USD12) per new connection. Thus, challenge for Robi would be generating quality customers or RGB (Revenue Generating Base) and retaining customers in order to optimize its costs. This can be achieved via its aggressive marketing campaigns for usage, quality acquisition, re‐ activation and retention. We expect Robi to contribute 8‐9% to topline and 5‐6% to EBITDA for FY11‐13 respectively. Locally, we are bullish on the sector outlook underpinned by higher data and internet usage, which more than offset the decline in ARPU. Having said that, we project Celcom’s revenue from data and internet usage to grow by >50% in FY11‐13 to contribute 13‐15% to revenue. We believe the recent award of the 2.6GHz spectrum to nine players as part of PEMANDU’s ETP to drive the Communication industry. The spectrum has the capacity for 4G network which will lead to an upgrade from 3G to LTE. We understand Axiata has been awarded with one spectrum which bodes well for the group to face the fast changing market environment. We expect the rollout of potentially 4G/LTE services to commence by end‐2012. Valuation We derive a target price of RM5.90 for Axiata based on Sum‐of‐Parts valuation methodology. Maintain Buy recommendation on Axiata.
Axiata Group Berhad
57
Share Information Bloomberg Code Stock Code Listing Share Cap (mn) Market Cap (RMmn) Par Value 52‐wk Hi/Lo (RM) 12‐mth Avg Daily Vol ('000 shrs) Estimated Free Float (%) Beta Major Shareholders (%)
AXIATA MK 6888 Main Market 8445.2 37918.7 1.00 4.50 / 2.90 10614.0 33.3 1.43 Khazanah ‐ 44 EPF ‐ 15 Skim Amanah Saham‐6
Financial Indicators Net Debt / Equity (%) ROE (%) ROA (%) NTA/Share (RM) Price/NTA (x)
Share Performance (%) Price Change 1 mth 3 mth 6 mth 12 mth
FY11 38.5 13.6 6.9 1.6 2.8
FY12 29.0 14.4 7.4 1.7 2.6
AXIATA FBM KLCI 7.5 (0.7) 23.5 4.7 18.5 16.8 43.0 18.7
(12‐Mth) Share Price relative to the FBM KLCI
Source: Bloomberg
TA Securities
2011 Annual Strategy
A Member of the TA Group
Profit & Loss (RMm) YE Mar 31 Revenue EBITDA Dep. & amortisation Net finance cost PBT Taxation MI Net profit Core net profit Reported EPS (diluted) Core EPS (diluted) GDPS Div Yield EV/EBITDA
(sen) (sen) (sen) (%) (x)
Cash Flow (RMm) YE Mar 31 PBT Adjustments Depreciation Changes in WC Operational cash flow Capex Interest received Others Investment cash flow Debt raised/(repaid) Equity raised(repaid) Dividend Others Financial cash flow Net cash flow Opening cash Forex Closing cash
2008 11,347.0 4,136.0 (2,338.5) (876.3) 906.0 (434.7) 26.9 497.0 497.0 5.9 17.0 ‐ na 1.9
2009 13,105.1 6,074.2 (2,860.3) (896.3) 2,666.2 (910.3) (103.2) 1,652.7 1,634.0 19.6 19.3 ‐ ‐ 2.0
2010 15,661.9 7,287.5 (2,498.5) (798.8) 4,248.6 (1,104.6) (408.7) 2,735.3 2,735.3 32.4 32.4 10.0 2.2 1.6
2011f 18,008.0 8,283.7 (2,917.4) (638.8) 5,185.8 (1,400.2) (643.6) 3,142.1 3,142.1 37.2 37.2 10.0 2.2 1.9
2012f 21,193.6 9,371.8 (2,860.9) (585.0) 5,766.0 (1,556.8) (715.6) 3,493.6 3,493.6 41.4 41.4 10.0 2.2 1.9
2008 906.0 (893.8) 2,375.6 ‐ 2,387.8 (5,324.0) ‐ (6,238.3) (11,562.3) 10,477.3 102.8 (29.5) 0.2 10,550.8 1,376.4 1,889.5 (64.8) 3,330.7 3236.8
2009 2,666.2 (970.7) 2,745.8 195.0 4,636.3 (3,289.8) 110.0 9.8 (3,170.0) (8,023.1) 5,254.8 ‐ 0.0 (2,768.3) (1,302.0) 3,236.8 71.4 2,006.2 2006.2 0.0
2010 4,248.6 (2,002.8) 2,684.5 995.0 5,925.3 (3,500.0) 141.1 ‐ (3,358.9) (341.5) ‐ (850.0) (1,423.5) (2,615.0) (48.6) 2,006.2 ‐ 1,931.7 1957.6
2011f 5,185.8 (2,079.3) 2,750.0 679.5 6,536.0 (3,500.0) 277.5 ‐ (3,222.5) (716.6) ‐ (850.0) (1,331.9) (2,898.5) 415.0 1,931.7 ‐ 2,346.7 2346.7 415.0 2,346.65 1957.604
2012f 5,766.0 (1,602.9) 2,832.6 752.2 7,747.9 (3,500.0) 391.1 ‐ (3,108.9) (560.1) ‐ (850.0) (1,895.9) (3,306.0) 1,333.0 2,346.7 ‐ 3,679.6 3679.6 1333.0 3,679.63
Figure 1 : Subscriber base
Balance Sheet (RMm) YE Mar 31 Fixed assets Others Total Cash Others CA
2008 14,959.7 17,315.8 32,275.5 3,330.7 1,746.2 5,076.9
2011f 19,599.3 15,131.9 34,731.2 2,346.7 8,098.0 10,444.7
2012f 20,112.4 13,945.7 34,058.1 3,679.6 8,731.0 12,410.7
Total assets
37,352.4 37,144.4 39,784.0 45,175.9
46,468.8
ST debt Other liabilities CL Shareholders' funds LT borrowings LT liabilities Total
5,413.3 8,797.6 14,210.9 11,216.7 10,546.1 898.0 23,141.5
2,149.4 4,484.4 6,633.8 18,184.1 10,173.5 1,456.7 30,510.6
1,873.0 10,129.4 12,002.4 22,361.4 9,391.7 1,420.4 33,173.5 0.0 45,175.9
1,954.5 10,800.6 12,755.1 25,005.1 8,750.1 (41.4) 33,713.8 0.1 46,468.8
2008
2009
2010
2011f
2012f
4.4% 1.3% 36.5% 8.0%
11.2% 4.4% 46.4% 20.3%
14.3% 6.9% 46.5% 27.1%
14.8% 7.0% 46.0% 28.8%
14.8% 7.5% 44.2% 27.2%
Total Liabilities Ratio YE Mar 31 Profitability ratios ROE ROA EBITDA Margins PBT Margins Liquidity ratios Current ratio Quick ratio
(x) (x)
0.4 0.7
0.6 0.9
1.0 1.1
0.9 0.8
1.0 0.9
Leverage ratios Total liabilities / equity Net debt / Equity Int. Coverage Ratio
(x) (x) (x)
3.2 1.08 4.7
2.0 0.55 6.8
2.0 0.50 9.1
2.0 0.38 13.0
1.9 0.29 16.0
13.4% ‐55.6% ‐65.4% 12.0%
15.5% 194.3% 228.8% ‐0.6%
19.5% 59.4% 67.4% 7.1%
15.0% 22.1% 14.9% 15.2%
17.7% 11.2% 11.2% 3.0%
Growth ratios (%) Sales Pretax Core net earnings Total assets
Figure 2 :Axiata’s Opcos
140000 120000
mn Subs
2010 19,225.5 12,006.1 31,231.5 1,931.7 6,620.8 8,552.5
1,922.7 6,796.3 8,719.0 20,069.4 10,058.7 937.0 31,065.0 (0.0) 37,352.4 37,144.4 39,784.0
160000
100000 80000 60000 40000 20000 0 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10
Sources: Company, TA Research
Axiata Group Berhad
2009 15,815.3 17,631.3 33,446.6 2,006.2 1,691.6 3,697.7
Sources: Company, TA Research
58
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2011 Annual Strategy
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TP: RM6.94 (+23%) BUY
Boustead Holdings Berhad
Last Traded: RM5.64
Multiple Re-rating Catalysts
Background Boustead’s principal business activities can be categorised into six groups, 1) plantation, 2) property, 3) heavy industries, 4) finance, 5) trading (BH Petroleum), and 6) manufacturing & healthcare. The group is well known for its flagship and highly successful Mutiara Damansara property project. Boustead also owns the right to build 21 naval patrol vessels for Royal Malaysian Navy. Its major shareholder is LTAT, the nation army’s investment fund. Investment Thesis We expect earnings growth to pick up sharply ahead, underpinned by 1) rally in CPO price, 2) synergistic and earnings accretive acquisition of Pharmaniaga, and 3) a modest contribution from second bacth patrol vessels construction job. We expect CPO price to continue remaining high in 2011 due to supply constraint. YTD CPO has rallied 35%. On a base case scenario, we estimate Pharmaniaga will add approximately 5 sen to FY11 EPS, with further upside if management could raise efficiency and extract synergy with its existing pharmaceutical business. Key re‐rating catalysts: 1) the group sealing the contact to build the second batch of patrol vessels. It already received the LOI and currently finalizing design and financial value of the contract. We expect Boustead to receive the LOA in mid‐2011, and the contract could potentially worth RM8bn. Earnings contribution from the patrol vessels job is modest in FY11 but would accelerate in FY12, which is the key driver of the 19% YoY group earnings growth in FY12, and 2) successful execution of property development projects that forms part of the government’s land sale initiatives. We understand that the two land bank, one at Jalan Cochrance (60 acres) and another at Jalan Ipoh (260 acres) could generate as much as RM16bn‐RM18bn GDV over the next 10 years. We have yet to include these projects into our earnings forecasts.
Share Information Bloomberg Code Stock Code Listing Share Cap (mn) Market Cap (RMmn) Par Value 52‐wk Hi/Lo (RM) 12‐mth Avg Daily Vol ('000 shrs) Estimated Free Float (%) Beta Major Shareholders (%)
LTAT (59.28)
Financial Indicators Net debt/equity (%) CFPS (sen) P/CFPS (x) ROA (%) NTA/Share (RM) Price/ NTA (x)
FY11 68.9 0.7 839.0 4.5 3.3 1.7
Share Performance (%) Price Change 1 mth 3 mth 6 mth 12 mth
BOUS FBM KLCI (2.8) (0.7) 25.9 4.7 59.8 16.8 57.5 18.7
Enhancing shareholders return. Boustead is an attractive dividend play – net dividend of 5% ‐ 6% annually. Plantation is a cash cow, especially when prices are high. In addition, the acquisition of Pharmaniaga brings along steady stream of cash flow backed by government concessions. Rising ROE (12% in FY12 vs. 9% in FY10) may further incentivize management to increase payout ratio. Already, 9MFY10 payout ratio of 100% (27 sen) exceeded our expectations and shows management is prepared to increase dividends in line with earnings growth.
Recommendation We derive a target price of RM6.94 for Boustead based on Sum‐of‐Parts valuation methodology. As highlighted above, there is room for upgrade if, 1) sustainable CPO price exceed our expectations, and 2) management delivers on the property development projects. Key downside risk factors to our recommendation are, 1) economic downturn that would affect the plantation, property and heavy industries segments, 2) sharp contraction in CPO price, 3) the group fails or significant delay in replenishing patrol vessels construction job.
Boustead Holdings Berhad
59
FY12 60.4 33.3 16.9 5.0 3.6 1.6
(12‐Mth) Share Price relative to the FBM KLCI
BOUS MK 2771 Main Market 940.2 5302.5 0.50 6.05/3.26 882.9 37.9381 1.06
Source: Bloomberg
TA Securities
2011 Annual Strategy
A Member of the TA Group
Figure 1: Earnings growth momentum picking up
Figure 2: Breakdown of operating profit (FY11)
600
Others , 11%
500
RMmn
400
Plantation , 33%
Trading , 13%
300
Property , 13%
200 100
Heavy Industries, 30%
0 2008
2009
2010E
2011F
2012F
Sources: Annual Report, TA Securities
Comparative Valuation Malaysia (RM) IOI Corp KLK Sime Darby Boustead
Call
Price
TP
PER FY12 (x)
FY11 (x)
P/BV FY12 (x)
Dividend Yield FY11 FY12 (%) (%)
ROE FY11 FY12 (%) (%)
(RM)
(RM)
FY11 (x)
Hold Buy Buy Buy
5.78 21.58 8.74 5.64
6.45 22.23 10.25 6.94
20.0 17.9 17.1 11.4
18.2 17.0 15.5 9.6
3.6 3.5 2.4 1.3
3.3 3.3 2.2 1.2
2.8 3.3 2.9 5.7
2.9 3.5 3.2 6.2
17.7 20.5 14.4 11.7
17.5 19.9 14.9 13.2
6.04 2.91
8.18 3.55
14.2 13.9
13.1 13.0
2.0 2.2
1.8 1.9
2.3 0.0
2.5 0.0
16.3 17.1
15.6 15.6
Singapore (SGD) Wilmar Buy IFAR Buy
Boustead Holdings Berhad
60
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2011 Annual Strategy
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P&L YE Dec 31 (RMmn) Revenue EBITDA Dep. & amortisation Net finance cost Associate + JV Forex & EI PBT Taxation MI Net profit Core net profit Reported EPS (diluted) Core EPS (diluted) GDPS
RATIOS YE Dec 31 (RMmn) Valuations Reported PER Core PER Div. Yield P/BV EV/EBITDA EV/EBIT EV/Sales FCF yield
(sen) (sen) (sen)
(x) (x) (%) (x) (x) (x) (%)
Profitability ratios Core ROAE Core ROAA EBITDA margin PBT margin Liquidity ratios Current ratio Quick ratio Net current assets Leverage ratios Total liabilities / equity Net debt / equity Int. coverage ratio
(x) (x) (RMmn)
(x) (x) (x)
Growth ratios (%) Sales Pretax Core earnings Total assets
2008 2009 2010E 2011F 2012F 7,029.8 5,392.5 6,042.2 7,149.0 8,402.7 744.1 509.9 661.9 871.3 1,105.2 (95.7) (104.6) (111.2) (122.8) (133.8) (130.9) (109.5) (110.2) (122.8) (127.3) 68.7 103.3 104.4 109.6 115.1 92.7 0.0 0.0 0.0 0.0 678.9 501.6 553.9 745.7 970.7 (11.2) (83.2) (99.7) (149.1) (194.1) (88.9) (76.8) (93.6) (132.7) (223.8) 578.8 341.6 360.6 463.9 552.8 486.1 341.6 360.6 463.9 552.8 90.7 47.0 39.0 49.3 58.8 76.2 47.0 39.0 49.3 58.8 30.0 27.5 31.0 32.0 35.0
2008
2009
2010E
2011F
2012F
6.2 7.4 5.3 1.3 8.1 9.3 0.9 (2.5)
12.0 12.0 4.9 1.3 11.9 15.0 1.1 2.7
14.5 14.5 5.5 1.3 12.8 15.3 1.4 6.3
11.4 11.4 5.7 1.3 10.1 11.7 1.2 9.0
9.6 9.6 6.2 1.2 7.9 9.0 1.0 12.4
18.4 5.7 10.6 9.7
10.1 3.8 9.5 9.3
9.3 3.8 11.0 9.2
11.7 4.5 12.2 10.4
13.2 5.0 13.2 11.6
0.4 0.4 (2,553)
0.4 0.3 (2,092)
0.6 0.5 (1,122)
0.6 0.5 (1,195)
0.7 0.6 (892)
1.8 1.0 4.2
1.3 0.7 3.2
1.4 0.7 4.8
1.5 0.7 5.9
1.5 0.6 7.3
22.2 (18.1) 23.7 2.8
(23.3) (26.1) (29.7) 4.7
12.0 10.4 5.6 9.7
18.3 34.6 28.6 6.9
17.5 30.2 19.2 7.2
BALANCE SHEET YE Dec 31 (RMmn) Fixed assets Biological assets Associates + JV Inv. properties Goodwill Others LT assets
2008 1,817.2 357.1 1,045.9 763.1 1,068.5 1,548.1 6,599.9
2009 1,977.2 356.5 1,087.0 960.3 1,015.1 1,412.5 6,808.6
2010E 2,066.0 356.5 1,191.4 960.3 1,015.1 1,412.5 7,001.8
2011F 2,399.2 356.5 1,301.0 960.3 1,015.1 1,412.5 7,444.6
2012F 2,465.5 356.5 1,416.1 960.3 1,015.1 1,412.5 7,625.9
Inventories Trade receivables Cash Others Current assets
230.8 1,052.8 669.4 126.1 2,079.2
234.6 942.5 396.5 705.5 2,279.1
262.8 1,056.0 938.8 705.5 2,963.2
311.0 1,249.5 945.1 705.5 3,211.1
365.5 1,468.6 1,258.6 705.5 3,798.2
Total Assets
8,679.1
9,087.7
9,965.0
10,655.7
11,424.1
Trade payables ST borrowings Others Current liabilities
1,065.6 2,878.7 688.2 4,632.4
950.0 2,633.8 787.7 4,371.5
1,064.5 2,233.0 787.7 4,085.1
1,259.4 2,359.0 787.7 4,406.1
1,480.3 2,422.0 787.7 4,690.0
LT borrowings MI Others LT liabilities
624.7 385.2 125.9 1,135.9
310.6 446.4 131.0 887.9
1,311.4 540.0 131.0 1,982.4
1,385.4 672.7 131.0 2,189.1
1,422.4 896.4 131.0 2,449.8
Share capital Reserves Shareholders' funds
325.5 2,585.3 2,910.8
455.7 3,372.6 3,828.3
455.7 3,441.7 3,897.4
455.7 3,604.7 4,060.5
455.7 3,828.5 4,284.2
Total Liabilities
8,679.1
9,087.7
9,965.0
10,655.7
11,424.0
CASH FLOW YE Dec 31 (RMmn) PBT Dep. & amortisation Net interest Other non‐cash Changes in WC Tax paid & others Operational cash flow
2008 678.9 95.7 130.9 316.3 (377.7) (87.7) 756.4
2009 501.6 104.6 109.5 (66.0) 11.5 (56.3) 604.9
2010E 553.9 111.2 110.2 (104.4) (27.4) (99.7) 543.9
2011F 745.7 122.8 122.8 (109.6) (46.6) (149.1) 686.0
2012F 970.7 133.8 127.3 (115.1) (52.8) (194.1) 869.8
Capex Others Investing cash flow
(446.5) (83.0) (529.5)
(317.0) (28.8) (345.8)
(200.0) 3.3 (196.7)
(200.0) (251.3) (451.3)
(200.0) 5.5 (194.5)
Net share issue Dividend paid Net change in debts Others Financial cash flow
0.0 (146.5) 118.1 (282.5) (310.9)
728.3 (197.7) (635.3) (427.4) (532.1)
0.0 (291.5) 600.0 (113.6) 195.0
0.0 (300.9) 200.0 (127.6) (228.4)
0.0 (329.1) 100.0 (132.8) (361.9)
(84.0) 753.8 (0.5) 669.4
(273.0) 669.4 0.2 396.6
542.3 396.6 0.0 938.8
6.3 938.8 0.0 945.1
Net cash flow Opening cash flow Forex Closing cash flow
Boustead Holdings Berhad
61
313.4 945.1 0.0 1,258.6
TA Securities
2011 Annual Strategy
A Member of the TA Group
TP: RM 10.80 (+27.5%) BUY
CIMB Group Holdings Berhad
Last Traded: RM 8.47
Growing From Strength to Strength
Background By asset size, CIMB Group is the second largest financial services provider in Malaysia. CIMB is however, the largest financial services provider among its local banking peers in terms of market capitalisation – of around RM63.3bn; with total equity and YTD net profit of RM24.5bn and RM2.6bn respectively. The group boasts solid staff strength in excess of 37,000 employees in the domestic and international markets such as Singapore, Indonesia, Thailand, Hong Kong, China, UK, USA, Brunei, Myanmar, Vietnam, Bahrain and Cambodia. Investment Themes Results have been impressive with the group tuning in record net profit over the past 2 consecutive quarters due to strong operating income and sharp decline in loan impairment. We think the strong earnings momentum is sustainable, thanks to better contributions envisaged from overseas operations and potential synergies from 1Platform. By geographical segment, contributions from CIMB Niaga more than doubled to RM958mn from RM416mn a year ago. Meanwhile, CIMB Thai remained profitable with YTD net profit of RM91mn although contributions dipped to RM18mn from RM37mn in 2Q. YTD, overseas operations now account for around 47% of total PBT compared with around 20% in 9M FY09. Going forward, CIMB will continue to drive 1Platform to: 1) create a unified multi‐local bank across the region, 2) promote borderless banking to not only provide similar experience for all customers but improve cost efficiency, and 3) increase operational efficiency and reduce risk. 1Platform will be implemented in phases over the next 5 years, starting with Thailand, then Malaysia, Indonesia and Singapore. Management is budgeting total investments of approximately RM1.1bn for the entire project. CIMB is expected to be one of the strongest beneficiaries from the Economic Transformation Plan (ETP). Potential loan base of RM1.29trn is envisaged, driven by RM1.4trn investment requirement under the ETP (2011‐2020). We note that 92% of the entire ETP initiatives are to be financed by the private sector and GLCs while only 8% will be publicly funded. Other recommendations outlined to boost the debt market with an active secondary market include: 1) widening the credit spectrum of the fixed‐income market, 2) increase participation of foreign issuers and investors, and 3) increase retail participation. Recommendation CIMB is fairly valued at RM10.80 (based on the Gordon Growth Model, assuming cost of equity of 9.6%, ROE of 17.4% and sustainable long‐term growth of 6% or an implied P/BV of 3.2x). We believe the upcoming general elections, rollout of projects under ETP and possibly an influx of foreign funds for currency gains could fuel a rally for the banking stocks. Buy maintained.
CIMB Group Holdings Berhad
62
Share Information Bloomberg Code Stock Code Listing Share Cap (mn) Market Cap (RMmn) Par Value 52‐wk Hi/Lo (RM) 12‐mth Avg Daily Vol ('000 shrs) Estimated Free Float (%) Beta Major Shareholders (%)
CIMB MK 1023 Main Market 7432.8 62955.6 1.00 8.70/5.94 11909.2 56.8 1.39 Khazanah ‐ 28.6 EPF ‐ 13.9 Aberdeen Asset ‐ 8.5
Financial Indicators ROE (%) ROA (%) NIM (%) CTI Ratio (%) Gross Impaired Loans Ratio (%) LD Ratio (%) BV/ Share (RM) Price/ BV (x)
FY10 16.6 1.4 2.8 60.1 6.6 81.7 3.1 2.8
FY11 17.3 1.5 2.9 59.8 6.3 83.8 3.5 2.4
Share Performance (%) Price Change 1 mth 3 mth 6 mth 12 mth
CIMB 2.0 5.3 22.9 34.0
FBM KLCI (0.7) 4.7 16.8 18.7
(12‐Mth) Share Price relative to the FBM KLCI
Source: Bloomberg
TA Securities
2011 Annual Strategy
A Member of the TA Group
Figure 1: Peers’ Comparison – By Total Assets
Figure 2: NII/Total income
400.0 350.0
347.1
35%
300.0
2Q10
40%
261.1
31%
30%
250.0
220.6
25%
25%
200.0 127.1 88.9
24%
24%
22%
22%
10% 50.3
45.0
35.8
EON Cap
Affin
AFG
50.0
5% 0%
0.0 Maybank
CIMB
PBB
RHB Cap
AMMB
HLBB
Maybank
AMMB
Figure 3: Loans – By Market Share 17.8%
2Q10
EON
PBB
HLBB
AFG
45%
3Q10
40%
16.0%
35%
2Q10
37%
35%
13.1%
27%
25%
25%
9.4%
3Q10
32%
30%
12.0% 10.0%
RHB
Figure 4: CASA/ Total deposits
17.0%
14.0%
Affin
Sources: Sources: Companies, TA Securities
Sources: Companies, TA Securities
24%
23% 19%
20%
8.1%
8.0%
13%
15%
6.0%
4.7%
4.2%
4.0%
10%
3.1%
2.6%
2.0%
5% 0%
0.0% PBB
Maybank
CIMB
RHB
AMMB
HLBB
EON
Affin
AFG
AFG
Sources: Companies, TA Securities
Maybank
Figure 5: Gross Impaired Loans Ratio 2Q10
18% 16%
16%
14%
4.7%
HLBB
EON
Affin
3.6%
3.5%
10%
3.5%
Tier‐1
16% 15% 15% 12%
12%
3.9%
4.0%
PBB
AMMB
3Q10
5.8%
5.0%
RHB
Figure 6: CCR and RWCR
6.6%
6.0%
CIMB
Sources: Sources: Companies, TA Securities
8.0% 7.0%
24%
15% 100.4
100.0
18.0%
25%
20%
150.0
20.0%
3Q10
14%
14%
14%
12% 11%
10%
13% 12%
RWCR
13% 12% 11%
10%
9%
8%
3.0%
2.3%
2.0%
6%
1.2%
1.0%
4% 2% 0%
0.0% CIMB
RHB
Maybank
AFG
AMMB
EON
Affin
HLBB
AMMB
PBB
Sources: Companies, TA Securities
CIMB Group Holdings Berhad
AFG
HLBB
CIMB
Sources: Companies, TA Securities
63
EON
PBB
Affin
Maybank
RHB
TA Securities
2011 Annual Strategy
A Member of the TA Group
Profit & Loss Statement FYE 31 Dec (RMm) Interest income Interest expense Net interest income Islamic banking income Total non-interest income Total income Overhead expenses Operating profit Loan loss provisioning Profit before tax Taxation Minority interests Net profit
2008 9,590.4 (4,929.8) 4,660.6 437.8 2,644.1 7,742.5 (4,121.8) 3,620.7 (860.7) 2,715.7 (703.1) (60.5) 1,952.0
2009 10,539.8 (4,470.9) 6,068.9 807.1 3,693.8 10,569.7 (5,717.6) 4,852.1 (1,174.0) 3,811.9 (764.8) (240.3) 2,806.8
2010E 11,034.8 (4,556.3) 6,478.5 1,049.2 4,467.9 11,995.6 (6,575.3) 5,420.3 (738.5) 4,715.9 (943.2) (264.3) 3,508.4
2011E 12,355.9 (5,031.4) 7,324.5 1,259.0 5,326.5 13,910.0 (7,561.6) 6,348.4 (900.6) 5,396.8 (1,079.4) (290.7) 4,026.8
2012E 13,872.2 (5,563.3) 8,308.9 1,384.9 6,253.8 15,947.6 (8,620.2) 7,327.4 (1,068.8) 6,239.7 (1,247.9) (319.8) 4,672.0
Balance Sheet Statement FYE 31 Dec (RMm) 2008 Cash and short-term funds 24,408.0 Deposit with FIs 4,063.3 Marketable securities 42,987.9 Total current assets 71,459.2 Net loans and advances 117,382.1 Fixed assets 1,916.5 Intangible assets 7,796.4 Other long-term assets 8,536.5 Total assets 207,090.8
2009 28,729.0 2,383.1 48,501.3 79,613.3 142,218.2 1,745.2 9,362.4 7,499.2 240,438.3
2010E 33,601.7 11,915.3 33,950.9 79,467.8 163,755.7 1,657.9 7,489.9 8,089.7 260,461.1
2011E 30,523.3 13,106.8 36,025.5 79,655.6 188,122.1 1,674.5 7,639.7 8,821.7 285,913.6
2012E 26,935.7 14,417.5 38,234.0 79,587.2 216,113.8 1,691.2 7,792.5 9,627.5 314,812.3
Customer deposits Deposits from other FIs Bills and acceptances Borrowings Other liabilities Total liabilities Minority interests Shareholders' funds
178,882.3 10,131.6 4,494.8 7,669.9 16,613.0 217,791.6 2,101.7 20,545.0
200,348.2 10,638.2 4,629.6 7,669.9 13,120.9 236,406.8 2,366.0 21,688.4
224,390.0 11,170.1 4,768.5 7,669.9 10,412.0 258,410.4 2,656.7 24,846.5
251,316.8 11,728.6 4,911.6 7,669.9 8,287.2 283,914.0 2,976.5 27,921.8
146,890.2 13,653.3 3,333.3 6,416.2 17,985.2 188,278.2 1,513.4 17,299.2
CIMB Group Holdings Berhad
64
Key Financial Ratios and Margins FYE 31 Dec (RMm) Return and efficiency ROE (%) ROA (%) Net interest margin (%) Fee-based/total income (%) Non-interest/total income (%) Cost-to-income (%)
2008
2009
2010E
2011E
2012E
11.8% 1.0% 2.6% 18.3% 34.2% 56.4%
14.8% 1.3% 3.0% 16.1% 34.9% 58.6%
16.6% 1.4% 2.8% 16.9% 37.2% 60.1%
17.3% 1.5% 2.9% 17.3% 38.3% 59.8%
17.7% 1.6% 2.9% 17.6% 39.2% 59.2%
Balance sheet Loans growth (%) Gross Impaired Loans ratio (%) Loan loss reserves (%) Deposit growth (%) LD ratio (%)
21.5% 4.9% 88.1% 15.8% 79.9%
21.4% 5.0% 90.8% 21.8% 79.5%
15.0% 6.6% 66.7% 12.0% 81.7%
15.0% 6.3% 71.2% 12.0% 83.8%
15.0% 6.0% 76.4% 12.0% 86.0%
Investment statistics PER (x) PBT growth rate (%) EPS (sen) EPS growth rate (%) NTA per share (RM) P/NTA (x) DPS (sen) Dividend yield (%)
28.7 -26.3% 27.6 -30.1% 1.35 5.89 12.5 1.5
19.9 40.4% 39.7 43.8% 1.58 5.00 9.3 1.1
15.9 23.7% 49.7 25.0% 2.01 3.94 22.7 2.7
13.9 14.4% 57.0 14.8% 2.44 3.25 12.5 1.5
12.0 15.6% 66.1 16.0% 2.85 2.78 12.5 1.5
TA Securities
2011 Annual Strategy
A Member of the TA Group
TP: RM13.11 (+22.5%) BUY
Genting Berhad
Last Traded: RM 10.72
Singapore To Lead Another Growth Phase
Background Genting Berhad is a leading Malaysian conglomerate with business interests in leisure hospitality, plantation, property, power and oil & gas sector. The company, through its subsidiary, Resorts World Berhad owns and operates Genting Highlands Resort, which includes the only casino facility in Malaysia. Through its stake in Genting Singapore, the group also owns the Resorts World Singapore (RWS) which operates one of only two casinos in Singapore. Its plantation arm, Gentling Plantations owns more than 130k ha plantation land bank in Malaysia and Indonesia. Genting's power business includes 58.6% stake in a Genting Sanyen Power S/B and other stake in power plants in China and India, with total net attributable capacity of close to 2100MW. Investment Thesis Strong earnings growth momentum – we expect core earnings to grow by 40% in FY11 and another 10% in FY12 underpinned by strong performance by Genting Singapore and windfall from the rally in CPO price. Genting Singapore is crown in the jewel and accounts for 64% of Genting Bhd’s SOP valuation. Strong franchise, attraction as one‐stop entertainment center to regional high rollers and relatively lower tax rate vis‐à‐vis Malaysia and Macau would guarantee RWS outperforming its regional peers, in our view. Plantation on the other hand is benefiting from strong rally in CPO price (+35% YTD). The segment only accounts for 5% ‐ 7% of EBIT, but the contribution could increase sharply once the Indonesia estates mature in 2012/13.
Share Information Bloomberg Code Stock Code Listing Share Cap (mn) Market Cap (RMmn) Par Value 52‐wk Hi/Lo (RM) 12‐mth Avg Daily Vol ('000 shrs) Estimated Free Float (%) Beta Major Shareholders (%)
GENT MK 1562 Main Market 3713.0 39803.3 0.10 10.82/6.20 6205.5 59.9 1.43 Kien Huat Realty‐ 23.8 Harbor Capital ‐ 3.56
Financial Indicators Net debt/equity (%) CFPS (sen) P/CFPS (x) ROA (%) NTA/Share (RM) Price/ NTA (x) 5‐year EPS CAGR (%) Share Performance (%) Price Change 1 mth 3 mth 6 mth 12 mth
FY10 6.2 60.5 17.2 4.2 3.0 3.5 12.7
FY11 23.0 57.0 18.2 11.4 3.3 3.1 16.2
Genting (0.7) 14.3 55.1 49.5
KLCI (0.7) 4.7 16.8 18.7
(12‐Mth) Share Price relative to the FBM KLCI
Streamlining of assets should boost ROE, reduce holding company discount and enable a more accurate valuation of underlying assets. Genting has traditionally suffered holding company discount due to, 1) all key subsidiaries are listed separately, and 2) conglomerate discount (assets sprawling various industries, i.e., gaming, power, plantation, O&G and property). We believe management is serious on monetising its non‐core assets, particularly power and O&G and reinvest the capital into what they knows the best – gaming (Genting HK to be injected into one of the listed assets?). The group recently sold its deferred pretax profit share in Muturi block for USD136.5mn. The stake in Indian power assets are also up for sale. It is also no secret that the plantation arm is up for sale, although pricing has consistently become a major stumbling block. Although we think management assets disposal as a long term objective, attractive valuation of assets globally (particularly utilities and plantation) would provide a conducive background to accelerate this target, in our view.
A cheaper proxy to Genting Singapore (Genting Bhd: 15.1x PER, Gentling Singapore: 34.22x PER). We believe the prices of both stocks would become increasingly correlated ahead. In this perspective, Genting Bhd stand to benefit, valuation wise as it has been consistently traded at a discount to Genting Singapore. Gentling Bhd owns a 51.7% interest in Genting Singapore.
Genting Berhad
65
Source: Bloomberg
TA Securities
2011 Annual Strategy
A Member of the TA Group
Valuation
We value Genting Bhd at RM13.11 based on a sum of part valuation methodology, translating to a 22.3% potential capital appreciation from the current market price. Genting is our top pick in the gaming sector, underpinned by steady cash flow from its hospitality business and promising long term earnings growth from RWS. Buy Genting.
Figure 1 : PBT Contribution Plantation 7%
Oil & Gas 0%
Property 0%
Figure 2 : ROE Yet To See Its Peak
Invesments & Others 4%
40.0 35.0 30.0 ROE (%)
Power 9%
25.0 20.0 15.0 10.0
Leisure & Hospitality 80%
5.0 0.0 2006 2007 2008 2009 2010E 2011E 2012E 2013E Sources: Company/TA Securities
Sources: Company/TA Securities
Comparative Valuation Call Genting GenM BToto
Genting Berhad
Buy Sell Hold
Share Price (RM) 10.72 3.34 4.25
Target Price (RM) 13.11 3.42 4.58
FY09 (x) 33.1 14.9 13.9
PER FY10 (x) 20.8 14.4 15.0
66
FY11 (x) 14.9 13.6 13.6
Dividend Yield FY10 FY11 (%) (%) 1.5 2.4 1.7 3.1 13.5 7.8
ROE FY10 (%) 9.1 13.0 85.5
FY11 (%) 13.3 12.8 76.7
TA Securities
2011 Annual Strategy
A Member of the TA Group
P&L YE Dec 31 (RMmn) Revenue EBITDA Depreciation and Amortisation Net Finance Cost Associate & JV PBT Taxation MI Net Profit Core net profit Reported EPS (Diluted) (sen) Core EPS (sen) GDPS (sen)
Ratio YE Dec 31 (RMmn) Valuations Reported PER Core PER Div. Yield P/BV EV/EBITDA
(x) (x) (%) (x) (x)
Profitability ratios Core ROAE Core ROAA EBITDA margin PBT margin
(%) (%) (%) (%)
Liquidity ratios Current ratio Quick ratio Net current assets
(x) (x) (RMmn)
Leverage ratios Total liabilities / equity Net debt / equity Int. coverage ratio
(x) (x) (x)
Growth ratios (%) Sales Pretax Core earnings Total assets
2008 9082.5 3471.7 624.5 53.8 74.3 1734.8 (751.4) (414.1) 569.3 569.3 15.4 15.4 7.0
2009 8893.6 3468.1 699.6 136.5 42.5 2685.4 (745.6) (738.5) 1201.3 1201.3 32.4 32.4 16.0
2010E 15861.1 5398.6 865.1 382.2 51.0 4150.8 (1162.2) (1105.8) 1882.8 1882.8 50.8 50.8 25.0
2011E 18305.2 7333.3 1129.4 399.4 56.1 5803.8 (1625.1) (1546.5) 2633.2 2633.2 71.1 71.1 35.0
2012E 18841.8 7876.8 1269.8 341.5 61.7 6382.2 (1787.0) (1700.6) 2895.6 2895.6 78.1 78.1 38.0
2008
2009
2010E
2011E
2012E
69.7 70.0 0.7 3.1 11.1
33.1 33.2 1.5 2.8 12.0
21.1 21.2 2.3 2.6 8.0
15.1 15.2 3.3 2.4 5.8
13.7 13.8 3.5 2.2 5.0
4.6 1.9 38.2 19.1
9.1 3.2 39.0 30.2
13.1 4.1 33.7 26.2
35.4 11.0 39.8 31.7
35.7 11.5 42.1 33.9
5.0 4.9 8927.7
4.8 4.7 13110.4
2.4 2.3 10716.1
2.5 2.3 11347.2
2.9 2.7 13902.9
0.4 29.0 7.7
0.7 8.6 10.9
0.7 1.5 3.8
0.6 8.4 5.9
0.6 23.5 8.4
7.1 (71.4) (64.4) 0.9
(2.1) 111.0 111.0 42.9
78.3 56.7 56.7 9.8
15.4 39.9 39.9 5.6
2.9 10.0 10.0 5.3
BALANCE SHEET YE Dec 31 (RMmn) Fixed assets Associates + JV Land Held For Development Deffered Tax Goodwill Other Long Term Assets Others LT assets
2008 10691.6 693.3 579.9 61.7 3523.1 537.6 3230.2 19317.4
2009 16450.0 724.9 582.4 94.0 3914.1 681.0 4508.1 26954.5
2010E 18984.9 775.9 582.4 94.0 3914.1 681.0 4508.1 29540.4
2011E 20855.6 832.0 582.4 94.0 3914.1 681.0 4508.1 31467.2
2012E 21085.8 893.7 582.4 94.0 3914.1 681.0 4508.1 31759.1
Inventories Trade receivables Cash and Equivalents Others Current assets
376.1 951.8 9303.3 502.1 11133.3
387.1 977.0 14392.6 789.8 16546.5
1110.3 1036.9 15301.3 789.8 18238.3
1281.4 967.9 15933.2 789.8 18972.3
1318.9 1020.1 18232.4 789.8 21361.2
Total Assets
30450.7
43501.0
47778.7
50439.5
53120.3
Trade payables ST borrowings Others Current liabilities
1512.2 442.3 251.1 2205.6
2381.9 852.5 201.7 3436.1
2703.9 4616.6 201.7 7522.2
2956.8 4466.6 201.7 7625.1
2940.0 4316.6 201.7 7458.3
LT borrowings Other LT liabilities Deffered Taxation LT liabilities
5414.3 190.9 1226.6 6831.7
12659.5 385.1 1307.9 14352.5
10772.0 385.1 1307.9 12465.0
10422.0 385.1 1307.9 12115.0
10072.0 385.1 1307.9 11765.0
Share capital Retained Earnings Shareholders' funds
370.4 12071.6 12442.0
370.4 13516.7 13887.1
370.4 14490.1 14860.5
370.4 15851.5 16221.9
370.4 17348.5 17718.9
Total Liabilities & Equity
30450.7
43501.0
47778.7
50439.5
53120.4
CASH FLOW YE Dec 31 (RMmn) PBT Dep. & amortisation Others Changes in WC Tax paid & others Operational cash flow
2008 1734.8 624.5 (988.8) (286.3) 861.2 2518.1
2009 2685.4 699.6 (22.8) (52.9) (863.3) 2551.8
2010E 4150.8 865.1 (590.9) (461.1) (1162.2) 3723.8
2011F 5803.8 1129.4 646.8 151.8 (1625.1) 5803.2
2012F 6382.2 1269.8 68.7 (105.5) (1787.0) 6039.2
Capex Others Investing cash flow
(2500.0) (123.3) (2623.3)
(5205.1) (487.3) (5692.4)
(3400.0) 340.3 (3059.7)
(3000.0) 357.6 (2642.4)
(1500.0) 390.5 (1109.5)
Net share issue Dividend paid Net change in debts Others Financial cash flow
0.0 (199.8) 1075.7 (1442.6) (167.0)
0.0 (580.2) 7655.4 (38.2) 8197.4
0.0 (909.4) 1876.5 (2541.3) 244.6
0.0 (1271.9) (500.0) (3300.6) (2528.8)
0.0 (1398.6) (500.0) (3529.1) (2630.5)
908.7 14392.6 0.0 15301.3
632.0 15301.3 0.0 15933.2
2299.2 15933.2 0.0 18232.4
Net cash flow Opening cash flow Forex Closing cash flow
Genting Berhad
67
(272.2) 9312.2 263.3 9303.3
5056.8 9303.3 32.5 14392.6
TA Securities
2011 Annual Strategy
A Member of the TA Group
TP: RM 7.36 (+19.9%) BUY
IJM Corporation Berhad
Last Traded: RM 6.14
All-Rounder Beneficiary
Background IJM Corp Bhd is involved in construction, property development (through 62.5%‐owned IJM Land Bhd), manufacture of industrial products, plantation (through 55%‐owned IJM Plantation Bhd) and infrastructure. From the latest quarterly results, IJM Corp derived the main chunk of its earnings from its property and plantation divisions. 1HFY11 core net earnings marked a commendable 34.2% YoY growth thanks to increase in margin. IJM Corp’s current construction orderbook stands at approximately RM3.6bn. Investment Themes Construction: We view IJM Corp as a main contender and beneficiary from the Economic Transformation Programme. We believe that IJM Corp is poised to benefit from highway constructions jobs particularly the West Coast Expressway which cost an estimated RM5bn. IJM Corp would benefit from this project through its stake in KEuro. In addition, with the recent proposed merger between IJM Land and MRCB, we believe that construction jobs from the Sungai Buloh land would trickle down to IJM Corp. Property: IJM Land currently has an unbilled sale of around RM900mn. Come March 2011, IJM Land is set to have launch around RM1.2bn worth of properties – mainly in the high‐end market. YoY, the blended property margin has increased from mid‐teens to low‐twenties. This remarkable figure shows efficiency coupled with sustained demands in the properties mart. In addition, the proposed IJM Land‐MRCB merger would add value to IJM Corp in the medium term from the synergy. Plantation: With the advent of rising CPO prices, IJM Plantation stands to benefit as well. The average CPO price/tonne showed a hefty 20% increase from RM2,164 to RM2,592 for the period of September 2009 to September 2010. Our house projects CPO prices to average RM2,700/tonne moving forward into CY11. In addition, we expect the maiden earnings contribution from its East Kalimantan 9,000 hectare ventures to come in CY12. Recommendation We derive a target price of RM7.36 based on CY11 23x construction PER, 25x property PER, 16x plantation PER and 18x industry and infrastructure PER. We recommend investors to Buy based on healthy sector outlook, active Government participation in the country’s development and job flows from the proposed IJM Land‐MRCB merger. Key risks include 1) Project execution; 2) Political kickbacks 3) New order target falling behind expectations.
IJM Corporation Berhad
68
SHARE INFO Bloomberg Code IJM MK Bursa Name IJM Stock Code 3336 Listing Main Market Share Cap (m) 1351.0 Market Cap (RMm) 8281.6 Par Value (RM) 1.00 52‐wk Hi/Lo (RM) 6.14/4.28 12‐mth Avg Daily Vol (000' shrs) 3,303 Estimated Free Float (%) 69 Beta 1.22 Major Shareholders (%) Employees Provident Fund ‐ 16.2 Skim Amanah Saham Bhd ‐ 9.25 Zelan Bhd ‐ 5.30 FINANCIAL INDICATORS Net debt/equity (%) CFPS (sen) P/CFPS (x) ROA (%) NTA/Share (RM) Price/ NTA (x)
FY11 43.0 28.1 13.02 3.1 4.0 1.52
FY12 40.1 8.8 11.31 3.6 4.3 1.42
SHARE PERFORMANCE Price chg (%) 1 mth 3 mth 6 mth 12 mth
IJM 11.6 20.6 29.5 35.2
FBMKLCI (0.7) 4.7 16.8 18.7
(12‐Mth) Share Price relative to the FBM KLCI
Source: Bloomberg
TA Securities
2011 Annual Strategy
A Member of the TA Group
Company Gamuda IJM WCT
Profit and Loss Revenue COGS Gross profit
Price (RM) 3.76 6.14 3.00
TP (RM) 4.24 7.36 3.45
PE (x) CY10 21.4 21.6 16.9
CY11 15.2 18.0 16.0
2009 4601.3 (3703.8) 897.4
2010 4013.5 (3060.1) 953.4
2011E 4827.6 (3668.9) 1158.6
2012F 5896.0 (4480.9) 1415.0
2013F 6524.5 (4958.6) 1565.9
EBITDA Depreciation Amortisation EBIT Finance cost Associates JV EI PBT Adj PBT
847.6 (84.7) (67.3) 695.6 (189.1) 19.0 3.2 0.0 528.7 528.7
898.6 (92.6) (57.3) 748.7 (201.4) 19.7 11.1 0.0 578.0 578.0
1037.3 (80.0) (57.3) 900.0 (193.6) 19.7 11.1 0.0 737.2 737.2
1144.5 (87.9) (57.3) 999.4 (182.9) 19.7 11.1 0.0 847.3 847.3
1233.5 (95.2) (57.3) 1081.1 (172.1) 19.7 11.1 0.0 939.7 939.7
Tax MI Net profit Adj net profit EPS (sen) DPS (sen)
(126.7) (111.8) 290.2 290.2 32.8 35.0
(154.9) (90.6) 332.6 332.6 25.2 11.0
(184.3) (153.6) 399.3 399.3 29.6 11.0
(211.8) (149.9) 485.6 485.6 35.9 11.0
(234.9) (151.7) 553.0 553.0 40.9 11.0
Div yield (%) CY10 CY11 3 3 1.8 1.8 3 3
2009 (13.6) 18.7 35.0 5.7
2010 (23.2) 24.3 11.0 1.8
2011E 17.2 20.7 11.0 1.8
2012F 21.6 17.1 11.0 1.8
2013F 13.9 15.0 11.0 1.8
Net cash (RMm) Net gearing (x) ROE (%) ROA (%) NTA (RM) P/NTA (x)
(2789.3) 0.6 6.2 2.5 5.0 1.2
(2591.2) 0.5 6.7 2.7 3.8 1.6
(2329.7) 0.4 7.6 3.1 4.0 1.5
(2324.4) 0.4 8.7 3.6 4.3 1.4
(2146.1) 0.3 9.2 3.9 4.6 1.3
IJM Corporation Berhad
Recom. CY11 13 8 12
Buy Buy Buy
Balance Sheet Fixed Assets Leasehold land Associates + JV Investment Properties Others LT Assets
2009 1299.0 320.8 1233.2 163.5 3580.4 6597.0
2010 1226.8 383.7 1506.6 388.5 3453.9 6959.5
2011E 1346.8 583.7 1526.3 388.5 3406.6 7251.9
2012F 1458.9 783.7 1546.0 388.5 3359.4 7536.5
2013F 1563.8 983.7 1565.7 388.5 3312.1 7813.7
Inventories Trade and other receivables ST investments Deposits, cash and bank balances Others ST Assets
390.7 2103.8 73.4 945.7 1799.5 5313.0
529.3 2173.2 108.2 1221.5 1566.6 5598.8
529.0 2487.8 108.2 1283.1 1566.6 5974.7
646.1 3073.2 108.2 1088.3 1566.6 6482.4
715.0 3417.6 108.2 1066.6 1566.6 6874.0
11910.1
12558.3
13226.6
14018.9
14687.7
Trade and other payables ST Borrowings Others ST Liabilities
2015.4 1489.2 29.6 3534.1
1689.3 958.7 37.2 2685.2
2116.2 958.7 37.2 3112.1
2584.5 958.7 37.2 3580.5
2860.0 958.7 37.2 3856.0
LT Borrowings MI Others LT Liabilities
2239.9 845.9 520.0 3605.8
2853.5 1328.1 562.2 4743.8
2653.5 1481.7 562.2 4697.4
2453.5 1631.5 562.2 4647.3
2253.5 1783.3 562.2 4599.0
Share Cap Reserves Shareholder's Funds
942.0 3828.2 4770.2
1327.2 3802.0 5129.2
1327.2 4089.9 5417.1
1327.2 4464.0 5791.2
1327.2 4905.6 6232.8
Liabilities + Equities
11910.1
12558.3
13226.6
14018.9
14687.7
Total Assets
Ratios EPS Growth (%) PER (x) GDPS (sen) Div Yield (%)
ROE (%) CY10 10 7 10
Cash Flow PBT Depr & Amort Tax Associate and JV Others CFO
2009 528.7 152.0 (155.6) (22.2) (72.6) 430.3
2010 578.0 149.9 (155.0) (30.7) (101.2) 441.0
2011E 737.2 137.3 (184.3) (30.7) 112.5 771.9
2012F 847.3 145.1 (211.8) (30.7) (234.2) 515.6
2013F 939.7 152.4 (234.9) (30.7) (137.8) 688.7
Capex Others CFI
(480.7) 28.9 (451.8)
(354.0) (81.1) (435.1)
(410.0) ‐ (410.0)
(410.0) ‐ (410.0)
(410.0) ‐ (410.0)
Net Addition/Rpmt Dividend Paid Interest Others CFF
382.8 (197.9) (19.0) 5.5 171.4
259.1 (69.7) 54.6 233.6 477.5
(200.0) (111.5) ‐ ‐ (311.5)
(200.0) (111.5) ‐ ‐ (311.5)
(200.0) (111.5) ‐ ‐ (311.5)
Net Cash Flow
149.9
483.4
50.5
(205.8)
(32.8)
69
TA Securities
2011 Annual Strategy
A Member of the TA Group
TP: RM 0.38 (+58.3 %) BUY
JADI Imaging Holdings Berhad
Last Traded: RM 0.24
Good Remedy for the Toner Market
Background JADI Imaging Holdings Berhad (JADI) is a world‐class independent toner manufacturer (a.k.a. an aftermarket toner maker) with about 2% share in the global toner market. More than 90% of the group’s products are exported to over 50 countries. JADI is the only toner manufacturer in Malaysia and the largest in Southeast Asia. The group develops, formulates and manufactures toners for laser printers, photocopiers, facsimile machines and multi‐function office equipments. Earnings Drivers JADI is in a position to achieve several near‐to‐medium term milestones which, if met, would position the group to become the biggest independent toner manufacturer in the world with total annual production capacity of 15,000MT. The recent investment of Mega First Corp Bhd reflects a great amount of confidence in JADI’s current developments, future prospects and quality of the group’s asset base.
JADI is the sole toner manufacturer in Malaysia and the largest in Southeast Asia. The group had drawn up aggressive plans to expand capacity. The group also plans to install a new conventional process line and the first ever high value‐added palm‐oil based Chemically Produced Toner (CPT) plant by the end of this year. Another three new CPT plants will come on stream in 2012. Management is also looking to add five new conventional process lines between 2012 and 2015. All in, this capacity expansion would position the group to become the largest independent toner manufacturer in the world.
JADI intends to introduce its new range of palm‐oil based CPT and palm‐oil based Green Toner Resin in 2011. The palm‐oil based resin is the first of its kind to be introduced in the industry. The production of resin for internal consumption will help reduce cost substantially (about 20‐25%) and translate into higher profit margin. The growing importance of green initiatives and to become environmentally responsible will also support growth in the aftermarket. We believe it would encourage consumers and businesses to make the switch from buying originals to re‐manufactured products to help protect the environment while reducing cost. JADI’s palm‐ oil based resin could be a catalyst for growth in the future.
CPT will help to serve new market segments. We believe the ability to provide both conventional and CPT products will help differentiate the group from other competitors.
China is a fast developing market. We believe the potential here is so large that it cannot be ignored. We believe that the growth momentum for China’s printer consumables will stay resilient throughout 2011. Despite the effects from the global crisis, industry players are confident that overall growth in the toner industry will remain firm over the next three years.
Valuation We maintain our long term positive views on JADI due to the stock’s good earnings prospects. Our target price of RM0.38 is based on CY11 PER of 16x. Buy. Key risks to our target price include: 1) strengthening of USD and JPY, 2) Europe’s debt crisis significantly impacting end‐user demand, 3) higher raw material costs, and 4) delay in capacity expansion plans.
JADI Imaging Holdings Berhad
70
Share Information Sector Manufacturing Bloomberg Code JADI MK Stock Code 7223 Listing Main Market Share Cap (mn) 696.6 Market Cap (RMmn) 167.2 Par Value 0.10 52‐wk Hi/Lo (RM) 0.32/0.16 12‐mth Avg Daily Vol ('000 shrs) 2476.0 Estimated Free Float (%) 46.2 Beta 1.28 Major Shareholders (%) LSI Holdings Sdn Bhd ‐ 31.34 Mega First Housing‐ 9.56 Mega First Corp‐ 9.02 Financial Indicators Net Debt/Equity (%) CFPS (sen) Price/CFPS (x) ROA (%) NTA/Share (RM) Price/NTA (x) 5‐year EPS CAGR (%)
FY10 13.1 (1.6) (15.0) 9.7 0.2 1.4 6.6
FY11 10.8 0.7 32.1 12.8 0.2 1.2 17.9
Share Performance (%) Price Change 1 mth 3 mth 6 mth 12 mth
JADI (12.7) (18.6) 41.2 31.1
FBM KLCI (0.7) 4.7 16.8 18.7
(12‐Mth) Share Price relative to the FBM KLCI
Source: Bloomberg
TA Securities
2011 Annual Strategy
A Member of the TA Group
Figure 1: Revenue Breakdown
Figure 2: Forecast Capacity (Volume)
18,000 Western Europe, 1.2%
USA, 2.2% Eastern Europe, 10.3%
Middle East, 3.3%
16,000 14,000 12,000 10,000
Asia (including Malaysia), 56.1%
South America, 26.9%
8,000 6,000 4,000 2,000
Profit & Loss (RMm) FYE Dec 31 Revenue EBITDA Dep. & amortisation Net finance cost Associate + JV Forex & EI PBT Taxation MI Net profit Core net profit Reported EPS (diluted) Core EPS (diluted) GDPS Div Yield EV/EBITDA
(sen) (sen) (sen) (%) (x)
FY08 63.2 12.5 (6.0) (0.2) 0.0 0.0 6.2 (0.1) 0.0 6.1 6.1 0.9 0.6 0.5 2.0 14.7
FY09 85.9 20.0 (6.8) (0.6) 0.0 0.0 12.6 (2.2) 0.0 10.4 10.3 1.5 1.0 0.3 1.2 8.4
FY10E 101.7 24.7 (7.2) (0.5) 0.0 0.0 17.1 (1.7) 0.0 15.4 15.4 2.2 1.5 0.3 1.2 7.7
FY11F 140.7 38.5 (10.8) (0.9) 0.0 0.0 26.8 (2.4) 0.0 24.4 24.4 3.5 2.4 0.3 1.2 4.9
FY12F 188.3 46.8 (11.8) (1.1) 0.0 0.0 33.9 (3.1) 0.0 30.8 30.8 4.4 3.0 0.3 1.2 4.2
JADI Imaging Holdings Berhad
FY08 6.2 1.7 6.0 (11.5) 2.5 (16.3) 0.2 0.0 (16.1) 0.0 (3.5) (3.0) 11.0 4.5 (9.2) 12.4 0.4 3.6
FY09 12.6 (1.6) 6.8 9.8 27.6 (8.3) 0.1 0.0 (8.2) 0.8 (3.1) (1.8) (1.2) (5.3) 14.0 3.6 (0.1) 17.6
FY10E 17.1 (1.7) 7.2 (12.1) 10.4 (41.5) 0.0 0.0 (41.5) 12.1 (0.2) (2.1) 10.1 19.9 (11.1) 17.6 0.0 6.4
FY11F 26.8 (2.4) 10.8 (12.8) 22.4 (20.0) 0.0 0.0 (20.0) 0.0 (0.2) (2.1) 5.1 2.8 5.2 6.4 0.0 11.6
FY12F 33.9 (3.1) 11.8 (15.6) 27.1 (30.0) 0.0 0.0 (30.0) 0.0 (0.2) (2.1) 5.1 2.8 (0.1) 11.6 0.0 11.5
71
2015
2014
2013
2012
2011
2010
2009
Balance Sheet (RMm) FYE Dec 31 Fixed assets Others Total Cash Others Current assets
FY08 64.7 2.3 66.9 3.6 39.2 42.9
FY09 68.1 2.2 70.3 17.6 35.0 52.6
FY10E 102.4 2.2 104.6 6.4 47.1 53.5
FY11F 111.6 2.2 113.8 11.6 65.1 76.7
FY12F 129.8 2.2 132.0 11.5 87.0 98.5
Total assets
109.8
122.9
158.1
190.6
230.6
11.3 9.1 20.4 83.4 2.0 4.0 89.4
10.6 14.2 24.7 92.1 1.3 4.8 98.2
19.4 14.1 33.5 117.5 2.4 4.8 124.6
25.4 19.3 44.7 139.7 1.3 4.8 145.8
30.3 25.7 56.0 168.5 1.3 4.8 174.6
109.8
122.9
158.1
190.6
230.6
FY08
FY09
FY10E
FY11F
FY12F
ST debts Others Current liabilities Shareholders' funds LT borrowings LT liabilities Total Total liabilities
Cash Flow (RMm) FYE Dec 31 PBT Others Depreciation & Amortisation Changes in working capital Operational cash flow Capex Interest received Others Investment cash flow Share issuance Others Dividend Net Change in debt Financial cash flow Net cash flow Opening cash Forex Closing cash
2008
2007
2006
2002
2000
1993
0
Ratio FYE Dec 31 Profitability ratios ROE ROA EBITDA Margins PBT Margins
% % % %
7.4 5.6 19.8 9.8
11.2 8.4 23.2 14.6
13.1 9.7 24.3 16.8
17.4 12.8 27.4 19.0
18.3 13.4 24.8 18.0
Liquidity ratios Current ratio Quick ratio Net current assets
(x) (x) (RMm)
2.1 0.8 22.5
2.1 1.3 27.9
1.6 0.6 20.0
1.7 0.7 32.0
1.8 0.7 42.5
Leverage ratios Total liabilities / equity Net debt / Equity Int. Coverage Ratio
(x) (x) (x)
0.2 0.1 26.5
0.1 (0.1) 23.6
0.2 0.1 35.2
0.2 0.1 30.3
0.2 0.1 31.2
Growth ratios Sales Pretax Core net earnings Total assets
% % % %
11.6 35.9 (48.4) 102.1 (42.6) 68.9 20.8 11.9
18.4 35.9 48.4 28.6
38.5 56.9 58.7 20.5
33.8 26.6 26.6 21.0
TA Securities
2011 Annual Strategy
A Member of the TA Group
TP: RM 2.80 (+45.0%) BUY
KNM Berhad
Last Traded: RM1.93
Glory Days Could Be Back
Background Despite its week stock performance in the past two years, KNM remains our preferred oil and gas play going into 2011. This is attributable to its capable management, strong technical capabilities, technology driven strategic joint venture activity, continued capacity expansion and a proxy to the global oil & gas industry. After being in the shadow for two years, management is convinced that a global recovery is inevitable. Investment Thesis In terms of product mix, the group is now focused on technology and plant division. This division will allow the group to be one‐stop service provider whereby it will not only be involved in process equipment fabrication but has an added service of a separation plant as well. By leveraging on this, the group will be able to eliminate competition significantly and achieve higher margin. The group has already increased its capacity by 7% to 157,200 MT in FY10. This is supported by a higher utilisation rate of 67% anticipated in FY11. Its current order book and tender book stands at RM2.4bn and RM16bn respectively. The current order book should take the group through to 2012. We assume the group would secure additional RM3bn order book based on management’ guidance of a 20% win rate.
The recovery in oil prices has spurred oil majors interests’ globally to increase its development activities. With its presence worldwide, KNM will be a prime beneficiary as it is renowned for its process equipment fabrication and can leverage on its turnkey, industrial services and process technology.
Another industry of growth that the group could be gaining more orders is from the power, desalination and steam generation. This industry has grown by 17% from 2008 to 2009 and is expected to trend higher in the following year. A major breakthrough for KNM could come from nuclear project. The group has already made efforts to get its foot in through the door by setting up a JV with South Africa’s Aveng Ltd.
Valuation We are bullish on KNM’s outlook and hence recommending the stock as
a Buy with a revised target price of RM2.80. We use a target PER multiple of 14x, which imputes a 20% discount to the blended average CY11 PER of MMHE and Kencana given the much larger market cap of its peers. We are benchmarking KNM to MMHE and Kencana as there are no other direct competitors locally. Despite the different product offerings, the common denominator is that all three players are notable fabricators and are focused in the oil & gas sector.
KNM Berhad
72
Share Information Bloomberg Code KNMG MK Stock Code 7164 Listing Main Market Share Cap (mn) 1001.1 Market Cap (RMmn) 1932.1 Par Value 0.25 52‐wk Hi/Lo (RM) 3.40/1.56 12‐mth Avg Daily Vol ('000 shrs) 2194.8 Estimated Free Float (%) 66 Beta 1.77 Major Shareholders (%) Inter Merger Sdn Bhd ‐ 20.5 EPF‐ 8.2 Financial Indicators
5‐year EPS CAGR (%)
FY10 12.5 8.6 22.3 4.0 0.4 4.9 8.5
FY11 6.2 (16.2) (11.9) 5.7 0.6 3.3 0.7
Share Performance (%) Price Change 1 mth 3 mth 6 mth 12 mth
KNM 3.8 19.1 (0.5) (33.4)
FBM KLCI (0.7) 4.7 16.8 18.7
Net debt/equity (%) FCPS (sen) P/FCPS (x) ROA (%) NTA/Share (RM) Price/ NTA (x)
(12‐Mth) Share Price relative to the FBM KLCI
Source: Bloomberg
TA Securities
2011 Annual Strategy
A Member of the TA Group
Figure 1 : Capacity Utilisation
180000 160000 140000 120000 100000 80000
Utilisation
60000
Capacity(MT)
40000 20000 0
2002 15000 17000 88.2
Utilisation Capacity(MT) Utilisation(%)
2003 18200 22750 80.0
2004 22050 31500 70.0
2005 41000 46500 88.2
2006 72300 77500 93.3
2007 85000 105000 81.0
2008 111800 140300 79.7
2009 93400 147300 63.4
2010E 90000 157300 57.2
2011E 105800 157300 67.3
Sources: Company
Figure 2 : Revenue by Geography
Figure 3 :Revenue by Product Mix
6% 20% 23%
10%
4%
20%
26%
16% 32%
2% 22% 29%
5% 18%
2% 17%
18%
14% 9%
54%
11%
8% 30%
2006 Asia
2007 Oceania
2008 Europe
40%
48%
2010E
Rest of the World
58%
3% 9% 2%
41%
33%
31%
6% 4% 16%
50%
54%
55%
51%
2010E
2011E
23%
30%
2006
2011E
2007 High
Domestic
Sources: Company
Sources: Company
KNM Berhad
9% 4%
60%
20%
2009
5% 4%
59%
7% 51%
11%
20%
73
2008 Mid
Low
2009 Services
Technology/Plant
TA Securities
2011 Annual Strategy
A Member of the TA Group
P&L YE 31 Dec Revenue EBITDA EBITDA Margin (%) Pretax profit Net profit Adjusted net profit EPS (adjusted) (sen) EPS (fully diluted) (sen) EPS Growth (%) PER (x) GDPS (Sen) Div Yield (%) ROE (%) Pretax margin (%) Net margin (%)
(sen) (sen) (%) (x) (sen) (%) (%)
2008 2528.8 544.9 21.5 453.7 336.5 336.5 33.6 33.3 585.4 5.8 11.8 6.1 18.6 17.9 13.3
2009 1821.7 324.8 17.8 139.7 260.6 260.6 26.0 25.8 (22.6) 7.5 5.0 2.6 13.0 7.7 14.3
2010F 1692.7 205.5 12.1 67.1 147.3 147.3 14.7 14.6 (43.5) 13.3 6.0 3.1 6.6 4.0 8.7
2011F 2002.6 313.4 15.7 182.6 202.0 202.0 20.2 20.0 37.1 9.7 6.0 3.1 8.9 9.1 10.1
Balance Sheet (RMm) FY 31st Dec
2012F 2201.8 425.3 19.3 294.1 295.5 295.5 29.5 29.2 46.3 6.6 6.0 3.1 11.8 13.4 13.4
Ratios Profitability ratios ROE ROA EBITDA Margins PBT Margins Liquidity ratios Current ratio Quick ratio Net current assets Leverage ratios Total liabilities / equity Net debt / Equity Int. Coverage Ratio Growth ratios Sales growth Pretax growth Net earnings growth Total assets growth
KNM Berhad
2008
2009
2010F
2011F
2012F
(%) (%) (%) (%)
18.6 7.6 21.5 17.9
13.0 6.3 17.9 7.5
6.6 4.0 12.1 4.0
8.9 5.7 15.7 9.1
11.8 8.1 19.1 13.4
(x) (x) (RM)
1.0 0.7 11.5
1.3 0.8 293.1
1.3 0.5 234.4
1.2 0.6 121.6
2.0 1.0 492.0
(x) (x) (x)
1.5 0.5 8.4
1.1 0.4 4.6
0.7 0.1 3.5
0.6 0.1 6.8
0.5 (0.0) 12.3
(%) (%) (%) (%)
105.6 110.7 78.9 120.4
(27.3) (69.6) (22.6) (13.4)
(8.0) (51.4) (46.9) (19.4)
18.3 172.1 46.1 (4.1)
9.9 61.1 46.3 5.8
74
2008F
2009F
2010F
2011F
2012F
Fixed assets Intangible assets Others Current assets Cash Receivables Inventory Current liabilities ST debt Payables Other Liabilities Net assets
734.7 845.8 57.1 1881.1 516.3 1251.2 97.2 1869.7 1133.7 702.6 245.4 2579.4
810.8 782.7 135.0 1455.0 571.7 770.3 106.6 1162.0 663.2 495.6 3.2 2978.3
798.7 755.7 135.0 1028.5 622.2 338.5 67.7 794.1 452.8 350.1 (8.8) 2880.5
831.1 728.7 135.0 921.7 441.1 400.5 80.1 800.1 416.0 396.6 (12.5) 2773.2
858.0 701.7 135.0 996.0 467.5 440.4 88.1 504.0 90.8 426.5 (13.3) 3143.5
Financed by: Shareholders' fund Other liabilities Borrowings Net liabilities
1813.9 468.8 296.7 2579.4
2008.7 377.6 592.0 2978.3
2104.4 375.8 400.3 2880.5
2261.9 378.1 133.1 2773.2
2512.9 381.4 249.1 3143.5
Cash Flow (RMm) FY 31st Dec PBT Adjustments Depreciation Net interest Changes in working capital Interest expense Income tax Operational cash flow Capex Interest received Investment Others Investment cash flow Share issuance Others Dividend Net change in debt Financial cash flow Net cash flow Opening cash Closing cash
2008F 453.7 11.9 6.3 46.8 (221.7) (0.4) (115.1) 167.5 (150.0) 6.8 (0.3) (1608.9) (1752.3) 1059.2 0.0 (31.1) 861.7 2010.0 417.9 98.2 516.2
2009F 138.1 264.0 6.6 54.8 146.8 (0.0) (69.6) 427.4 (74.2) 6.6 (0.5) (5.5) (73.7) 11.5 0.0 (49.2) (120.6) (306.8) 37.6 516.2 553.8
2010F 67.1 141.3 62.1 49.3 325.1 (58.2) 60.3 535.6 (50.0) 8.9 0.0 0.0 (41.1) 0.0 0.0 (37.1) (389.0) (426.1) 68.4 553.8 622.2
2011F 182.6 130.8 67.6 36.2 (27.9) (45.9) 18.1 257.7 (100.0) 9.7 0.0 0.0 (90.3) 0.0 0.0 (44.5) (304.0) (348.5) (181.1) 622.2 441.1
2012F 294.1 127.4 73.1 27.3 (17.9) (34.2) 3.9 373.3 (100.0) 6.9 0.0 0.0 (93.1) 0.0 0.0 (44.5) (209.3) (253.8) 26.4 441.1 467.5
TA Securities
2011 Annual Strategy
A Member of the TA Group
TP: RM 2.48 (+39.3%) BUY
Mah Sing Group Berhad
Last Traded: RM 1.78
Set to Change Malaysia’s Skyline
Background Mah Sing is a property developer, which has 15 on‐going projects that spread across the Klang Valley, Penang and Johor. The group has been aggressively replenishing its landbank with 10 up‐coming projects for future launches. In late‐2009, Mah Sing spread its wing to China after landing a letter of intent from Wujin District People’s Government, Changzhou City to develop a mixed property development project on a piece of land measuring 87.31 acres located on the west of Wuyi Road, Changzhou City. All in, the group has a remaining GDV of RM6.3bn. Investment Themes Mah Sing has carved a niche position for the group with a fast turnaround business model, focusing on prime areas in Malaysia. The model works relatively well, boosting the new sales to an unchartered territory of RM1.16bn (see Figure 1) for 9MFY10, representing 60% above FY09’s total sales.
Given the significant increase in sales this year, earnings visibility has improved further with an unbilled amount of RM1,176mn vs RM1,170mn in 2Q10. This is expected to keep the company busy for the next one year.
Looking forward, we project Mah Sing’s FY11‐12 sales to increase to RM1.61‐1.66bn, which mainly come from Kinrara Residence, Garden Residence/Garden Plaza, Icon Residence@Mont’ Kiara, Icon City in PJ and Star Avenue. We expect EBIT margin to normalise to high‐twenties levels from FY12 onwards when: 1) the bulk of the 5/95‐derived sales exhausted; and 2) the expiry of the rental guarantee period on the East Wing and West Wing of the Icon Tun Razak. All in, we project Mah Sing’s FY10‐12 net profit to grow at 21‐30%.
Share Information Bloomberg Code MSGB MK Stock Code 8583 Listing Main Market Share Cap (mn) 831.6 Market Cap (RMmn) 1480.2 Par Value 0.50 52‐wk Hi/Lo (RM) 1.40/2.01 12‐mth Avg Daily Vol ('000 shrs) 806.4 Estimated Free Float (%) 29.28 Beta 0.6 Major Shareholders (%) Mayang Teratai ‐ 34.17 PNB ‐ 22.1 Felda ‐ 7.93 EPF ‐ 6.52 Financial Indicators FY10 FY11 Net Debt/Equity (%) 7.4 12.0 CFPS (sen) ‐24.6 ‐0.8 Price/CFPS (x) nm nm ROE (%) 13.0 14.6 NTA/Share (RM) 1.1 1.2 Price/NTA (x) 1.6 1.5
Share Performance (%) Price Change 1 mth 3 mth 6 mth 12 mth
(12‐Mth) Share Price relative to the FBM KLCI
Mah Sing is sitting on a healthy cash pile of RM232mn with a comfortable net gearing ratio of 22%. The strong operating cash flow of estimated RM66mn‐153mn is sufficient to meet debt repayments of RM24mn per annum for FY11‐13. To finance future land acquisitions, Mah Sing has proposed to issue 7‐years redeemable convertible secured bonds with a nominal value of RM325mn.
Recommendation We are using the discounted free cash flow valuation methodology to capture Mah Sing’s strong earnings growth for FY10‐14, after taking into account the capex requirement for future land acquisitions. Assuming a terminal growth rate of 3% after FY14, we are discounting Mah Sing’s future free cash flow at a cost of equity of 9.8% and arrive at a fair value of RM2.48/share. Given the potential upside of 39%, we reiterate our Buy recommendation on Mah Sing.
Mah Sing Group Berhad
75
Mah Sing FBM KLCI (6.3) (0.4) 4.7 4.9 6.0 17.0 16.7 19.0
Source: Bloomberg
TA Securities
2011 Annual Strategy
A Member of the TA Group
Figure 1 : Sales Performance
Figure 2 : PE Band RM
1600
4
40.00
1400 35.00
1200
18x
3
1000
30.00 15
800
25.00 12x
600
2
20.00
400
9x
15.00
200
6x
1
0 2005
2006
Value (RM'mn)
2007
2008
Value per unit ('000)
2009
10.00
9M10 Units
5.00
0
0.00
00
Sources: Mah Sing & TA Research
02
03
04
05
06
07
08
09
10
Sources: TA Research
Profit & Loss (RMmn) YE Dec 31 Revenue EBITDA Dep. & amortisation Net finance cost Associate + JV PBT Taxation MI Net profit Core net profit Reported EPS (diluted (sen) Core EPS (diluted) (sen) GDPS (sen) Div Yield (%) EV/EBITDA (x)
2009 701.6 156.6 ‐10.2 ‐2.2 ‐3.0 144.2 ‐48.4 ‐1.6 94.3 94.3 11.3 11.3 6.5 3.7 3.9
2010F 1063.6 193.7 ‐6.1 ‐4.5 0.0 183.1 ‐52.0 ‐16.7 114.4 114.4 13.8 13.8 7.0 3.9 8.4
2011F 1192.3 229.5 ‐6.5 ‐2.9 1.0 220.1 ‐61.6 ‐17.6 140.9 140.9 16.9 16.9 7.5 4.2 8.9
2012F 1501.0 312.1 ‐6.9 ‐2.3 2.0 302.9 ‐84.8 ‐34.2 183.9 183.9 22.1 22.1 9.0 5.1 4.9
2013F 1743.6 396.8 ‐7.2 ‐2.2 3.0 387.4 ‐108.5 ‐36.5 242.4 242.4 29.1 29.1 12.0 6.7 4.4
Cash Flow (RMmm) YE Dec 31 PBT Adjustments Dep. & amortisation Changes in working capital Operational cash flow Capex Others Investment cash flow Share issuance Others Dividend Net Change in debt Financial cash flow Net cash flow Opening cash Others Closing cash equivalent
2009 144.2 ‐41.4 10.2 61.8 174.8 ‐11.0 4.4 ‐6.6 99.3 ‐27.5 ‐37.8 ‐5.9 28.0 196.2 172.2 28.1 396.6
2010F 183.1 ‐52.0 6.1 ‐281.8 ‐144.6 ‐60.0 0.0 ‐60.0 0.0 ‐0.3 ‐43.7 28.8 ‐15.1 ‐219.7 396.6 0.0 176.9
2011F 220.1 ‐61.6 6.5 ‐11.4 153.6 ‐160.0 0.0 ‐160.0 0.0 0.0 ‐46.8 276.6 229.8 223.4 176.9 0.0 400.2
2012F 302.9 ‐84.8 6.9 ‐146.3 78.6 ‐110.0 0.0 ‐110.0 0.0 0.0 ‐56.1 ‐23.4 ‐79.6 ‐110.9 400.2 0.0 289.3
2013F 387.4 ‐108.5 7.2 ‐220.6 65.6 ‐60.0 0.0 ‐60.0 0.0 0.0 ‐74.9 ‐23.4 ‐98.4 ‐92.8 289.3 0.0 196.5
Mah Sing Group Berhad
01
Balance Sheet (RMmm) YE Dec 31 PPE Land held for dev Others Total Prop. Dev. Cost Cash Others Current assets
2009 61.0 47.1 3.7 111.8 821.4 396.6 216.7 1434.8
2010F 64.9 97.1 3.7 165.7 830.8 176.9 342.0 1349.7
2011F 68.4 247.1 3.7 319.2 942.6 400.2 374.9 1717.7
2012F 71.6 347.1 3.6 422.3 1062.9 289.3 510.8 1863.1
2013F 74.4 397.1 3.6 475.1 1132.5 196.5 604.9 1933.9
Total assets
1546.5
1515.3
2036.8
2285.3
2409.0
ST debt Payables Other Current liabilities Shareholders' funds MI Borrowings Other LT liabilities Total liabilites + capital
74.4 438.5 17.6 530.6 845.7 7.8 141.5 21.0 162.5 1546.5
79.3 291.4 17.6 388.3 916.2 24.4 165.4 21.0 186.4 1515.3
31.5 424.6 17.6 473.7 1010.3 42.0 489.8 21.0 510.8 2036.8
31.5 534.6 17.6 583.7 1138.0 76.2 466.4 21.0 487.4 2285.3
31.5 477.7 17.6 526.8 1305.5 112.8 442.9 21.0 464.0 2409.0
2009
2010F
2011F
2012F
2013F
12.28 6.87 22.33 20.56
12.99 7.47 18.21 17.21
14.63 7.93 19.25 18.46
17.12 8.51 20.79 20.18
19.84 10.33 22.76 22.22
2.70 904.18
3.48 961.40
3.63 1243.95
3.19 1279.37
3.67 1407.14
0.82 Net cash 67.93
0.63 0.07 41.69
0.97 0.12 76.11
0.94 0.18 134.82
0.76 0.21 179.53
Ratio YE Dec 31 Profitability ratios ROE (%) ROA (%) EBITDA Margin (%) PBT Margin (%) Liquidity ratios Current ratio Net current assets
(x) (RM)
Leverage ratios Total liabties./equity Net debt / Equity Int. Coverage Ratio
(x) (x) (x)
76
TA Securities
2011 Annual Strategy
A Member of the TA Group
TP: RM 11.30 (+34.4%) BUY
Malayan Banking Berhad
Last Traded: RM 8.41
Unlocking Value Through ETS
Background Maybank Group is a leading financial services provider in Malaysia. The group is supported by a large network of over 1,750 branches and offices in 14 countries. Internationally, the group has notable presence in Indonesia, Singapore and Pakistan (through a MCB Bank). Maybank has the largest asset base among its local banking peers – of close to RM350bn; and market capitalisation of RM60.2bn; with total equity and total net profit (FY10) of RM28.3bn and RM3.8bn respectively. Investment Themes Embarked on a new Enterprise Transformation Services (ETS) where the group’s business is segregated into three key business pillars namely: 1) Community Financial Services, 2) Wholesale Banking, and 3) Insurance & Takaful. Through these three focus areas, management aims to engage and forge a closer relationship with the community, leverage on its vast corporate network to become a truly wholesale bank as well as to strengthen its insurance & Takaful business to spur generation of new revenue streams. Maybank should benefit from the Economic Transformation Plan (ETP). Potential loan base of RM1.29trn is envisaged, driven by RM1.4tn investment requirement under the ETP (2011‐2020). We note that 92% of the entire ETP initiatives are to be financed by the private sector and GLCs while only 8% will be publicly funded. Other recommendations outlined to boost the debt market with an active secondary market include: 1) widening the credit spectrum of the fixed‐income market, 2) increase participation of foreign issuers and investors, and 3) increase retail participation. Contributions from overseas operations expected to accelerate. In the recent results release, BII reported better PBT contribution of Rp84bn, underpinned by robust operating income (+22.6% YoY) while Singapore posted a 3.6% YoY increase in PBT to S$84.1mn (1Q FY10: S$81.2mn). MCB Bank also remained profitable with PBT jumping by a healthy 20.3% YoY on the back of an 11.5% increase in revenue. Overseas operations currently account for around 20% of total PBT. Introduced the Dividend Reinvestment Plan to better manage capital. Management opines that Maybank should be able to meet the more stringent Basel III capital requirements without the need to raise equity capital. We believe Maybank is on track to meet its target ROE of 14% for FY11. Recommendation Maybank is fairly valued at RM11.30 (based on the Gordon Growth Model, assuming cost of equity of 9.1%, ROE of 15.7% and sustainable long‐term growth of 5% or an implied P/BV of 2.6x). We believe the upcoming general elections, rollout of projects under ETP and possibly an influx of foreign funds for currency gains could fuel a rally for the banking stocks. Buy maintained.
Malayan Banking Berhad
77
Share Information Bloomberg Code MAY MK Stock Code 1155 Listing Main Market Share Cap (mn) 7078.0 59525.8 Market Cap (RMmn) Par Value 1.00 52‐wk Hi/Lo (RM) 9.38/6.62 12‐mth Avg Daily Vol ('000 shrs) 9498.1 Estimated Free Float (%) 38 Beta 1.45 Major Shareholders (%) Skim Amanah Saham Bumiputra ‐ 44.9 EPF ‐ 11.0 PNB ‐ 5.1 Financial Indicators ROE (%) ROA (%) NIM (%) CTI Ratio (%) Gross NPL Ratio (%) BV/ Share (RM) Price/ BV (x) Share Performance (%) Price Change 1 mth 3 mth 6 mth 12 mth
FY11 15.7 1.2 2.5 50.2 2.7 4.3 1.9
FY12 16.1 1.3 2.4 50.6 2.6 4.8 1.7
Maybank FBM KLCI (1.2) (0.7) (4.4) 4.7 11.2 16.8 22.6 18.7
(12‐Mth) Share Price relative to the FBM KLCI
Source: Bloomberg
TA Securities
2011 Annual Strategy
A Member of the TA Group
Figure 1: Peers’ Comparison – By Total Assets
Figure 2: NII/Total income
400.0 350.0
347.1
35%
300.0
2Q10
40%
261.1
31%
30%
250.0
220.6
25%
25%
200.0 127.1 88.9
24%
24%
22%
22%
10% 50.3
45.0
35.8
EON Cap
Affin
AFG
50.0
5% 0%
0.0 Maybank
CIMB
PBB
RHB Cap
AMMB
HLBB
Maybank
AMMB
Figure 3: Loans – By Market Share 17.8%
2Q10
EON
PBB
HLBB
AFG
Figure 4: CASA/ Total deposits 40%
16.0%
35%
2Q10
37%
35%
13.1%
27%
25%
25%
9.4%
3Q10
32%
30%
12.0% 10.0%
RHB
45%
3Q10
17.0%
14.0%
Affin
Sources: Sources: Companies, TA Securities
Sources: Companies, TA Securities
24%
23% 19%
20%
8.1%
8.0%
13%
15%
6.0%
4.7%
4.2%
4.0%
10%
3.1%
2.6%
2.0%
5% 0%
0.0%
AFG
PBB
Maybank
CIMB
RHB
AMMB
HLBB
EON
Affin
Maybank
8.0%
2Q10
HLBB
EON
Affin
AMMB
3Q10 18% 16%
5.8%
16%
14%
4.7% 3.6%
3.5%
10%
3.5%
Tier‐1
16% 15% 15% 12%
12%
3.9%
4.0%
PBB
Figure 6: CCR and RWCR
6.6%
5.0%
RHB
Sources: Sources: Companies, TA Securities
Figure 5: Gross Impaired Loans Ratio
6.0%
CIMB
AFG
Sources: Companies, TA Securities
7.0%
24%
15% 100.4
100.0
18.0%
25%
20%
150.0
20.0%
3Q10
14%
14%
14%
12% 11%
10%
13% 12%
RWCR
13% 12% 11%
10%
9%
8%
3.0%
2.3%
2.0%
6%
1.2%
1.0%
4% 2% 0%
0.0% CIMB
RHB
Maybank
AFG
AMMB
EON
Affin
HLBB
AMMB
PBB
HLBB
CIMB
Sources: Companies, TA Securities
Sources: Companies, TA Securities
Malayan Banking Berhad
AFG
78
EON
PBB
Affin
Maybank
RHB
TA Securities
2011 Annual Strategy
A Member of the TA Group
Profit & Loss Statement FYE 30 Jun (RMm) Interest income Interest expense Net interest income Islamic banking income Total non-interest income Total income Overhead expenses Operating profit Loan loss provisioning Associates contributions Profit before tax Taxation Minority interests Net profit
2009 11,569.9 (5,650.4) 5,919.5 1,224.3 3,375.2 10,519.0 (5,559.2) 4,959.9 (3,385.1) 99.5 1,674.3 (923.6) (58.8) 691.9
2010 10,955.2 (4,184.3) 6,770.9 1,434.7 4,666.0 12,871.7 (6,412.1) 6,459.6 (1,211.0) 121.8 5,370.4 (1,402.0) (150.3) 3,818.2
2011E 13,017.4 (5,253.4) 7,764.0 1,721.7 5,185.9 14,671.6 (7,359.1) 7,312.5 (1,375.5) 121.8 6,058.9 (1,514.7) (147.3) 4,396.9
2011E 14,252.7 (5,794.6) 8,458.2 2,066.0 6,183.0 16,707.2 (8,446.6) 8,260.6 (1,551.6) 121.8 6,830.8 (1,707.7) (144.3) 4,978.8
2012E 15,818.6 (6,401.0) 9,417.6 2,479.2 7,260.3 19,157.1 (9,695.6) 9,461.4 (1,784.6) 121.8 7,798.7 (1,949.7) (141.4) 5,707.6
Balance Sheet Statement FYE 30 Jun (RMm) Cash and short-term funds Deposit with FIs Marketable securities Total current assets Net loans and advances Fixed assets Takaful Fund assets Other long-term assets Total assets
2009 23,608.0 6,299.2 58,073.6 87,980.7 185,783.2 1,422.1 16,781.9 18,771.2 310,739.1
2010 28,708.0 8,915.4 54,541.3 92,164.7 205,555.1 1,359.9 17,960.1 19,660.1 336,699.8
2011E 29,302.4 8,915.4 54,541.3 92,759.1 236,868.1 1,359.9 18,319.3 20,346.8 369,653.2
2011E 29,601.5 8,915.4 54,541.3 93,058.1 272,570.0 1,359.9 18,685.6 21,123.4 406,797.0
2012E 28,998.7 8,915.4 54,541.3 92,455.3 313,555.7 1,359.9 19,059.4 21,997.9 448,428.1
Customer deposits Deposits from other FIs Repurchase securities Bills and acceptances Borrowings Other liabilities Liabilities to policyholders Total liabilities Minority interest Shareholders' funds
212,598.6 28,781.9 0.0 1,470.1 14,719.9 10,618.8 16,781.9 284,971.1 869.3 24,898.7
236,909.8 23,257.9 407.1 3,061.6 14,047.9 12,390.6 17,960.1 308,034.8 787.8 27,877.2
265,339.0 23,257.9 325.6 3,061.6 14,047.9 13,629.7 18,319.3 337,980.9 935.0 30,737.3
297,179.6 23,257.9 260.5 3,061.6 14,047.9 14,992.6 18,685.6 371,485.7 1,079.4 34,231.9
332,841.2 23,257.9 208.4 3,061.6 14,047.9 16,491.9 19,059.4 408,968.2 1,220.8 38,239.1
Malayan Banking Berhad
79
Key Financial Ratios and Margins FYE 30 Jun 2009 Return and efficiency ROE (%) 3.2% ROA (%) 0.2% Net interest margin (%) 2.3% Int income/total income (%) 56.3% Non-interest/total income (%) 32.1% Cost-to-income (%) 52.8%
2010
2011E
2011E
2012E
15.1% 1.2% 2.4% 52.6% 36.3% 49.8%
15.7% 1.2% 2.5% 52.9% 35.3% 50.2%
16.1% 1.3% 2.4% 50.6% 37.0% 50.6%
16.5% 1.3% 2.4% 49.2% 37.9% 50.6%
Balance sheet Loans growth (%) Gross Impaired Loans ratio (%) Loan loss reserves (%) Deposit growth (%) LD ratio (%) Tier-1 (%) RWCR (%)
13.0% 3.5% 112.9% 13.6% 91.0% 9.6% 14.7%
10.3% 2.9% 124.5% 11.4% 90.0% 9.5% 13.8%
15.0% 2.7% 126.8% 12.0% 92.4% 9.3% 13.3%
15.0% 2.6% 129.4% 12.0% 94.9% 9.2% 12.9%
15.0% 2.5% 130.8% 12.0% 97.4% 9.0% 12.4%
Investment statistics PER (x) PBT growth rate (%) EPS (sen) EPS growth rate (%) BV per share (RM) PBV (x) DPS (sen) Dividend yield (%)
83.15 -59.0% 9.78 -76.4% 3.52 2.31 8.00 0.9%
15.07 220.8% 53.96 451.9% 3.94 2.06 55.00 6.0%
13.08 12.8% 62.13 15.2% 4.34 1.87 55.00 6.0%
11.56 12.7% 70.36 13.2% 4.84 1.68 55.00 6.0%
10.08 14.2% 80.66 14.6% 5.40 1.50 55.00 6.0%
TA Securities
2011 Annual Strategy
A Member of the TA Group
TP: RM 7.00 (+22.8%) BUY
QL Resources Berhad
Last Traded: RM 5.70
It Has Regional Presence Now
Background QL Resources was founded by Dr Chia Song Kun and family back in 1987. The business started off as a small‐scale marine‐based products trader. QL is an abbreviation of “Quan Li” which means “Win‐win”. Over the years, the company expanded prosperously after venturing into new business segment, forming an integrated business model. QL is now involved in the marine‐products manufacturing (MPM), palm oil activities (POA) and integrated livestock and feedmeal (ILF). QL is currently the biggest surimi producer in South East Asia, one of the strongest and durable ILF players in the country and has a growing land bank for oil palm plantation. QL was listed on Bursa in 2000. Investment Themes We like QL as the company continues to invest in expansion plans combined with development of business model. QL recognized the value in technology advancement and green energy. Recall, QL has ventured into the downstream business of palm oil with its palm‐biomass pelletizing system despite the fact that Malaysia is still behind in the mass commercialisation of biomass energy. We derive a ballpark profit contribution of RM35mn from this division in FY12 alone.
QL has also been venturing into regional countries and contribution is expected to kick in by FY12. QL has presence in Indonesia and Vietnam. In Indonesia, QL is exposed to all three business divisions, i) surimi plant in Surabaya, ii) layer and breeder farms in Cianjur and iii) palm oil plantation in Kalimantan.
Share Information Bloomberg Code Stock Code Listing Share Cap (mn) Market Cap (RMmn) Par Value 52‐wk Hi/Lo (RM) 12‐mth Avg Daily Vol ('000 shrs) Estimated Free Float (%) Beta Major Shareholders (%)
CBG Holdings 47.3 Farsathy Holdings 13.6
Financial Indicators Net debt/equity ROE NTA/Share Price/ NTA 3yrs CAGR
Share Performance (%) Price Change 1 mth 3 mth 6 mth 12 mth
We expect Surabaya MPM plant to boost capacity by 15‐20% ‐ with 2 lines of surimi and 1 line of fishmeal production. We estimate RM70‐80mn revenue contribution and EBIT margin of 10‐12%. Phase I of Cianjur plant is expected to produce 500k eggs per day and 1mn DOCs per month. We expect revenue contribution for FY12 to be in the range of RM50‐60mn. POA is to contribute significantly as the matured areas are expected to quadruple by FY12 and to be fully planted by 2013. QL is also building a third CPO mill by end‐2011. We estimate PBT to increase by RM4‐8mn in FY12 and RM12‐65mn from FY13‐15.
In Vietnam, its USD10mn plant will kickstart with 500k eggs by end‐FY12. As mentioned, we expect margin in Vietnam to be better thanks to higher selling prices.
Recommendation Buy based on our target price of RM7.00. It reflects 17x FY12 PER.
QL Resources Berhad
80
FY11 % 68.0 % 20.2 (RM 1.5 (x) 3.8 % 18.7
QL 15.2 28.6 60.7 83.3
FY12 57.0 23.4 1.9 3.1 13.7
FBM KLCI (0.7) 4.7 16.8 18.7
(12‐Mth) Share Price relative to the FBM KLCI
QLG MK QL Main Market 395.2 2311.8 0.50 5.95/3.09 280.0 35.9337 0.76
Source: Bloomberg
TA Securities
2011 Annual Strategy
A Member of the TA Group
Figure 1: Earnings growth
Figure 2: Expected FY11 Revenue Breakdown
1800
12%
1600
Revenue RM'mn
Marine‐ Products 23%
10%
1400 1200
Livestock Farming 56%
8%
1000
6%
800
4%
600 400
2%
200
0%
0 2004
2005
2006
2007
Revenue
2008
2009
NET margin
CPO Milling 21%
2010 2011E EBIT margin
Sources: TA Securities
Sources: Annual Reports, TA Securities
Profit & Loss (RMm) YE Mar 31 Revenue EBITDA Dep. & amortisation Net finance cost Associate + JV Forex & EI PBT Taxation MI Net profit Core net profit Reported E (sen) Core EPS (d(sen) GDPS (sen) Div Yield (%) EV/EBITDA (x)
Cash Flow (RMm) YE Mar 31 PBT Adjustments Depreciation Changes in working capi Operational cash flow Capex Interest received Others Investment cash flow Share issuance Others Dividend Net Change in debt Financial cash flow Net cash flow Opening cash Forex Closing cash
QL Resources Berhad
2008 1306.8 139.6 (28.2) (14.9) 0.4 0.0 95.8 (9.2) (5.8) 80.8 80.8 20.4 20.4 6.5 1.2 1.9
2008 95.8 9.8 28.2 (17.3) 116.5 (75.1) 0.0 (13.8) (116.5) 0.0 0.8 (16.1) 32.8 17.5 17.6 28.3 2.2 48.1
2009 1397.9 158.6 (34.5) (13.7) 0.4 0.0 109.9 (13.2) (7.3) 89.3 89.3 22.6 22.6 9.0 1.2 2.0
2009 109.9 10.6 34.5 (77.8) 77.2 (104.6) 0.9 0.0 (129.9) 0.0 41.4 (24.1) 61.5 78.8 26.0 48.1 (5.8) 68.3
2010 1476.7 194.5 (40.8) (17.1) 0.5 0.0 136.2 (21.5) (8.2) 106.4 106.4 26.9 26.9 11.0 1.3 1.6
2010 136.2 0.1 40.8 (5.5) 171.6 (137.3) 1.3 30.0 (129.3) 0.0 (6.9) (28.7) 33.8 (1.8) 40.5 68.3 (3.4) 106.1
2011f 1603.3 221.2 (49.5) (21.1) 0.4 0.0 150.1 (20.6) (8.2) 118.8 118.8 30.1 30.1 12.0 1.5 2.1
2011f 150.1 (24.6) 49.5 (20.6) 154.4 (150.0) 1.3 (0.9) (149.6) 0.0 (104.1) (32.1) 100.0 (36.2) (31.4) 106.1 0.0 70.4
2012f 1836.1 273.9 (57.7) (24.2) 0.4 0.0 191.5 (19.5) (5.8) 166.2 166.2 42.0 42.0 18.0 1.5 1.7
2012f 191.5 (15.9) 57.7 (19.5) 213.7 (150.0) 1.6 (39.0) (187.4) 0.0 12.6 (44.9) 75.0 42.7 69.0 70.4 0.0 139.7
Balance Sheet (RMm) YE Mar 31 Fixed assets Others Total Cash Others CA
2008 341.84 123.61 465.45 48.09 314.27 362.36
2009 416.39 152.45 568.83 68.28 316.42 384.69
Total assets
827.80
953.53 1106.12 1308.34 1518.31
ST debt Other liabilities CL Shareholders' funds LT borrowings LT liabilities Total
234.08 84.33 318.40 360.80 163.07 82.97 509.40
215.46 80.31 295.76 417.93 215.42 163.07 657.76
Total Liabilities
827.80
953.53 1106.12 1308.34 1518.31
Ratio YE Mar 31 Profitability ratios ROE ROA EBITDA Margins PBT Margins Liquidity ratios Current ratio Quick ratio Net current assets
(x) (x) (RM)
Leverage ratios Total liabilities / equity (x) Net debt / Equity (x) Int. Coverage Ratio (x) Growth ratios (%) Sales Pretax Core net earnings Total assets
81
2010 481.10 172.93 654.03 106.12 345.97 452.09
196.91 95.62 292.53 502.81 256.17 215.42 813.59
2011f 632.07 206.98 839.05 70.37 398.92 469.29
2012f 724.42 207.36 931.77 139.69 446.84 586.54
256.17 293.67 102.92 110.80 359.08 404.46 589.54 710.84 293.67 331.67 256.17 293.67 949.26 1113.85
2008
2009
2010
2011f
2012f
22.4% 9.8% 10.7% 7.3%
21.4% 9.4% 11.3% 7.9%
21.2% 9.6% 13.2% 9.2%
20.2% 9.1% 13.8% 9.4%
23.4% 10.9% 14.9% 10.4%
1.1 0.7 44.0
1.3 0.9 88.9
1.5 1.1 159.6
1.3 0.9 110.2
1.5 1.0 182.1
1.1 0.67 9.3
1.0 0.67 11.6
1.0 0.55 11.4
1.0 0.68 10.5
0.9 0.57 11.3
16.8% 24.2% 27.8% 23.4%
7.0% 14.7% 10.6% 15.2%
5.6% 23.9% 19.2% 16.0%
8.6% 10.3% 11.6% 18.3%
14.5% 27.5% 39.9% 16.0%
TA Securities
2011 Annual Strategy
A Member of the TA Group
TP: RM10.25 (+17%) BUY
Sime Darby Berhad
Last Traded: RM8.74
Realising Its Potential
Background Sime Darby is the largest plantation company in the world. It controls 6% of the global CPO output and have downstream plantation presence in over 15 countries. Apart from plantation, other sectors where Sime Darby has substantial exposure are property, motors, industrial, equipment, energy & utilities and healthcare. The group is one of the top three largest companies (by market cap) listed on Bursa Malaysia. Investment Themes Sime Darby is an ideal proxy to CPO price and therefore, also a proxy to commodity plays, one of our investment themes for 2011. Management estimate RM100 change in CPO price would impact earnings by RM200mn (+/‐ 6.5% FY11 EPS). Our earnings projection are currently based on RM2,700/tonne and RM2,650/tonne average price in CY11 and CY12 respectively. Our assumption could turn out to be overly conservative if supply risk crystallizes due to adverse condition (El Nino and La Nina). At RM3,000/tonne, our FY11/12 earnings forecasts will increase by 14% ‐ 15%, implying forward PER of 13x only vs. historical average of 18x.
We believe the worst is over for Sime. Management assured risk of further provisions at the O&G unit is remote. On the upside, management is pursuing losses recovery, including by legal means. Share price is still discounting corporate governance issue, in our opinion, as reflected by 2.5% decline YTD vs. 23% gain in KL Plantation Index and 35% increase in CPO price. However, we think confidence building is an ongoing process and the stock could be re‐rated if management delivers on its promises.
Share Information Bloomberg Code SIME MK Stock Code 4197 Listing Main Market Share Cap (mn) 6009.5 Market Cap (RMmn) 52,522.7 Par Value 0.50 52‐wk Hi/Lo (RM) 9.19/7.47 12‐mth Avg Daily Vol ('000 shrs) 6007.6 Estimated Free Float (%) 37 Beta 0.90 Major Shareholders (%) Skim Amanah Saham Bumiputera ‐ 36.88 EPF ‐15.14 PNB ‐ 10.92 Financial Indicators Net debt/equity (%) CFPS (sen) P/CFPS (x) ROA (%) NTA/Share (RM) Price/ NTA (x)
FY11 10.1 8.1 107.6 7.8 3.6 2.4
FY12 4.4 12.7 68.8 8.3 3.9 2.2
Share Performance (%) Price Change 1 mth 3 mth 6 mth 12 mth
SIME (3.2) 6.6 12.2 (2.2)
FBM KLCI (0.7) 4.7 16.8 18.7
(12‐Mth) Share Price relative to the FBM KLCI
We also view Sime Darby as an M&A candidate. Datuk Mohd Bakke Salleh, the new Group Chief Executive and President have extensive background in corporate restructuring. His first move was to restructure management and set up board committee on business division level. That lends credential to him spearheading a value unlocking assets restructuring exercise. We see three potential M&A angle, 1) spin‐off of non‐plantation assets into a separate listing. The likeliest candidates are property and motor, 2) merger of property assets with other property companies, possibly its sister companies (I&P Group, SP Setia or Mah Sing which has common major shareholder – PNB). We think there is also political will to see this through as evident from recent mergers involving GLC/GLICs related companies (MRCB‐ IJM Land & UEM Land – Sunrise) and 3) listing of plantation assets, although we think this is the least likeliest scenario.
Recommendation We derive a target price of RM10.25 for Sime Darby based on Sum‐of‐Parts valuation methodology. We pegged a target PER of 18x for the plantation division, 14x for industrial equipment and 12x for other core‐assets. Key risk factors to our earnings forecasts/recommendation are, 1) economic downturn, 2) sharp contraction in CPO price, 3) execution risk in management restructuring, 4) value destroying assets transaction/M&A, 5) further losses from the O&G segment.
Sime Darby Berhad
82
Source: Bloomberg
TA Securities
2011 Annual Strategy
A Member of the TA Group
Figure 1: Earnings recovering nicely as provisions risk diminished and CPO price rises
Figure 2: Breakdown of operating profit (FY11)
3,200
4,000 3,500
Motor, 9.3%
3,000
Others, 1.2%
3,000 2,800
2,500
2,600
2,000 1,500
Industrial , 17.6%
2,400
1,000 2,200
500
E&U, 1.8%
2,000
0 2008
2009
2010 PAT (RHS)
2011E
2012F
2013F
Plantation , 57.7%
Property , 12.3%
CPO Price (LHS)
Sources: Annual Reports, TA Securities
Sources: TA Securities
Comparative Valuation Malaysia (RM) IOI Corp KLK Sime Darby Boustead
Call
Price
TP
PER FY12 (x)
FY11 (x)
P/BV FY12 (x)
Dividend Yield FY11 FY12 (%) (%)
ROE FY11 FY12 (%) (%)
(RM)
(RM)
FY11 (x)
Hold Buy Buy Buy
5.78 21.58 8.74 5.64
6.45 22.23 10.25 6.94
20.0 17.9 17.1 11.4
18.2 17.0 15.5 9.6
3.6 3.5 2.4 1.3
3.3 3.3 2.2 1.2
2.8 3.3 2.9 5.7
2.9 3.5 3.2 6.2
17.7 20.5 14.4 11.7
17.5 19.9 14.9 13.2
6.04 2.91
8.18 3.55
14.2 13.9
13.1 13.0
2.0 2.2
1.8 1.9
2.3 0.0
2.5 0.0
16.3 17.1
15.6 15.6
Singapore (SGD) Wilmar Buy IFAR Buy
Sime Darby Berhad
83
TA Securities
2011 Annual Strategy
A Member of the TA Group
P&L YE June 30 Revenue EBITDA Dep. & amortisation Net finance cost Associate + JV Forex & EI PBT Taxation MI Net profit Core net profit Reported EPS (basic) Core EPS (diluted) PER PER (diluted) GDPS
(sen) (sen) (x) (x) (sen)
RATIO YE June 30 Valuations Reported PER Core PER Div. Yield P/BV EV/EBITDA EV/EBIT EV/Sales FCF yield
(x) (x) (%) (x) (x) (x) (%)
Profitability ratios ROAE ROAA EBITDA margin PBT margin Liquidity ratio Current ratio Quick ratio Net current assets
(x) (x) (RMmn)
Leverage ratios Total liabilities / equity Net debt / equity Int. coverage ratio Growth ratios (%) Sales Pretax Core earnings Total assets
Sime Darby Berhad
(x) (x) (x)
2009 2010 2011E 2012F 2013F 31,013.9 32,951.6 34,788.4 36,086.1 37,234.7 3,945.2 3,127.6 5,295.8 5,764.1 5,758.9 (750.0) (893.4) (976.8) (1,020.9) (1,061.3) (93.9) (170.1) (181.9) (160.2) (138.3) 14.5 (364.2) 18.2 19.3 20.5 (44.2) 41.6 0.0 0.0 0.0 3,071.6 1,741.5 4,155.3 4,602.3 4,579.8 (730.8) (886.7) (997.3) (1,104.5) (1,099.2) (60.7) (128.0) (94.7) (104.9) (104.4) 2,280.1 726.8 3,063.3 3,392.8 3,376.2 2,324.3 685.2 3,063.3 3,392.8 3,376.2 38.7 11.4 51.0 56.5 56.2 38.7 11.4 51.0 56.5 56.2 23.0 72.3 17.1 15.5 15.6 22.6 76.7 17.1 15.5 15.6 20.3 10.0 25.0 28.0 28.0
2009
2010
2011E
2012F
2013F
23.0 22.6 2.3 2.5 13.8 17.2 1.8 (1.7)
72.3 76.7 1.1 2.6 16.9 25.0 1.7 (0.4)
17.1 17.1 2.9 2.4 10.2 12.7 1.6 4.9
15.5 15.5 3.2 2.2 9.2 11.4 1.5 5.7
15.6 15.6 3.2 2.1 9.0 11.2 1.4 5.7
10.8 6.5 12.9 9.9
3.3 1.9 10.0 5.3
14.4 7.8 15.5 11.9
14.9 8.3 16.2 12.8
13.8 7.9 15.7 12.3
1.6 1.2 7,098.5
1.5 1.1 6,772.1
1.6 1.2 7,915.4
1.7 1.2 9,089.5
1.7 1.3 10,282.7
1.7 0.1 12.6
1.9 0.2 8.0
1.8 0.1 14.6
1.8 0.0 17.0
1.7 (0.0) 17.8
(8.9) (41.0) (33.6) (4.1)
6.2 (43.3) (70.5) (10.4)
5.6 138.6 347.1 19.0
3.7 10.8 10.8 3.7
3.2 (0.5) (0.5) 3.2
84
BALANCE SHEET YE June 30 (RMmn) Fixed assets Associates + JV Inv. properties Goodwill Others LT assets
2009 2010 2011E 2012F 2013F 9,470.4 10,844.3 11,367.5 11,846.6 12,285.3 1,138.0 1,014.2 1,032.4 1,051.7 1,072.2 305.1 333.7 333.7 333.7 333.7 129.4 108.9 108.9 108.9 108.9 6,534.7 6,827.2 6,827.2 6,827.2 6,827.2 17,577.6 19,128.3 19,669.7 20,168.1 20,627.3
Trade receivables Cash Others Current assets
5,874.9 3,310.0 8,677.4 17,862.3
5,262.9 4,491.2 9,043.8 18,797.9
6,261.9 4,979.4 9,254.3 20,495.6
6,495.5 5,743.2 9,456.7 21,695.4
6,702.2 6,554.5 9,635.9 22,892.6
Total Assets
35,439.9
37,926.2
40,165.2
41,863.5
43,519.9
Trade payables ST borrowings Others Current liabilities
6,420.6 3,594.2 592.5 10,607.3
6,919.1 3,302.3 1,467.5 11,688.9
7,931.7 4,313.8 1,467.5 13,713.0
8,227.6 4,074.4 1,467.5 13,769.5
8,489.5 3,835.6 1,467.5 13,792.6
2,012.8 621.0 814.0 3,447.8
4,287.3 680.8 819.1 5,787.2
2,875.8 775.5 819.1 4,470.5
2,716.2 880.5 819.1 4,415.8
2,557.0 984.9 819.1 4,361.0
Share capital Reserves Shareholders' funds
3,004.7 18,380.1 21,384.8
3,004.7 17,445.4 20,450.1
3,004.7 18,977.1 21,981.8
3,004.7 20,673.5 23,678.2
3,004.7 22,361.6 25,366.3
Total Liabilities
35,439.9
37,926.2
40,165.2
41,863.5
43,519.9
LT borrowings MI Others LT liabilities
CASH FLOW YE June 30 (RMmn) 2,009 PBT 3,071.6 Dep. & amortisation 750.0 Net interest 93.9 Others non‐cash 159.9 Changes in WC (1,957.1) Tax paid & others (1,376.0) Operational cash flow 742.3
2,010 1,741.5 893.4 170.1 935.8 802.3 (888.8) 3,654.3
2011E 2012F 2013F 4,155.3 4,602.3 4,579.8 976.8 1,020.9 1,061.3 181.9 160.2 138.3 (18.2) (19.3) (20.5) (196.8) (140.2) (124.0) (997.3) (1,104.5) (1,099.2) 4,101.7 4,519.4 4,535.7
Capex Others Investing cash flow
(2,123.4) (2,993.4) (1,500.0) (1,500.0) (1,500.0) 683.3 246.7 113.7 119.4 125.4 (1,440.1) (2,746.7) (1,386.3) (1,380.6) (1,374.6)
Net share issue Dividend paid Net change in debts Others Financial cash flow
0.0 0.0 0.0 0.0 0.0 (2,366.2) (1,404.4) (1,531.7) (1,696.4) (1,688.1) 489.2 2,181.8 (400.0) (399.0) (398.0) (26.0) (238.2) (295.6) (279.6) (263.7) (1,903.0) 539.2 (2,227.2) (2,375.0) (2,349.8)
Net cash flow Opening cash flow Forex Closing cash flow
(2,642.5) 5,994.2 (41.7) 3,310.0
1,314.0 3,310.0 (132.8) 4,491.2
488.2 4,491.2 0.0 4,979.4
763.8 4,979.4 0.0 5,743.2
811.3 5,743.2 0.0 6,554.5
TA Securities
2011 Annual Strategy
A Member of the TA Group
TP: RM 3.45 (+15.0%) BUY
WCT Berhad
Last Traded: RM 3.00
Bright Construction Outlook
Background WCT Bhd is primarily involved in civil engineering, building & infrastructure construction, property development, property investment & management and toll highway concession. The company derives the main chunk of earnings from the construction and property divisions. In addition, WCT is now venturing into the retail concession business with Malaysian Airports Holdings Bhd and also the hospitality and management business with its first hotel, Premiere in Klang. Investment Themes Construction: True to their word, WCT delivered on their FY10 new order book target of RM2bn. These projects are: Bahrain City Centre Hotels Fit‐out works worth RM467mn KLIA2 Integrated Complex Malaysia worth RM486mn Tuaran Hospital, Sabah Malaysia worth RM128mn Government Adminstrative Building, Qatar worth RM1.36bn
The Bahrain City Centre Hotels Fit‐out works is set to be completed by December 2010. WCT guided pretax margin figures of 5% for the Tuaran Hospital, 5% for the KLIA2 and 7% for the Qatari Government building. We believe that these figures are conservative at best and also note that corporate tax is not imposed on non‐oil companies in Bahrain.
Margin: YoY, construction and property margin registered an increase and among all the big construction plays, WCT has registered one of the more consistent margin. In addition, the property margin has seen a consistent increase for the past three quarters inline with the strong demand in the properties mart.
Development Expansion: WCT indicated that it has acquired a new piece of land in Klang measuring 56acres or about 2.4mn sqft. We believe that the land was acquired for a value in the region of RM24mn to RM30mn. The Gross Development Value of the land is around RM300mn until 2014. They would develop it into a gated and guarded up‐market residential area with a central land and park. The land is located between Parklands and Bukit Tinggi II.
Recommendation We derive a target price of RM3.45 base on FY11 16x construction PER and 14x properties PER. We recommend investors to Buy based on positive construction sector outlook, healthy order book, and upbeat properties sector. Key risks include 1) Project execution; 2) Political kickbacks in the Middle East; 3) New order target falling behind expectations.
WCT Berhad
85
Share Information Bloomberg Code WCT MK Stock Code 9679 Listing Main Market Share Cap (mn) 786.3 Market Cap (RMmn) 2358.8 Par Value 0.50 52‐wk Hi/Lo (RM) 3.31/2.43 12‐mth Avg Daily Vol ('000 shrs) 2,072.5 Estimated Free Float (%) 73.15 Beta 1.57 Major Shareholders (%) Employees Provident Fund ‐ 20.50 Kumpulan Wang Persaraan ‐ 6.42 Financial Indicators Net Debt / Equity (%) CFPS (sen) Price / CFPS (x) ROA (%) NTA/Share (RM) Price/NTA (x)
FY10 30.2 (8.6) (34.8) 3.6 1.7 1.7
FY11 26.7 9.7 31.1 4.3 1.9 1.6
Share Performance (%) Price Change 1 mth 3 mth 6 mth 12 mth
WCT (2.9) 4.9 10.7 18.6
FBM KLCI (0.7) 4.7 16.8 18.7
(12‐Mth) Share Price relative to the FBM KLCI
Source: Bloomberg
TA Securities
2011 Annual Strategy
A Member of the TA Group
Company Gamuda IJM WCT
Price (RM) 3.76 6.14 3.00
TP (RM) 4.24 7.36 3.45
PE (x) CY10 21.4 21.6 16.9
Profit & Loss Revenue COGS Gross profit
2008 3795.5 (3608.4) 187.0
2009 419.2 (381.5) 37.7
2010E 2600.0 (2272.4) 327.6
2011F 2992.4 (2504.7) 487.8
2012F 2723.6 (2252.4) 471.2
EBITDA Depreciation Amortisation EBIT Finance cost Associates PBT
187.1 (5.0) 0.0 182.0 (43.8) 21.0 159.3
247.4 (6.6) 0.0 240.8 (47.2) 17.4 211.1
237.8 (7.9) 0.0 229.9 (34.9) 17.4 212.4
323.7 (10.6) 0.0 313.1 (34.9) 17.4 295.5
360.9 (13.2) 0.0 347.7 (34.9) 17.4 330.1
Tax MI Net profit EPS (sen) DPS (sen)
(13.1) (44.0) 102.2 20.3 9.5
4.8 (68.8) 147.1 17.8 10.0
(42.5) (31.9) 138.1 22.8 10.0
(73.9) (44.3) 177.3 25.5 10.0
(82.5) (49.5) 198.1 26.9 10.0
Cash Flow PBT Depr & Amort Tax Associate and JV OP before w/cpt change Other Operating CF (net) CFO
2008 159.3 5.0 (32.4) (21.0) 129.7 (309.3) (68.7)
2009 211.1 25.1 (5.6) (17.2) 293.7 (259.5) 247.5
2010E 212.4 7.9 (42.5) (17.4) 237.8 (315.3) 83.0
2011F 295.5 10.6 (73.9) (17.4) 323.7 (314.4) 224.1
2012F 330.1 13.2 (82.5) (17.4) 360.9 (363.6) 240.7
Capex Others CFI
(122.2) 84.0 (38.2)
(47.8) 15.4 (32.4)
(150.0) ‐ (150.0)
(149.0) ‐ (149.0)
(150.0) ‐ (150.0)
Net Addition/Rpmt Dividend Paid Others CFF
(377.7) (55.2) 683.3 250.5
(257.6) (55.9) 109.3 (204.3)
‐ (58.3) ‐ (58.3)
‐ (58.3) ‐ (58.3)
‐ (58.3) ‐ (58.3)
Net Cash Flow
143.6
10.8
(125.4)
16.8
32.4
WCT Berhad
Div yield (%) CY10 CY11 3 3 1.8 1.8 3 3
CY11 15.2 18.0 16.0
ROE (%) CY10 10 7 10
Recom. CY11 13 8 12
Buy Buy Buy
Balance Sheet Fixed Assets Leasehold land Associates + JV Investment Properties Others LT Assets
2008 373.1 253.4 166.2 424.5 740.0 1957.2
2009 415.5 187.3 181.1 425.8 715.9 1925.6
2010E 557.6 187.3 198.5 425.6 785.1 2154.2
2011F 696.0 187.3 215.9 425.6 785.1 2310.0
2012F 832.8 187.3 233.3 425.6 785.0 2464.1
Inventories Trade and other receivables Deposits, cash and bank balances Others ST Assets
150.5 1435.8 719.3 194.5 2500.1
113.7 1472.7 713.5 253.3 2553.2
43.6 784.6 588.2 235.3 1651.6
34.3 941.8 605.0 235.3 1816.3
37.0 882.9 637.3 235.3 1792.5
Total Assets
4457.3
4478.8
3805.7
4126.3
4256.6
Trade and other payables ST Borrowings Others ST Liabilities
1390.0 301.7 0.0 1691.7
1600.6 206.7 0.3 1807.6
765.2 206.1 0.0 971.4
922.5 206.1 0.0 1128.6
863.6 206.1 0.0 1069.7
LT Borrowings MI Others LT Liabilities
831.2 169.0 600.0 1600.3
791.7 233.0 392.3 1417.0
792.3 264.9 420.0 1477.1
792.3 309.2 420.0 1521.4
792.3 358.7 420.0 1570.9
Share Cap Reserves ICPS Share Premium Shareholder's Funds
385.7 405.9 5.7 367.9 1165.3
388.9 492.1 3.7 369.3 1254.0
388.9 595.4 3.7 369.3 1357.2
388.9 714.4 3.7 369.3 1476.2
388.9 854.1 3.7 369.3 1616.0
Liabilities + Equities
4457.3
4478.8
3805.7
4126.3
4256.6
2008
2009
2010E
2011F
2012F
(601.7) 0.5 2908.5 15.5 2.3 8.8 1.5 2.0
(284.9) 0.2 2610.2 10.5 3.1 10.7 1.6 1.8
(410.2) 0.3 2735.6 11.5 3.6 10.2 1.7 1.7
(393.4) 0.3 2718.8 8.4 4.3 12.0 1.9 1.6
(361.0) 0.2 2686.4 7.4 4.7 12.3 2.1 1.4
Ratios Net cash (RMmn) Net gearing (x) EV (RMmn) EV/EBITDA (x) ROA (%) ROE (%) NTA/share (RM) P/NTA (x)
86
TA Securities
2011 Annual Strategy
A Member of the TA Group
Strong Economy Supports Further Rerating The brighter equity market outlook in 2011 is well supported by a sustained expansion in the GDP. The Malaysian economy had rebounded back strongly to register an astounding YTD 3Q10 growth of 8.0% given the accommodative fiscal and monetary policies in place. Both the external and domestic consumption demand had rebounded in 2010, bringing GDP to a double digit expansion of 10.1% YoY in 1Q10; a moderated 8.9% YoY in 2Q; and slower growth of 5.3% in 3Q. For the full year, annual growth may come in at 6.7% for 2010 and thereafter tapering to 5.4% for 2011. Overall growth will continue to be well supported primarily by the domestic economic activities. Namely, private consumption will benefit from the favourable employment conditions, firm commodity prices and accommodative financing environment. Meanwhile, the expansion in private investment is expected to be driven by capital outlays into various domestic‐oriented sectors in line with the country’s Economic Transformation Program. Contrastingly, recent indicators on exports and external‐ related sectors suggest that external demand may slack as the international front remains uncertain.
Figure 64 : TA Forecasts on Key Economic Indicators 2010e 2011f Q4 10 Q1 11 Q2 11 GDP YoY%
6.7
CPI YoY %
Q3 11
Q4 11
5.4
3.2
3.9
5.5
5.8
6.5
2.1
2.2
2.1
1.9
2.0
1.8
2.1
Trade Balance: RM/ bn
107.4
108.0
BNM overnight rate: end period
2.75
3.50
2.75
3.00
3.00
3.25
3.50
Malaysian Ringgit: end period
3.00
2.80
3.00
2.95
2.90
2.85
2.80
Sources: TA Securities
Figure 65 : Malaysia’s Real GDP (YoY %) Current Projections GDP Components
2008
2009
2010p
2011f
1Q10
2Q10
3Q10
YTD %
GDP
4.7
(1.7)
6.7
5.4
10.1
8.9
5.3
8.0
Demand Side Government Final Consumption Expenditure
10.7
3.1
(10.7)
7.3
6.3
6.9
(10.2)
0.2
Private Final Consumption Expenditure
8.5
0.7
6.8
4.9
5.1
7.9
7.1
6.7
Gross Fixed Capital Formation
0.7
(5.6)
10.4
2.9
5.4
12.9
9.8
9.5
Exports
1.6
(10.4)
9.6
6.6
19.3
13.8
6.6
12.9
Imports
2.2
(12.3)
14.5
5.2
27.5
21.9
11.0
19.4
Supply Side Agriculture, Forestry & Fishing (AF)
4.3
0.4
4.2
4.7
6.8
2.4
2.7
3.8
Mining & Quarrying
(2.4)
(3.8)
0.4
3.7
2.1
1.9
(1.0)
0.7
Manufacturing (Mfg)
1.3
(9.4)
11.5
7.4
16.9
15.9
7.5
13.3
Construction
4.2
5.8
5.6
3.8
8.7
4.1
2.8
5.0
Services
7.4
2.6
5.6
4.5
8.5
7.3
5.4
7.0
Notes: The 2010p breakdowns are estimates; while the 2011f represents TA's forecast. Sources: Department of Statistics, TA Securities
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Leading indicators signal slowdown ahead On the whole, the Leading Index (LI) suggests that the economy is stabilizing and thus GDP growth will slow down in the coming quarters. In September, the index was at 173.9 points, which was unchanged from the previous month. However, the six‐month smoothed growth rate of the LI had declined to 1.6% from 2.2% in the previous month. Namely, money supply M1 in September had improved by 11.5% YoY, owing to the improved economic performance to date. The price index of the services segment has also been moving in tandem with the relatively moderate pace of inflation. The miscellaneous and services sub‐segment of CPI advanced by a modest 2.1% while overall CPI grew by 1.8% in September 2010. Aside from that, we also note some dwindling trade activities between Malaysia and its major trading markets in 2H10. Specifically, Malaysia’s total trade with China fell by 4.8% in September as compared to January this year.
Figure 67 : Money Supply M1
Figure 66 : Malaysia’s leading indicator 180
14
220000
175
12
215000
170
10
210000
8
205000
13
6
200000
11
195000
4 2
Leading Index/ points (LHS)
9
185000
7
180000
5
175000
3
MYR/mn
Growth Rate (RHS)
Sep‐10
Jul‐10
Aug‐10
Jun‐10
Apr‐10
May‐10
Mar‐10
Jan‐10
Feb‐10
Dec‐09
Oct‐09
Nov‐09
Sep‐09
Jul‐09
Jan‐09
Aug‐09
170000
Jul‐2010
Jan‐2010
Apr‐2010
Jul‐2009
Oct‐2009
Jan‐2009
Apr‐2009
Jul‐2008
Oct‐2008
Jan‐2008
Apr‐2008
Jul‐2007
Oct‐2007
Jan‐2007
Apr‐2007
Jul‐2006
Oct‐2006
Jan‐2006
Apr‐2006
‐4 Jul‐2005
‐2
130 Oct‐2005
135 Jan‐2005
0
Apr‐2005
140
190000
Jun‐09
145
Apr‐09
150
May‐09
155
Mar‐09
160
15
Feb‐09
165
17
YoY %
Sources: Bank Negara Malaysia, TA Securities
Notes: Figure 4 depicts the leading index for Malaysia. The growth rate indicates the six‐month smoothed rates. Sources: Department of Statistics, TA Securities
Figure 68 : Consumer Price Index (YoY%)
Figure 69 : MIER’s Sentiment Indicators
10.0
130
8.0
120
6.0
110 100
4.0
90 2.0
80 70
0.0
60
‐2.0
Misc goods & services
Sources: MIER, TA Securities
88
Consumer Sentiment Index
Sep‐2010
Mar‐2010
Sep‐2009
Mar‐2009
Sep‐2008
Mar‐2008
Sep‐2007
Mar‐2007
Sep‐2006
Mar‐2006
Sep‐2005
Mar‐2005
Sep‐2004
Business Condition Index
Notes: Figure 6 depicts the YoY growth rates of CPI and its sub component of misc goods & services. Sources: Bank Negara Malaysia, TA Securities
2011 Market Outlook
Mar‐2004
Mar‐2003
Jul‐10
Apr‐10
Jan‐10
Jul‐09
Oct‐09
Apr‐09
Jan‐09
Oct‐08
Jul‐08
Jan‐08
Apr‐08
Jul‐07
Oct‐07
Apr‐07
Jan‐07
Oct‐06
Jul‐06
Jan‐06
Apr‐06
CPI
Sep‐2003
50 ‐4.0
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Leading indicator vs. KLCI The stable economy and a swift rebound to record a growth by 1Q10 had boosted investors’ confidence for the rest of 2010. In line with the economic advancement, we note that the KLCI had also advanced by a steady 18.2% to date. KLCI closed at 1485.23 points by end‐ November 2010. Based on our gauge, the leading index and KLCI is positively correlated with each other, baring a correlation coefficient of 0.75. Similarly, the 6‐month smooth growth rate of the LI had been trending in tandem with the KLCI especially since January 2007 until March 2010, but dispersed in opposite directions beginning April 2010 (refer to Figure 71 ‐ LI Growth rate vs. KLCI). We note that the 6‐months growth rate of LI had been narrowing considerably from a six year high of 12.9% seen in November 2009 to a marginal growth of 1.6% in September 2010. In contrast though, the KLCI continued to soar despite the initial signals of economic stabilisation. This signifies a constructive market sentiment among investors on the back of the overall positive economic backdrop.
Figure 70 : Leading Index vs. KLCI
Figure 71 : LI Growth rate vs. KLCI 190
1600 1500
180
1400 170
1300
1600
14
1500
12
1400
10
1300
8
1200
160
1200
6
1100
150
1100
4
1000
2
140
KLCI (LHS)
KLCI (LHS)
Sources: Bloomberg, TA Securities
Nov‐10
Jul‐10
Sep‐10
May‐10
Jan‐10
Mar‐10
Nov‐09
Jul‐09
Sep‐09
May‐09
Jan‐09
Mar‐09
Nov‐08
Jul‐08
Sep‐08
Apr‐10
Leading Index (RHS)
May‐08
‐4 Jan‐08
700 Mar‐08
120 Aug‐10
Dec‐09
Apr‐09
Aug‐09
Dec‐08
Apr‐08
Aug‐08
Dec‐07
Apr‐07
Aug‐07
Dec‐06
Apr‐06
Aug‐06
Dec‐05
Apr‐05
Aug‐05
Dec‐04
Apr‐04
Aug‐04
Dec‐03
700
Nov‐07
‐2 Jul‐07
800 Sep‐07
0
130
Jan‐07
800
May‐07
900
900
Mar‐07
1000
LI Growth rate (LHS)
Notes: The LI growth rate indicates the six‐month smoothed rates of the leading index. Sources: Bloomberg, TA Securities
Modest inflation Malaysia’s CPI had remained relatively modest compared to other economies regionally. We expect modest price increases in the coming months in view of the rising global commodity and food prices. Given the second round of subsidy rationalisation plan as announced on 3rd December 2010, we do envisage some gradual cost push pressure for 2011. We note that the domestic headline inflation registered a growth of 2.0% YoY in October (up from 1.8% in September), while cumulatively CPI came in at 1.7%. Our full year inflation projections are 1.8% and 2.8% for 2010 and 2011 respectively. Full rate of employment for 2010 and 2011 The favourable employment condition and full rate of employment will persist on the back of the firm fundamentals of the economy. Economic activities had generally expanded as at YTD 2010. MIER’s Consumer Sentiments Index (CSI) surges to a 2 year high of 115.8 points during 3Q10. Consumers are generally confident over present income level and job prospects ahead. Nonetheless, inflationary jitters are sipping suggesting early signals that overall spending will slow moving forward. To date August 2010, the unemployment rate had registered an average of 3.4%. For both this year and next year, we expect unemployment rate of between 3.0‐3.5%.
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Figure 72 : Modest Price increase in 2010 and 2011 140.0
Figure 73 : Employment in Malaysia 11,900
6.0
4.2
11,800
120.0
5.0
4.0
11,700 11,600
100.0
4.0
11,400
3.0
11,200
2.0
20.0
1.0
0.0
0.0
3.6
11,300
60.0 40.0
3.8
11,500
80.0
3.4
11,100 11,000
3.2
CPI (LHS)
yoy % (RHS)
Sources: Department of Statistics, TA Securities
Jul‐10
Aug‐10
Jun‐10
Apr‐10
May‐10
Mar‐10
Jan‐10
Feb‐10
Dec‐09
Oct‐09
Labour force '000 (LHS)
Nov‐09
Sep‐09
Jul‐09
Aug‐09
Jun‐09
Apr‐09
May‐09
Mar‐09
Jan‐09
3.0 Feb‐09
10,800
2011f
2010e
2009
2008
2007
2006
2005
2004
10,900
Unemployment rate (RHS)
Sources: Department of Statistics, TA Securities
Robust trade balance
Trade balance continues to post a surplus as at YTD September 2010. Our 2010 trade projections include: (1) exports growth of 14.0% YoY; (2) imports to accelerate by 20.3%; and (3) trade surplus amounting to RM107.4bn. Moving forward, the external demand is expected to grow modestly on the back of the economic stabilization, relatively strong Ringgit and also the uncertain external environment. For 2011, exports and imports may expand by 4.7% and 5.6% YoY respectively and thus overall trade balance to register a surplus totalling RM108.0bn. Figure 74 : Full year nominal exports Figure 75 : Malaysia’s exports direction 700,000.0
40.0
600,000.0
30.0
500,000.0
20.0
400,000.0
India 3.3%
10.0 300,000.0 0.0
200,000.0
Exports RM/ mn (LHS)
yoy % (RHS)
Sources: Department of Statistics, TA Securities
China 12.7%
Korea 3.8%
EU 10.7%
Australia 3.9%
2011f
2010e
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
‐20.0 1998
0.0 1997
100,000.0
‐10.0
Singapore 13.2%
Others 21.9%
Hong Kong 5.1%
US 9.7%
Japan 10.2%
Thailand 5.5%
Sources: Bloomberg, TA Securities
Full normalization of OPR in 2011
Bank Negara left the OPR unchanged at 2.75% during the final MPC meet of 2010. Ahead of next year’s MPC meeting, we anticipate a gradual normalization of rates to pre‐crisis level of 3.50% by the end of 2011. We expect three separate increases in the OPR of 25bps each during the MPC meets in 1Q; 3Q; and 4Q11. The MPC meetings will convene six times a year based on the following schedule shown in the figure below.
Figure 76 : Schedule of Monetary Policy Committee Meetings for 2011 MPC Meeting No.
Dates
TA's Expectations 2.75% (unchanged)
1st
27 January 2011 (Thursday)
2nd
11 March 2011 (Friday)
3.00% (+25 bps)
3rd
5 May 2011 (Thursday)
3.00% (unchanged)
4th
7 July 2011 (Thursday)
3.25% (+25 bps)
5th
8 September 2011 (Thursday)
6th
11 November 2011 (Friday)
Sources: Bank Negara Malaysia, TA Securities 2011 Market Outlook
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3.25% (unchanged) 3.50% (+25 bps)
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Ringgit fluctuates in an orderly manner
The Ringgit had been fluctuating in an orderly manner, soaring to a 13‐year high of RM3.0775 per USD on November 5th. It snapped the rally thereafter on speculation that BNM will prevent the currency from a rapid appreciation in line with the pause from further OPR hike for the remaining of 2010. As at YTD though, the Ringgit had appreciated considerably against most major currencies including EUR (+12.9%); GBP (10.5%); and USD (9.2%). The Ringgit averages at RM3.2300 per USD to date November 15th. Our 2011 year‐end target for the Ringgit is RM2.80. Here, we believe that the domestic economic conditions are favourable and constructive for a strong Ringgit going forward. Figure 78 : Ringgit vs. USD, GBP, EUR, JPY, AUD and SGD Figure 77 : YTD October 2010 Gains for the Ringgit (%) 5.50
EUR
5.00
GBP USD
4.50
CNY
4.00
IDR
3.50
PHP
3.00
SGD
‐5.0
0.0
5.0
10.0
15.0
USD
GBP
EUR
JPY100
AUD
3/11/2010
12/11/2010
26/10/2010
8/10/2010
18/10/2010
30/9/2010
22/9/2010
2/9/2010
13/9/2010
24/8/2010
6/8/2010
16/8/2010
29/7/2010
21/7/2010
5/7/2010
13/7/2010
JPY
25/6/2010
9/6/2010
THB
17/6/2010
1/6/2010
2.50
AUD
SGD
Sources: Bank Negara Malaysia, TA Securities
Note: Figure 15 depicts the total YTD gains of the Ringgit vis‐à‐vis these foreign currencies. Sources: Bank Negara Malaysia, TA Securities
ECONOMIC DOWNSIDE RISK Global imbalance
Globally, a striking economic imbalance continues to persist. The economic outlook remains bleak for most of the developed countries. Growth stays slow for the more advanced economies as a result of the weak consumption demand and investment spending paired with sluggish exports growth. By contrast, in many emerging markets where excesses were limited and scars are few, consumption, investment and net exports have been contributing to strong growth bringing output once again close to potential.
Figure 80 : Asia’s growth rates in 3Q10 (YoY %)
Figure 79 : Developed Countries’ GDP in 3Q10 (YoY %)
+10.6%
+4.4% 3.9 3.1
9.8
9.6 6.8
2.8 1.9
6.7
6.5
6.5
5.8
5.3
4.5
1.8
91
South Korea
Malaysia*
Indonesia
Vietnam
Philippines
Thailand
Hong Kong
China
Sources: Bloomberg, TA Securities
Sources: Bloomberg, TA Securities
2011 Market Outlook
Taiwan
Singapore
Italy
France
Eurozone
UK
US
Germany
Japan
1.0
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Europe Debt crisis The economic risk in Eurozone persists with threats for more turmoil in the sovereign‐debt markets. The fiscal austerities will stifle growth in the Euro region as a result of debt restructuring among nations and international institutions. In the same manner, the financial market pressure on Europe's weaker economies will intensify. In terms of trades, Malaysia has limited exposure to Europe’s debt stricken countries including Greece, Ireland, Portugal, Spain and Italy. Nevertheless, as a whole EU is among Malaysia’s top ten export market which contributes a substantial 10.7% towards YTD September 2010 exports. As such, prolonging uncertainties in Europe will in the long run have negative implications on Malaysia’s bilateral trade. Global liquidity and market risk Aside from that, the shift in global liquidity and increasing inflows of capital into emerging economies raises both economic risks and markets’ volatility. Likewise, these anomalies have also been increasing for Malaysia. The international reserves held at BNM for instance had been improving throughout this year. In part, this is attributable to the inflow of short term funds. Among which could prompt the reversal of fund flows includes the anticipation of the Federal Reserve raising interest rate in the US in view of an improved economic prospect. The sooner than expected increase of US benchmark rate may cause repeals of particularly the USD carry trades that are held in Malaysia and also in other parts of the world. Slower demand amid economic uncertainties According to MIER, the Business Condition Index (BCI) for Malaysia slipped by 14.7 points QoQ to settle lower at 104.9 points in 3Q10. This was due to the significantly lower demand for goods and expectations for further slowdown in the exports segment in the coming months. On the flipside, capacity utilization advanced albeit at a marginal growth pace. Besides that, other economic threats for the country may include: (1) inflationary risk as a result of soaring commodity prices; (2) decelerating trends for leading indicators and factory output; (3) slowdown in regional growth as economies withdraw stimulus; and (4) precipitous rise in real estate and property prices in Asia.
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Figure 81 : IMF’s growth projections based on WEO October 2010 Year over Year Projections in Oct 2010 2011
Difference from 2010 2011
Estimates 2009
Q4 over Q4 Projections 2010 2011
2008
2009
2.8 0.2 0.0 0.5 1.0 0.1 -1.3 0.9 -1.2 -0.1 0.5 1.7 1.8
-0.6 -3.2 -2.4 -4.1 -4.7 -2.5 -5.0 -3.7 -5.2 -4.9 -2.5 -1.2 -0.9
4.8 2.7 2.6 1.7 3.3 1.6 1.0 -0.3 2.8 1.7 3.1 5.4 7.8
4.2 2.2 2.3 1.5 2.0 1.6 1.0 0.7 1.5 2.0 2.7 3.7 4.5
0.2 0.1 -0.7 0.7 1.9 0.2 0.1 0.1 0.4 0.5 -0.5 0.8 1.1
-0.1 -0.2 -0.6 0.2 0.4 0.0 -0.1 0.1 -0.3 -0.1 -0.1 0.0 -0.2
2.0 -0.4 0.2 -2.0 -2.0 -0.5 -2.8 -3.0 -1.4 -2.9 -1.1 3.2 6.1
4.3 2.4 2.2 1.9 3.9 1.7 1.3 0.1 1.9 2.8 3.1 4.2 5.2
4.4 2.5 2.7 1.4 1.2 1.6 1.1 1.4 2.1 1.6 2.9 4.7 6..6
Emerging and developing economies Central and eastern Europe Commonwealth of independent states Russia Excluding Russia Developing Asia China India ASEAN–5 Middle East and North Africa Sub-Saharan Africa Latin American and Carribean Brazil Mexico
6.0 3.0 5.3 5.2 5.4 7.7 9.6 6.4 4.7 5.0 5.5 4.3 5.1 1.5
2.5 -3.6 -6.6 -7.9 -3.2 6.9 9.1 5.7 1.7 2.0 2.6 -1.7 -0.2 -6.5
7.1 3.7 4.3 4.0 5.3 9.4 10.5 9.7 6.6 4.1 5.0 5.7 7.5 5.0
6.4 3.1 4.6 4.3 5.2 8.4 9.6 8.4 5.4 5.1 5.5 4.0 4.1 3.9
0.3 0.5 0.0 -0.3 0.9 0.2 0.0 0.3 0.2 -0.4 0.0 0.9 0.4 0.5
0.0 -0.3 0.3 0.2 0.5 -0.1 0.0 0.0 -0.1 0.2 -0.4 0.0 -0.1 -0.5
5.6 1.8 -3.2 -2.9 . 9.5 11.4 7.3 5.1 . . 1.4 4.4 -2.3
7.0 2.9 3.3 3.2 . 9.1 9.9 10.3 5.0 . . 4.8 5.6 3.1
7.0 4.3 5 5 . 8.7 9.6 7.9 6.8 . . 4.4 4.5 4.5
Memorandum European Union World growth based on market exchange rates
0.8 1.6
-4.1 -2.0
1.7 3.7
1.7 3.3
0.7 0.1
0.1 -0.1
-2.1 .
2.1 .
1.7 .
World output1 Advanced economies United states Euro area Germany France Italy Spain Japan United Kingdom Canada Other advanced economies Newly industrialized Asian economies
World trade volume (goods and services) Imports Advanced economies Emerging and developing economies
2.9
-11.0
11.4
7.0
2.4
0.7
.
.
.
0.4 9.0
-12.7 -8.2
10.1 14.3
5.2 9.9
2.9 1.8
0.6 0.6
. .
. .
. .
Exports Advanced economies Emerging and developing economies
1.9 4.6
-12.4 -7.8
11.0 11.9
6.0 9.1
2.8 1.4
1.0 0.1
. .
. .
. .
36.4 7.5
-36.3 -18.7
23.3 14.2
3.3 -2.0
1.5 -1.3
0.3 -0.6
. .
. .
. .
Consumer prices Advanced economies Emerging and developing economies
3.4 9.2
0.1 5.2
1.4 6.2
1.3 5.2
0.0 -0.1
0.0 0.2
0.8 4.8
1.1 5.9
1.6 4.4
London interbank offered rate (percent)4 On USD deposits On Euro deposits On Japanese yen deposits
3.0 4.6 1.0
1.1 1.2 0.7
0.6 0.8 0.6
0.8 1.0 0.4
0.0 0.0 0.1
-0.1 -0.2 -0.2
. . .
. . .
. . .
Commodity prices (USD) Oil3 Nonfuel (average based on world commodity exports weights)
Sources: IMF, TA Securities
2011 Market Outlook
93
A Member of the TA Group
34
46
35 33 29 12 6 7
[ 94]
2 1
5 3
4
13
8 9
30
15 16 14
27
11 10
20
22 21
23 25
32
TA Securities
Corporate Earnings Summary - Sector Analysis
Major Events (2010 Overview)
45 41 44 40 42 37 39 38 36 43
47 49 48
31
28
26
24 18
19
17
Annual Strategy 2010
*Please refer to the respective ‘quarterly’ Events’ Chart’s for the happenings, in regards to the numbering sequence.
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Major Events (1Q10) 5
6
4
3
10 11
7
9 8
2 1
Major Events for the months of (Janauary - March)
8.
18 Mar Major shareholders to take ASTRO private in a cash deal at RM8.5bn or RM4.30 a share.
.9
25 Mar Gamuda Bhd's 40%-owned subsidiary SPLASH made a RM10.75bn offer to take over Selangor state government's water assets and operations.
1.
13 Jan The SC granted a stock broking license to US banking giant Citigroup Inc, making it the seventh foreign company to be given the license in Malaysia.
2.
22 Jan Hong Leong Bank Bhd offered RM7.10 per share in a RM4.9bn all-cash deal to takeover EON Capital Bhd.
3.
10 Feb Global stocks rally on prospects for EU bailout of Greece.
10. 30 Mar The PM unveiled the first stage of the NEM in the Invest Malaysia conference.
4.
25 Feb Malaysia's GDP grew by better-than-expected 4.5% in 4Q09 led by rebound in the services and manufacturing sub-divisions of supply. With that, full year GDP contracted by 1.7% YoY.
11. 31 Mar The government and EPF will develop 3,000 acres of land in Sungai Buloh with a GDV of RM5bn.
5.
04 Mar The EPF offered to buy the rest of MRCB at RM1.50 each.
6.
05 Mar BNM raised the OPR by 0.25% to 2.25%.
7.
08 Mar Malaysia's exports in January jumped 37% YoY to RM52.5bn, the most in 11 years.
MajorEvents
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Major Events (2Q10)
18 15 12
19
20
16 17
13
22
14
23
21
Major Events for the months of (April - June) 12. 02 Apr Hong Leong Bank Bhd raised its buyout offer for EON Capital Bhd by 20sen to RM7.30 a share.
18. 31 May Malaysia announced various measures to cut subsidies that will save RM103bn over the next five years.
13. 28 Apr Standard & Poor's cut credit ratings on Greece by three steps to junk and Portugal by two steps to A- from A+.
19. 07 June George Kent (Malaysia) Bhd and its consortium partner won their bid for the Pahang-Selangor Raw Water Transfer project.
14. 07 May The DJIA fell almost 1,000 points, its biggest intraday percentage loss of 9.2% since 1987, before ending 347.8 points lower at 10,520.32 on worries Europe's debt crisis will halt the global recovery.
20. 11 June PM Datuk Seri Najib unveiled the 10th Malaysian Plan with an allocation of RM230bn to navigate the country into a highincome economy, aiming to achieve average GDP of 6% per annum.
15. 11 May The US and European equity market rallied after the EU and IMF stitched together a US$1tn rescue package to stabilize world financial markets and resolve the Greek debt crisis.
21. 18 June Malaysia awarded commercial banking licenses to five foreign banks, including two from Japan, in a move to further open up the sector and draw in investments.
16. 14 May a. Malaysia's central bank raised interest rates by 25bps to 2.5% for the second time this year.
22. 21 June China abandoned the 6.83 yuan peg to the dollar adopted during the global crisis to shield exporters.
b. Malaysia's GDP rose 10.1% YoY in 1Q10, the most in a decade. c. Sime Darby to book a total of RM964mn provisions in 2H10 due to cost overruns and asks its President & Group Chief
23. 24 June China recognized Malaysia as an approved investment destination, paving the way for an inflow of Chinese funds.
17. 25 May Global stocks tumbled on rising tensions in Korea and concern Europe's debt crisis will spread. MajorEvents
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Major Events (3Q10)
36
28 29 25
26
37 38
27 34 35
24 33 30
31
32
Major Events for the months of (July - September) 24. 02 July a. Genting Malaysia subsidiary plans to acquire the casino operations of Genting Singapore Plc in the UK for total cash consideration of 340mn pounds. b. The pool betting duty applicable to Berjaya Sports Toto has been increased from 6% to 8%.
32. 16 Aug DRB-HICOM Bhd signed a MOU with Volkswagen AG to assemble and manufacture Volkswagen vehicles in Malaysia. 33. 19 Aug a. The Malaysian economy recorded strong growth of 8.9% in 2Q10 attributed to higher private and public sector spending. b. Bank Negara with immediate effect allows the ringgit as a currency of settlement for international trade between residents and non-residents.
25. 09 July Bank Negara decided to raise the Overnight Policy Rate (OPR) by 25bps to 2.75%. 26. 16 July The government increased sugar and fuel prices between 2.9% and 15.1% effective today. 27. 22 July Kulim has entered into a share sale agreement with Wilmar's unit PGEO Group to dispose of its entire 91.38% stake in Natural Oleochemicals for RM450mn. 28. 27 July Khazanah Nasional Bhd won its battle to takeover S'pore healthcare services provider Parkway Holdings Ltd for a total of SGD3.5bn or SGD3.95/share. 29. 29 July Billionaire T. Ananda Krishnan offered to buy out Measat Global Bhd for RM1.6bn or RM4.20/share.
34. 03 Sept Bank Negara left interest rates unchanged at 2.75% after three consecutive increases. 35. 07 Sept Telekom Malaysia accepted the conditional take-over offer from MEASAT for a 15.39% stake for RM4.20 per share. 36. 15 Sept Genting New York LLC's bid to redevelop the Aqueduct Racetrack won approval from the state's comptroller, clearing the final hurdle to operate New York City's first slot-machine-style "racino." 37. 21 Sept a. The worst US recession since the Great Depression ended in June 2009 says the National Bureau of Economic Research.
30. 30 July Tanjong plc to be taken private for RM4.7bn or RM21.80/ share.
b. The Government revealed details on the Economic Transformation Programme to turn Malaysia into a high-income economy by 2020 with a projected annual GDP growth of 6%.
31. 04 Aug Hong Leong Bank Bhd given the green light from the Ministry of Finance to go ahead with the EON Capital Bhd takeover deal.
38. 24 Sept Bursa Malaysia is recognized as a designated offshore securities market by the US SEC under Regulation S of the US Securities Act 1933.
MajorEvents
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Major Events (October - November) 45 41
44
42
49
43 40
47 46
39
48
Major Events for the months of (October - November) 39. 04 Oct The price of a 20-stick pack of cigarettes has been raise by 3.1% to RM10.
45. 4 Nov a. Bank Negara placed a 70% limit on the loan-to-value ratio for third mortgages for residential properties wef.
40. 06 Oct Japan moved interest rates towards 0% and provides USD60bn in asset purchases.
b. The US Federal Reserve will buy additional USD600bn of Treasuries through June 2011 in QE2.
41. 13 Oct Thailand to impose a 15% withholding tax on interest and capital gains earned by foreign investors on Thai bonds effective today. 42. 15 Oct a. The PM unveiled the Budget 2011 in Parliament House.
46. 8 Nov UEM Land proposed takeover of Sunrise Bhd at RM2.80 via share swap or alternative offer of RCPS. 47. 10 Nov PLUS accepted the revised JV offer made by EPF and UEM Group Bhd.
b. The EPF and Khazanah Nasional Bhd will undertake to buy all the assets and liabilities of PLUS Exspressway Bhd for some RM23bn or RM4.60 per share.
48. 15 Nov Petronas Chemical fixed the institutional and retail price for its IPO at RM5.20 and RM5.05 after book-building completion.
43. 20 Oct China's central bank unexpectedly raised borrowing costs for the first time since 2007, lifting the benchmark one-year lending rate to 5.56% from 5.31%.
49. 24 Nov MRCB and IJM Land proposed merger with an implied market value of RM7bn.
44. 25 Oct The PM hinted on 13th general elections next year in the UMNO general assembly.
MajorEvents
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Technical Outlook for 2011
Race the Rabbit
As the title suggests, we are bullish technically for 2011, with the Year of the Rabbit (according to the Chinese Almanac) likely representing a good year for the market. Hence, we recommend investors to load up ahead of a “Rabbit Rally” in 2011.
Technical Conclusions for 2011
Rally to 1,532 New High Represent Wave (3) From 836 Low Base Case Wave (5) Peak at 1,813 by End 2011 Best Case Alternate Wave (3) Peak at 2,043 by End 2011 Buy Market Dips Early 2011, Then Sell Rally to 1,813/2,043
Global Stock Markets Recap for 2009 & 2010 Stock markets globally managed to reverse most of their heavy losses from the 2008 credit crisis, staging sharp V‐shaped recoveries in 2009 which extended well into 2010 triggered by quantitative easing and other stimulus measures by major global central bankers. The global economic recovery gained pace in 2010 led by China and other emerging markets, while a second round of quantitative easing, or QE2, sustained the upward momentum in 2H10 fueled by price rises on property and commodities, and as emerging currencies strengthened on fund inflows. Consequently, Indonesia and Thailand’s stock markets rallied an astounding 46.9% and 41.7% in 2010 (YTD as at 7 Dec) after rising 87% and 63.2% respectively the previous year, as they benefit the most from foreign fund inflows. Placed third, the FBM Kuala Lumpur Composite Index (KLCI) was quite impressive with 18% YTD appreciation following a 45.2% gain in 2009, ahead of Germany and South Korea which added 17.5% and 16.6%. On the other side of the scale, China’s Shanghai and Japan’s Nikkei‐225 indices lost 12.2% and 3.8% YTD. However, on a two‐year basis (end 2008 to 7 December, 2010) the local benchmark which in total climbed 71.3%, lost out to Indonesia with pole position for a remarkable 174.6% gain, followed by Shenzen (+136.7%), Thailand (+131.3%), India (+101.3%), Taiwan (+89.6%), Singapore (+81.2%) and South Korea (+74.5%). The usual underperformers were developed financial markets in Japan (+14.5%) and US (+29.4%). The table below reflects the performance of the FBM KLCI, FBM EMAS and FBM Small Cap Indices against major global and regional indices for 2009 and 2010 (year‐to‐date as at 7 December, 2010).
Table 1: 2009/2010 Performance of Global Stock Indices Index
2009 % chg
2010 YTD % chg
31‐Dec‐08
31‐Dec‐09
7‐Dec‐10
Dow Jones Nasdaq S&P500 FTSE GDAX Nikkei Hang Seng Korea Taiwan S'pore Thailand Jakarta India Shanghai Shenzen
8,776 1,577 903 4,434 4,810 8,860 14,387 1,124 4,591 1,762 450 1,355 9,903 1,821 553
10,428 2,269 1,115 5,413 5,957 10,546 21,873 1,683 8,188 2,898 735 2,534 17,465 3,277 1,201
11,359 2,598 1,224 5,808 7,002 10,141 23,428 1,963 8,704 3,192 1,041 3,722 19,935 2,876 1,309
18.8 43.9 23.5 22.1 23.8 19.0 52.0 49.7 78.3 64.5 63.2 87.0 76.4 80.0 117.1
KLCI FBMEMAS FBMSC
877 5,726 6,553
1,273 8,508 10,166
1,502 10,190 12,098
45.2 48.6 55.1
Technical Outlook for 2011
99
8.9 14.5 9.7 7.3 17.5 (3.8) 7.1 16.6 6.3 10.2 41.7 46.9 14.1 (12.2) 9.0 18.0 19.8 19.0
09/10 YTD % chg 29.4 64.8 35.5 31.0 45.6 14.5 62.8 74.5 89.6 81.2 131.3 174.6 101.3 57.9 136.7 71.3 77.9 84.6
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Chart 1: Daily KLCI (Jan – 6 Dec 2010) FBMKLCI (1,505.66, 1,505.66, 1,497.61, 1,501.74, +0.76001) 1560
1560
1,532 high (10/11/10)
1550 1540
1550 1540
0.0%
1530
1530
1520
1520
1510
1510
1500
1500
1490
1490
1480
1480
3/3 SRL
1470
1470
1460
23.6%
1460
1450
1450
UTL from 27 May low
1440
1440
1430
1430
1420
1420
38.2%
1410
1410
Breakout above UTC
1400 1390 1380
1,370 high (3/8/10)
50.0%
1,350 high (4/5/10)
1370 1360
1400
O
1390
50d SMA
1380 1370 1360
1350
1350 61.8%
1340
1340
1330
1330
200d SMA
1320
1320
1310
1310
1300
1300
76.4%
1290 1280
2/3 SRL
1290
Speed Resistance Lines (SRL) drawn from 836 low (12/3/09)
1280
1270
1270
1260
1260
1250
1250
1,243 low (27/5/10)
1240 1230
1240 1230
100.0%
1220
1220
1,224 low (9/2/10)
1210
1210
1200
1200 2010
February
March
April
May
June
July
August
September
October
November
December
2011
2010 Market Review KLCI Dipped to 1,224 Year Low on External Adversity The FBM KLCI began trading the year 2010 at 1,272, then pushed above 1,300 briefly by late January on M&A optimism after Bank Negara approved Hong Leong Bank’s takeover talks with EON Capital Bhd. Adverse external sentiment from the US government’s prohibition of banks from proprietary trading and hedge funds and private equity investments, and from the jittery European sovereign debt situation dragged it down to the low of 1,224 on 9 February, which turned out to be the year’s low point. Positive Domestic Leads Drove Index to 1,350 Peak early May A global rally sparked by prospects for an EU bailout for Greece rescued the situation, lifting the index back above 1,300 helped by positive domestic developments after January exports jumped to an 11‐year high, privatization of ASTRO and as the PM launched the first stage of NEM in the Invest Malaysia conference. The index peaked at 1,350 on 4 May, before tumbling again on external adversity after S&P’s credit ratings downgrade of Greece and Portugal forced a USD1tn bailout by the EU and the IMF, and amid rising geopolitical tensions in the Korean peninsula. Rebound from 1,243 Low on 10MP and Ringgit Strength The subsequent recovery from a higher low of 1,243 on 27 May was aided by the PM’s unveiling of subsidy cuts and the 10 th Malaysia Plan for a high income economy to achieve average GDP of 6% per annum. Strength in the local currency after China let the yuan strengthen against the dollar and recognized Malaysia as an approved investment destination helped sustain the upward momentum mid‐year. Breakout Rally Above UTC (1,370) on 17th August The uptrend extended to high of 1,370 on 3 August, after Bank Negara raised the OPR a third time to 2.75% on stronger economic outlook and after billionaire Ananda Krishnan offered to privatize Measat Global and Tanjong plc, which fueled market speculation on potential privatization of undervalued companies. On 17th August, the index staged breakout rally above the uptrend channel which connects the February and May lows and the highs of 1,350 and 1,370, following positive sentiment from the strong 8.9% 2Q GDP growth and Bank Negara’s liberalization on trading in the ringgit for offshore settlement. Climb Above 1,500 on General Elections Hint The market extended rally to challenge the 1,500 level by mid‐October, as fears of a double‐dip recession ebbed after Japan moved to lower interest rates towards zero and provided USD60bn in asset purchases. After a shallow post Budget profit‐ taking dip, the index resumed higher and climbed above 1,500 by late October as the PM hinted the 13th general elections will be held next year in the UMNO general assembly. Technical Outlook for 2011
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Rally to New High on QE2 Thereafter, a global rally lifted the index to a new all‐time high of 1,532 on 10 November, after the US Federal Reserve undertook to buy additional USD600bn of Treasuries through June 2011 in a second round of quantitative easing, aptly described as QE2. A number of M&A deals between GLCs and non GLCs such as UEM Land‐Sunrise, MRCB‐IJM Land and takeover of PLUS by EPF and UEM Group subsequently managed to cushion downside by late November, offsetting weaker external sentiment dampened by concerns over the deteriorating Eurozone sovereign debt crisis and further credit tightening by China to curb inflation.
Chart 2: Weekly KLCI (1997 – 2010) FBMKLCI (1,505.66, 1,505.66, 1,497.61, 1,501.74, +0.76001) 1600
1600
1,532 high
1550
Head
1550
1,525 high
1500
1500
1450
1450
LS
1400
1400
RS
1350 1300
1350
1,279 high
1300
1250
1250
1200
1200
1150
1150
Neckline
1100
1100
1,021 high
19m DOWN
1050
1050
50-wk ma
1000
1000
919 high
950 900
14m DOWN
950 900
817 high
200-wk ma
850
750
850
12m
11m
800
800
801 low
750
12m
700
700
UTC fm Apr 2001 low
650
650
600
600
616 low
17m UP
550
550
548 low 500
500
450
450
400
400
350
350
300
300
250
250
261 low
200
200
150
150 1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
201
Major KLCI Cycles Since 1997 Looking back at the major cycles for the KLCI on the weekly chart above, note that since peaking at 1,297 in February 1997, the index slumped for the next 19 months to eventually bottom out at the extreme low of 261 in Sep 1998, depressed by the Asian financial crisis then (Chart 2). The ensuing sharp V‐shape rebound triggered by capital controls sustained a 17‐month rally which was capped at 1,021 high in Feb 2000, followed by a 14‐month correction which tapered off above the 548 low in April 2001. The subsequent recovery was more muted and contained within an uptrend channel with the April 2001 (548) and March 2003 (616) lows defining the lower boundary of the channel. A bullish breakout from the channel in Nov 2006 unleashed a strong bull‐run in 2007, which was interrupted by two steep corrections, prior to peaking at an all‐time high of 1,525 in January 2008. The ensuing sell‐down stalled at the 801 low in October 2008, and the index succeeded in re‐building support from the lower band of the uptrend channel from April 2001, thereby completing the major bearish head & shoulders chart formation. Technical Outlook for 2011
101
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The table below summarizes the up and down cycles from 1997 to 2006:
Table 2: KLCI Cycles (1997 – 2006) DOWN‐CYCLE
DURATION
UP‐CYCLE
DURATION
Feb 1997 to Sep 1998 (1,279 high to 261 low)
19 months 1,018 pts
Sep 1998 to Feb 2000 (261 low to 1,021 high)
17 months 760 pts
Feb 2000 to April 2001 (1,021 high to 548 low)
14 months 473 pts
April 2001 to April 2002 (548 low to 817 high)
12 months 269 pts
April 2002 to Mar 2003 (817 high to 616 low)
11 months 201 pts
Mar 2003 to Mar 2004 (616 low to 919 high)
12 months 303 pts
Mar 2004 to May 2004 (919 high to 769 low)
2 months 150 pts
May 2004 to Jan 2005 (769 low to 941 high)
8 months 172 pts
Jan 2005 to June 2005 (941 high to 859 low)
5 months 82 pts
June 2005 to Aug 2005 (859 low to 954 high)
2 months 95 pts
Aug 2005 to Dec 2005 (954 high to 883 low)
4 months 71 pts
Dec 2005 to May 2006 (883 low to 970 high)
5 months 87 pts
Chart 3: Daily KLCI (Oct 2008 – 6 Dec 2010) FBMKLCI (1,505.66, 1,505.66, 1,497.61, 1,501.74, +0.76001)
1,531.99 high (10/11/10)
1550
1550
1500
1500
20m UP
1450
1450
1400
1400
6m UTC 1350
1350
1,308.52 high (21/1/10)
1300
1300
200d ma
1250
1250
0.5 FFL
0.382 FFL
1200
1200
0.618 FFL
1150
1150
50d ma 1100
1100
1050
1050
1,028 low (23/6/09)
1000
1000
Fibonacci Fan Lines (FFL) drawn from 836 low (12/3/09)
936 high (7/1/09) 950
950
3m UP 900
900
850
850
836 low (12/3/09) 800
2m DOWN
801 low (28/10/08)
800
750
750 2008 Nov
Dec
2009 Feb
Technical Outlook for 2011
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
102
2010 Feb Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2011
Feb
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Review of KLCI Cycles in 2009/2010 Zeroing into the two‐year daily KLCI chart above (Chart 3), the index bounced off the Oct 2008 trough of 801 on a zig‐zag fashion to peak at 936 high in January 2009, but then retraced to a higher low of 836 in March 2009, before stimulus from major global central bankers’ liquidity injection into financial markets gradually worked its way into the local stock market and sustained the recovery process. Note that the brief pullback below the important 200‐day moving average level in May was cushioned by the rising 0.382 Fibonacci Fan Line (FFL) support, which was pivotal in anchoring the rally to reach a new all‐time high of 1,532 by November 2010.
The table below summarizes the up and down cycles since May 2006 to current, followed by our assumptions on the likely direction for 2011 (in bold).
Table 3: KLCI Cycles (2006 – 2011) DOWN‐CYCLE
DURATION
UP‐CYCLE
DURATION
May 2006 to June 2006 (970 high to 883 low)
1 month 87 pts
June 2006 to Feb 2007 (883 low to 1,285 high)
8 months 402 pts
Feb 2007 to March 2007 (1,285 high to 1,090 low)
1 month 195 pts
March 2007 to July 2007 (1,090 low to 1,392 high)
4 months 302 pts
July 2007 to Aug 2007 (1,392 high to 1,141 low)
1 month 251 pts
Aug 2007 to Jan 2008 (1,141 low to 1,525 high)
5 months 384 pts
Jan 2008 to March 2008 (1,525 high to 1,157 low)
2 months 368 pts
March 2008 to Apr 2008 (1,157 low to 1,305 high)
1 month 148 pts
Apr 2008 to Oct 2008 (1,305 high to 801 low)
6 months 504 pts
Oct 2008 to Jan 2009 (801 low to 936 high)
3 months 135 pts
Jan 2009 to Mar 2009 (936 high to 836 low)
2 months 100 pts
Mar 2009 to Nov 2010 (836 low to 1,532)*
20 months 696 pts
Nov 2010 to Jan/Feb 2011 (1,532 high to 1,464 low)*
2/3 months#
Best Case
Nov 2010 to Jan/Feb 2011 2/3 months# (1,532 high to 1,422 low)**
Base Case
Nov 2010 to Jan/Feb 2011 2/3 months# (1,532 high to 1,388 low)***
Worse Case
# assuming a Fibonnacci cycle correction of 2 to 3 months * assuming a best case downside at 23.6%FR of 1,243 low (27/5/10) to 1,532 high ** assuming a base case downside at 38.2%FR of 1,243 low (27/5/10) to 1,532 high *** assuming a best case downside at 50%FR of 1,243 low (27/5/10) to 1,532 high KLCI
# assuming
Upside Target More Bullish
Fibonacci periods
1532*
Mar 2009 to Dec 2010
21 months# (8+13)
Worse Case
1813**
Mar 2009 to Aug 2011
29 months# (8+21)
Base Case
2043***
Mar 2009 to Jan 2012
34 months# (13+21)
Best Case
Alternate Wave 3 Count
* = 10 Nov 2010 peak
Technical Outlook for 2011
** = if wave (3) equals wave 3
1525 ‐ 548 = 977 + 836
*** = if wave (3) equals 1.236X wave 3
1.236 x 977 + 836
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Chart 4: Weekly KLCI (2006 – 2010) FBMKLCI (1,505.66, 1,505.66, 1,497.61, 1,501.74, +0.76001)
1800
1800
(5)?
1750
1750
1700
1700
1650
1650
1600
1600
3
1550
1,524.69 (14/1/08)
(3)?
1,532 high (10/11/10)
Head
1550
0.0%
3/3 SRL
1500
23.6%
1450
1422
38.2%
LS
1400
b
1350
1300
1300
2/3 SRL
1250
1,243 low (27/5/10)
100.0%
1200
1400
1354
61.8%
1,305 high (29/4/08)
RS
1450
1388
(4)?
50.0%
1350
1500
1464
1250 1200
~ 1,150
1150 Neckline
1100
1100
1/3 SRL
1050
30wk SMA
50wk SMA
1000
1150
200wk SMA
a
1050 1000
(1)
950
950
900
900
801 low (28/10/08)
850 800
(2)
850
836 low (12/3/09)
Speed Resistance Line (SRL)
800
c
750
750 MACD (42.8663)
70
70
Weekly MACD signal line hooking down
60 50
60 50
40
40
30
30
20
20
10
10
0
0 M
A
M J
J
A
S O N
D 2008
M A
M
J
J
A
S
O
N D 2009
M A
M J
J
A
S
O
N D
2010
M A
M J
J
A
S
O
N D
2011
M A M
J
J
A
S O
N D 2012
2011 Outlook Correction From 1,525 Peak Terminated at 801 Low From the weekly KLCI chart above (Chart 4), we had illustrated the sharp sell‐off from the all‐time high of 1,525 (Jan 2008) to 1,157 low (March 2008) as wave a of a corrective Elliot Wave count, followed by a bounce to 1,305 high (April 2008) to complete wave b. The subsequent wave c ended at 801 low (Oct 2008), terminated by the intervention of global central bankers which reversed bearish market conditions then and fueled a liquidity driven rally up to the present moment. Rally to 1,532 New High Represent Impulse Wave (3) From 836 Low The subsequent zig‐zag recovery from 801 low to 936 high (Jan 2009) is indicated as wave (1) of a new bullish up‐wave, with wave (2) correction to 836 low (March 2009) followed by a strong impulse wave (3) rally lifting the index to the current record high of 1,532 (Nov 2010). Note that wave (3) had already completed a 20‐month uptrend from the March 2009 low (one month short of the Fibonacci number sequence of 21), amid a weakening MACD weekly signal line, suggesting a wave 4 downward correction may ensue early 2011. Probable Wave (4) Correction to Stall UpSwing Hence, we have a probable scenario where wave (3) peaked at 1,532, followed by a wave (4) correction to possibly 1,422, 1,388 or 1,354, representing the respective 38.2%, 50% and 61.8% Fibonacci Retracements (FR) of the up‐swing from the most recent pivotal low of 1,243 of 27 May to the 1,532 high of 10 November. However, the upside resilience and low‐beta nature of the 30 blue‐chip constituents of the FBM KLCI indicate the index could most possibly suffer only a shallow dip to 1,464, the 23.6%FR, before resuming higher. Wave (5) Peak at 1,813 by End 2011 Subsequently, a resumption of the up‐trend for a wave (5) rally should then lift the index up to our base case upside target of 1,813, assuming the prior wave 3 rally (from 548 low of April 2001 to 1,525 peak of January 2008) equals the current up‐ wave from 836 low, that is (1,525 – 548 = 977 + 836 = 1,813). This will be our base case upside target for end 2011. Technical Outlook for 2011
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More Bullish Alternate Wave (3) Count The alternate wave count, which is more bullish, is shown on the monthly KLCI chart (Chart 5). Assuming emerging stock markets continue to attract tremendous amount of liquidity and capital inflows from quantitative easing in the US and other developed markets, and compounded by bullish local factors such as implementation of the various ETP projects and pre‐ election rally, the local stock index benchmark may climb even higher. An extended wave (3) rally may then sustain through next year and beyond 1,813, the upside target where wave 3 equals wave (3). Probable higher targets are 2,043, 2,186 and 2,301, the respective 1.236, 1.382 and 1.5 extensions of wave 3. Looking ahead, confirmation of the end of wave (3) will bring forth corrective wave (4) with probable downside to the respective 76.4%FR, 61.8%FR and 50%FR of wave (3) from 2012 onwards.
Chart 5: Monthly KLCI (1987 – 2010) FBMKLCI (1,482.69, 1,508.41, 1,477.57, 1,501.74, +16.5100)
3000 2900 2800
2800 2700
2,559
2600
2600
176.4%
2500 2400
161.8%
2300
150.0%
2200
138.2%
2,417
2500
2,301
2400 2300
2,186
2200
2,043
2100
(5)?
2100
123.6%
2000
2000
(3)?
If Wave 3 equal (3) = 1,813
1900
1900
100.0%
1800 1700
1800 5
76.4%
1332 peak (1/94)
1500 1400
3
1300
5
b
1200
1279 peak (2/97)
61.8%
5
50.0%
b
800 700
3 0.0%
a
b 1
600
1 BULL CYCLE
2
1100
BEAR CYCLE
1
4
b
1000 900
200m SMA
c
800
(2) 836 low (03/09)
700 600
2 c
c
100m SMA
(1)
a
2
2
300
4
a
4
400
1200
3
3
1
1300
a 1 5 1,021 high (2/00)
2 c
1400
b 50m SMA
4 a
1600 1500
1,324
3
1000 900
3
1,440
1
1100
1700
(4)?
1,525 high (1/08)
1,582
1600
200
2900
200.0%
2700
500
3000
2,790
500
2 548 low (4/01)
400 300
c 261 low (9/98)
BULL CYCLE
233 low (12/87)
200
Fibonacci Fan Lines (FFL)
MACD (91.4884) 100
100
50
50
0
0
-50
-50
-100
-100
-150
-150 1987
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2
Conclusion Base Case Upside to 1,813 by End 2011 In summary, the FBM KLCI is currently riding on impulse wave (3) of a bullish wave count starting from the 836 pivot low of March 2009, which probably peaked at the recent all‐time high at 1,532 in November 2010. The weekly MACD sell signal favors a wave (4) correction, which most probably would be a shallow dip to 1,464 during the first quarter of 2011. The subsequent wave (5) upswing should then lift the index to our base case upside target of 1,813 by end 2011, assuming the prior wave 3 rally equals wave (3) in magnitude. Alternately, the best case scenario will be a wave (3) extension for breakout above 1,813 and target 2,043, 2,186 or 2,301, the respective 1.236, 1.382 and 1.5 extensions of wave 3. Confirmation of the end of wave (3) will bring forth corrective wave (4) with probable downside to the respective 76.4%FR, 61.8%FR and 50%FR of wave (3) from 2012 onwards. Buy Market Dips Early 2011, Then Sell Rally to 1,813/2,043 As such, our trading recommendation for 2011 will be to buy during market dips at the beginning of the year for upside towards our base case upside target of 1,813 by end of the year, and then sell rallies ahead of the subsequent downward correction. A defensive investment strategy should follow by accumulating key defensive plantation, gaming and power/utility stocks to ride out the ensuing market correction phase. The list of our top ten blue chip recommendations for 2011 is provided in the next section. Technical Outlook for 2011
105
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Technical Blue Chip Picks for 2011
The key Speed Resistance Line (SRL) and Fibonacci Fan Line (FFL) retracements are shown to assist in identifying rising support & resistance levels beyond 2011. The horizontal axis on the weekly charts of the ten blue chip picks has been extended to end 2012 to enable future projection of longer‐term upside targets. A summary of the respective immediate supports and upside targets for the top ten blue chip picks for 2011 is listed below.
TOP 10 BLUE CHIP PICKS FOR 2011 Stock Name CIMB GROUP MAYBANK SIME DARBY AXIATA IOI CORP TENAGA TM GAMUDA YTLPOWER UMW HOLDINGS
Next Support (S1)
Immediate Support (IS)
Price @ 6‐Dec‐10
IT
7.50 7.70 8.00 4.00 5.00 7.70 3.00 3.00 2.20 6.20
8.00 8.10 8.50 4.20 5.40 8.20 3.20 3.40 2.35 6.50
8.47 8.41 8.74 4.67 5.78 8.44 3.41 3.76 2.44 6.91
9.00 10.00 10.00 5.20 6.50 9.40 3.80 4.10 2.80 7.20
Blue Chip Picks for 2011
106
Upside Targets T1 T2 10.00 10.50 11.00 5.60 7.00 9.90 4.00 4.50 3.00 7.60
11.00 11.00 12.00 6.00 7.50 10.40 4.20 4.80 3.20 8.00
TRADING VIEW T3 12.00 ‐ 13.00 6.40 8.00 10.90 4.50 5.00 3.40 ‐
BUY BUY BUY ON DIP BUY ON DIP BUY ON DIP BUY ON DIP BUY BUY BUY ON DIP BUY ON DIP
TA Securities
2011 Annual Strategy
A Member of the TA Group
CIMB GROUP
RM8.47 CIMB (8.45000, 8.47000, 8.37000, 8.47000, +0.09000)
12.5
12.5
T3
12.0
11.0
10.5
10.5
T1
10.0
10.0
9.5
IT
9.0
RM8.62 high (Nov 2010)
8.5
6.5
6.0 5.5 100wk ma 1/3SRL 5.0
2/3SRL 23.6%
4.5
4.0 38.2%
4.0
3.5 50.0%
3.5
1/3SRL
3.0 61.8%
3.0
2.5
2.5
RM2.63 low (Dec 2008)
2.0
1.0
2.0
50wk ma
1.5
1.5
100.0%
0.5
1.0
Speed Resistance Lines (SRL)
RM1.08 low (Apr 2001)
0.5
MACD (0.35805)
0.5
0.5
0.4
0.4
0.3
0.3
0.2
0.2
0.1
0.1
0.0
0.0
-0.1
-0.1
-0.2
-0.2
-0.3
-0.3
-0.4 2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
RM8.41 MAYBANK (8.50000, 8.50000, 8.40000, 8.41000, -0.07000)
11.5
11.5
T2 11.0
Support
11.0
T1
10.5
IT
10.0
10.0 9.5
RM9.00 peak (Nov 2010)
9.0
2/3SRL
0.0%
IS
8.0
Technical Comments
7.0
7.0 6.5
1/3SRL
6.0
6.0 50.0%
100wk ma
5.5 5.0
5.5
61.8%
5.0
50wk ma
4.5
4.5 76.4%
4.0
4.0
3.5 3.0
Speed Resistance Lines (SRL)
3.5
RM3.28 low (March 2009)
100.0%
3.0
RM3.02 low (May 2001) MACD (0.36890)
0.4 0.3 0.2 0.1 0.0 -0.1 -0.2 -0.3 -0.4 -0.5 2000 2001
2002
2003
2004
Blue Chip Picks for 2010
2005
2006
2007
0.4 0.3 0.2 0.1 0.0 -0.1 -0.2 -0.3 -0.4 -0.5 2008
2009
2010
2011
2012
2
Upside Target
IT T1 T2 T3
RM10.00 RM10.50 RM11.00 -
After charting a significant peak of RM8.46 on Jan 2008, Maybank plunged to low of RM3.28 on March 2009, losing almost all its gains from May 2001. The subsequent sharp V‐shape reversal lifted share price up to overcome the Jan 2008 peak in late 2010, peaking at RM9 in November. Looking ahead, the uptrend should sustain in 2011, with downside cushioned at RM8.10 (IS) and RM7.70 (S1), reinforced by the rising 2/3SRL support lines. The long‐ term upside targets are RM10 (IT), RM10.50 (T1) and RM11 (T2) towards 2012, bordering the rising 2/3 SRL from the March 2009 low.
7.5
SL
38.2%
RM7.20
8.5
23.6%
6.5
Stop-Loss Below SL
8.0
S1
7.5
RM8.10 RM7.70
9.0
RM8.46 peak (Jan 2008) 8.5
IS S1
10.5
9.5
RM9.00 RM10.00 RM11.00 RM12.00
TRADING VIEW: BUY for UPSIDE towards RM10/11
2
MAYBANK
IT T1 T2 T3
-0.4 2000 2001
Upside Target
CIMB Group shares initiated a strong recovery from the Dec 2008 base, which was the 61.8% Fibonacci Retracement (FR) of the up‐trend from RM1.08 low (April 2001) to the RM5.70 peak (May 2007), prior to breakout above the May 2007 peak in October 2009. The bullish breakout saw rally extension to recent high of RM8.62 in November, bordering the extended Speed Resistance Line (SRL) connecting the April 2001 low to May 2007 peak. Going forward, the current strong uptrend is expected to persist towards RM9 (IT) to RM10 (T1), and even to RM11 (T2) and RM12 (T3) if buying momentum strengthens further. Immediate supports are at RM8.00 (IS) and RM7.50 (S1), underpinned by the rising 2/3 SRL.
6.5
RM5.70 high (May 2007)
5.0 4.5
Technical Comments
7.0
0.0%
RM7.00
9.0
7.5
SL
7.0
6.0
Stop-Loss Below SL
8.0
S1
7.5
RM8.00 RM7.50
9.5
8.5
2/3SRL
IS
8.0
IS S1
11.5
T2
11.0
5.5
Support
12.0
11.5
TRADING VIEW: BUY for UPSIDE towards RM10/11
[ 107 ]
TA Securities
2011 Annual Strategy
A Member of the TA Group
SIME DARBY
RM8.74 SIME (8.82000, 8.82000, 8.73000, 8.74000, -0.01000)
13.5
12.5
12.5
T2
0.0%
12.0
11.5
0.382 FFL
T1
11.0
RM9.19 peak (Jan0.5 2010) FFL
9.0
50wk ma
IS
9.0 8.5
S1
8.0
0.618 FFL
SL
7.5
50.0%
7.0
6.5
6.5 61.8%
6.0
5.5
5.5 5.0
76.4%
RM4.85 low (Dec 2008)
4.5
4.5
100wk ma
4.0
4.0
3.5
3.5
3.0
3.0
Fibonacci Fan Lines (FFL)
2.5 100.0% 2.0
RM7.50
2.5
RM2.37 low (Apr 2001)
2.0
1.5
1.5 MACD (0.16690)
1.0
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
2000 2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
IT T1 T2 T3
RM10.00 RM11.00 RM12.00 RM13.00
Sime Darby shares formed a major low at RM4.85 in Dec 2008, just above the 76.4% Fibonacci Retracement (FR) of the up‐trend from RM2.37 low (April 2001) to the RM12.25 peak (Jan 2008), followed by base building for the next three months. Prices subsequently recovered to RM9.19 high on Jan 2010 prior to correction to rebuild support above RM7.50 in mid 2010. Looking ahead, share price need to overcome a major upside hurdle at the 23.6%FR near RM10 (IT) to enhance further upside towards RM11 (T1) and RM12 (T2), underpinned by the rising 0.5 Fibonacci Fan Line (FFL) from the Dec 2008 trough. Immediate supports are at RM8.50 (IS) and RM8.00 (S1), cushioned by the rising 0.618 FFL.
9.5
7.0
5.0
Stop-Loss Below SL
Upside Target
Technical Comments
10.0
38.2%
8.0
6.0
RM8.50 RM8.00
10.5
IT 23.6%
9.5
7.5
11.5 11.0
10.5
8.5
IS S1
13.0
RM12.25 peak (Jan 2008)
12.0
10.0
Support
13.5
T3
13.0
TRADING VIEW: BUY ON DIP for UPSIDE towards RM10/11
2
AXIATA
RM4.67 AXIATA (4.73000, 4.73000, 4.66000, 4.67000, -0.06000)
T3
6.5
Support
6.5
IS S1
RM4.20 RM4.00
Stop-Loss Below SL
RM3.50
T2 6.0
6.0
T1
May 2008 peak = RM5.58 5.5
5.5
Upside Target
IT T1 T2 T3
RM5.20 RM5.60 RM6.00 RM6.40
IT 5.0
4.5
5.0
2/3SRL
Technical Comments Axiata shares declined from the May 2008 peak of RM5.58 to hit bottom at RM1.45 low on 17 March 2009, before staging recovery in the form of a bullish V‐reversal sustained by underlying support from the rising 2/3 Speed Resistance Line (SRL) and 30‐week moving average. For the coming year, share price uptrend is likely to mirror the rising 2/3 SRL, with the 30 and 50‐week moving averages cushioning price dips during corrections. Immediate upside hurdles are at RM5.20 (IT), and then RM5.60 (T1), matching the May 2008 peak.
4.5
30wk ma RM4.05 high (Mar 2010)
IS S1
4.0
4.0
SL 3.5
3.5
50wk ma 3.0
3.0
1/3SRL
2.5
2.5
2.0
2.0
1.5
1.5
RM1.45 low (17/3/09) Speed Resistance Lines (SRL) MACD (0.17965) 0.2
0.2
0.1
0.1
0.0
0.0
-0.1
-0.1
-0.2
-0.2
-0.3
-0.3
-0.4
-0.4
-0.5
TRADING VIEW: BUY ON DIP for UPSIDE towards RM5.20/5.60
-0.5 2008J A S O N D 2009MA MJ J A S O N D 2010MA MJ J A S O N D 2011MA M J J A S O N D 2012MA MJ J A S O N D 2013MA
Blue Chip Picks for 2010
[ 108 ]
TA Securities
2011 Annual Strategy
A Member of the TA Group
IOI CORP
RM5.78 IOICORP (5.84000, 5.84000, 5.78000, 5.78000, +0.0000)
9.0 8.5
Support
9.0
RM8.01 peak (Jan 2008)
T3
8.0
8.0
T2 7.5
7.5
0.382 FFL
T1 7.0
0.5 FFL
5.5
38.2%
Technical Comments
0.618 FFL
4.5
4.0
4.0
3.5 61.8%
3.5
3.0
3.0
2.5
2.5
76.4%
2.0
2.0
50wk ma
RM1.98 low (Oct 2008)
1.5
1.5
1.0
1.0
Fibonacci Fan Lines (FFL)
0.5 00.0%
0.5
35sen low (Jan 2001)
0.0
0.0 MACD (0.17926)
0.5
0.5
0.0
0.0
-0.5
-0.5
Upside Target
IT T1 T2 T3
RM6.50 RM7.00 RM7.50 RM8.00
IOI Corp shares peaked at RM8.01 in Jan 2008 before plunging to low of RM1.98 in Oct 2008, in line with a tumble in CPO prices to the RM800/tonne level then. The subsequent V‐shape rally stalled near the 38.2%FR of the Jan 2001 to Jan 2008 upswing in late 2009/early 2010, followed by correction which delayed a breakout to late 2010 to a recent high of RM6.01 in November 2010. For the coming year, a decisive push above the rising 0.5 FFL is needed to boost upside momentum towards RM6.50 (IT), where the 23.6%FR may act as significant barrier to further upside. Good support is anticipated from RM5.40 (IS) and RM5.00 (S1), reinforced by the rising 0.618 FFL.
5.0
SL
4.5 50.0%
RM4.50
5.5
S1
5.0
Stop-Loss Below SL
6.5 6.0
100wk ma
IS
RM5.40 RM5.00
7.0
IT 6.5 23.6% 6.0
IS S1
8.5
0.0%
2000 2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
TRADING VIEW: BUY ON DIP for UPSIDE towards RM6.50/7.00
2
TENAGA
RM8.44 TENAGA (8.48000, 8.48000, 8.40000, 8.44000, +0.0000)
12.5 12.0
11.5
11.0
T3 11.0 T2
50wk ma T1
9.0
0.0% 8.5
0.5 FFL
IS
8.0 8.2%
8.0
S1
7.5
7.5
0.618 FFL
SL
7.0 3.6%
7.0
6.5
6.5
6.0
6.0
5.5 0.0%
5.5
RM5.52 low (Feb 2009) Fibonacci Fan Lines (FFL) 5.0
5.0
4.5
4.5 MACD (0.01949)
0.5
0.5
0.0
0.0
-0.5
-0.5
2003
2004
2005
2006
Blue Chip Picks for 2010
2007
2008
RM7.00
2009
2010
2011
2012
2
IT T1 T2 T3
RM9.40 RM9.90 RM10.40 RM10.90
Tenaga shares tumbled from the RM11.82 peak of Feb 2007 to hit pivot low of RM5.52 on Feb 2009 before staging bullish reversal to eventually reach recent high of RM9.29 in Sept 2010. The 50‐week moving average provided support in 2010, while the rising 0.382 FFL should act as uptrend support in 2011. Immediate upside hurdles upon further recovery are at RM9.40 (IT), the 61.8%FR of the Feb 2007 to Feb 2009 sell‐off, RM9.90 (T1) and then RM10.40 (T2), the 76.4%FR. TRADING VIEW: BUY ON DIP for UPSIDE towards RM9.40/9.90/10.40
9.5
100wk ma
8.5
Stop-Loss Below SL
Upside Target
Technical Comments
10.0
RM9.29 high (SeptIT2010) 0.382 FFL
9.0
RM8.20 RM7.70
10.5
6.4%
10.0 9.5 1.8%
IS S1
12.0
11.5
10.5
Support
12.5
RM11.82 peak (Feb 2007) 0.0%
[ 109 ]
TA Securities
2011 Annual Strategy
A Member of the TA Group
TM 4.7 4.6 4.5 4.4 4.3 4.2 4.1 4.0 3.9 3.8 3.7 3.6 3.5 3.4 3.3 3.2 3.1 3.0 2.9 2.8 2.7 2.6 2.5 2.4 2.3 2.2 2.1 2.0 1.9 1.8 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1.0 0.9 0.8
RM3.41 TM (3.45000, 3.47000, 3.40000, 3.41000, -0.03000)
4.7 4.6 4.5 4.4 0.382 FFL 4.3 T2 4.2 4.1 T1 4.0 3.9 IT 0.5 FFL 3.8 3.7 3.6 0.618 FFL 3.5 3.4 3.3 IS 3.2 S1 3.1 RM3.00 high (Sept 2009) 3.0 2.9 SL 2.8 2/3SRL 2.7 2.6 2.5 2.4 2.3 2.2 2.1 2.0 200wk ma 1/3SR 1.9 50wk ma 1.8 1.7 1.6 1.5 RM1.63 low (Nov 2008) 1.4 100wk ma 1.3 1.2 1.1 1.0 0.9 0.8
161.8% 150.0% 138.2%
100.0%
76.4%
61.8% 50.0% 38.2%
23.6%
0.0%
RM1.00 low (Dec 2002)
MACD (0.05271)
0.15
0.10
0.05
0.05
0.00
0.00
0.05
-0.05 2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
RM3.20 RM3.00
Stop-Loss Below SL
RM2.80
Upside Target
IT T1 T2 T3
RM3.80 RM4.00 RM4.20 RM4.50
Technical Comments Following a gradual recovery from RM1.00 low in Dec 2002, TM shares traded sideways from 2005 to 2008 before resuming uptrend to RM3.00 high in Sept 2009. A decisive breakout in April 2010 brought share price up to a recent high of RM3.53 in Oct 2010. Going forward, share price could trend higher along with the rising 0.5 Fibonacci Fan Line (FFL) from the Nov 2008 trough, with upside projections of RM3.80 (IT), RM4.00 (T1) and RM4.20 (T2), representing the respective 1.382, 1.5 and 1.618 Fibonacci Projection of the Dec 2002 to Sept 2009 rally. Important uptrend support would come from the rising 50‐week moving average.
TRADING VIEW: BUY for UPSIDE towards RM3.80/4.00/4.20
2
GAMUDA
IS S1
0.15
0.10
2001 2002
Support
T3
176.4%
RM3.76 GAMUDA (3.77000, 3.78000, 3.74000, 3.76000, +0.01000)
Support
RM5.52 peak (Jan 2008) 5.5
100.0%
T3
5.0
4.5
5.0
T2 76.4%
4.5
IS
3.5
3.5
50.0%
S1 3.0
38.2%
SL
1/3SRL
200wk ma
2.5
23.6%
100wk ma
2.0
RM2.60
2.0
1.5
1.5 0.0%
RM1.25 low (Oct 2008) Speed Resistance Lines (SRL) 1.0
1.0
MACD (0.15188)
0.4 0.3 0.2 0.1 0.0 -0.1 -0.2 -0.3 -0.4
0.4 0.3 0.2 0.1 0.0 -0.1 -0.2 -0.3 -0.4
ON 2005 AM J ASO D2006 AM JASO D2007 AM JASO D2008 AMJJASON 2009 AM JASON 2010 AM J ASO D2011 AMJJASON 2012 AM J ASON 2
Blue Chip Picks for 2010
IT T1 T2 T3
RM4.10 RM4.50 RM4.80 RM5.00
Gamuda shares plunged from the Jan 2008 peak of RM5.52 to hit low of RM1.25 on Oct 2008 before salvaging 61.8% of the losses as share price reached a recent peak of RM4.01 two years after the trough. Since then, share price has retraced into base building mode, with immediate downside cushion anticipated at RM3.40 (IS), representing the 50%FR and Aug 2009 high, and stronger support at RM3.00 (S1). The immediate upside targets for 2011 will be RM4.10 (IT) and RM4.50 (T1), matching the 76.4%FR, while higher targets of RM4.80 (T2) and RM5.00 (3) may be achieved if sentiment improves further. TRADING VIEW: BUY for UPSIDE towards RM4.50/4.80/5.00
4.0
61.8%
2.5
Stop-Loss Below SL
Upside Target
Technical Comments
2/3SRL
RM4.01 high (Oct 2010)
50wk ma
3.0
RM3.40 RM3.00
T1 IT
4.0
IS S1
5.5
[ 110 ]
TA Securities
2011 Annual Strategy
A Member of the TA Group
YTL POWER
RM2.44 YTLPOWR (2.47000, 2.48000, 2.41000, 2.44000, -0.03000)
3.6
3.6
3.5
T3 3.5
3.4
3.4
3.3
3.3
T2
3.2
Support
3.2
3.1
3.1
T1
IS S1
RM2.35 RM2.20
Stop-Loss Below SL
RM2.10
3.0
3.0
2.9
2.9
2.8
Technical Comments
2.8
IT 2010) RM2.80 peak (Dec 2007) RM2.76 high (Nov
0.0%
2/3SR
2.7
2.7
2.6
2.6
2.5 2.4
2.1
2.4 2.3
S1
2.2
2.2
SL
2.1
38.2%
1/3SRL 50wk ma
2.0 1.9
2.0 1.9
50.0%
1.8 1.7 1.6
1.8 1.7
61.8%
1.6
RM1.61low (Aug 2008)
100wk ma
1.5
1.5
1.4
1.4
1.3
1.3
1.2
1.2
1.1
1.1
Speed Resistance Lines (SRL)
1.0 0.9
1.0
100.0%
0.9
92sen low (July 2000)
0.8
0.8
0.7
0.7
0.10
0.10
MACD (0.06205)
0.05
0.00
0.00
0.05
0.05
0.10
0.10
0.15
0.15
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
TRADING VIEW: BUY ON DIP for UPSIDE towards RM2.80/3.00/3.20
2
UMW
RM6.91 UMW (6.90000, 6.92000, 6.90000, 6.91000, +0.0000)
8.5
8.5
T2 8.0
Support
8.0
T1 7.5
RM7.18 peak (Jan 2008)
6.5
7.0
50wk ma
IS
0.382 FF 6.0
SL
0.5 FFL
RM4.66 low (Dec 2008) 0.618 FFL 4.5 50.0%
4.0 3.5
61.8%
3.0
3.0
100wk ma
2.5
2.0
2.0
1.5 1.0
1.5
Fibonacci Fan Lines (FFL) 100.0%
1.0
RM1.06 low (Oct 2000) 0.5
0.5 MACD (0.16979)
0.6
TRADING VIEW: BUY ON DIP for UPSIDE towards RM7.60/8.00
0.6
0.5
0.5
0.4
0.4
0.3
0.3
0.2
0.2
0.1
0.1
0.0
0.0
-0.1
-0.1
-0.2
-0.2 1999 2000
2001
2002
2003
2004
Blue Chip Picks for 2010
2005
2006
RM7.20 RM7.60 RM8.00 -
UMW shares retraced 38.2% of the rally from RM1.06 low (Oct 2000) to RM7.18 peak (Jan 2008), bouncing off the RM4.66 low in Dec 2008 and returned to uptrend mode which gained traction in 2010. The 50‐week moving average and 0.382 Fibonacci Fan Line (FFL) are important uptrend support lines which should sustain in 2011. On the upside, a decisive breakout above the Jan 2008 peak will accelerate gain towards RM7.60 (T1) and RM8.00 (T2).
5.0
2.5
RM5.80
IT T1 T2 T3
Technical Comments
5.5
38.2%
4.5
3.5
Stop-Loss Below SL
Upside Target
23.6% 5.5
4.0
RM6.50 RM6.20
6.5
S1
6.0
IS S1
7.5
IT
0.0% 7.0
5.0
RM2.80 RM3.00 RM3.20 RM3.40
0.05
1999 2000
IT T1 T2 T3
YTL Power staged a 61.8% pullback of the upswing from 92sen low (July 2000) to RM2.80 peak (Dec 2007), specifically to RM1.61 low on Aug 2008, before reversing upwards to resume uptrend to a recent high of RM2.76 in Nov 2010. Share price is currently trading near immediate support from RM2.35 (IS), representing the 23.6%FR, while stronger supports are at RM2.20 (S1) and RM2.10 (SL), the 38.2%FR. In 2011, a confirmed breakout above RM2.80 (IT) is crucial to boost upside towards RM3.00 (T1) and RM3.20 (T2), to be in line with the rising Speed Resistance Line (SRL) from the Aug 2008 trough.
2.5
IS 23.6%
2.3
Upside Target
2007
2008
2009
2010
2011
2012
2
[ 111 ]
AUTOMOBILE MBM PROTON UMW
FYE
Dec Mar Dec
Recom. Share Target % (***) Price Price upside (RM) (RM)
Buy Buy Sell
3.10 4.84 6.91
[ 112 ]
BANKS & FINANCIAL SERVICES AMMB Mar Buy 6.26 CIMB Dec Buy 8.47 EON Cap Dec Sell 6.96 HLBANK Jun Buy 9.40 MAYBANK Jun Buy 8.41 AFG Mar Buy 3.08 PBBANK Dec Hold 12.80 RHBCAP Dec Buy 8.59 FINANCIAL SERVICES BURSA Dec Buy 7.96
CONSTRUCTION GAMUDA Jul IJM Mar WCT Dec LITRAK Mar PLUS Dec Building Materials KINSTEL Dec HUAAN Dec
Net Earnings EPS (RMm) (sen) FY10 FY11 FY12 FY09 FY10 FY11 FY12
EPS Growth (%) FY09 FY10 FY11 FY12
68 (302) 382
111 239 658
117 318 752
123 310 797
28 (55) 33
46 44 57
48 58 65
51 57 69
(42) nm (32)
62 nm 72
5 33 14
5 (2) 6
11 na 21
7 11 12
6 8 11
6 9 10
12.0 12.0 3.0 3.0 30.0 30.0
3.9 0.6 4.3
3.9 0.6 4.3
4.4 9.4 3.8
18.2% 27.5% 4.9% 16.0% 34.4% 23.4% 7.0% 10.6%
861 2,807 341 905 692 229 2,517 1,201
1,009 3,508 452 988 3,818 301 2,917 1,408
1,246 4,027 475 1,143 4,397 446 3,368 1,534
1,418 4,672 530 1,288 4,979 468 3,866 1,805
29 38 49 57 10 15 71 56
33 48 65 63 54 19 83 65
41 55 69 72 62 29 95 71
47 63 76 82 70 30 109 84
29 44 155 22 (76) (40) (2) 15
17 25 32 9 452 32 16 17
24 15 5 16 15 48 15 9
14 14 12 13 13 5 15 18
22 22 14 16 86 21 18 15
19 18 11 15 16 16 15 13
15 15 10 13 14 11 13 12
13 13 9 12 12 10 12 10
12.0 12.5 0.0 24.0 55.0 7.6 55.0 35.0
15.0 12.5 0.0 24.0 55.0 8.0 60.0 35.0
1.9 1.5 0.0 2.6 6.5 2.5 4.3 4.1
2.4 1.5 0.0 2.6 6.5 2.6 4.7 4.1
9.20 15.6%
178
125
153
168
33
24
29
32
70
(30)
22
10
24
34
28
25
22.5 27.0
2.8
441 580 399 486 177 198 103 146 1,477 1,553
10 21 19 20 24
14 25 18 17 26
22 30 23 21 30
28 36 25 29 31
(40.4) 44.9 56.9 30.8 (44) 15 20 22 45 (6) 28 11 (3) (16) 20 41 10 8 15 5
39 29 16 18 18
27 25 17 21 17
17 21 13 18 15
13 17 12 12 14
12.0 11.0 10.0 18.0 18.0
12.0 11.0 10.0 20.0 18.0
1 (2)
0 1
8 4
10 6
68 na
480 50
10 9
8 6
1.7 0.0
1.7 1.5
4.14 33.5% 5.93 22.5% 6.71 -2.9%
7.40 10.80 7.30 10.90 11.30 3.80 13.70 9.50
Hold Buy Buy Hold Sell
3.76 6.14 3.00 3.62 4.38
4.24 7.36 3.45 4.02 4.60
12.8% 19.9% 15.0% 11.0% 5.0%
Sell Hold
0.81 0.34
0.79 -2.5% 0.39 16.4%
FY09
194 281 290 333 147 138 102 86 1,186 1,285 11 (21)
2 7
75 43
97 64
(86) 4,581 na 481
28 47
Gross Div (sen) FY11 FY12
Div Yield (%) FY11 FY12
NTA/ Price / Shr NTA (RM) (X)
Debt/ Equity (x)
Mkt Cap. (RMm)
0.7 0.5 1.8
0.0 0.0 0.6
752 2,658 7,960
2.8 2.4 4.4 4.1 3.7 1.9 3.2 3.4
2.2 3.5 1.6 2.3 2.3 1.6 4.0 2.5
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
18,869 62,956 4,825 14,853 59,526 4,768 45,209 18,498
3.4
1.7
4.7
0.0
4,230
3.2 1.8 3.3 5.0 4.1
3.2 1.8 3.3 5.5 4.1
1.9 4.0 1.9 0.9 1.4
2.0 1.5 1.6 4.1 3.1
0.6 0.8 0.7 3.5 1.9
7,687 8,295 2,359 1,818 21,900
2.1 0.0
2.1 4.5
0.9 0.6
0.9 0.6
2.3 0.0
775 376
Annual Strategy 2011
(***) : Strictly Based on Total Return defined in the Definition of Re comendations section. Call may vary from the last published report.
(98) na
PER (X) FY09 FY10 FY11 FY12
A Member of the TA Group
Company
TA Securities
Corporate Earnings Summary - Stocks Analysis
Corporate Earnings Summary - Stocks Analysis
[ 113 ]
CONSUMER Brewery CARLSBG GUINESS Retail AEON AMWAY F&N KFC QL COCOLND NESTLE Tobacco BAT JTINTER
GAMING Casino GENTING GENM NFO BJTOTO
FYE
Recom. Share Target % (***) Price Price upside (RM) (RM)
FY09
Net Earnings EPS (RMm) (sen) FY10 FY11 FY12 FY09 FY10 FY11 FY12
EPS Growth (%) FY09 FY10 FY11 FY12
PER (X) FY09 FY10 FY11 FY12
A Member of the TA Group
Company
Gross Div (sen) FY11 FY12
Sell Sell
6.05 9.96
6.16 1.8% 8.88 -10.8%
76 142
120 153
130 156
138 164
25 47
39 51
42 52
45 54
(0) 13
58 8
9 2
6 5
25 21
16 20
14 19
14 18
Dec Dec Sep Dec Mar Dec Dec
Hold Hold Sell Hold Buy Sell Sell
6.03 8.18 16.26 3.79 5.70 2.34 43.50
6.50 7.8% 8.65 5.7% 16.00 -1.6% 4.25 12.1% 7.00 22.8% 2.14 -8.5% 44.10 1.4%
134 73 224 66 89 20 352
146 81 661 76 106 14 435
165 85 317 87 119 32 454
164 86 288 111 163 37 475
38 44 63 8 23 15 150
42 49 185 10 27 11 185
47 52 89 11 30 24 194
47 52 80 14 41 22 203
11 (24) 34 10 11 127 3
9 12 195 15 19 (28) 24
13 5 (52) 14 12 123 4
(0) 0 (9) 28 37 (10) 5
16 19 26 46 25 16 29
15 17 9 40 21 22 23
13 16 18 35 19 10 22
13 16 20 27 14 11 21
14.0 52.0 72.9 0.2 9.0 10.0 206.6
Dec Dec
Sell Hold
45.48 6.03
43.72 6.36
747 108
756 134
762 134
828 130
262 41
265 51
267 51
290 50
(8) 10
1 24
1 0
9 (3)
17 15
17 12
17 12
Dec Dec
Buy Sell
10.70 3.34
13.11 22.5% 3.42 2.4%
2,665 2,938 1,452 1,536
28 22
52 23
72 25
79 26
83 109
83 4
39 6
10 6
38 15
21 14
Apr
Hold
4.25
4.58
7.8%
414
382
424
437
31
28
31
32
19
(8)
11
3
14
4.38 5.55
6.40 46.1% 6.30 13.5%
127 169
178 245
193 204
200 249
37 55
52 40
57 33
59 40
115 53
40 (28)
9 (17)
3 22
0.24 1.62
0.38 58.3% 2.75 69.8%
10 49
15 102
24 111
31 118
1 11
2 23
3 25
4 26
69 (33)
49 109
59 9
27 6
INDUSTRIAL Rubber Glove Manufacturing SUPERMX Dec Buy TOPGLOV Aug Hold Manufacturing & Packaging JADI Dec Buy KIANJOO Dec Buy
-3.9% 5.5%
1,044 1,911 1,324 1,374
(***) : Strictly Based on Total Return defined in the Definition of eR comendations section. Call may vary from the last published report.
29.0 35.0 48.0 52.0
NTA/ Price / Shr NTA (RM) (X)
Debt/ Equity (x)
Mkt Cap. (RMm)
4.8 4.8
5.8 5.2
2.2 1.9
2.8 5.1
0.0 0.0
1,864 3,009
15.0 52.0 71.2 0.2 9.0 10.0 225.6
2.3 6.4 4.5 0.0 1.6 4.3 4.7
2.5 6.4 4.4 0.0 1.6 4.3 5.2
3.8 1.6 5.1 0.8 1.5 1.3 3.3
1.6 5.2 3.2 4.6 3.7 1.8 13.0
0.0 0.0 0.4 0.1 0.9 0.0 0.6
2,117 1,345 5,832 3,006 2,252 402 10,201
16 12
211.0 213.0 33.0 29.0
4.6 5.5
4.7 4.8
2.3 1.0
19.5 5.9
1.5 0.0
12,986 1,577
15 14
14 13
35.0 39.0 9.0 10.0
3.3 2.7
3.6 3.0
3.3 1.7
3.2 1.9
0.6 0.0
39,729 19,756
15
14
13
33.0 34.0
7.8
8.0
(0.1)
(53.7)
0.9
5,742
12 10
8 14
8 17
7 14
9.4 9.0
2.2 1.4
2.2 1.6
2.5 1.8
1.8 3.0
0.5 0.0
1,490 3,432
16 15
11 7
7 6
5 6
0.3 0.3 11.0 11.0
1.3 6.8
1.3 6.8
0.2 2.0
1.2 0.8
0.1 0.2
167 720
9.4 7.5
Annual Strategy 2011
Dec Jun
Div Yield (%) FY11 FY12
TA Securities
Corporate Earnings Summary - Stocks Analysis
Corporate Earnings Summary - Stocks Analysis
FYE
Recom. Share Target % (***) Price Price upside (RM) (RM)
[ 114 ]
Dec Dec
Hold Buy
2.34 3.39
OIL & GAS SAPCRES KNM PERISAI PETRA PENERGY PANTECH PETGAS PETDAG PCHEM MHB TGOFFS
Jan Dec Dec Dec Dec Feb Mar Mar Mar Mar Dec
Hold Buy Buy Sell Hold Sell Buy Sell Hold Sell Sell
2.82 1.93 0.51 0.77 1.48 0.63 11.32 11.70 5.39 4.90 1.37
2.97 2.80 0.65 0.43 1.55 0.61 13.30 11.76 5.70 4.16 0.82
5.3% 30.8% 27.5% -44.2% 4.7% -2.4% 17.5% 0.5% 5.8% -15.1% -40.1%
PLANTATIONS IOICORP BSTEAD KLK SIME
Jun Dec Sep Jun
Hold Buy Hold Buy
5.78 5.63 21.58 8.74
6.45 11.6% 6.94 23.3% 22.23 3.0% 10.25 17.3%
PROPERTY MAHSING ENCORP GLOMAC KSL SPSETIA
Jan Dec Apr Dec Oct
Buy Buy Buy Buy Sell
1.78 0.92 1.70 1.73 5.24
2.65 13.2% 4.42 30.4%
2.48 1.58 2.46 2.50 4.32
39.3% 72.7% 44.7% 44.5% -17.6%
EPS Growth (%) FY09 FY10 FY11 FY12
36 150
172 178
Gross Div (sen) FY11 FY12
Div Yield (%) FY11 FY12
NTA/ Price / Shr NTA (RM) (X)
Debt/ Equity (x)
Mkt Cap. (RMm)
234 231
3 20
13 24
15 26
23 31
(69) (9)
379 19
13 8
54 20
84 17
18 14
15 13
10 11
10.8 12.4 20.0 20.0
4.6 5.9
5.3 5.9
2.4 1.3
1.0 2.7
0.5 0.0
2,345 2,504
149 144 261 147 34 10 29 (67) 15 15 61 50 928 941 579 758 2,857 2,229 278 279 5 29
201 237 202 296 35 36 11 42 25 32 40 49 1,415 1,439 787 812 2,516 2,961 375 437 47 45
12 7 5 7 8 16 47 58 58 36 2
11 15 1 (15) 8 13 48 76 76 28 10
16 20 5 2 13 11 72 79 79 31 16
19 30 5 9 16 5 73 82 82 37 15
104 (23) 91 (78) (64) 84 (15) (13) (13) (28) (87)
(4) 126 (72) na (3) (18) 1 31 31 (22) 487
40 37 272 na 68 (21) 50 4 4 13 65
18 46 1 295 27 (49) 2 3 3 18 (5)
24 30 10 12 19 4 24 20 20 15 82
25 13 35 na 19 5 24 15 15 19 14
18 10 9 32 11 6 16 15 15 17 8
15 7 9 8 9 11 16 14 14 15 9
7.0 7.0 6.0 6.0 1.5 1.5 3.0 3.0 1.8 2.2 47.2 47.2 65.0 70.0 15.7 18.5 - 5.5 6.0 -
2.5 3.1 1.9 2.0 2.9 4.2 5.6 5.6 2.9 4.4
2.5 3.1 1.9 2.0 3.6 4.2 6.0 6.0 3.4 -
0.8 0.3 0.3 1.3 1.8 0.4 4.3 4.8 2.3 3.2 1.4
3.5 5.9 1.6 0.6 0.8 1.7 2.7 2.4 2.4 2.4 0.9
0.6 0.6 0.9 0.6 0.6 0.7 0.1 0.0 0.0 0.1 1.8
3,600 1,932 335 347 289 563 22,399 11,623 11,623 43,120 400
1,299 1,640 342 361 613 1,012 2,324 685
2,004 2,197 464 553 1,283 1,352 3,063 3,393
19 37 57 39
25 38 95 11
30 49 120 51
33 59 127 56
(41) (30) (41) (34)
26 2 65 (71)
22 29 27 347
9 19 5 11
30 15 38 23
24 15 23 77
19 11 18 17
18 10 17 15
16.0 32.0 72.0 25.0
17.0 35.0 76.0 28.0
2.8 5.7 3.3 2.9
2.9 6.2 3.5 3.2
1.7 3.3 6.1 3.6
3.4 1.7 3.5 2.4
0.6 0.9 0.1 0.4
38,698 5,293 23,037 52,523
11 9 13 13 17
12 5 14 16 23
17 22 20 21 22
22 25 21 31 27
(17) (44) 12 2 (8)
12 (49) 4 23 37
36 364 43 28 (6)
31 17 7 48 25
16 10 13 13 31
14 20 12 11 23
11 4 9 8 24
8 4 8 6 19
7.5 9.0 5.0 5.0 9.0 9.0 6.0 7.0 18.0 18.0
4.2 5.5 5.3 3.5 3.4
5.1 5.5 5.3 4.0 3.4
1.2 1.0 2.0 1.7 2.2
1.5 0.9 0.9 1.0 2.4
0.5 3.6 0.4 0.2 0.6
1,480 205 505 676 5,328
94 20 39 47 171
114 10 41 64 234
203 192
PER (X) FY09 FY10 FY11 FY12
141 48 58 82 220
184 56 62 120 274
(***) : Strictly Based on Total Return defined in the Definition of Recomendations section. Call may vary from the last published report.
Annual Strategy 2011
MEDIA MEDIA PRIMA STAR
FY09
Net Earnings EPS (RMm) (sen) FY10 FY11 FY12 FY09 FY10 FY11 FY12
A Member of the TA Group
Company
TA Securities
Corporate Earnings Summary - Stocks Analysis
Corporate Earnings Summary - Stocks Analysis
FYE
Recom. Share Target % (***) Price Price upside (RM) (RM)
FY09
Net Earnings EPS (RMm) (sen) FY10 FY11 FY12 FY09 FY10 FY11 FY12
EPS Growth (%) FY09 FY10 FY11 FY12
PER (X) FY09 FY10 FY11 FY12
[ 115 ]
POWER & UTILITIES PUNCAK Dec TENAGA Aug YTLPOWR Jun
Buy Buy Buy
2.54 8.44 2.44
3.00 18.1% 10.60 25.6% 2.85 16.8%
143 136 2,096 2,569 647 1,209
155 329 2,925 3,375 1,287 1,479
35 48 9
33 59 17
38 67 18
80 77 20
559 (18) (36)
(4) 22 77
14 14 6
112 15 15
7 17 26
8 14 15
7 13 14
3 11 12
TELECOMMUNICATIONS DIGI Dec MAXIS Dec AXIATA Dec TM Dec
Hold Hold Buy Buy
24.80 5.36 4.67 3.41
26.70 7.7% 5.80 8.2% 5.90 26.3% 3.95 15.8%
1,000 1,137 2,232 2,228 1,652 2,735 643 477
1,190 1,255 2,297 2,387 3,142 3,494 539 616
129 30 20 18
146 30 32 13
153 31 37 15
161 32 41 17
(12) (7) 232 180
14 (0) 66 (26)
5 3 15 13
5 4 11 14
19 18 24 19
17 18 14 26
16 17 13 23
15 17 11 20
TECHNOLOGY Semiconductor & Electronics MPI Jun Sell UCHITEC Dec Buy UNISEM Dec Buy Others FRONTKN Dec Hold
5.45 1.34 1.96
5.21 -4.4% 1.60 19.4% 2.46 25.5%
(40) 36 74
105 43 171
102 50 184
118 52 187
(19) 10 14
50 11 25
48 13 27
56 14 28
na (39) 12
na 18 77
(4) 18 8
16 4 2
na 14 14
11 12 8
11 10 7
10 10 7
0.17
0.19 11.8%
8
14
19
25
1
1
2
2
(31)
73
36
31
21
12
9
7
Gross Div (sen) FY11 FY12
12.0 13.0 30.0 28.0 13.0 15.0
Div Yield (%) FY11 FY12
NTA/ Price / Shr NTA (RM) (X)
Debt/ Equity (x)
Mkt Cap. (RMm)
4.7 3.6 5.3
5.1 3.3 6.1
3.3 6.9 0.2
0.8 1.2 12.1
3.0 0.9 3.5
1,044 36,799 17,729
145.2 23.9 10.0 20.0
5.5 4.8 2.1 5.9
5.9 4.5 2.1 5.9
4.4 1.4 2.3 2.9
5.6 4.0 2.0 1.2
0.6 0.6 0.6 0.9
19,282 40,200 39,439 12,199
30.0 30.0 12.0 12.0 6.0 6.0
5.5 9.0 3.1
5.5 9.0 3.1
3.6 0.5 1.6
1.5 2.8 1.2
0.2 0.0 0.4
1,144 503 1,321
0.6
0.6
0.3
0.7
0.3
172
137.6 25.7 10.0 20.0
0.1
0.1
Annual Strategy 2011
(***) : Strictly Based on Total Return defined in the Definition of Recomendations section. Call may vary from the last published report.
A Member of the TA Group
Company
TA Securities
Corporate Earnings Summary - Stocks Analysis
Corporate Earnings Summary - Stocks Analysis
FYE
TRANSPORTATION Airlines AIRASIA Dec MAS Dec AIRPORT Dec Freight & Tankers MAYBULK Dec MISC Mar
Recom. Share Target % (***) Price Price upside (RM) (RM)
FY09
Net Earnings EPS (RMm) (sen) FY10 FY11 FY12 FY09 FY10 FY11 FY12
EPS Growth (%) FY09 FY10 FY11 FY12
Buy Buy Hold
2.61 2.07 6.27
3.10 18.8% 2.80 35.3% 6.60 5.3%
449 490 345
656 29 358
Hold Hold
2.97 8.75
3.30 11.1% 9.30 6.3%
244 1,405
214 682
772 285 436
PER (X) FY09 FY10 FY11 FY12
A Member of the TA Group
Company
Gross Div (sen) FY11 FY12
Div Yield (%) FY11 FY12
NTA/ Price / Shr NTA (RM) (X)
Debt/ Equity (x)
Mkt Cap. (RMm)
813 464 461
16 15 31
24 1 33
28 9 40
29 14 42
138 101 13
46 (94) 4
18 872 22
5 63 6
16 14 20
11 236 19
9 24 16
9 15 15
0.0 0.0 0.0 0.0 15.0 15.0
0.0 0.0 2.4
0.0 0.0 2.4
1.5 1.1 3.6
1.8 1.9 1.7
2.9 4.4 0.6
7,235 6,918 6,897
258 288 1,798 2,171
24 31
21 15
26 40
29 49
96 (37)
(12) (51)
20 164
12 21
12 28
14 57
12 22
10 18
20.0 20.0 35.0 35.0
6.7 4.0
6.7 4.0
2.5 6.3
1.2 1.4
0.1 0.6
2,970 39,058
TA Securities
Corporate Earnings Summary - Stocks Analysis
Corporate Earnings Summary - Stocks Analysis
[ 116 ]
DEFINITION OF RECOMMENDATION BUY
:
Total return within the next 12 months exceeds required rate of return by 5%-point.
HOLD
:
Total return within the next 12 months exceeds required rate of return by between 0-5%-point.
SELL
:
Total return is lower than the required rate of return.
Not Rated :
The company is not under coverage. The report is for information only.
Required Rate of Return of 10% is defined as the yield for one-year Malaysian government treasury plus assumed equity risk premium.
(***) : Strictly Based on Total Return defined in the Definition of Recomendations section. Call may vary from the last published report.
Annual Strategy 2011
Total Return is defined as expected share price appreciation plus gross dividend over the next 12 months.
Recom.
A Member of the TA Group
Company
Net Earnings
EPS Growth
PER
Div Yield
Price/NTA
Total
Gross
Cur
Market
(RMm)
(%)
(x)
(%)
(x)
Debt
Debt/Eq
Mar Cap
Weight
CY10
CY11
CY12
CY10
CY11
1,067.3
1,180.7
CY12
CY10
1,243.3
92.5
15,180.2 17,297.5 19,800.0
32.0
10.6
5.1
10.6
13.9
14.0
15.3
CY11
CY12
FY11
FY12
FY11
(RMm)
(x)
(RMm)
9.6
9.1
3.4
0.0
1.1
2,488.3
0.3
11,371
1.3
13.5
11.8
3.6
0.0
2.8
0.0
0.0
233,733
27.2
(%)
5.0
AUTOMOBILE
Overweight
BANKS
Overweight
CONSTRUCTION
Overweight
2,261.0
2,870.7
3,228.3
15.0
26.9
12.3
19.1
15.0
13.4
3.5
3.5
2.3
21,361.3
1.2
42,059
Neutral
2,607.6
2,471.9
2,627.5
20.9
-5.2
5.1
17.1
18.0
17.0
4.6
4.8
0.0
2,084.0
0.3
44,590
5.2
GAMING
Overweight
3,694.6
4,549.4
4,912.5
33.8
23.1
7.9
17.6
14.3
13.3
3.5
3.8
2.9
14,907.5
0.4
65,227
7.6
INDUSTRIAL
Overweight
511.8
523.9
568.3
17.9
2.4
8.4
11.0
10.8
9.9
2.2
2.4
2.0
441.1
0.2
5,808
0.7
MEDIA
Overweight
349.8
395.5
464.7
88.4
10.0
40.6
15.8
14.3
10.4
6.0
5.6
1.2
588.1
0.2
4,849
0.6
OIL & GAS
Overweight
5,242.5
6,111.6
6,773.8
27.2
13.6
10.3
17.6
15.1
13.6
3.3
3.6
2.6
6,846.1
0.2
92,447
9.8
PLANTATIONS
Overweight
5,136.5
7,092.1
7,472.2
27.2
38.0
5.3
23.3
16.8
16.0
3.0
3.3
2.8
16,712.9
0.4
119,551
13.9
PROPERTY
Overweight
498.8
603.5
761.2
25.7
21.0
26.1
16.4
13.6
10.8
3.7
3.9
1.7
3,231.8
0.7
8,194
1.0
POWER & UTILITIES
Overweight
4,071.9
4,613.1
5,375.3
20.4
13.3
16.5
13.6
12.0
10.3
4.1
4.3
1.7
47,790.6
1.4
55,572
6.5
TELCO
CONSUMER
[ 117]
Overweight
6,576.9
7,167.7
7,751.0
19.0
9.0
8.1
16.9
15.5
14.3
4.1
4.0
2.6
24,139.8
0.7
111,120
12.9
TECHNOLOGY
Neutral
331.1
363.3
385.5
104.2
9.7
6.1
9.5
8.6
8.1
4.8
4.8
1.4
647.7
0.3
3,141
0.4
TRANSPORTATION
Neutral
2,775.5
3,828.6
4,210.0
16.0
37.9
9.9
22.7
16.5
15.0
3.1
3.1
1.5
24,456.1
0.9
63,078
7.3
50,305.4 59,069.4 65,573.6
27.4
17.0
11.1
17.1
14.6
13.1
3.6
3.7
2.4
165,695.3
0.8
860,740
100.0
OVERALL
TA Securities
Corporate Earnings Summary - Sector Analysis
Corporate Earnings Summary - Sector Analysis
NOTES TO SECTOR RECOMMENDATIONS
CY
=
Sector EPS Growth CY1
=
∑ (Net earnings CY1I) / ∑ (WAC CY1I) ∑ (Net earnings CY0I) / ∑ (WAC CY0I)
Sector PER CY1
=
∑ (PriceI x WAC CY1I) ∑ (Net earnings CY1I)
Sector PER/EPS CAGR
=
PER CY06 divided by 2-year CAGR in EPS from CY04 to CY06
Sector Div Yield
=
∑ (Gross Divi x Share capi) ∑ (Pricei x Share capi)
Sector Price/NTA
=
∑ (NTA x Share capi) ∑ (Pricei x Share capi)
Annual Strategy 2010
All sector data are annualised to calendar year prior to aggregation. Data for fiscal years ending between January and May of the current calendar year are included in the aggregate for the prior calendar year.
TA Securities
Annual Strategy 2011
A Member of the TA Group
Research Team and Major Sector Coverage Tel : 03 2072 1277 ........................... Ext .................................. E-mail Head of Research Kaladher Govindan ........................ 1622 ...............................
[email protected]
Strategy
Chartist Stephen Soo .................................. 1617 ...............................
[email protected]
Technical Analysis
Research Staff James Ratnam ............................... 1324 ...............................
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Power,Utilities, Plantations
Steve Tan Kam Meng .................... 1614 ...............................
[email protected]
Property, Auto, Infrastructure
Wong Li Hsia ................................. 1626 ............................... liwong.ta.com.my
Banking, Glove
Farhana ......................................... 1635 ...............................
[email protected]
Consumer, Industrial, Telco
Angeline Chin ................................ 1641 ...............................
[email protected]
Technology, Transportation
Patricia Oh Swee Ling ................... 1618 ...............................
[email protected] Aaron Tan Wei Min ........................ 1616 ...............................
[email protected] Kevin Christopher .......................... 1612 ...............................
[email protected] Jeremy Loo .................................... 1634 ...............................
[email protected]
Economy Constrcution, Building Materials, Media Oil & Gas, Gaming Healthcare, Education
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