MIB Research Summary - 20 Oct 2014

Hong Leong Bank: Maintain Buy The cheaper proxy to retail banking

A worthy and cheaper alternative to Public Bank with prudent management and a strong deposit base. Trimming our FY15-FY17 earnings by 2% p.a. on lower contributions from Bank of Chengdu. BUY – MYR16.20 TP maintained on unchanged CY14 P/BV target of 1.9x, supported by ROEs of ~14.6%. KNM Group: Maintain Buy Proposes rights issue  Shariah-compliant Plans a 1-for-5 rights issue plus 1 warrant for every 2 rights. We advocate shareholders to subscribe to the rights issue. Reiterate BUY. Recent share price weakness is an opportunity to accumulate. Our MYR1.50 TP is on 0.7x EV/backlog. MY Automotive: OVERWEIGHT Sep TIV: A minor speed bump  Shariah-compliant Sep TIV fell to 47.8k units (-7% MoM), a temporary weakness as buyers held back in anticipation of new model launches. There is upside to our 2014 TIV forecast (+3% YoY). Stay OVERWEIGHT. Expect small car sales to outperform as buyers trade down amid rising costs/GST. MBM our Top Pick. Malaysia CPI, Sep 2014 Slower on "base-effect" Inflation rate slowed in Sep 2014 to +2.6% YoY from +3.3% YoY in Aug 2014 on "base-effect" from the fuel price hikes in Sep 2013. The "base effect" should be temporary as we see inflation rate picking up and averaging +3.2% YoY in 4Q 2014 from the latest round of fuel price hike earlier this month. Our full-year 2014 inflation rate estimate is +3.3% (YTD 2014: +3.3% YoY), and we see inflation rate accelerating to 4.5%-5.0% in 2015 on the impact of fuel subsidy reform and GST introduction on 1 Apr 2015. But OPR to stay at 3.25% for most of 2015 as BNM refrains from reacting to policy-driven spike in inflation amid growth concern, and any review is likely only in late-next year. Technicals: Selling on rebounds would be wise The FBM KLCI plunged 20.57 points WoW to close at 1,788.31, as persistent forced selling activities led the index down below the 1,800-mark. We advise clients to sell at the resistance areas of 1,795 to 1,879. The support levels of 1,732 and 1,788 will see some meagre buying activities. Trading idea is a Take Profit call on BAT with downside target areas at MYR63.76 & MYR62.80.