Morning Call | 10 May 2013

FLOWS

Friday, 10 May, 2013

BUY

CIMB, DIGI, MRCB

SELL

GAMUDA, MUDAJYA, PCHEM

STOCK ALERT

STOCK NAME

DATE

PRICE

BUY/SELL

TARGET PRICE

MAS-OR(3786OR)

10/5/2013

RM0.075/RM0.365

BUY

RM0.545

MAS-OR (RM0.075) / MAS (RM0.365) : have all the shareholders who do not wish to subscribe for MAS rights shares substantially sold off their rights? It would definitely seem to be the case if one were to sum up the trading volume of MAS rights for the last 3 days which equates to 18.43% of the total rights offered to shareholders. Khazanah, EPF, PNB and the East Malaysian state agencies have a combined stake of 81.30% in MAS and it would not be unreasonable to assume that they will subscribe for their portion to ensure their stake would not be disadvantageously diluted as MAS is implementing a rights issue of 4 rights for 1 existing share at RM0.23 per rights share. Obviously, the daily trading volume is exaggerated by intraday & contra players, yet one can deduce from the above stake holdings that a significant portion of the selling is already done. Hence, investors who wish to take advantage of this "indiscriminate selling" and profit from the rights should buy now before the selling dries up. Historically, GLCs' rights issues had been highly profitable for those who went through the exercise as can be seen from the previous rights issues of Axiata, Maybank & RHBCap. The mother share had recently given us a glimpse of this performance when it rallied sharply from ex rights price of RM0.32 to a high of RM0.455, a whopping 40% within the span of a week after MAS shares went ex-rights from 2 May 2013. In addition, MAS is trading at trough levels because of the rights issue despite operational improvements gaining traction the last 2 quarters with routes rationalisation, far superior fuel-efficient new planes, relatively lower fuel prices with the end of the commodity super-cycle and the optimisation of passenger seats by being part of the One World Alliance. MAS is also currently trading at a p/bk of 1.22x which is a significant discount from its 4 years average of 5.91x. Buy MAS-OR for its substantial discount to mother share & subscribe for the rights.

LIONIND(4235)

10/5/2013

RM1.08

BUY

RM1.40

Post GE13, the mega projects will start to roll again and it would bode well for steel players especially LionInd which has a compelling valuation, trading at only 0.25x p/bk vis-a-vis its historical mean of 0.4x. Its chairman, Tan Sri William Cheng, recently acquired a 25.34% stake in LionInd at RM1.40 from Lion Corp and its subsidiaries. This should in fact set the minimum benchmark price that the stock will be heading for in the not too distant future. Selling prices for long steel products have also improved by more than 6% in Q1 due to government imposition of anti-dumping duties of as much as 25% on cheap imports from China, Taiwan, Indonesia and Korea.This would go straight to LionInd's bottom line and is further amplified by the higher demand from goverment's infrastructure spending. Globally, the risk-on trade is in vogue again, with cyclicals like producers of basic materials outperforming defensives and benchmark indices. We believe that it is a matter of time before the investing community in Malaysia catches on to this theme. In addition, the stock is poised to take off technically, with positive daily and weekly macd crossovers and positive divergences in the long-term charts. Buy

Calls for MAY Week 1/ Week 2

STOCK

Initiation Dates

Initiation price

BUY/SELL

TARGET PRICE

LAST PRICE

% Change since Initiated

MISC(3816)

3/5/2013

RM4.30

BUY

RM4.97

RM4.60

+6.9%

PETDAG(5681)

3/5/2013

RM23.52

Trading SELL

RM20.00

RM24.36

+3.5%

TAMBUN(5191)

6/5/2013

RM0.94

ACCUMULATE

RM1.12

RM1.10

+17%

SENDAI(5205)

6/5/2013

RM1.07

BUY

RM1.41

RM1.19

+11.1%

RHBCAP(1066)

7/5/2013

RM8.65

BUY

RM10.00

RM8.76

+1.1%

GLOMAC(5020)

7/5/2013

RM1.01

BUY

RM1.16

RM1.10

+8.9%

ARMADA(5210)

8/5/2013

RM3.98

ACCUMULATE

RM4.40

RM3.95

-0.7%

MRCB(1651)

8/5/2013

RM1.63

Trading BUY

RM2.00

RM1.60

-1.9%

GADANG(9261)

9/5/2013

RM0.695

BUY

RM0.86

RM0.695

0.0%

MALTON(6181)

9/5/2013

RM0.535

Mid-term BUY

RM0.70

RM0.56

+4.6%