MIB Research Summary - 20 Nov 2014

AirAsia X Bhd: Maintain Sell Fighting for survival

3Q14 core net loss of MYR185m (vs. profit MYR16m in 3Q13) was greater than forecast on weak yields and higher cost. All sectors were loss making with the exception of Nepal. Maintain SELL with a lower TP of MYR0.57 (from MYR0.63). AirAsia Bhd: Maintain Hold Losing the low cost advantage 3Q14 core net income of MYR112.4m (-28% YoY, +342% QoQ) was within expectations. Credible signs that market has bottomed, but expect slow yield recovery. Earnings growth driven by lower fuel cost. Maintain HOLD, target price raised to MYR2.60 (from MYR2.30) due to positive earnings revision. AMMB Holdings: Maintain Hold Better, on lower provisions 2QFY15 core net profit rebounded 35% QoQ, but 1HFY15 core earnings still down 14% YoY. FY15 forecast maintained, trimming FY16-17 by 5% p.a. to factor in slower loans growth and lower NIMs. HOLD maintained, lowering TP to MYR6.90 from MYR7.70 on a lower CY15 P/BV peg of 1.5x (1.7x previously). Kuala Lumpur Kepong: Maintain Hold Set back by oleochemicals business  Shariah-compliant FY9/14 results hurt by weak downstream earnings. Muted earnings outlook in FY9/15 as oleo-chemical, refinery and property businesses remain challenging. Maintain HOLD on unchanged TP of MYR23.20 after rolling forward our valuation on unchanged 23x PER target. Boustead Plantations: Maintain Buy Rich land value caps downside  Shariah-compliant 3Q14 results disappointed due to low CPO ASP achieved and lower-than-expected FFB output. Share price downside limited, backed by strategic land that has development potential, offering a RNAV of e.MYR2.96/sh. Maintain BUY with a revised SOP-TP of MYR2.03 (previously MYR2.16). TH Plantations: Maintain Hold Hit by dry spell  Shariah-compliant Results below our and consensus forecasts. Cut FY14 net profit by 9% on lower production and CPO ASP. FY15-16 forecasts unchanged but have downside potential. Maintain HOLD and TP of MYR1.65 on 15x 2015 PER. Star Publications: Maintain Buy Dividend yields look enticing  Shariah-compliant 3Q14 results slightly below; trim estimates by 6-11%. 18sen p.a. DPS may still hold; yields very attractive at 7.8%. Trim TP from MYR2.89 to MYR2.65 but upgrade to BUY. MSM Malaysia: Maintain Buy Expect a pickup in 4Q14  Shariah-compliant 9M14 results were above expectations at 80%/77% of our and consensus full-year forecasts. Anticipating a better 4Q14 on higher margin assumption, FY14 net profit forecast raised 5%. Upgrade to BUY with a higher TP of MYR5.50 (14x FY15 PER). Inari Amertron: Maintain Buy 1QFY6/15: Expect a strong start Expect net profit of MYR32-35m (+4-13% QoQ), supported by strong growth in overall smartphone demand. Inari is a beneficiary of the stronger USD, providing upside to our earnings forecasts. Reiterate BUY with a Street-high cum-rights TP of MYR4.20 (on unchanged 17x CY15 PER peg). Plantations: Maintain Neutral El Nino Alert! The Australia Bureau of Meteorology (ABM) upgraded the threat of an upcoming El Nino; with at least 70% probability. The new El Nino threat may boost sentiment and drive CPO price higher, aided by seasonal price recovery in 1Q15. Investors should position for a short term trade. BUY First Resources, Bumitama Agri, Sime Darby, Sarawak Oil Palms, Ta Ann and TSH Resources for earnings recovery play. TECHNICAL: Low of 1,805 with rebound confirmation The FBMKLCI advanced 6.01 points to 1,824.39 yesterday, while the FBMEMAS and FBM100 also closed higher by 32.19 points and 34.44 points, respectively. We recommend a “Nibble on Dips” stance for the index. Trading idea is a Short-Term Buy on GAB with upside target areas at MYR13.94 & MYR14.17. Stop loss is at MYR12.48. NEWS MSM: MSM plans to expand through acquisitions. MSM Malaysia Holdings, the sugar refiner remains focused on growing through acquisitions, having set its sight on its only local competitor, Central Sugars Refinery Sdn Bhd, that is owned by Tradewinds (M). MSM is already in talks to acquire an Asian upstream company and is also in discussions with a foreign partner to buy over a sugar plantation company in the region. (Source: The Star) Bina Puri: Bina Puri eyes listing of Indonesian power assets. Bina Puri Holdings plans to list its Indonesian power assets, possible as early as next year, saide group executive director Matthew Tee Kai Woon. The group has seven micro diesel-generated power plants across Indonesia, with a total capacity of 25MW. (Source: The Edge Financial Daily) U.S: Housing starts fall on multifamily as permits climb. Residential-construction permits in the U.S. climbed in October to a six-year high, pointing to a pickup in homebuilding after a slowdown in multifamily projects led to a drop in activity. Groundbreakings for single-family homes, condominiums and apartments fell 2.8 %to a 1.01 million annualized rate following September's 1.04 million pace, which was stronger than previously reported, the Commerce Department reported. Permits for future projects rose to the highest level since June 2008. (Source: Bloomberg) U.S: Fed officials saw need to watch for price expectations drop. Many Federal Reserve policy makers last month said they should be on the lookout for signs of a decline in expectations for inflation, minutes of their meeting show. "Many participants observed the committee should remain attentive to evidence of a possible downward shift in longer- term inflation expectations," according to a record of the Oct. 28-29 Federal Open Market Committee meeting released in Washington. "Some of them noted that if such an outcome occurred, it would be even more worrisome if growth faltered." (Source: Bloomberg)

HLIB Research Summary - 11 Nov 2014

Plantations (NEUTRAL  çè)

Inventory rises for the 4^th month

• Inventory increased for the 4^th consecutive month, by 3.7% mom to 2.17m tonnes mainly on weaker exports, which more than offset a 0.2% mom decline in output.
• While production has already reached its peak (and will start trending down from Nov, in our view), we believe CPO stockpile will likely remain high in Nov, as lower CPO output will likely be offset by the absence of seasonal restocking activities, CPO’s narrow discount against the soy oil, and the economic viability of voluntary biodiesel demand amidst current low crude oil price.
• Maintain NEUTRAL stance on the sector.

KLK (HOLD çè)

 Teams up with Astra Agro Lestari

§       KLK entered into a JV agreement with PT Astra Agro Lestari Tbk (AALI), which AALI will acquire a 50% stake in PT Kreasijaya Adhikarya (which is involved in the business of refinery and trading of refined palm oil products) for RM81.2m.

§       Positive, as the latest move (by teaming up with AALI) will ensure the supply of quality feedstock for its refinery. This is particularly important for KLK as its own oil palm estates in Indonesia could only supply up to 60% of the CPO feedstock required for its refineries in Indonesia .

§       Maintain earnings forecasts, TP of RM20.41, as well as HOLD recommendation on the stock

MAHB (BUY çè)

Funding for the Remaining 40% ISGA

• MAHB announced rights issue exercise of 274.8m rights shares on the basis of 1 for 5 existing MAHB shares.
• Based on illustrative price of RM4.80, MAHB will raise RM1.3bn funds, which RM1.2bn will be used to fund the acquisition of the remaining 40% stake in ISGA from Limak.
• Net EPS dilution impact for FY15 and FY16 are -10.5% and -8.9% respectively.
• Remained positive on MAHB’s long-term earnings growth. Maintained BUY with unchanged TP of RM8.90 (RM8.10 post the completion of ISGA acquisition).

MAHB (BUY çè)

An Improvement in Oct 2014

• MAHB’s reported turnaround in pax growth at +0.1% yoy in Oct, after negative growth in the past 2 months.
• Growth mainly driven by international segment – Australia , New Zealand and India sectors.
• The seat capacity offered by airlines in Nov and Dec are +6.7% yoy, promising continued positive passenger growth for the remainder of the year.
• Remained positive on MAHB’s long-term earnings growth. Maintained BUY with unchanged TP of RM8.90 (RM8.10 post the completion of ISGA acquisition).

IOIPG (BUY çè)

Proposed Rights Issue

• IOIPG proposed renounceable rights issue of 539,835,787 new shares at RM1.90 on the basis of one right for every 6 IOIPG shares.
• Based on the issue price of RM1.90, IOIPG would raise RM1,025.7m. We understand that bulk of the raised fund will be used for for its townships in both Bangi and Sepang, as well as for the integrated development in Putrajaya.
• Basic dilution of the proposed exercise is about 14% and will reduce our TP from RM3.94 to RM3.38. However, we believe the dilution will be mitigated by incremental earnings from IOIPG’s future investment opportunities. Gross gearing will be slightly reduced from 0.18x to 0.17x post the rights issue exercise.
• We are positively surprised on the proposed exercise as it strengthens the balance sheet and provides shareholders to participate at a 30% discount to market price.
• To note, the proposed rights will be fully underwritten by its major shareholders. The proposed exercise is expected to be completed by 1QCY15.
• Maintain TP at RM3.94 (10% discount to RNAV, 17.3x CY15 P/E). Our TP will be adjusted to RM3.38 post the rights issue exercise. Maintain BUY.

DRB (BUY çè)

One More Step Towards Integrated Logistics

• DRB proposed to acquire 100% Gading Sari for RM72m or RM4.80/share.
• Gading Sari is a private air transportation company providing services to Poslaju. The acquisition is line with DRB to develop integrated logistic services via KLAS.
• Relatively negative on the expensive valuation at 10x P/NTA (2013) and 32.7x P/E (2013). DRB may need to pay premium for the company’s Air Operator Certificate (AOC).
• Maintained BUY with unchanged TP of RM3.00 (Based on SOP).

CBIP (HOLD çè)

Good fundamentals priced-in

• We continue to see bright earnings visibility at the oil mill engineering division offsetting the higher tax expense. This is underpinned by its all-time-high order book, the increasing harvesting areas of oil palm plantations as well as management’s ongoing efforts in expanding the division’s capacity.
• While management remains confident in securing sizeable contracts to replenish order book for the SPV division, we believe 2015 will be a relatively quiet year for this division. In our opinion, potential new contracts may not arrive in time to replenish its depleting order book given the lumpy and irregular nature of this division’s contract flow.
• Management highlighted that planting development works will continue (albeit at slower pace of ~3,000 ha p.a. vs. 6,000 ha p.a. previously), although there are still uncertainties on foreign shareholding cap in Indonesia .
• We reduced our FY12/15-16 net profit forecasts by 18.4-25.9%, largely to reflect: (i) higher tax expense; and (ii) lower earnings at the SPV, which more than offset slightly higher contract wins and EBIT assumptions at the palm oil mill engineering division.
• SOP-derived TP on the stock is lowered by 6.2% (from RM2.27) to RM2.13, post adjustments made in our valuation methodology for its plantation assets in Malaysia and net profit forecasts. Maintain HOLD recommendation.

Economics

Oct-14 PMI: Mixed Bag of Results

• Global PMI in October continued to show weak global growth momentum with greater growth differentials across regions. Manufacturing PMI was stable at low level of 52.2 (Sep: 52.2) while services PMI fell to a six-month low of 53.7 (Sep: 55.2).
• Fears of growing dimness in the Euro zone and China that would weigh on the US-led recovery continued to mount. Downside risks to global growth persisted during the month, with recent financial market volatility, falling energy prices and US braving a rate hike next year. Meanwhile, we expect the world economy to grow by 3.6% next year (2014f: +3.3%).
• Mixed bag of PMI results across Malaysia ’s top trading partners in October suggested an uneven and less-favourable growth outlook for exports and IPI in the months ahead. Together with softer domestic financial activities and lower commodity prices, we expect GDP growth to slow to 5.6% in 2H14 (1H: +6.3%) and 5.0% in 2015 (2014f: +6.0%).
• A more dovish tone in November’s MPS also lends support to our expectations of OPR pause throughout 2015.  

Traders Brief

Must break above 10-d SMA for resumption of uptrend

• For a resumption of an upward momentum towards 1850, KLCI must rebound quickly to surpass 10-d SMA (now at 1838) levels. Otherwise, a crack of the lower 1818 (20-d SMA) and 1824 zones will trigger more selldown towards 1800 zones.
• Closed positions: We had closed our SELL positions on BORNOIL and YGL after hitting our R1/R2 targets on 10 Nov.
• Today’s recommendation: Trading BUY on SKPETRO

Trading idea - SKPETRO

SKPETRO: Double Positive Divergence

• Share price is expected to go higher mainly because share price made lower low while all indicators (MACD & RSI) made higher low on hourly as well as daily chart, triggering double Positive Divergences which indicate weakness in the downtrend momentum and selling pressures are exhausted.
• Further upside targets are at RM3.28 and RM3.41, with a long-term objective of RM3.62. Critical supports are pegged at RM3.06 and RM3.00. Cut loss at RM2.94.

CIMB Research Summary - 4 Nov 2014

Plantations - Preview of Oct palm oil stocks

A survey conducted by our futures team revealed that palm oil output was marginally lower in Oct, falling by an estimated 0.7% mom to 1.88m tonnes due to weaker yields from Peninsular Malaysia estates. Palm oil exports fell by c.2% mom due to lower demand from India. Overall, we project Malaysian palm oil inventory to rise by 3% mom to 2.15m tonnes in Oct 14. The CPO futures price has recently breached the top end of our near-term price range of RM2,300 per tonne due to higher soybean oil prices, concerns of dry weather in some key planting areas in Indonesia and the lagged impact of drought in Peninsular Malaysia on palm oil output. We maintain our Neutral sector rating and preference for First Resources, Astra Agro and SIMP.


Aviation - overall - Capacity cuts still not happening

OAG six-month forward schedules, as well as our checks and discussions with industry executives, strongly suggest that near-term capacity restructuring in Malaysia’s aviation industry will not happen as quickly as we had originally anticipated, despite the urgent tone in Khazanah’s recent document. The continuation of the low-yield environment and the delay in airlines’ capacity cuts will disadvantage AirAsia and AAX, but benefit MAHB. We retain our Neutral call for the sector. We currently have an Add call on AirAsia, but acknowledge that our target price of RM3.25 will need a longer time frame to realise. We have a Hold call on MAHB (target price of RM7.20), and a Reduce call on AAX (target price of RM0.72).


Malaysia Airports Holdings - Marginally profitable

At RM94m, MAHB's 9M14 earnings beat our expectation at 278% of our forecast but were below consensus at just 60% of consensus. Earnings fell by 98% yoy as traffic declined and costs escalated. We raise our FY14-16 forecasts, largely due to lower depreciation charges, resulting in a slightly higher DCF-based target price. While share price downside risk appears limited, we maintain Hold as weak traffic growth and KLIA2-related costs could lead to uninspiring results in the coming quarters.


SapuraKencana Petroleum - Fine gems sparkle in Brazil

In response to a media report on Petrobras’s failure to obtain auditor approval for its 3Q earnings, SapuraKencana’s management stated that its operations in Brazil are going smoothly and payments have been received on time. Sapura Diamante and Sapura Topazio have been deployed in Brazilian waters to work for Petrobras. We expect their early contributions to be reflected in SapuraKencana's 2HFY1/15 results. We continue to value the stock at 21.2x CY16 P/E, still at a 30% premium over our target market P/E of 16.3x. We maintain our Add rating, with strong order book momentum and a successful E&P venture as potential re-rating c

CIMB Research Summary - 30 Oct 2014

Gamuda - More traction on MRT 2

Gamuda announced that it has received a letter from MRT Corp appointing the MMC-Gamuda JV as project development partner (PDP) for MRT 2. This news is a big positive and solidifies Gamuda’s position as the biggest beneficiary of the project, with a stronger chance of bagging the underground works. Imputing the DCF value of the PDP agreement may raise our RNAV by 3-4% but we retain our numbers pending formalisation of the PDP terms in the next 3-4 months. Our RNAV-based target price remains pegged to a 10% discount. We expect the share price to continue its steady rerating on the back of this news and positive expectations for a recovery in the water takeover talks. Maintain Add. Gamuda remains our top sector pick for the big caps.


Gas Malaysia Berhad - Gas prices raised by 2.3%

Despite the small quantum, Gas Malaysia's revision of the non-power gas tariff is positive as it implies that the government is sticking to its 6-month gas price revision plan. The new gas tariff will take effect by the beginning of November while we anticipate another revision by Apr/May 2015. We maintain our Add call on Gas Malaysia, with a revised target price of RM3.95, still based on 24x FY15 P/E, after trimming FY14-16 EPS by 0.2-0.4% p.a. given the new selling prices.


Taliworks Corporation - A value-accretive M&A play

Taliworks's main appeal is that after several years of operations since it acquired a highway and secured two water concessions, it is now back in M&A mode. Value-accretive acquisitions, local and domestic, are in the pipeline, backed by its rising post-restructuring cash hoard It is also a beneficiary in Selangor’s post-water restructuring landscape as its O&M contract is likely intact. We expect further re-rating of the stock to be event-driven (M&A, new jobs and asset divestment). Based on a 10-20% discount to our RNAV/share of RM3.29, the stock could offer 38-56% upside. The new 75% payout policy could imply 5-6% dividend yield.


Strategy Note - Implications of lower oil prices
 

Plantations - CPO price predictions at POTS
 

Rubber Gloves - Minimal impact from price hike
 

IGB REIT - Continues to deliver

HLIB Research Summary - 29 Oct 2014

Plantation (NEUTRAL  çè)

Higher biodiesel mandate from Nov-14

§       The Government will implement higher biodiesel mandate (from B5 to B7) in Peninsular Malaysia and East Malaysia from Nov-14 and Dec-14 respectively.

§       The latest development is positive to the sector, as the higher biodiesel mandate bodes well for palm oil consumption, hence supporting palm oil prices.

§       Maintain average CPO price projections of RM2,400/mt and RM2,300/mt for 2014 and 2015 respectively, as well as our Neutral stance on the sector.

CIMB Group (TRADING BUY é)

Group Meeting

• We reiterate that key challenges to synergy extraction and long-term ROE enhancement are overlaps and integration.
• Although still early, we had better understanding of the deal and take comfort from its merger integration track record.
• Post-merger, the structure enables CIMB to transfer some duplication to the non-wholly-owned Islamic subsidiary.  Coupled with VSS and closing down some branches, low yielding cost synergy can be achieved.
• Enlarged entity will reflect CIMB as acquirer with goodwill at 0.4x RHB Cap book while CET1 of 9% has taken this into consideration.
• Target price remained at RM7.22 (Gordon Growth with ROE of 12.1% and WACC of 9.8%).
• Despite merger dilution and uncertainties in Indonesia , recent selldown to 1.4x FY14 book over exaggerated.  Moreover, it is now a cheaper proxy to the merged entity. 
• Upgrade to Trading BUY as values emerged amid uncertainties.    

Nestlé (HOLD çè)

9MFY14 Results In-Line

• Nestlé’s flattish 9MFY14 revenue of 1.4% growth was largely affected from the slowdown in exports, which contracted 13.1% yoy. Domestic sales grew 5.8% for 9MFY14.
• We gathered that the implementation of GST would result in slightly higher ASP (less than 6%) of its products despite having some of its raw materials categorized as zero-rated.
• As for operating profit margin, the more favourable commodity prices (vs. 1HFY14) and strengthening of MYR against USD have managed to narrow the margin gap, bringing 9MFY14’s margin to 16.25% vs. only 15.87% in 1HFY14. Hence, Nestlé‘s is turning slightly optimistic for its full year profit, which the group believe would likely to record slight yoy growth, in-line with our forecasts of 5-6% bottomline yoy growth.
• HOLD recommendation and TP of RM66.52 based on DDM remained unchanged.

Traders Brief

Inching On track towards our envisaged 1825-1834 relief rally targets     

• Technically, on the back of ongoing strong Dow’s rebound, expectations of dovish remarks by Fed on 30 Oct FOMC meeting, slightly improved Eurozone economic data and positive ECB’s banks stress test, KLCI is on track to retest our envisaged short term resistance near 1825-1834 levels this week. However, the path will not be smooth as other external headlines such as the Ebola outbreak, the sliding oil prices and geopolitical tensions will continue to remain wild cards affecting market gyrations. Supports are situated at 1816 (mid Bollinger band), 1800 and 1778 (50% FR).
• Closed positions (FIG5): We had closed our positions on GPACKET  after hitting our R1 upside target on 28 Oct.

CIMB Research Summary - 29 Oct 2014

Plantations - Malaysia implements B7

We are positive on Malaysia's plans to start implementing the use of B7 biodiesel in stages starting Nov as this will boost the country's usage of palm oil. We estimate that the rollout could raise the country's palm oil demand by 263k-390k tonnes per annum, or 1-2% of the total palm oil production in 2013. As this equates to an additional monthly CPO demand of only 22k-33k tonnes, we keep our average CPO price forecast at RM2,390 and RM2,460 per tonne for 2014 and 2015, respectively. We also maintain our Neutral rating on the sector. Our key picks in the sector are First Resources, Astra Agro and SIMP.

GHL Systems Bhd - One-for-two bonus issue goes ex

GHL’s one-for-two bonus issue has gone ex today. Ex-bonus, our target price adjusts to RM1.06, still based on 23.8x CY16 P/E (at 40% premium over the global payment sector average of 17x, in view of its strong EPS CAGR of 75% in FY13-16 and attractive PEG of 0.6x). Stronger earnings from the TPA segment, M&A activities in new markets and the possibility that the company could be a takeover target are potential re-rating catalysts. Maintain Add.

Nestle (Malaysia) - Still the leader

Nestle highlighted during its analysts’ briefing today that although domestic sales grew by only 5.8% yoy, the company considers the achievement encouraging as the growth rate was above industry average. To boost profits, it will continue to focus on increasing its operating efficiency. We trim our FY14-16 net profit forecasts by 0.3-0.6% to factor in the higher capex as guided by management. This reduces our DCF-based target price. We maintain an Add rating on the stock given its strong branding, solid delivery track record and superior ROE. Key rerating catalysts include a positive impact from the cost pass-though and easing raw material prices.

CIMB Research Summary - 28 Oct 2014

Plantations - Hit by several speed bumps
We are cutting our average CPO price forecasts by 5-11% for 2014-16 to reflect larger-than-expected global edible oil supplies as well as weaker demand for biodiesel usage in Indonesia. The CPO price declines in 3Q14 were sharper than what we had previously expected, no thanks to stronger soybean supplies and weaker Chinese demand. These factors, coupled with the recent sharp drop in crude oil prices, are likely to put a lid on near-term CPO prices. We cut our EPS forecasts for regional planters by up to 41% to reflect our CPO price downgrade. This lowers our target prices by up to 23% across the board. But we have upgraded six stocks as their valuations have improved. Our sector rating remains Neutral, with First Resources as our key pick.

Nestle (Malaysia) - Better 3Q results
Nestle’s 9M14 earnings met consensus as well as our expectations at 76% of our full-year forecast. Although Nestle’s 9M net profit usually accounts for c.80% of its full-year, we deem the 9M14 performance in line as we expect easing raw material prices and lower A&P spend in 4Q14 to make up for the shortfall. 9M14’s topline was driven by domestic sales, but the bottom line was dragged down somewhat by 1H’s higher raw material costs and A&P expenses. We maintain our FY14-16 earnings forecasts, Add recommendation and DCF-based target price. As usual, no dividend was declared for the quarter. Key rerating catalysts include positive impact from cost pass-through and lower raw material prices.

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.

MIB Research Summary - 13 Oct 2014

MY Strategy: Maintain Neutral

Budget 2015: Positive reaffirmation

No surprises – project reaffirmation positive for Construction, GST and subsidy rationalisation negative for Consumer. No change in our sector weights – we continue to Overweight Construction, and Oil & Gas. Maintain 1,940 end-2014 KLCI target, introduce 2,040 for end-2015. Key domestic risk is corporate earnings growth. Budget 2015 Walking the fiscal talk No major surprise as Budget 2015 maintains the momentum on fiscal consolidation. Key tax measures were already announced in Budget 2014 i.e. introduction of a broader-based 6% GST on 1 Apr 2015 to replace the narrower-based 5%-10% Sales Tax and 6% Services Tax, and in exchange for personal and corporate income tax rate cuts in 2015-2016. There is also indication of further fuel subsidy rationalisation next year. One thing to watch is whether the efforts will be "rewarded" by the international rating agencies via upgrade in its sovereign ratings and/or outlook. Industrial Production, August 2014 Like external trade, better than July Growth regained momentum (Aug 2014: +6.5% YoY; Jul 2014: +0.6% YoY) on broad-based increase in all components. But moderating expansion so far in 2H 2014 (Jul-Aug 2014: +3.5% YoY; 1H 2014 +5.3% YoY) Further indication of slowing real GDP growth after earlier release of similar trend in external trade. Manufacturing Sales August 2014 Firmer August after July's dip Mirroring industrial output and external trade data, manufacturing sales performance was better in Aug 2014 vs July 2014. Similarly, despite sequential improvement, growth in Jul-Aug 2014 slowed to 3.3% YoY vs 5.7% YoY in 2Q 2014. Data further points to easing in economic growth in 2H 2014 after a robust 1H 2014. Plantations: Neutral Crude oil slump to delay recovery Recent slump in crude oil prices have quashed hope of a swift CPO price recovery by December. CPO price needs to trade closer to MYR2,000/t to stimulate demand and flush out incoming supplies in Oct/ Nov. Sustained CPO price recovery to above MYR2,400/t may now be deferred to 1Q15. Maintain our 12M NEUTRAL view. Technicals Downside volatility from lofty levels The FBM KLCI plunged 31.94 points WoW to close at 1,808.88, as persistent selling activities led the index down in a volatile week ahead of Budget 2015. Volume rose from 1.82b to 2.58b shares. Trading idea is a Take Profit call on COASTAL with downside target areas at MYR3.98 & MYR3.39.

HLIB Research Summary - 13 Oct 2014

BUDGET 2015: Neutral to Slight Positive, Chiefly Construction

• Downside protection to growth and build future capacity.
• Wider GDP range forecast of 5–6% with lower point estimate of 5.2%.
• Mildly expansionary with bigger DE while keep OE in check.
• Deficit reduction on track, bulk of financing still domestic.
• Measures collectively erosion in consumer spending but sustain construction momentum.
• Reform commitment positive long-term, to provide assurance rather than boost sentiment.
• Significant rise in DE and start of several major projects positive to Construction (under review with upward bias).
• No sector hit while few others also benefit albeit marginally.
• On balance, neutral to slightly positive.
• Market retraced to oversold territory, rebound imminent though may not be smooth given overseas gyration.
• Valuation more palatable, P/E premium vs. regional and ASEAN peers at mean or well below, amply account for earnings risk.
• Opportune bargain hunt time and maintain end-2014 target of 1,910 as well as top picks (Astro, Dayang, IOIP, KNM, Maybank, Pharma, QCT, RHB Cap, Scomies and TNB).

Plantation (UNDERWEIGHT  çè)

 Inventory remains above 2m tonnes

• Inventory increased by 1.8% mom to 2.09m tonnes (higher than consensus median estimate of 2.05m tonnes), as higher exports and lower output were slightly more than offset by imports.
• Although production will likely be flattish in Oct (looking at the production in Sep), we believe stockpile will still likely increase further, as exports to India could weaken in the absence of seasonal replenishing activities. Not helping either is the falling Brent crude, which will continue to diminish interest on biodiesel. According to cargo surveyor Intertek Testing Services, palm oil exports fell 18.9% mom fir the first 10 days of Oct, on weaken demand from the EU and China .
• Maintain our average CPO price projection of RM2,400/tonne and RM2,300/tonne for 2014 and 2015 respectively.
• Maintain UNDERWEIGHT stance on the sector.

SP Setia (HOLD çè)

To Merger with I&P?

• NST today reported on the merger possibility between SP Setia and I&P Group Sdn Bhd, with aim to revive the former.
• We are not surprised as there were already several circulations of such news.
• Should this is true, we believe the merger would benefit both property developers as there will be synergistic values in the merger exercise through combination of business model as well as landbank.
• It allow the enlarged entity to reach out to wider target market as it would then have a larger offerings of both premium and medium-to-low-end properties.
• Given that I&P is doing well and has a strong brand name, we believe it would rebuild the confidence in both investors and consumers in SP Setia.
• Maintain HOLD. TP remained unchanged at RM3.45 (maintain 35% discount to RNAV), which values SPSB at 14.8x FY15E P/E, vs. 18x for IOIPG and UEMS.

Economics

Performance of IPI (August 2014)

• IPI growth rebounded to 6.5% yoy in August after dipping to a 17-month low of 0.6% yoy in July, beating consensus ' s +5.1% yoy. The stronger-than-expected IPI growth was driven by improvement across all sectors.
• Overall IPI growth outlook remains moderate in the near term, judging by (i) weaker PMI readings in global and regional manufacturing PMI in September; (ii) continued growth in imports of intermediate goods; and (iii) resilient input demand from ongoing O&G, infrastructure & property projects.
• A milder IPI growth of 3.6% in Jul-Aug versus +5.9% in 2Q14 (1Q14: +4.6%) reaffirms our expectations of GDP growth moderation in 2H to 5.6% (1H: +6.3%). We keep our 2014 ' s full-year GDP growth forecast at 6.0%.
• On policy rate, we expect BNM to keep OPR unchanged at 3.25% on 6 Nov as economic growth is now on a more moderate path while demand-driven inflation is largely absent. The softer global outlook and moderate domestic financial activities will also prompt BNM to remain cautious in its policy action.

Traders Brief

Bargain hunting for risk takers amid oversold positions  

• Technically, KLCI had retraced 4.6% from all time high and rebound is imminent (reflected by grossly oversold daily and weekly oscillators) though may not be smooth given gyration in overseas markets. Thus we are advocating investors to start bargain hunting for fundamentally strong stocks (please refer our Budget 2015 review today for further details).
• Immediate rebound targets are 1835 (10-d SMA), 1841 (20-d SMA) and 1852 (200-d SMA). Only a strong breakout above 200-d SMA will lift the market from current downward consolidation. Conversely, a breakdown below 1800 psychological support will likely trigger more downside towards 1794 (90-w SMA) and 1780 (100-w SMA) supports.