Value Investing In KLSE

Better bargains in 3Q?

2009-06-06T00:32:00.001-07:00

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

Better bargains in 3Q?

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External Trade A mixed bag of data

2009-06-06T00:31:00.001-07:00

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

External Trade A mixed bag of data

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

2009-06-05T02:29:00.000-07:00

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

The Wealth Report 2009

2009-06-02T20:11:00.001-07:00

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

The Wealth Report 2009

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A few big winners, many losers

2009-06-02T06:06:00.003-07:00

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

A few big winners, many losers

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Not as bad as feared, worst over?

2009-06-02T06:06:00.001-07:00

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

Not as bad as feared, worst over?

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Double Top Danger

2009-05-31T08:15:00.001-07:00

Double top for DJIA? Odds are the DJIA completed a bearish “double top” last
week after testing its early May high. The index reached 8,591pts before correcting
over the past few days. It is now holding just above its key support trend line at
8,180pts. A break below this level would be bad news and would probably confirm
the end of the uptrend that started in early Mar. This should be followed by a
deeper correction, possibly towards the 7,500-7,800 levels.
• Bullish only if 8,600 breached. Our alternative wave count, which calls for a more
bullish outlook, would be confirmed only if the 8,600 resistance were overcome.
But looking at the negative divergence in the technical indicators, we rate this as a
low-probability scenario.
• Banking stocks to lead? We believe US banking stocks should provide some
indication of the direction of the US stock market over the next few weeks. The US
KBW Bank Index has been trading in an uptrend channel since early Mar. But last
Friday, it broke the support trend line at 36pts, which is a negative sign.
Furthermore, given the negative divergence in the daily technical indicators, the
odds favour more downside for the KBW Bank Index in the immediate term.
• Upside capped for Asian markets after new high. The MSCI Asia ex-Japan
Index (MAxJ) scaled a new high of 380pts for May, above the 371 resistance level.
But the near-term upside could be capped as the daily technical indicators are
showing strong negative divergence signals. The key support trend lines are now
at 363 and 355, which, if broken, would be very negative and likely confirmation of
the end of the uptrend that began in early Mar.
• Double top also seen in regional equity indices. Singapore’s STI, Hong Kong’s
Hang Seng and Indonesia’s Jakarta Composite Index were also showing bearish
“double tops” last week and pulled back sharply by the end of the week. In the
immediate term, these indices are likely to challenge the double top. Our concern
is that the rally may not be sustainable if trading volumes do not pick up soon. A
break below the support levels could lead to more consolidation in the near term.

Double Top Danger

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Special Technical Perspective

2009-05-31T08:06:00.001-07:00

Tactical move to “Take Profit Stance” Since the KLCI made a Wave 3 low at
801.27 (Oct ’08), the next key swings were at 936.63 (Wave 4A in Jan ’09) and
at 836.51 (Wave 4B in Mar ’09). We have peaked at 1,059.88 for Wave 4C.
There is an obvious minor 5 sub-wave sequence that ended the KLCI’s
rebound run to 1,059.88 on 27 May ’09.
Upward retracement targets for the KLCI were met. Our KLCI rebound
targets of 1,043.78 and 1,053.18 were slightly exceeded. With abundant
bearish divergence indicators (ADX, CCI, MACD, MACD Histogram, Oscillator,
RSI, ROC and Stochastic), we believe that the KLCI has peaked temporarily at
1,059.88.
The KL Plantation Index (KLPLN) peaked at 5,515.37. The KLPLN Index
peaked at this level on 21 May ’09. With the obvious bearish divergence
indicators on this index and also the sequence of poorer profit figures for SIME
and KLK, we believe that the KLPLN Index has much further room to fall.
CPOF Elliott Wave Count is also “3-3-5 Flat”. With the KLCI and KLPLN
Indices (and some of their key plantation components like IOICORP and KLK)
having a rebound “3-3-5” Flat Wave structure, the CPOF also traced out a
similar Wave rebound to RM2,799. Ample bearish divergence at RM2,799 also
suggests that the CPOF had peaked at that level on 13 May ’09.
Watch the Ringgit against USD. Some short-term hedge funds had entered
Malaysia in the last 2 months. With this, currency and equity market
appreciation for them may be in the 10% to 30%-region in total. As such, they
may not have any hesitation in exiting their speculative trades. Therefore, do
watch the Ringgit’s prices against the USD as a sign of hedge funds exiting the
country.
Tactically, take most positions off the table. As mentioned in our special
article on 10 Apr ’09, we stated that the “Bull Run” that began in early Mar ’09
was one of a “Bluff-Bull” nature. We firmly believe that a temporary top for the
KLCI formed yesterday at 1,059.88. As such, take most equity on 27 May
positions off the table and realize profits. A larger cash pile is preferable in view
of the potential US and local market downturn in the next few weeks.
News flow has turned negative. The poorer recent Malaysia GDP figures
have taken the markets by surprise. Also, the results of the plantation
companies such as SIME and KLK suggest that the market has run ahead of
true economic fundamentals.
Volumes and market liquidity shrinking As the market rose to 1,037.81, the
traded volumes were quite high (just under 4b). However, with the market
rising to higher levels such as 1,059.88, volumes traded were between 1b to
2b. As liquidity shrinks, it is more difficult for large funds to sell. Selling or
liquidation will take more days to complete and therefore, it has shown up in
the exhausting and bearish divergent indicators.
The defensive stocks are: We believe that despite the potential KLCI
downturn, there are some price defensive components. Among them are
AIRPORT, MMCCORP, PROTON & SUNCITY. Continue to buy them on dips

Special Technical Perspective

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Banking:Weakness Ahead

2009-05-31T08:05:00.003-07:00

Weakness ahead. Loan disbursements, applications and approvals
slowed in Apr, reflecting cautious sentiment. Loans growth was just
1.4% YTD, and 4.2% annualised. There was a slight uptick in absolute
NPLs, implying stress in some loans segments. The poor 1Q09 GDP
numbers suggest growing stress in system loans over the next few
months. We remain cautious on banks’ profits, especially from 3Q09.
1.4% YTD loans growth. Banking loans (net of repayments) grew to
RM736.5m in Apr ’09 (+0.4% MoM, +10.6% YoY) on expansion in both
household (+0.7% MoM, +8.5% YoY) and business loans (-0.03%
MoM, +9.2% YoY). Disbursements slowed (-6.6% MoM, -6.4% YoY)
but repayments were relatively stable (+1.3% MoM, -2.8% YoY). YTD
loans growth was +1.4% (4M2008: +3.4%), driven by household loans
(+2.2%) while business loans’ growth was anemic (+0.4%).
Forward indicators contracting. Loan applications and approvals fell
YoY: -5.4% and -18.2%. The business segment saw loan applications
and approvals down 24.2% and 35%, while the household segment
continued to see growing appetite in loan applications but flattish loan
approvals. On a MoM comparison, both indicators also showed
contraction. Loan applications fell 1.4% while approvals slipped 0.8%.
Absolute NPLs inched up. Absolute NPLs ticked-up by 0.34% MoM to
RM33.7b (Mar ‘09: -3.7% MoM). However, Apr ‘09’s absolute NPLs
were still lower than a year ago, by 14.7%. We suspect the rising NPLs
came from the business segment, especially exporters. The net NPL
ratio was unchanged at 2.24% due to the expanded loans base. Loan
loss coverage (LLC) remained adequate at 88.5% (Mar ’09: 88.3%).
Stay Underweight. The combined 1Q09 net profit of the six banking
stocks we cover was down 2.1% QoQ, and a sharper 13.1% YoY, on
lower treasury and FX income and higher loan loss provisions. We
expect sector earnings to contract 10% YoY in 2009 and reiterate our
concerns on asset and loan quality as the economy contracts over the
next two quarters. Our analysis shows a 3-6 months interval from GDP
trough to NPL peak. Banks are set to report weaker profits

Banking:Weakness Ahead

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Overnight Policy Rate (OPR) Stays at 2%

2009-05-31T08:05:00.001-07:00

No change in OPR as widely expected. Bank Negara Malaysia
(BNM) left the Overnight Policy Rate (OPR) at a record-low of 2% after
the Monetary Policy Committee meeting yesterday (26 May ‘09), as it
did on 29 Apr ‘09. Previously, the OPR was lowered by a total of 150
bps on three occasions between Nov ’08 and Feb ’09

Overnight Policy Rate (OPR) Stays at 2%

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2009 Real Gdp

2009-05-31T08:04:00.001-07:00

Government revises its 2009 real GDP growth forecast. The Prime
Minister (PM) announced yesterday that the official real GDP growth
forecast for this year is now between -4% and -5% from +1% to -1%
announced by Bank Negara Malaysia (BNM) in Mar 09. This is due to
the impact of the global recession on external demand which also
weakened domestic demand, especially private investment (1Q09: -
26% YoY), including FDI (1Q09: -50% YoY). However, apart from
mentioning a 25% drop in exports, no detailed breakdown of the
revised forecast was provided

2009 Real Gdp

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Room To Run, But Value Vanishes

2009-05-31T05:17:00.001-07:00

Be realistic, be selective. We believe this market rally has pushed
valuations to the point where growth expectations have reached
implausible levels. In fact, profits have just begun to turn down. We are
not overly bearish – our Buy list is longer than our Sell list – but we
caution that optimism over growth can disappear as quickly as it
appeared. Domestic factors, particularly political developments, may
be a positive catalyst.
Profit recession has just begun. Industrial production peaked in
January 2008, but profits only began a broad-based decline in 1Q09.
Within our coverage, 63% of the companies that have released 1Q
earnings reported lower sequential quarterly net profits. In seven
sectors, our entire coverage list suffered profit contractions. This
suggests the recession in profits has just begun.
Market valuation implies an optimistic view of growth. The market
currently trades at 15.2x 2009 earnings, up from 12x earlier this year.
This is only 10% below the previous cycle’s mid-cycle value, but today,
we face growth of -7.7% (2009) and +9.7% (2010), taking market
earnings only 1% higher by the end of 2010 from its end-2008 level.
Market growth expectations seem to be running ahead of reality.
History tells us the bear market isn’t over. Two previous bear
markets over 1981-86 and 1993-98 lasted 57 and 58 months
respectively. It has now been 17 months from the January 2008
collapse. Those bear markets had 22-38 trend reversals of 5% or more;
we have now seen 12 since January 2008. These comparisons suggest
we are, at best, half way through this bear market.
Bet on Prime Minister Najib, but Sell hope. Our top stock picks are
in the construction sector. We expect PM Najib will deliver on the fiscal
spending promises, reinvigorating the construction and building
materials sectors. Our top Sells are stocks where high hopes and
expectations have been built in; where current prices have run well
ahead of both our and consensus target prices.
Politics a positive wildcard. Beyond rapidly executed fiscal packages,
the country’s new leadership could make further changes to longstanding
policies to attract foreign investment and win back broader
support from all Malaysians. These initiatives should be positive for
equity market at least in the short-term

Room To Run, But Value Vanishes

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Fake Degree in Malaysian Public Listed Companies

2009-05-24T08:22:00.000-07:00

Do you know a lot of directors in public listed companies didn't have a degree?

They may have a lot of business sense but zero knowledge in managing a public company.

No wonder they cannot compete globally and remain as 'jaguh kampung'.

I'm not against 'directors without degree' setting direction for a public listed company because they can hire capable managers with management experience and MBA.

Securities Commission & Bursa Malaysia which are supposed to take care the interest of investors encourage these companies to make up before going to IPO.They have conflict of interest between encouraging businesses to be listed in Malaysia and protecting investors.

Directors who do not have formal education will be asked to 'get' a degree from local universities / online foreign universities.

I've one good example here.This was taken from one of the annual report from a public listed company in Malaysia.

Please tell me if you know Honolulu University in Hawaii.

Try to dig deeper into the profiles of directors in public listed companies and you'll be suprised.

Further Easing In Inflation Rate

2009-05-23T08:02:00.001-07:00

The Consumer Price Index (CPI, 2005=100) slowed for the eighth
consecutive month in Apr ’09 to 3% YoY (Maybank IB estimate:
3.3% YoY; Consensus estimate: 3.2% YoY), compared with 3.5% YoY
in Mar 09 and the peak of 8.5% YoY in Jul-Aug ’08. MoM, the inflation
rate fell by 0.2%, the seventh sequential drop in the past eight months.
Year-to-date inflation rate is 3.5%.
Slowing mainly on Food and Non Alcoholic Beverages (FNAB)
“disinflation” and Transport “deflation”. FNAB prices eased for the
seventh straight month while Transport costs fell for the fifth month in a
row. There were no major movements or changes in the price trends of
other goods and services. Consequently, our measure of CPI ex-FNAB
and Transport was little changed at 2% YoY last month (Mar 09: +2.1%
YoY).

Further Easing In Inflation Rate

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Adex Data Point South

2009-05-23T08:01:00.003-07:00

1Q09 adex data point south. Although total gross adex for Jan-Mar 09 shrank
3.9%, it was better than the 20% contraction seen after the 1997-8 Asian financial
crisis. The worst performer was the newspaper segment which saw a 9% decline
compared with a 3.7% growth for TV adex. But ad volume visibility extends only 2-3
months out, leaving question marks over advertising commitments for 2H09.
• Downbeat expectations. The lacklustre adex showing in Jan-Mar 09 ties in with
the 1Q09 results reported by Media Prima and NSTP. It also confirmed the
generally bearish expectations of the media companies since the beginning of the
year, with a few being taken by surprise by the magnitude of the deceleration. Our
previous 2009 projection of an adex range of 1.1% contraction to 6% growth does
not hold and we now revise it to 6-10% adex contraction.
• Newspapers at risk. Fundamental risks could be more severe for newspaper
companies as newspaper adspend continues to take a hit from depressed GDP
data. Although there are signs of resilience in the Malay newspaper segment, this
does not mean total immunity against the potential worsening of adex volume in the
coming months. The top Malay newspaper NST’s Harian Metro is the main winner
but this is not expected to help the group much given that Harian Metro is a small
contributor.
• Indicators leading at inflection point? We concur with our economic research
team’s view that the CLI could hit the trough in Jun-Aug 09 and that the economic
recovery from the trough is likely to take at least 12 months given the severity of the
current global crisis. Advertisers should reposition their spending for a gradual
recovery from 2010. Historical trends suggest that adex in Malaysia should recover
in 1Q2010 based on a 3-6 months’ lag period.
• End-2009 a good potential entry point. We believe end-09 will be a good re-entry
point for exposure to selected media stocks as positives such as earnings visibility,
improved sentiment of advertisers, cheaper newsprint and gradual economic
recovery are likely to kick in as catalysts then. We will monitor closely the situation
on the ground and official stats but so far, adex for the months ahead appears to be
southbound. The share prices of media companies have recovered somewhat since
the start of the year and we fail to see any additional near-term re-rating catalysts.
• Staying NEUTRAL on media sector for now. In view of this, we maintain our
NEUTRAL stance on the media sector but recommend investors to switch to Astro
(Trading Buy) which has very little exposure to adex and minimal downside risks to
its Malaysian operations where the subscriber trend could turn out to be resilient.
We remain NEUTRAL on Media Prima (MPR MK), Star Publications (STAR MK)
and Media Chinese International (MCIL MK). NSTP is kept as an
UNDERPERFORM

Adex Data Point South

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Tiv Still Drifting Down

2009-05-23T08:01:00.001-07:00

Losing speed. The persistent weakness in TIV which extended into
Apr, reaffirms our depressing view of the sector. Overall, we expect
2009’s TIV to contract 15-20% YoY. An effective NAP is essential to
reverse the slide. Until then, the auto sector remains an Underweight.
TIV continues to drift lower. Apr’s TIV of 41,135 units continued to
slide, down 7% MoM and 18% YoY. The sequential drop in vehicle
sales was greater on national marques (-10% MoM) vis-à-vis nonnationals
(-3% MoM). Perodua suffered the biggest drop in sales (-14%
MoM) and market share (-2.5% MoM) but was still capable of retaining
its No.1 status in the industry with a 30% market share.
YTD’s TIV down 12% YoY. Other major marques – Toyota, Proton and
Honda too reported weaker sales (-3%, -4%, -12% MoM respectively).
Only Nissan (+2% MoM) showed a 3% rise in sales, spurred on by its
MPV Grand Livina model (+9%). YTD, TIV fell 12% YoY to 159,816
units, accounting for 35% of our estimates of 438,000-465,000 units.
We expect TIV to contract 15-20% for 2009, as the sector continues
to suffer from an absence of new model launches and a stricter
financing environment. Reject rates for Proton’s applicants remain high
whilst the 85-100bps hike in Hire Purchase (HP) rates on non-national
cars will further dampen sales.
A good NAP is needed to wake the sector up. The National
Automotive Policy (NAP), which will be revealed by 3Q09, needs to
boldly address among others: (i) consolidation of national marques and
vendors, and (ii) issues on Approved Permits (APs). A pro-active
guideline will help shape the sluggish sector. Until then, we maintain
our Underweight call, with Sell calls on Proton and Tan Chong

Tiv Still Drifting Down

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Cpo Price Assumption Raised

2009-05-23T08:00:00.001-07:00

We raise our CPO price assumption to RM2,000/t (from RM1,600/t)
on the current high price of RM2,800/t and YTD RM2,178/t average.
We do not foresee CPO prices staying at current levels beyond 2Q due
to rising 2H production and slowing exports. The present CPO price is
81-123% above its long term historical price in USD and Ringgit
equivalents. EPS forecasts are upgraded by up to more than 100% but
company valuations remain stretched. Maintain Underweight.
Recent CPO price spike unsustainable. We view the recent 40%
spike to the RM2,800/t level from an average of RM1,950/t in 1Q09 as
too fast, too furious. Traders and speculators justified the high price on
tight inventory. We think a significant price correction in 2H is imminent
as inventory is expected to build up on slowing exports and stronger 2H
production. Also, the present CPO price is 81% and 123% above its 30-
year long term historical price in USD and Ringgit equivalents of
USD430/t and RM1,257/t respectively.
Bearish 2H price outlook. CPO production, which has disappointed in
1H09 due to poor weather and tree stress, is likely to rebound strongly
in 2H. Besides production recovery, narrowing palm oil discounts
against competing oils should slow exports. A return of normal weather
in the next planting season for South America, and increased trade
protectionism by the West on palm biodiesel are some of the other
bearish fundamental factors for CPO.
Earnings forecasts upgraded. With CPO price having averaged
RM2,178/t YTD and likely to remain high in 2Q on tight supply, we raise
our CPO price assumption from RM1,600/t to RM2,000/t for 2009-11.
This results in EPS upgrades for plantation companies under our
coverage ranging from 17% to over 100% for 2009-11.
Valuations remain expensive. We rate the sector Underweight.
Valuations remain stretched, especially for IOI and KLK which trade at
20.1x and 16.9x 2010 PER. We downgrade Asiatic to Sell (from Hold)
as the stock has soared 54% YTD and is highly leveraged on CPO
price swings. Sime has been raised to Hold (from Sell). Risks to our
price view are a weaker USD, higher energy prices, and further supply
shocks due to weather anomalies

Cpo Price Assumption Raised

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Palm Oil Stocks Hit Bedrock

2009-05-16T05:03:00.001-07:00

• Palm oil stocks at 22-month low but… Malaysia’s palm oil stocks fell for the fifth
straight month to a 22-month low of 1.29m tonnes at end-Apr 09 as exports and
domestic consumption exceeded domestic palm oil production.
• … at high end of expectations. Stocks fell 5.4% mom to 1.29m tonnes, which is at
the high end of market expectations ranging from 1.2m tonnes to 1.3m tonnes. The
decline in inventory is bullish for CPO price as it suggests tight palm oil supplies for
Malaysia, a key palm oil producer.
• Stock level may have hit trough in April. Our rough modelling, which assumes
the mom growth pattern for production and exports in the month of May will be
similar to the historical 3-year average growth pattern, suggests that Malaysia’s
CPO stocks could rise 5% mom to around 1.35m tonnes in May due to higher
production and lower exports.
• CPO price forecast intact. For the first four months of the year, average CPO price
fell 41% yoy to RM2,031 per tonne. This is marginally higher than our 2009 CPO
price forecast of RM1,950 per tonne due to lower-than-expected soybean harvests
from Argentina and weaker palm oil production from Malaysia and Indonesia. We
maintain our view that CPO prices will remain firm in the next few months due to
current tight supplies and potential further downgrade in Argentina soybean
harvests but are likely to trend lower in 3Q when palm oil supply improves and
demand weakens due to the higher selling prices. That said, the recent CPO price
strength has taken us by surprise due to deteriorating soybean crop prospects for
Argentina. In view of lower-than-expected yields, Oil World has cut its current-year
soybean crop estimates for Argentina by a further 1.5m tonnes to 33m tonnes last
week or a decline of 28.5% yoy. Although we are not changing our CPO price
forecasts of RM1,950 per tonne for 2009 and RM2,150 per tonne for 2010, there is
RM100-200 potential upside to our forecast for 2009 in view of the recent
downgrade of soybean supply from Argentina.
• Maintain UNDERWEIGHT. Our earnings forecasts for all the Malaysian planters
remain intact, along with our UNDERWEIGHT stance on the Malaysian planters due
to their expensive valuations relative to their regional peers. Potential de-rating
catalysts for the Malaysian planters are falling CPO price in 3Q, lower crude oil price
and improved weather prospects in major planting areas. Our only pick in the
Malaysian plantation sector is Sime Darby as the stock stands to benefit from the
move towards the new FBM 30 index, has the lowest P/E multiple and foreign
shareholding among the three largest big-cap planters in Malaysia and may engage
in earnings-enhancing M&As. We maintain our preference for the Singapore-listed
planters.

Palm Oil Stocks Hit Bedrock

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SP Setia: The Strongest Developer In Malaysia

2009-05-16T03:42:00.000-07:00

S P Setia Berhad is well diversified within property development industry.It develops residential and commercial properties. The company also engages in producing precast components for prefabricated reinforced dwellings; general building construction; and infrastructure business. In addition, S P Setia Berhad involves in the prefabrication, installation, and sale of timber doors, roof trusses, and timber flooring boards to the local construction industry, as well as production of custom-made timber frames and doors for export market; and provision of kiln dry services and property management services, as well as acts as a contractor for home automation and alarm systems, and roads and buildings.

SP Setia has a few advantages over other developers in Malaysia

a) It has good relationship with PNB which helps it to source valuable prime lands in various states in Malaysia.

b) It has been actively looking for prime lands in KL and SPSETIA has been lucky always.

c) It has been expanding its market aggressively mainly to Vietnam and other countires as well.

SP Setia has 0.19 times net gearing and RM572 million cash. Its market cap is around 3900 mil with P/E of around 20. Currently,it's trading around RM 3.86 per share. SP Setia is a good buy for those looking for long term value in Malaysian developers.

Malaysia to merge Bursa main, second boards. Huh,does it matter?

2009-05-10T02:12:00.000-07:00

Truthfully speaking, does that matter?

Merging (Mixing) the boards do not make any difference.I know Bursa is trying to spur trading in KLSE so they can make more money (transaction cost) but investors are much more informed now-thanks to the Internet.

The value of a company STILL depends on the free cash flow (FCF) which it is able to generate in its lifetime. No matter where you list the company (main board,2nd board),how you name the company(Axiata,TMI,UEM,UEMWorld),the growth of the company still depends on its PEOPLE.

One good example which I can relate to is our government department. Government can do all sort of things to increase its popularity:-PM visit to immigration department, PM took KTM,Increase salary for public servants,change to Open Tender,shrink the Cabinet,etc. The element which can affect the efficiency of the government department is the PEOPLE in these departments.No matter what you do,as long you're in government service,you'll be sure that you'll not get FIRED.

Firing people in Malaysia is a TABOO especially when it comes to Malay community which uphold "Semangat Perpaduan". If you fire one of his friend,the whole department will not cooperate with you.So,no high ranked officers dare to "Rock The Boat".The unwritten rule is still,"Sama-sama cari makan.You scratch my back,I scratch yours".That's why I think "ONE MALAYSIA" will remain as a slogan,just like "BERSIH,CEKAP,AMANAH".

It's extremely hard to break the "friend friend" culture in the government department.A good speech by PM Najib without much detail action plan won't work.Most of the high ranked officers in that speech were in for the big "jamuan" anyway.

So,if you think 1st board & 2nd board merging will make the companies more transparent,you're truly a sucker.

Semiconductor

2009-05-07T07:36:00.001-07:00

• Some glimmers of hope… Rays of hope are permeating the semiconductor
industry, which probably saw most of the bad news in 1QCY09. Global chip sales
improved slightly in Mar 09 with a 30.0% yoy decline compared with a 30.1% yoy
fall in Feb 09. The book-to-bill ratio has ticked up with preliminary Mar 09 numbers
hitting 0.61x, up from Feb 09’s abysmal 0.47x. Finally, utilisation rates have scraped
bottom as some production facilities have been shuttered and inventory control is
being exercised. The end-user markets appear to have troughed, with PC and
handset sales probably hitting the bottom. Furthermore, trade credit is now
normalising. That said, stabilisation does not equate to a recovery and we believe
that restocking activity as inventory runs low is the primary factor in the improving
outlook. We still expect 2009 to be a difficult year where the typical seasonal pick up
in 3Q may not materialise given the current re-stocking activities.
• …but no full-blown recovery until 2010. We argue that a true recovery will only
take root when the global economy begins to move upwards. A meaningful and
sustained recovery will only take place when consumer sentiment and spending
spring back to life and cause ASPs to start rising. We believe that a more
convincing uptrend will take hold only from 2H10 onwards.
• Global economies to start stabilising towards year-end. Our economists believe
that the world economy will feel the full impact of the global financial crisis this year.
Although the process of sorting out the financial system will take time and
resources, the cumulative effects of sizeable fiscal stimuli and aggressive monetary
easing globally will work to provide some stability. Recent global indicators are less
negative. Considering the extremely low base this year, global growth should pick
up in 2010 but will probably fall short of its long-run average growth rate of 3.7%.
• Upgrade sector to TRADING BUY. While the fundamentals for the sector remain
uncertain, we think that downside to share prices is limited as valuations are still
below trough levels. We upgrade the sector from Underperform to TRADING BUY.
Furthermore, in line with our market strategy, we think that investors’ risk appetite is
increasing and higher beta plays such as semicon should be in vogue. Investors
should start picking up semicon stocks ahead of the recovery of the sector as
historically, the share prices for both MPI and Unisem cratered 13-18 months before
the upturn of the sector. Sector catalysts include a) a sooner-than-expected revival
of end-user demand and b) a faster-than-expected economic recovery.
• Upgrade Unisem and MPI to Trading Buy. In tandem with the sector upgrade, we
upgrade MPI and Unisem from Underperform to Trading Buy. We raise our target
prices for both after cutting our discounts to their 5-year historical average by 30-
60% pts to 20-40% for Unisem and MPI respectively. We assign a lower discount to
Unisem, our top pick, as its higher liquidity and beta make it a better play on a
market rebound. Re-rating catalysts include a) qoq improvement in earnings, b)
revival of end demand and c) the higher betas on offer.

Semiconductor

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Say Good Bye To Property Market

2009-05-07T07:35:00.001-07:00

We expect transactions to fall and prices to ease in 2009, in line with the projected 3%
real GDP contraction. Transactions could fall 20-30% or as much as 35-50% in the
worst-case scenario, matching the performance during the 1997/8 Asian financial
crisis. However, most major developers have pushed out innovative financing
schemes to lure buyers. Response has been mixed, with good response garnered by
the likes of SP Setia (RM500m sales) and Mah Sing (RM170m sales) but lacklustre
sales for many other developers

Say Good Bye To Property Market

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Global Equity Technicals

2009-05-05T08:14:00.001-07:00

Extended wedge formation. We were expecting the DJIA to break down from its
wedge formation last week but it continued to rise further towards the 8,300 levels
before correcting end of last week. The Index could still be in an extended wedge
formation and the breakdown the wedge support trend line at the 8,100pt would
confirm the end of this pattern.
• If we are wrong… If we are wrong, our alternative wave count shows that DJIA
could have already started its minor wave “c” up leg after completion of the wave
“b” triangle consolidation since early Apr last week (refer to chart below). This wave
count is supported by the breakout of the major resistance trend line since Nov-08.
Confirmation of this alternative wave count if DJIA breaks above 8,300pt.
• US banking stocks remains in consolidation phase. If banking stocks are
leading the market, DJIA is still in an extended wedge formation. The KBW Bank
Index has just broken down below its uptrend channel support trend line since
early-Mar. This indicates further consolidation in the immediate term for the Index.
• Crude oil uptrend is not over. We were looking for crude oil prices to break down
last week but the price has since bounced back above the US$53/barrel levels.
This has negated our preferred wave count and a likely “double zig-zag” is taking
place, targeting the US$60-70/barrel levels in 2H09.
• Channel breakout. MSCI Asia ex-Japan Index (MAxJ) only experienced a mild
correction last week and closed strong for the week at 336. The Index just broke
out of its channel resistance trend line since Nov-08. This is a positive sign if the
Index is able to hold above this trend line over the next few weeks.
• Still expect consolidation. However, we still expect Asian equity markets to
consolidate over the next few weeks to build up a support base before charging up
in June-July. If RSI breaks out of its current consolidation range, this would likely
indicate that Asia has kick started its next up leg towards the June-Jul period

Global Equity Technicals

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Tunnelling Job Bores Through

2009-05-05T08:13:00.001-07:00

A milestone for the sector. We take a positive view of this news as it is a significant
milestone for the water sector. The timing of the award was a slight surprise as we
had expected the recent cabinet reshuffle to result in a slight delay for the project
award following the award of the letter of intent (LOI) to the Shimizu consortium a few
months back. The water transfer project is the first mega job to be rolled out under the
9MP after the announcement of the second stimulus package in Mar 09. Our channel
checks indicate that the tunnelling job will move fairly quickly from here on and the
notification to start work should be received in a matter of days. Once site possession
is obtained, major resource mobilisation will be underway, including Shimizu’s
positioning of the tunnel boring machine (TBM) near the Titiwangsa range. We think
that actual work could start within a month, suggesting a mid-2014 timeframe for
completion of the project.
No details on scope of works. Details of the scope of works are not available. IJM’s
share of works based on its 20% stake works out to RM260m or just RM26m profit
enhancement assuming a 10% pretax margin. We are not revising our earnings
forecasts as the RM260m share of works is already part of our assumption for new
contracts for IJM. That said, the award of the project raises IJM’s profile as it is one of
the main contractors of the country’s largest water infrastructure project.
Focus will now shift to the remaining major components of the water transfer project,
i.e. the Kelau dam and the Langat 2 water treatment plant. We expect the feasibility
studies for both to be concluded sometime in early 2H09, making way for the
tendering process. We gather that the Shimizu consortium is eyeing the Kelau dam
job which has an estimated value of roughly double the tunnelling job. This suggests
that IJM’s potential share of works could be more than RM500m

Tunnelling Job Bores Through

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The Mega Projects

2009-05-05T08:12:00.001-07:00

More excitement ahead. The eventual award of the RM1.3b Pahang-
Selangor raw water transfer tunnel works on 28 Apr confirms that the
new administration sees the urgency for construction in stimulating the
economy. Langat 2 should be next in the limelight, together with the
massive Klang Valley LRT system. We expect more positive news flow
over the near-term. Continue to Overweight Construction.
Langat 2 next. Langat 2, the downstream portion of the water transfer
project, comprises a 2,180 mld treatment plant and the distribution
pipelines. The estimated RM5b construction contract was awarded in
Feb ’08 to Kumpulan Darul Ehsan, which holds 60% of Kumpulan
Perangsang Selangor (KPS). As KPS does not have a major
construction arm, we think that potential beneficiaries are Gamuda, Loh
& Loh and Taliworks, which have had working experience with, and/or
are affiliated to KPS via shareholdings.
Klang Valley LRT to follow. Local companies have been invited to
submit “expressions of interest” for the LRT extension and upgrading
works, with the government keen to see construction works start within
the next 3-4 months, according to today’s Edge. The extension works
could cost RM7b, including RM1b to buy rolling stocks. Our view is that
the project may be parcelled out and experienced contractors like IJM,
Gamuda, UEM Builders and YTL Corp may bid as turnkey contractors.
Overweight Construction. We continue to expect mid-sized projects
to lead the momentum of construction sector recovery under the fiscal
stimulus. Meanwhile, the inter-state water transfer (including Langat 2)
and Klang Valley LRT extension are also two priority projects under the
9th Malaysia Plan with works expected to start before the decade turns.
IJM, WCT and HSL remain on our Buy list. Meanwhile, Gamuda is a
strong contender for the two mega water and LRT projects. Our Hold
call on the stock is under review, with upward revision potential

The Mega Projects

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