Morning Call 220212

FLOWS;

BUYS: AFG,  Armada, TNB

SELLS: UEMLand, Genting, MAS

Technical Stock Alert;

TopGlove (RM4.80) -  Rich valuation no longer warranted as the company continues to face headwinds in terms of margin compression as raw material prices remain persistently high and industry excess supply. Recent sell down from RM5.32 could continue to see further price erosion to around RM4.40 as current levels of RM4.80 only represent a weak support.

Puncak (RM1.57) - Price has fallen 27% from its recent high of RM1.89 after denying involvement in bidding for marginal oilfields. Despite this setback, we think there could still be further development in this space as the company completed the acquisition of two O&G related companies, Global Offshore Msia and KGL Ltd. We expect support around the RM1.60 awaiting future newsflows. Buy on weakness

Stock of the Day;

Digistar (RM0.55)

- Specialist in broadcast services/telecommunications infrastructure and IPTV

- Main beneficiary from intiative to migrate all air to free TV and pay TV from analog to digital by 2015.

- Has fulfilled requirements for main board listing and is in the process of initiating the transfer

- Price has retraced from a recent high of RM0.635 and currently consolidating around the RM0.55 levels.

- Buy, undemanding valuation of 5.7x PE based on historical earnings.

Newz Bits 110112

Highlights of the day

§         Industrial Production Index: November 2011: IPI slips unexpectedly [download report]

November industrial production index (IPI) was up only 1.8% y-o-y compared the consensus of 3.5% y-o-y. On the bright side, the October figure was revised up to 2.9% y-o-y from 2.8% y-o-y. The slower November growth was due to weaker manufacturing growth. It is very likely that economic troubles abroad are affecting local production. We expect for the IPI to grow at a slower pace of 1.7% y-o-y for December 2011 due to unfavorable external factors.

§         Top Glove (Company Update): Rich valuation, tough times ahead (Downgrade HOLD to SELL, TP: RM4.00) [download report]

We came back from Top Glove Corporation’s (Top Glove) analyst briefing feeling less sanguine about its growth prospects in 2012. In our view, Top Glove’s earnings growth would average 13% in FY12-14 albeit a rich PE valuation. It is trading at 23x FY12 EPS (28% above its historical average of 18x) while its peers are trading at single digit or low teens. We are forecasting a slower growth due to lower-than-expected sales volume and a product mix skewed towards natural rubber (80% latex) which has lower margins compared to nitrile. We may see upwards pressure on latex prices between Feb and May due to seasonally low production period. Downgrade HOLD to SELL.

Other reports

§         Plantation (Sector Update): 2011 sees record production and exports (Maintain NEUTRAL) [download report]

§         Newz Bits [download report]

Other Malaysian news

§         SapuraCrest: JV gets RM315m subsea job offshore Vietnam

§         Maybank: Debit card spending up 20%

§         CIMB: To expand into Philippines

§         MAS: MAS may cut Sydney frequency

§         DRB-Hicom: Sees RM2bn Pos profit

§         QL Resources: Expanding operations in Indonesia

§         Southern Steel: Signaland shareholder exits company

§         Dijaya: Brisk sales of Tropex Residence apartments

§         Delloyd Ventures: Expands bus chassis business

§         Can-One: Unaware of plan to privatise or merge with Kian Joo

§         Xidelang: Navis has no plan to buy Xidelang Stake

§         Yinson: Fixes rights issue first call price at 40% discount

§         Insurance: No material action to sell MCIS

§         Property: Belleview to unveil projects worth RM500m this year

§         Property: Naza TTDI and Seacera in JV?

Global news

§         US: Wholesale inventories rise 0.1%; sales gain 0.6%

§         US: Hiring rises underlining job market gains

§         US: Confidence at small companies increases for fourth month

§         Europe: Fitch sees a ‘significant chance’ of Italy rating downgrade

§         China: Import growth slide

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Morning Commentary 110112

Good morning,

1) QSR: Kulim (M) Bhd has received an offer from the Malay Chamber of Commerce to buy it's strategic 58.7% stake in QSR Brands for RM6.90 per share, rivalling an earlier RM6.80 offer bt Massive Equity SB (the SPV of Johor Corp- the ultimate parent of Kulim with 57% interest). At RM6.90 a share, the Malay Chamber will be looking to fork out some RM1.12b for the stake. However,in Kulim's announcement on the offer, there is no mention of KFC Holdings in which QSR has a 50.6% equity interest. ; expected. To recap, the board of QSR & KFCH had previously stated that they were not seeking alternative bids for the sale of their  assets & liabilities after both companies accepted a joint takeover offer     by Massive Equity at the end of last year. Kulim said it would now convene     a board meeting to deliberate on the offer.

2) Yinson: Yinson yesterday announced that it has fixed the 1st call price for it's 3 for 2 rights issue at 75s apiece, representing a discount of 40.9% from the theoretical ex-rights price of it's shares of RM1.27. The board is of the view that a discount of more than 30% will provide shareholders with an attractive opportunity to increase their participation in the company. It has decided that the second call of 25s per rights share shall be capitalized from it's share premium and retained earnings account ; +ve & partly expected. Yinson's rights issue involves a proposed renounceable two-call rights issue of up to 113.02m rights share at an issue price of RM1 a piece, on the basis of 3 rights share for every 2 existing Yinson share. In an earlier filing, Co said it expects to raise gross proceeds of up to RM84.8m, assuming an indicative first call of 75s per rights share. It plans to utilize the proceeds to fund it's investment obligations related to it's consortium agreement (with Petro Vietnam Technical Services Corp to execute a bare boat charter contract).

3) Topglove: is targeting to achieve 30% of total global market share by end-2012, said it's chairman. He said this target is achievable if latex prices falls to RM6 per kg and forex remains stable. Group MD meanwhile predicted latex prices would come down further (at RM6.37/kg as at Jan 6, 2012), and thus the migration of capacity from natural latex to nitrile  gloves would slow down. Compared to it's peers, Topglove produces more latex gloves than nitrile. On it's upstream ventures, chairman said Co is looking to acquire land in Malaysia, Cambodia & Indonesia for rubber plantations. On capex, it is targeting RM100m for it's expansion plan this year, similar to capex of RM100-120m last year. Chairman stressed that demand would continue to be strong this year as countries increased their rubber gloves inventory; neutral as industry is very competitive & operating environment is volatile.

4) Mkt: continued positive sentiment to grind market higher.