From HwangDBS

During the closure of our Malaysian stock exchange on Monday and yesterday, regional peers posted a mixed performance. Over the two-day period, Singapore (+1.4 per cent), Japan (+1.0 per cent) and Korea (+0.5 per cent) chalked up gains but Indonesia (-1.5 per cent), China shares listed in Hong Kong (-0.9 per cent) and Hong Kong (-0.3 per cent) lost grounds. Meanwhile, Wall Street showed little changes with key US equity indices closing between -0.1 per cent and +0.2 per cent since last Friday.

This suggests that the benchmark FBM KLCI could see a lack of market direction when trading resumes this morning. On the chart, the bellwether may swing sideways with a marginal downward bias, with its immediate support level pegged at 1,530.

Stocks that may be of added interest today include: (a) Genting Malaysia, as its casino venture plan in Florida in the US could be disrupted by last Friday’s withdrawal of a casino gambling bill by its legislative sponsor; (b) Coastal Contracts, after a business weekly reported that it plans to penetrate into the upstream segment of Indonesia’s oil & gas sector; and (c) The Media Shoppe, which may secure a RM21 million contract to design, supply and commission passenger information and closed-circuit television systems

Wah Seong Corp

Buy; RM2.10 Price target: RM2.50; WSC MK                                             

Venturing into upstream plantation in Congo

Wah Seong announced that it will be acquiring a 51 per cent stake in Atama Resources Inc (ARI) in 2 stages for a total amount of US$25 million (~RM75 million) from 2 private companies (Silvermark Resources Inc and Giant Dragon Group Limited) registered in the British Virgin Islands.

Malaysian Power Companies: Racing to power up the nation

TNB will gain from more competitive pricing under new supply agreements; efficient IPPs will win in open tender system

Buy TNB for stronger earnings ahead and Petgas for growing gas demand and a visible growth pipeline in new regas and power plants

Hold YTLP for 4 per cent yield and longer term upside from new acquisitions and power plant

More competitive landscape will benefit TNB and efficient IPPs. Malaysia’s Energy Commission is targeting 4,500MW of new power supply agreements by 2016 to replace gradually expiring first generation power purchase agreements (PPA) and cater to future demand. This could create stronger competition between the Independent Power Producers (IPP) and attract new players. TNB (Buy) will gain the most from lower capacity payment pricing and larger supply. Existing IPPs can also bid for the new supply agreements, which can include supply from existing and new generation capacities. Hence, more efficient IPPs like YTLP (Hold) and Malakoff (a subsidiary of MMC; Buy) would have competitive advantage, as  economies of scale at existing plants will keep total generation costs relatively low.

New IPOs may draw interest towards power sector. Among the planned IPOs is Gas Malaysia which is slated for Mar/Apr 2012, and re-listing of Tanjong and Malakoff possibly by 2013. Existing players may be rerated if these IPOs offer more attractive valuation multiples due to much-higher replacement costs.

Buy TNB and Petgas. The gas shortage should be addressed following the commissioning of the Melaka regas plant and Sabah gas terminal. Petronas’ larger capex for new pipelines and regas plants will ensure sustainable growth in gas supply to fuel the new power plants. This gives Petgas a visible growth pipeline, with strong earnings growth from FY12F onwards led by maiden contribution from the regas plant in FY12 and power plant in FY13. Meanwhile, TNB will see strong earning recovery in FY12F with increasing gas supply. Also, the compensation for gas deficit illustrates TNB’s ability to pass-on cost increases through subsidies and/or tariff hikes. Hold YTLP for 4 per cent net yield and longer term upside from new acquisitions and power plants in Malaysia.

CIMB Group Hldgs: Remains on cautious mode

•      Mood remains cautious; cost-cutting measures on track

•      Earnings tweaked after raising FY11 provisions and bond issuances should support FY12 non-interest income

•      Maintain Hold with TP tweaked to RM7.60

Still on cautious mode.  Provisions are likely to uptick in 4Q11 as buffer to raise loan loss coverage. We raised our provision charge-off rates to 30bps for FY11 despite only booking 10bps up to 9M11 largely from strong recoveries. NIM should remain stable across operating regions while loan growth remains robust particularly in Indonesia and Malaysia. Separately the APH issue should not adversely impact CIMB’s bottomline, as sufficient provisions have been made back in FY10. CIMB targets to release its 4Q11/FY11 results on 27 Feb 2012. We estimate 4Q11 net profit at RM961m, a tad lower q-o-q due to higher provisions. We expect a final DPS of 10sen to be declared (1H11: 12sen).

Cost-cutting measures on track.  Management targets lower cost-to-income ratio of 50 per cent by FY13 by reducing duplication and improving business processes that lower general costs over time.

Bond market pipeline and treasury to support non-interest income. Non-interest income should turn out better than we initially expected for FY12. CIMB’s involvement in Plus Expressway’s bond issuance should put FY12 on a strong start. We now expect non-interest income to be flattish y-o-y in FY12 compared to a contraction in our previous forecasts. CIMB’s treasury business should continue to do well but equity markets are expected to remain soft.

Earnings tweaked; Raised TP to RM7.60; maintain Hold. After adjusting for provisions in FY11 and non-interest income in FY12, our earnings are adjusted by -3 per cent/+11 per cent/ +11 per cent for FY11/12/13F. With these changes, our TP is raised slightly to RM7.60 based on 16.5 per cent ROE, 6.5 per cent growth, and 11 per cent cost of equity. Maintain Hold.

From OSK

Malaysian Bulk Carries (MBC MK, SELL, FV: RM1.54, Last Price: RM2.33) We are dismissing rumours on the potential privatisation of Maybulk, pointing out its expensive valuation as it would be much cheaper to buy vessels directly from the second-hand market where discounts can range between 20 per cent and 70 per cent of RNAV. Our fleet assessment on Maybulk gives a RNAV of RM1.93 per share, and imputing a 20 per cent risk factor – given the fragile state of the dry bulk sector – would support our unchanged FV of RM1.54 and SELL call. While China’s ban imposed on the very large ore carriers could cushion the downward pressure on rates, we foresee the impact to be quite muted as the oversupply issue still remains.

PERWAJA (FV RM1.65 - BUY)

From RHB

Sector Update

Semiconductor – Dec chip sales slips, but more upbeat outlook                                          

Neutral

Sector Update

Unisem – Fair value raised to RM1.53 based on 1x forward FY12 P/BV                     Market Perform

MPI – Fair value maintained at RM3.47 based on 1x forward CY12 P/BV                    Market Perform

-          We had already highlighted that more chip manufacturers have put in a more buoyant outlook for the industry, we are beginning to see this echoed by other players in the supply chain i.e. equipment manufacturers such as Novellus and Kullicke and Soffa Industries (KNS).

-          According to IPC (a market research firm), the slowdown in PCB and EMS sales in North America may have turned the corner. Although PCB sales growth still showed a negative decline of 6.9 per cent yoy in 4Q11, the decline eased from 3Q11. Furthermore, we understand that PCB players expect sales to remain flat in the 1Q12. Similarly, the slowdown in EMS sales in the region is also showing signs of levelling off in the 4Q11, which could point to signs of a turnaround in the coming quarters.

Corporate Highlights

CIMB – 2011 ROE to end up between 16-17 per cent                                                           

Underperform

Company Update

-          CIMB held a small group meeting for analysts last Friday.

-          For APH, the main focus was to find investors to complete the project. No further provision required at this juncture and although the loan has not been fully provided for, the balance required is not much while the upside from recoveries could be quite decent.

-          2011 ROE will end up between 16-17 per cent, missing the 17 per cent target. 2011 loan growth panned out to be decent while non-interest income was better than expected. However, credit cost was also higher in 4Q11 as the group beefed up its LLC. Full-year dividend payout will be within the 40-60 per cent guided range.

-          Some broad outlines for 2012 include: 1) loan growth should be decent.; 2) 2012 NIM largely stable at 4Q11 level; 3) non-interest income pipeline appears decent; 4) continued focus on cost-control measures with the target is to reduce CIR to 50 per cent by 2013 (9M11: 56.2 per cent); and 5) no major asset quality issues expected.

-          Fair value of RM6.20 and Underperform recommendation maintained.

Genting Malaysia – Hitch In Miami Casino Gaming Law Approval                                  

Outperform

Company Update

-          Genting Malaysia’s plans to build a US$3.8 billion 5,200-room resort overlooking Miami’s Biscayne Bay has stalled, as a Florida House of Representatives committee postponed a vote on a bill to expand casino gambling.

-          While this may be disappointing news, we believe the game is not over for GM’s Miami project. Management has assured us that the US$3 billion will not be spent unless the casino law is approved, we do not expect there to be any financial impact from this delay.

-          No change to forecasts. Our SOP-based fair value remains at RM4.20. Maintain Outperform.

Wah Seong – Transforming The Renewable Energy Division                                    

Market Perform

News Update

-          The company announced that its wholly-owned subsidiary has entered an agreement to purchase 51 per cent of Atama Resources for US$25 million (approximately RM76.3m). Atama Plantation has a 30-year concession agreement to develop an oil palm plantation and industrial complexes on 470,000 hectares of federal land in Congo.

-          We are unsurprised by the move but expect the earnings impact to only be evident in the longer term. Maintain fair value to RM2.10/share, and an unchanged Market Perform call on stock.

Indonesia banks

The Indonesian economy grew 6.5 per cent in 2011, the biggest expansion since the 1997-98 Asian financial crisis and up from 6.1 per cent growth in 2010. “There was growth in almost all sectors,” Suryamin, the acting chairman of the Central Statistics Agency (BPS), said on Monday. Household consumption, which makes up 56 per cent of the nation’s economy, rose 4.6 per cent in 2011, helped by low interest rates and easing inflation. It was 4.7 per cent in 2010. (Jakarta Globe)

Neutral. Indonesia’s economy is poised for another year of growth with 2012 GDP likely to expand in excess of 6 per cent despite weaker export markets. There is an even chance for Bank Indonesia to cut interest rates further in the coming months given benign inflationary pressures.

DRB-HICOM

Lotus Formula One (F1) team owner Genii Capital has been reported to be interested in buying loss-making Lotus Group from Malaysian parent Proton Bhd, chairman Gerard Lopez says. (Reuters)

Positive. We believe DRB-HICOM is better-off disposing of Lotus given the lack of product synergies between Lotus and Proton. The disposal would eliminate a RM250 million p.a. earnings drag in addition to RM900 million in associated debt. However, DRB’s intentions are unclear as it has yet to reveal detailed plans to revive Proton.

OP, FV = RM3.45

MAHB

Maldives’ first democratically elected president resigned after a police mutiny following three weeks of street protests. (NST)

Negative. The escalating political unrest in Maldives could potentially deter tourist arrivals to the country. This could have negative implications for passenger traffic for MAHB’s 23 per cent stake in Male International Airport should the unrest is prolonged. Nonetheless, note that the airport does not significantly contribute to the company’s overall net profit (FY10: RM1 million)

OP, FV = RM7.40