Analyst calls for April 5

KUALA LUMPUR, April 5 — This is a selection of morning calls by local research houses for the day.

From RHB Research

Sector Update — Automotive

The auto industry made a shaky start to 2012 with total industry volume (TIV) in Jan declining 14.7 per cent and 25.2 per cent mom and year-on-year respectively. The softer sales were attributed to seasonal factors given the earlier than usual Lunar New Year holidays, the more stringent financing guidelines implemented by Bank Negara Malaysia (BNM) and the lingering effects of component supply disruption arising from the floods in Thailand. While the lower-end segment is likely to be the most exposed to the tighter financing environment, we expect the market (borrowers and lenders) to gradually adapt.

The key event in 2Q12 will be the announcement of the third iteration of the National Automotive Policy (NAP). NAP v3.0 is expected to address the shortcomings of the present policies to improve the competitiveness of Malaysia as a regional automotive production hub and provide incentives to attract new foreign investments into the industry. Domestic auto parts manufacturers could be the immediate beneficiary of a better-than- expected new automotive policy.

Neutral. DRB-HICOM and MBM are the top picks. DRB’s sum-of-parts derived fair value is RM3.45. We believe DRB has multi-year growth potential. Positive traction on the revamp of Proton in the coming months will be the key news flow driver. MBM’s fair value estimate is RM5.05 (8.5x target PER on 2012 earnings). We like the stock for its increasing shift toward higher value-added manufacturing activities.


MCIL expects to see mid-single digit growth in its domestic adex in FY13. Year-on-year growth from adex will be driven by its two main newspapers (Sin Chew and China Press) amid stable circulation.

Management expects its Hong Kong operations to remain stable. The entrance of two new free newspapers has not really affected MCIL’s niche paid newspaper adex market share. Although banks have slowed down, property developers facing softer market have increased ad spend.


Axiata will stay put in the Indian mobile market but is hoping to operate in a more stable regulatory environment. However, Axiata president and group CEO Datuk Seri Jamaludin Ibrahim said “we want more of a stronger foothold there”. He added that the impact on both Axiata and Idea of the revocation of the nine 2G licences in India will be minimal. (StarBiz)

Neutral. Axiata believes there is still growth potential in India, but differences in pricing may prevent Axiata from acquiring more shares from the major shareholder, the Aditya Birla group (46 per cent). Axiata currently has a 19.9 per cent stake in Idea Cellular.


Maybank aims to be among the top five banks in Cambodia by 2015, from seventh currently (out of 33 banks). This will be driven by the retail segment. (BT)

Neutral. The Cambodia operation is still small relative to the group (0.2 per cent of group loans) and unlikely to impact group earnings significantly.


Kurnia has received the approval of the Minister of Finance for the disposal of its wholly-owned Kurnia Insurans Malaysia Berhad (KIMB). (Bursa Malaysia)

Positive. We are positive on the approval by the MoF, as we believe Kurnia is one step closer to dispose its stake in KIMB. However, we note that this is not an indication of a done deal, while the key issue remains the valuation of KIMB.

From HwangDBS Vickers

Sector Update — Rubber gloves

We expect the government to impose minimum wage in early May. Assuming RM800 per month minimum wage and that the ruling would trigger a revision of the entire wage scale, staff costs could rise by 11-15 per cent for glove makers. This would lower their net profits by 3-13 per cent, assuming no costs pass through.

Our sensitivity analysis shows Hartalega’s earnings will be most resilient because of high automation. Wage rates and availability of foreign labour are key challenges for the industry, and are driving glove makers towards deeper automation to enhance production efficiency and reduce reliance on manual labour. Top Glove has been stressing on its automation initiatives lately.

Extra staff costs likely to be passed to customers. Like they did for higher latex prices, glove makers are likely to price in additional labour costs to their selling prices. In the last three quarters, Top Glove reported stable growth in glove demand (up 2-5 per cent quarter-on-quarter), which would ease the cost pass through process. And the skipped December 2011 natural gas price hike is expected to soften the impact of rising production costs.

To recap, the industry started paying higher gas prices of RM16.07/mmbtu (+7 per cent) in Jun11, but the second hike (+18 per cent to RM19.12/mmbtu) scheduled for December 2011 was skipped. We are keeping tab on the next gas price hike, which is scheduled for Jul12. We have factored in the higher gas costs in our forecasts.

No change to our Hold ratings and we maintain our TP for Top Glove (RM4.80), Hartalega (RM7.70) and Kossan (RM3.30). We expect additional staff costs to be passed to customers over time, but in the immediate term, we expect pressure in earnings and margins.

We also expect a small spike in latex prices during the wintering season in February-May, when latex production is seasonally lower. Weakening of USD against RM would translate to lower export values but the glove makers have put in place hedging policies to manage this risk.


According to the local media, managing director Datuk Seri Syed Zainal Abidin has revealed details on the newly anticipated model, P3-21A (officially named as Proton Preve) yesterday. Proton Preve will be launched on April 16 at a price tag of between RM62,000 (for an entry level model with manual transmission) and RM75,000 (for its high specifications model).

There is also a medium line unit that may be sold for less than RM70,000. According to Proton’s managing director, the new model – which costs RM540 million to develop – is expected to rake in monthly sales of 4,000-5,000 units.

* These recommendations are solely the opinion of the respective research firms and not endorsed by The Malaysian Insider. The Malaysian Insider shall not be liable for any loss arising from any investment based on any recommendation, forecast or other information contained here.


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