Morning Commentary 190112

Good morning,

1) DRB-Hicom: DRB-Hicom said yesterday that it would keep it's option open for selling Proton's sports-car unit Lotus, while ruling out an equity sale of Proton. DRB acquired a 42.7% equity stake in Proton on Tuesday. MD said DRB will meet with the Lotus management soon and conduct due diligence before making a decision. The plan right now is to take Proton private. He also quashed speculations that DRB is selling assets, borrowing from foreign banks and using major shareholder's TS Syed Mokhtar's influence to finance the purchase of Proton shares. He reiterated that it will not sell Bank Muamalat to raise funds. MD added that 85% of the acquisition was financed by borrowings from a local bank while the remainder via internally generated funds; Neutral.

2) AirAsia: The KL-Sydney route, which AirAsia-X SB (AAX) launched 2 days ago, is likely to be one of the best selling routes for the long haul LCC. AAX's KL-Sydney route, which MAS is flying twice daily, has put it in direct competition with the national carrier. However, market observers noted that although there will be some competition, the 2 carriers will have their own niche market to serve. MAS has the advantage of it's transit flights while AAX's is more likely to cater for students and budget travelers. On the broader side, AAX is able to capitalize further on this segment with it's immediate access to the regional network of it's short haul sister airline AirAsia Bhd. AAX will have it's maiden flight from KL to Sydney in April ; +ve, the addition will be a precursor to it's larger expansion in Australia & North Asia, where it will focus as part of it's route rationalization plan.

3) XDL: XDL is hoping to raise up to RM29.7m via a proposed private placement, bonus issue & rights issue of warrants. In a Bursa announcement, XDL said it is proposing a private placement of up to 43.99m new shares to be placed with independent 3rd party investors to be identified at a later date. It is also proposing a 1 for 2 renounceable rights issue of up to 241.99m warrants at an issue price of 5s, and a 1 for 2 bonus issue. The proceeds will mainly be utilized to purchase machinery & equipment for it's new design and production centre. XDL did not state who the intended investors for the private placement are; Neutral. Recently, media reported that Navis Capital Partners (a Malaysia based private equity firm) was looking to purchase Hong Peng Int'l Holdings 54.5% stake in XDL, but XDL has denied it.

4) Mkt: maintain consolidation pattern with a positive bias, buy CIMB, MAS.

Market Roundup 050112

FBM30 1514.43, +10.21 points (+0.68%), Volume 1,668.8mil, Value 1,462mil

1) Inflationary fears help drive the plantation index +2.3% as the KLCI closed at day's high bucking regionals which were mixed given concerns about the ability of eurozone countries' upcoming refinancing requirements and stagnant HSBC China PMI numbers signaling a slow and sluggish growth. Plantations was led by KLK+7%, SWKPLNT+8% and IJMPLNT+7% on bullish outlook for CPO prices. Market breadth turned positive with gainers leading losers 467:325. Futures closed 1516 (1.6 points premium).

2) Heavyweights: KLK+7.49% RM25.26, PCHEM+2.90% RM6.38, DIGI+2.37% RM3.88, CIMB+0.85% RM7.16, IOICORP+0.56% RM5.36, YTL+2.03% RM1.51, AMMB+1.05% RM5.80, ARMADA+1.50% RM4.06

3) DBT: MENANG 12mil @ RM0.22 (4.5% PUC, 10% discount), BIOSIS 7.8mil @ RM0.38 (7.4% PUC), SYF 6.7mil @ RM0.55 (2.5% PUC)

4) Situationals:

XDL+12.33% RM0.41: The Board of Directors of XDL, after making an enquiry with its major shareholder, HongPeng International Holdings Ltd, confirmed that Navis Capital had indicated their intention to acquire the entire shareholdings of HongPeng during an informal discussion.

5) Genting Msia

Announce that its indirect wholly-owned subsidiary, Genting New York LLC ("Genting NY"), has entered into a non-binding letter of intent dated 3 January 2012 with the New York State Urban Development Corporation, to consider the development of an integrated mixed-use complex on real property located adjacent to the Aqueduct Racetrack, Queens, New York, United States of America.

The proposed Project is anticipated to cost at least USD4 billion, which will include an integrated 3.8 million square feet of convention and exhibition centre with up to 3,000 hotel rooms and an expansion of Resorts World Casino New York City.

Genting NY will work closely with Empire State Development Corporation and the relevant parties, to negotiate terms in good faith, with a view of entering into a binding Memorandum of Understanding on or before 30 November 2012.

+ve as this could be in anticipation of expanding its current license for electronic games in Resorts World Genting New York to eventually move towards offering table games and eventually becoming a full fledge casino.

6) Market - Rotational play on mid caps/second liners to continue to dominate, should see spillover of the current buying interest into laggard plantation counters, TDM, RSawit, TWS Plt.