Analyst calls for July 4
From RHB Research
DRB-HICOM – Still Digesting Proton (and Lotus)
We met with DRB’s management recently for an update. The key takeaway from our meeting was that management is still in the midst of reformulating a long-term strategy to rehabilitate both Proton and Lotus that will not be finalised for another six to twelve months.
DRB reiterated at the outset that it would not be disposing of Lotus. Management clearly sees long-term value in the brand and we expect a much tighter lid on costs. The forthcoming revised Lotus revitalisation plan will likely be much more realistic and could trim the new Lotus line-up to three new models that will keep the marque closer to its roots.
Proton has received over 13,000 bookings for the Preve with deliveries of over 3,000 units to date since the official launch in mid-Apr. We see a lull in new models from Proton until end-2013 when the Perdana replacement is scheduled for launch.
We estimate interest costs alone on Proton-related borrowings will exceed RM150m p.a. with gearing at 0.58x (at end-FY13). Accordingly, we believe there is now a greater urgency for DRB to raise some cash and de-gear its balance sheet.
Our forecasts for DRB currently imply a 54.6 per cent yoy growth in recurring net profit in FY13, driven by a full year of contributions from Pos Malaysia, the recovery in production at Honda Malaysia, tighter control of costs at Lotus, absence of non-recurring impairment charges at Bank Muamalat (about RM30m in FY12 relating to IT), on-going cost rationalisation efforts at Proton and stronger property earnings.
We reiterate our Outperform call on DRB. Our conservative sum-of-parts derived fair value is unchanged at RM3.35.
There is a chance for the FBM KLCI to break new grounds today. The benchmark index could overcome the immediate resistance hurdle of 1,610 and plot a new record high as investors react to positive overseas developments.
Buoyed by expectations that central banks around the world would take coordinated actions to stimulate their economies, major U.S. stock indices rose further by 0.6 per cent and 0.8 per cent during the half-day trading session last night.
On the local corporate scene, amid the thin news flows, we may see share price actions in: (a) BIMB, after its managing director was quoted as saying that it is awaiting response from an Indonesian Islamic bank on its proposed offer to buy a 30-40 per cent stake; (b) Petra Energy, following the signing of an agreement by Wah Seong to acquire a 26.9 per cent stake in the company for RM97m or RM1.68 per share; and (c) TimedotCom, which has entered into a construction and maintenance agreement to participate in Asia Pacific Gateway submarine cable system.
From OSK Research
FKLI: 1,613 Resistance Vulnerable
The index remains on a higher conviction as it closed on a white candle yesterday. It closed at a fraction below 25 June’s “Shooting Star”-like candle high of 1,613 pts, and a close above the level today should be additionally bullish as it cancels the host of negative candles of the past fortnight. The index is comfortably above the 50-day MAV line and the rising 200- day MAV line, which is enhanced by the longer-term positive “Golden Cross” that emerged in February.
Again, the rally that started in mid-May is expected to continue as long as the index remains above last week’s low of 1,590 pts and a close above the 1,613-pt resistance level today will keep its upward bias going. The next resistance is at 1,620 pts, and further selling can be reasonably expected at every 10-pt interval. However, a failed test of 1,613 pts could see a return in selling. Support is expected at the two-day low of 1,602.50 pts but given the volatile nature of recent trades, only a decline below the last week’s low of 1,590 pts will confirm any selling. Immediate supports lie at the broken resistance of 1,583.50 pts, followed by the 18 June low of 1,576 pts, and a stronger one at 1,570 pts. Note that the 62 per cent retracement of the recent rally is at 1,555 pts, and a correction above this level is considered healthy to the uptrend.
FCPO: RM3,130 Resistance
The commodity continued higher as expected, following the successful break above the strong RM3,050 resistance level, also the 62 per cent level of late May-early June decline on Monday. Buying is marked by the two successive white candles and the violation of RM3,100 resistance level. Thus, the rebound that kicked off in mid-June continues. Nonetheless, the 2½ -month downward move is by no means over, as the commodity is still below the declining 50-day and 200-day MAV lines, reinforced by the longer-term negative “Death Cross” that emerged last Friday. In fact, buying action yesterday paused right at the RM3,130 resistance level.
The commodity is expected to climb higher and it has to break above RM3,130 to keep the upward bias intact. The next resistance is registered at RM3,150 where the 200-day MAV line lies as well as the round figure of RM3,200, just above late May’s high. However, a failure to break RM3,130 and followed by a close below RM3,100 will see a return in selling. The RM3,100 is an important support as it is the 76 per cent retracement of the late May-early June decline and a 38 per cent retracement of the Apr-June decline. Further support is at RM3,050, followed by RM2,992, which withstood multiple tests last week.
* 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.