HLIB Research Summary - 21 Oct 2014

Plantations (NEUTRAL  é)

Valuations more commendable post retracement

• We believe it is time to review our ratings on the sector as well as stocks under coverage, given the recent fall in share prices of most stocks under our coverage.
• We believe the worst could possibly be over for the sector, as: (1) the extension of zero export duty on CPO until Dec-14 will encourage near-term demand for CPO; (2) seasonally high production season is coming to an end; and (3) we are still retaining our positive view on crude oil prices.
• Given the more commendable valuations and the absence of significant negative sector news flows, we are upgrading our rating on the sector from Underweight to NEUTRAL. With the exception of KLK (which recommendation is upgraded from Sell to Hold, with unchanged TP of RM20.41 following the recent share price correction), recommendation for all other stocks under our coverage remains unchanged.

AirAsia (TRADING BUY é)

Benefitting From Slump in Jet Fuel Price

• Recent development:

1. Jet fuel price plunged to US$100/bbl (-20% since end 2013). We expect jet fuel price to stay at current level in 4Q14 and FY15-16. Beneficial to AirAsia for jet fuel cost contributed 60-67% of operational cost. However, we believe AirAsia to cut prices in order induce air travels.
2. US$ strengthened against regional currencies including RM (RM3.26/US$) in recent months. Negative to AirAsia as large part of operational cost denominated in US$. Nevertheless, the current RM/US$ is similar to the level as at end-2013.

• We expect air-travel to remain weak amid the recent air incidents, kidnapping incidents as well as regional issues. Hence, yields are expected to remain depressed in the near term.
• Upgrade to Trading Buy with higher TP of RM2.57 (from RM2.20), after imputed higher earnings and lower holding company discounts at 10% (from 20%), given lower concern on major system overcapacity (MAS restructuring).

WCT Holdings (HOLD çè)

Landbanking in Serendah

• Buys 221 acre lands in Serendah for RM115m adjacent to its existing land (462 acres).
• Township development on the cards but still at early stages, launches only targeted in 2016.
• Proforma net gearing to rise from 58% to 63%.
• Maintain HOLD, TP RM2.29 based on SOP.

DiGi.Com (BUY é)

9M14 Results In Line

§  9M14 core net profit of RM1.47bn was within expectations, accounting for 75.1% and 75.6% of HLIB and consensus’ full year estimates, respectively.

§  3^rd interim tax exempt (single-tier) dividend of 6.2 sen per share. YTD dividend amounted to 18.8 sen per share, within our expectations.

§  Subscriber acquisitions regained momentum with prepaid and postpaid rose by 440k and 2k, respectively thanks to effective prepaid smartphone bundles and network trial campaigns.

§  Although rivalry intensified resulting in prepaid and data pricing pressures, DiGi maintained its guidance for 2014.

§  Expect positive GST impact but no guidance was shared and opined that this to will be determined by market dynamics. No update on business trust structure.

§  Upgrade to BUY from TRADING BUY after raising DCF-derived TP to RM6.30 as valuation is rolled forward to FY16 as well as reflecting the upward earnings revision.

Traders Brief

Bottoming up with short term relief rally target at 1825-1834 levels     

• On the back of steady recovery by Dow after recent rout as well as expectations of dwindling force selling and margin calls activities (following KLCI’s 2% from last week’s low of 1767), we remain optimistic that Bursa Malaysia will see a further relief rebound this week. Key upside targets are the Runaway gap of 1825 and Breakaway gap of 1834 levels.
• Immediate support are 1778 (50% FR), 1767 (17 Oct low) and 1738 i.e. factoring a similar 8.3% fall (25 Jul - 28 Aug 2013) from all time high of 1896.
• Today’s recommendation: Trading BUY on KNM.

Trading idea - KNM

KNM: Buy on weakness

• At current share price of RM0.745, KNM is only trading at 8.8x FY15 P/E despite strong earnings growth prospect (CAGR of 55% from FY14-FY16) and is 45% below our Institutional target price of RM1.35. In our opinion, without any change on the fundamentals, we believe the sell down is overdone and this provides bargain hunting opportunity for investors.
• Technically, this present good buying opportunity as the “Morning-star” candlestick pattern near significant support of 61.8% FR level on daily chart indicated impending technical rebound. Coupled with “Bullish Harami Cross” candlestick pattern on weekly chart, reversal to upsides are targeted at RM0.78 and RM0.82, with long term objective of RM RM0.845. Critical supports are located at RM0.73 and RM0.715. Cut loss below RM0.69.

HLIB Research Summary - 20 Oct 2014

Automotive (NEUTRAL  çè)

Weak September; Expect Strong 4Q14

• As expected, MAA reported weak September TIV at 47.8k units (-13.1% yoy; -6.6% mom), mainly dragged down by national OEMs. However, we expect strong TIV in 4Q14 driven by newly launched Perodua Axia and Proton Iriz.
• Perodua (UMW and MBM) sales dropped to 12.1k units (-30.8% yoy; -16.9% mom) and Proton (DRB) reported 8.1k sales (-45.7% yoy; -6.5% mom).
• We expect foreign OEMs to maintain their sales campaigns into 4Q14, in order to achieve their respective sales target for 2014 and defend their market share ahead of GST implementations.
• Market Down-Trading remained intact, as higher cost of living take effects. OEMs focusing on A-B segment cars will be the major beneficiary.
• Top Picks: MBM (TP: RM4.00) and DRB (TP: RM3.00).

oil and gas (OVERWEIGHT  çè)

Music Stop?”Encore?Encore??”

• Red October to O&G sector… On average, O&G companies fell by 17-18% (despite last Friday’s rebound). Some small to mid-cap were hit harder by falling 20-25%.
• How low could oil price go? In our view, Brent crude could settled around US$80-90 level in the midterm instead of >US$100 previously given rising supply from US. we believe near term oil price is close to the floor as any extended price below US$80 level (Brent) will slow down the production growth from US shale.
• Premium valuation for O&G no longer…We reduced target P/E for big cap from 20x to 16x with small and mid-cap reduced from 14-16x to 12-14x.
• Despite P/E De-Rating, valuation still compelling with average potential upside of ~27%. Most companies trading close to 1SD below average or near trough of P/E and P/B bands.
• Alpha can be discovered in selective areas like RAPID and brownfield development.

Top picks: Big Cap: Dayang Mid to Small cap: KNM and Scomi Energy.

KNM (BUY çè)

Too cheap to Ignore!

• To proposed a renounceable rights issue of up to 430.5m shares on the basis of 1 right shares for every 5 existing shares together with up to 215m free warrants on 1 free warrant  for every 2 rights subscribed.
• We are positive but not surprise about this exercise as it strengthens the balance sheet in order to finance potential more contract wins from RAPID and well prepare for Peterborough project.
• To note, the proposed right will be fully underwritten by its major shareholders and investment banks.
• Its owner Ir Lee Swee Eng also shows his confident on the company by progressively increased its share stake in open market with price ranging from RM0.69 - RM0.815.
• We maintained our BUY call with unchanged target price of RM1.35 based on 16x FY15 P/E. Our TP have not factored in value from EnergyPark Peterborough yet.

Economics

September Inflation Report

• Headline inflation declined to 12-month low of 2.6% yoy in September (Aug: +3.3% yoy), in line with our (+2.5%) and market expectations (+2.6%).
• Demand-driven price pressures are largely contained with core inflation slowing to 2.0% yoy in September (Aug: +2.6% yoy) and mom growth CPI ≤ 0.2%.
• We maintain our 2014 full-year inflation estimate at 3.2% as we had earlier on factored in impact of fuel price hike either in the form of direct subsidy cut or via a multi-tiered fuel subsidy mechanism in 4Q14.
• Inflation is expected to trend higher to ~4% in 2015, driven by cost factors i.e. (i) GST implementation in April; (ii) potential new fuel subsidy scheme in early 2015; and (iii) school bus fares hike in Jan-15.
• We expect BNM to pause at 3.25% on 6 Nov, as growth concerns outweigh inflation risks. BNM Governor Zeti also recently highlighted the need to maintain policy accommodation given recent weakness in the global economy.

Traders Brief

Short term relief rally target at 1820-1830 levels     

• Technically, after tumbling 6.9% from all time high of 1896 to a low of 1766 on 17 Oct, an “Exhaustion gap” emerged (FIG2) following “Breakaway & Runaway gap”, suggesting end of the retracement. Moreover, “Bullish Engulfing” pattern in oversold zone indicated impending technical rebound. Coupled with the “Bottom-out” oscillators, especially when RSI reached near 16%, KLIC is expected to trigger technical rebound to close Runaway gap of 1825 and Breakaway gap of 1834 and eventually resume its long term uptrend line if the long term 200-d SMA resistance at 1850 is taken out decisively. Immediate support are 1766-1778 levels
• Today’s recommendation: Trading BUY on UNISEM.

Trading idea - UNISEM

UNISEM: Anticipate a strong 3Q results

• Likely to rerate higher. Despite a 10% rebound last Friday, we remain optimistic of further share price recovery in the short term in anticipation of  stronger 2H14 results, driven by its strong turnaround story after a successful restructuring and its relentless focus towards high-margin-packages for smartphone/tablets and automotive segments; a resilient semiconductor industry coupled with cheap valuation.
• Bottoming up from grossly oversold levels. Further decisive breakout above RM1.37 (50% FR) will push prices higher towards RM1.42 (10-d SMA) and RM1.49 (38.2% FR), respectively. Our long term target price is RM1.58 (200-h SMA and 30-d SMA). Immediate supports are RM1.27 (10-h SMA) and RM1.20 levels. Cut loss at RM1.19.

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.

Research Summary: 8 August 2014

Research Summary: 8 August 2014

Research House	Type	Company/Sector	Report Title	Rating/Call	Target
RHB	Results review	KKB Engineering	Lacks O&G boost	Neutral	RM2.40
RHB	Eco highlights	Economic	Foreign exchange reserves fell to USD131.8bn as at 31 July
CIMB	Flash note	Cypark	Private placement announced	Add	RM3.09
CIMB	Results note	PetDag	Dividend goes the extra mile	Hold	RM22.00
CIMB	Eco update	Economic	July’s foreign reserves edge lower
Maybank	Company update	KNM	RAPID ready	Buy	RM1.50
Maybank	Company update	Perdana Petroleum	Feedback from NDR	Buy	RM2.55
Maybank	Technical	IJM		Take profit
Kenanga	Quick bites	NCB	Prior losses explained	Market perform	RM3.10
Kenanga	Results note	PPB	Wilmar’s 1H14 below expectations	Market perform	RM15.00