Malaysia Business News

Malaysia Inflation To Stay Elevated,But No Threat-RHB

2011-09-08T18:38:00.001-07:00

[Dow Jones] RHB Research says inflation in Malaysia is likely to remain elevated in 2012 but is unlikely to pose a major threat to the economy. "Furthermore, it will likely be driven by cost-push rather than demand-pull that will unlikely prompt the central bank to tighten its policy to control it," it adds. It expects Bank Negara Malaysia to hold its overnight policy rate unchanged at 3.00% in the foreseeable future. Thursday, the Malaysian central bank stood pat and signalled that it may not raise its key rate for the rest of the year as concerns over economic growth have heightened in recent months due to a slowdown in the global economy. (ankur.relia@dowjones.com)

MARKET TALK: Malaysia Shrs May Face More Foreign Selling -Maybank

2011-09-05T20:53:00.001-07:00

[Dow Jones] Malaysian stocks face further downside in the near term on the risk of more foreign selling after the benchmark KLCI's 6.6% drop in August, says Maybank IB's Wong Chew Hann. Data from the stock exchange show foreigners were net sellers in August with MYR3.8 billion outflow after four consecutive months of net buying during the April-July period. "We believe that there could still be some near-term downside potential as August's net activities reversed out just 58% of the total net foreign buying in April-July," says Wong in a note. He adds, the KLCI is expected to rebound toward the year-end to the house's revised target of 1520. The KLCI is down 0.5% at 1456.58.(jason.ng@dowjones.com)

Asian Shares Tumble, Euro Falls On US Recession Fears

2011-09-04T22:27:00.001-07:00

-- Euro falls, while the Swiss franc and the yen benefit as investors flee riskier assets

-- Concerns about more China tightening add to global woes

By Shri Navaratnam and Ga-Woon Philip Vahn

Of DOW JONES NEWSWIRES

SINGAPORE (Dow Jones)--Asian shares fell sharply Monday, while the euro skidded to multi-week lows against the U.S. dollar after Friday's grim U.S. jobs report heightened concerns of a recession in the world's largest economy.

Adding to the global gloom, China's shares continued to lose ground on persistent worries about further tightening steps from Beijing.

"It is tough for risk assets to make any sort of sustained run higher whilst questions pertaining to U.S. growth seem to lie at every turn," said CMC Markets' senior foreign exchange dealer Tim Waterer.

Japan's Nikkei Stock Average was down 1.7%, Australia's S&P/ASX 200 fell 2.1%, while South Korea's Kospi Composite lost 2.9%. Hong Kong's Hang Seng Index slumped 2.2%, India's Sensex declined X.X%, while the Shanghai Composite Index was down 1.5%.

Dow Jones Industrial Average futures were down 49 points in screen trade.

The dismal U.S. jobs report sent the euro to its lowest level against the dollar since Aug. 12 at $1.4136, and drove investors to the safety of the Swiss franc, which built on Friday's gains against the single currency.

The single currency was also hurt after talks between Greece and a group of visiting international inspectors were suspended Friday, while news German Chancellor Angela Merkel's Christian Democrats has experienced a setback in local election unsettled markets.

The euro was fetching CHF1.1173 against the Swiss franc, from CHF1.1210 late Friday in New York, and $1.4168 against the dollar, from $1.4205, while against the yen it was at Y108.75, from Y109.12.

The dollar was at CHF0.7888, compared with CHF0.7885, and at Y76.76 against the yen, from Y76.82.

Spot gold took a breather and was at $1,879.40, down $4.80 from Friday's New York trade, while oil prices fell with the October Nymex crude oil futures contract down 63 cents at $85.82 per barrel.

Concerns around more tightening in China, which has been a tower of strength during the global financial crisis, added to the grim global backdrop. "In the short term, factors including concern over monetary policy will weigh on (China) shares...the mood is very pessimistic," for now, said Li Lei, an analyst at Gold State Securities.

Banking stocks bore the brunt of those policy tightening concerns in Shanghai, with China Minsheng Banking 1.2% lower and Bank of China down 1.4%.

The sour mood saw exporter and cyclical stocks leading the broad-based selloff across regional markets. Honda Motor lost 2.4%, while Samsung Electronics dropped 2.3% in Seoul.

Samsung Electronics was also dealt a blow after a German court accepted Apple Inc.'s request to ban Samsung from selling and marketing its new tablet device in Germany.

September Japanese government bond futures were up 0.39 at 142.68 points on weak equities.

"There's no rush to buy (stocks) with the U.S. market closed on Monday and European markets likely to be fragile after Greek debt talks broke down on Friday," said RBS Morgans principal investment adviser Christopher Macdonald in Sydney.

MARKET TALK: Avoid Malaysia Plays With High Foreign Shareholding -TA

2011-09-01T20:29:00.001-07:00

GMT [Dow Jones] TA Securities says investors should avoid Malaysian stocks with a high level of foreign shareholders and accumulate dividend-yielding stocks instead; the house keeps its Neutral view on Malaysian stocks with year-end target for the benchmark KLCI of 1490. "We think there is further downside risk of earnings forecasts if the economic momentum fails to pick up. Moreover, external shocks, whether in the form of double dip recession in U.S., worsening European banking crisis or a slowing China economy, could further dampen corporate earnings going forward," says TA Securities. It notes, the top five stocks with a high level of non-strategic foreign shareholdings are AirAsia (5099.KU), Genting Bhd. (3182.KU), IJM Corp. (3336.KU), CIMB Group (1023.KU) and Uchi Technologies (7100.KU). For dividend stocks, the house picks Carlsberg Brewery Malaysia (2836.KU), Lingkaran Trans Kota (6645.KU), Berjaya Sports Toto (1562.KU), Boustead Holdings (2771.KU) and YTL Power (6742.KU). The KLCI is up 1.5% at 1468.37.

US Stocks Extend Winning Streak To Close Out Tough August; DJIA Rises 53.58

2011-08-31T18:52:00.001-07:00

NEW YORK -(Dow Jones)- U.S. stocks advanced Wednesday, pushing the Dow Jones Industrial Average back into positive territory for 2011 and capping a four-day winning streak to close a difficult August.

The blue-chip Dow finished with a gain of 53.58 points, or 0.46%, at 11613.53, the seventh rise in eight days. The blue-chip measure was led by Alcoa, which gained 3.56%. The aluminum producer's stock and others in the sector got a boost after Goldman Sachs analysts said they expect demand for metals to remain "fairly healthy," driven by emerging markets.

AT&T led blue-chip decliners, shedding 3.85% after the U.S. Justice Department filed a civil antitrust lawsuit that seeks to block AT&T's proposed $39 billion takeover of T-Mobile. The suit said the combination of the second- and fourth-largest U.S. cellphone companies would hurt competition and likely raise prices. Major stock indexes turned negative temporarily midsession as investors digested the suit.

"It underscores that we live in a fairly heavily regulated business environment," said Karl Mills, president and chief investment officer at Jurika Mills & Keifer. "For the economy to go back into growth mode and create jobs, you need to blow wind in its sails, rather than wind in its face."

The Standard & Poor's 500-stock index gained 5.97 points, or 0.49%, to 1218.89, led by financial and utility stocks. The Nasdaq Composite eked out a rise of 3.35 points, or 0.13%, to 2579.46.

Three batches of economic data helped set a positive tone for Wednesday's session. A report by Automatic Data Processing Inc. showed a gain in private-sector hiring this month, while a reading on weak Chicago-area manufacturing managed to beat expectations. A third batch of data showed U.S. factory orders for July rose more than economists had forecast.

Market participants said the figures tempered worries of a notably worsened economy, particularly on jobs, ahead of Friday's key non-farm payrolls report.

"It's good enough to allow the consumer to keep on nibbling away at retail sales," said Michael Shaoul, chief executive of brokerage Oscar Gruss & Son. "You don't need anything better than modest employment growth. You just need it not to be falling apart."

Verizon Communications was one of the Dow's weakest stocks, shedding 0.4% in the wake of the AT&T suit. Sprint Nextel Corp. was one of the top performers in the S&P 500, jumping 5.9%.

The stock market was wracked by a variety of economic-slowdown and government-debt worries during August. Even after the four-day winning streak, the blue-chip Dow shed nearly 530 points for the month.

-By Brendan Conway, Dow Jones Newswires; (212) 416-2670; brendan.conway@dowjones.com

DJ Malaysia Brushes Off UN Bird Flu Warning

2011-08-31T01:02:00.001-07:00

KUALA LUMPUR (AFP)--Malaysia has brushed off a warning by the UN Food and Agriculture Organisation about a resurgence of the deadly bird flu virus and a new mutant strain.

Health Minister Liow Tiong Lai was quoted in the New Straits Times Wednesday as saying that the country remained vigilant about the H5N1 virus but no new cases had been reported.

"The public should not worry. We will let them know about the latest developments on the virus," he was quoted as saying.

An aide confirmed his comments.

Liow said the World Health Organisation hadn't confirmed the FAO's warning. The WHO in a release on its website Tuesday said it recognized the virus' evolution in February but that it was "not considered unusual."

"Based on available information, this evolution of the H5N1 virus poses no increased risk to public health," it said.

The FAO said Monday that a virus "able to sidestep the defenses provided by existing vaccines" had appeared in China and Vietnam and could spread to Malaysia and other countries.

The Rome-based organization also warned that there could be a "major resurgence" of the bird flu disease, calling for a heightened readiness and surveillance.

The virus developed into a pandemic in 2009. The U.N.'s World Health Organisation says 565 people have been infected since the deadly H5N1 strain first appeared and 331 of them have died as a result.

Malaysia experienced bird flu outbreaks between 2004 and 2007 but no human cases of avian flu were reported.

Market Talk 04.10.2010

2010-10-03T22:06:00.000-07:00

Genting Malaysia May Rise, Test MYR4.06 - RHB
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0346 GMT [Dow Jones] STOCK CALL: Charts suggest Genting Malaysia (4715.KU) may resume uptrend after recent pullback, says RHB Research. "We view the recent consolidation as a base-building phase for it to propel to greater heights in the near term," house says, citing Friday's positive harami candle formation, improved buying momentum as indications of possible turnaround. Adds, breach of MYR3.60 resistance would pave way for stock to test MYR4.06, then MYR4.60. Stock last +2.6% at MYR3.50.

Affin Keeps MAS at Reduce; Target At MYR2.10
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0410 GMT [Dow Jones] STOCK CALL: Affin Investment keeps Malaysian Airline System (3786.KU) at Reduce with target unchanged at MYR2.10; says de-rating catalysts include higher-than-expected loss from company's fuel-hedging activity, continuous weakness in passenger load factor. House says MAS' preliminary operating statistics for August signal demand slowdown in last couple of months; adds number of passengers carried fell for first time since August last year, down 5.1% on-year to 1.05 million (down 10.1% on-month). House adds MAS will continue to register mark-to-market losses over next couple of quarters as it has hedged 60% of fuel requirement in FY10, 40% in FY11 at $100 per barrel; this compares with house's estimates on crude oil prices of $80/bbl by emd-2010, $85/bbl by end-2011, $90 by 2012. Says prefers airport operator Malaysia Airports Holdings (5014.KU) for exposure to passenger movements, domestic tourism theme. MAS last +0.8% at MYR2.41, Malaysia Airports unchanged at MYR5.79

AmResearch Keeps Kencana At Buy, MYR2.00 Target
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0407 GMT [Dow Jones] STOCK CALL: AmResearch keeps Kencana Petroleum (5122.KU) at Buy rating with unchanged MYR2.00 price target based on 20X 2010 PE; believes company poised to ride upcycle with new domestic oil & gas contract rollouts; adds "stock currently trades at an attractive 2011 forecast PER of 14X, way below its 2007 peak of 25X." Analyst Alex Goh also notes, Malaysian government's plans for local fabricators to be able to compete regionally could mean news flow on mergers and acquisitions could resurface for Kencana, further catalyse re-rating on stock. Kencana last +4.8% at MYR1.74.

YTL Corp +1.2% On High Speed Rail Project Hopes
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0328 GMT [Dow Jones] YTL Corp. (4677.KU) +1.2% at MYR7.55, may rise to test psychological MYR8.00 resistance in next few weeks, on hopes power and property group may get approval for MYR12 billion high speed rail project, says local brokerage dealer. "Should YTL manage to secure the high speed rail project, earnings growth would accelerate, which would help re-rate the stock," says Terence Wong, an analyst with CIMB Research; adds as high speed rail project would lead to significant spillover benefits for Greater Kuala Lumpur by bringing in Singaporeans who would spend money in the city and possibly buy property, YTL Group stands to benefit handsomely too as it has shopping malls along Jalan Bukit Bintang held under Starhill Global REIT, hotels throughout country via Starhill REIT and upscale properties for sale through YTL Land. Wong doesn't have a call on stock.

UOB KayHian Eyes 1,635 As End-2011 KLCI Target
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0320 GMT [Dow Jones] UOB KayHian pegs end-2011 target for KCLI at 1,635 based on 14.5X forward P/E; says applying conservative P/E multiple (below post-Asian financial crisis average of 15X) due to risks to corporate earnings from likely fall-off in external demand, execution risks to economic transformation programme. "The rolling-out of more mega construction projects amid lower development expenditure suggests a strong reliance and 'buy-in' from private funding." Adds banks still remain "most effective" proxies to rising investment cycle in Malaysia. Also says potential winners from Budget 2011 are Gamuda (5398.KU), WCT (9679.KU), IJM Corp. (3336.KU) from construction sector, Malaysian Resources (1651.KU) from property sector; British American Tobacco (Malaysia) (4162.KU) key loser. PM Najib to make budget announcement on October 15. KLCI last +0.5% at 1,474.01

Maybank Cuts BAT Malaysia To Sell From Hold
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0259 GMT [Dow Jones] STOCK CALL: Maybank IB Research downgrades BAT Malaysia (4162.KU) to Sell from Hold after cutting its FY10, FY11, FY12 earnings forecasts by 3.2%-8.4% to MYR731.7 million, MYR756.2 million, MYR777.9 million, respectively; cuts earnings forecast to reflect lower sales volume after 70 sen/pack hike in retail cigarette prices. "We think that this is negative to consumers' psychology leading to smokers shifting to the Value-for-Money segment, at least for the short-term," Maybank says. Notes, such a shift would be negative for BAT as its sales mainly derived from premium brand, Dunhill. But house keeps MYR43.00 price target. Stock last down 0.6% at MYR48.10.

TA Research Ups Genting Target To MYR13.04; Buy
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0237 GMT [Dow Jones] STOCK CALL: TA Research ups Genting (3182.KU) target to MYR13.04 from MYR10.85 as earnings potential of Resort World Sentosa or RWS "slightly underestimated"; thus ups earning projection for Genting by 10% for both 2010, 2011 to factor in RWS plans to ramp up its gaming table capacity and managements revising its visitor arrival target from 13 million to 15 million for 2010. Keeps Buy call as "we like Genting as it is a cheaper proxy to Genting Singapore." Stock last +0.8% at MYR10.04.

DJ MARKET TALK: SapuraCrest Likely To Post Record FY10 Pft - CIMB

2010-03-10T22:53:00.001-08:00

GMT [Dow Jones] STOCK CALL: SapuraCrest Petroleum (8575.KU) likely to post record net profit of MYR166 million in FY10, +43% on-year, says CIMB Research analyst Norziana Mohd Inon; cites higher drilling charter rates, turnaround of SapuraAcergy JV as reasons for improved earnings. "The company's 4Q results are expected to meet expectations, with a net profit of at around MYR34 million (+29% on-year and down 36% on-quarter)," says Norziana. adds 1Q, 4Q typically weaker quarters for SapuraCrest due to the monsoon season. Company expected to announce 4Q results after 0900 GMT March 25. Stock last down 0.8% at MYR2.43. Keeps Outperform call with unchanged MYR3.02 target.

DJ MARKET TALK: UOB-KH Cuts SP Setia To Hold, Raises Target 11%

2010-03-10T22:14:00.000-08:00

0544 GMT [Dow Jones] STOCK CALL: UOB-KayHian cuts SP Setia (8664.KU) to Hold from Buy as stock has risen 17% since December, but raises fair price to MYR4.66 (implies 22X FY10 P/E, slightly lower than FY07's 24X peak valuation) from MYR4.20 after strong 1Q10 sales lead to management increasing full-year sales target to MYR2 billion from MYR1.6 billion. "While we remain positive on its new sales momentum and earnings growth potential, we believe these have been priced into the stock," says UOB; says property firm's 1Q10 net profit could have increased 74% on-year, mainly due to an across-the-board higher sales in Klang Valley, Johor and Penang. Company posted 1Q09 net profit of MYR31.2 million; results due March 18 after 0900 GMT. Stock last +1.9% at MYR4.28.

Banking - Sector Weekly Reviews

2010-03-07T20:55:00.000-08:00

1st – 7th Mar: OPR hike is positive

· A buoyant week for the banking sector
The banking sector had a buoyant week following Bank Negara
Malaysia’s decision to raise the Overnight Policy Rate (OPR) by 25 bps
to 2.25% last Thursday. The KL Finance Index gained 3.6% for the week,
outperforming the benchmark FBMKLCI’s gain of 2.3%. All banking
stocks posted gains, except for AMMB which shed 2.0% due to its
proportionately larger exposure to fixed rate loan which is a drag when
interest rate rises.

· OPR hike expected to be earnings accretive
The 25 bps hike in OPR is generally earnings accretive to banks as we
expect the re-pricing of loans to outpace that of deposits. This can be
observed from past increases in OPR from Nov 2005 to Apr 2006. During
the period, OPR was raised 3 times from 2.70% to 3.50%. Over the same
period, the spread of average lending rate over fixed deposit rate has
widened by about 50 bps. However, risk to this expectation is the intense
competition in the domestic banking sector which has driven ALR-FD
spread down since early 2007.

Among banking stocks, Alliance will have the greatest potential for
earnings accretion due to its high proportion of variable rate loans at 84%
as well as high proportion of current accounts and saving accounts
(CASA) at 37%. At the end of the other spectrum, AMMB, EONCap and
Affin will benefit the least from the OPR hike due to their high proportion
of fixed rate loans (> 40%) and low proportion of CASA (<20%).

· Other notable bankings news
Public Bank stated that it has no plans to raise capital in 2010 in
anticipation of the Basel 3 framework. Hong Leong Bank’s 49% joint
venture in a Chinese consumer finance operation has received regulator’s
operation approval. CIMB Group also obtained approval for subscription
of equity interest in Vietnam’s Vinashin Shipbuilding Finance Co
Securities LLC which will see the group subscribing for an initial 10%
stake at RM6.7m. Last but not least, RHB has entered into a
memorandum of understanding with TM Asia Life Malaysia to negotiate
the terms for forming a mutually exclusive 10-year bancassurance
alliance in Malaysia which may see RHB receiving an exclusivity fee of
RM100m.

· Maintain OVERWEIGHT
The sustained growth of non-interest income and slide in credit costs will
drive earnings growth in 2010. The added excitement of potential M&A
activities within the sector should keep interest buoyant for a while. We
like CIMB Group Holdings for its regional as well as its strong non-
interest income growth going forward. Public Bank continues to be an
investment for its superior earnings, ROE and asset quality, while we
believe Maybank will finally allay sceptics’ concerns when it continues
reporting strong quarterly profits going forward.

Market snapshot
The banking sector had a buoyant week following Bank Negara Malaysia’s decision to raise
the Overnight Policy Rate (OPR) by 25 bps to 2.25% last Thursday. The KL Finance Index
gained 3.6% for the week, outperforming the benchmark FBMKLCI’s gain of 2.3%. All
banking stocks posted gains, except for AMMB which shed 2.0% due to its proportionately
larger exposure to fixed rate loan which is a drag when interest rate rises. On major
shareholding changes, Employees Provident Fund were seen accumulating CIMB (+9.3m
shares) and Hong Leong (+1.9m shares) while selling Maybank (-0.6m shares) and Public
Bank (-0.4m shares). Others changes include PNB disposing 7.9m shares in Maybank and
Mitsubishi UFJ Financial Group accumulating 1.4m shares in CIMB.

Telecommunication (Overweight)

2009-11-01T22:21:00.000-08:00

Oct 2009: Maxis IPO shares relatively attractive
• Upside to Maxis shares limited to RM6.35 Assuming investors are unsuccessful in subscribing for Maxis’ IPO shares, we believe the shares begin to look stretched above RM6.35 in the secondary equity market. Maxis IPO shares look relatively attractive at an IPO price of RM5.20 per share, implying a PE multiple of 15.5x (a marginal discount to DiGi’s 16.7x) based on FY10 EPS of 33.6 sen.

• Astro wins EPL rights; not clear if TM submitted bid Without too much of a surprise, Astro won the rights to broadcast the 2010-2013 English Premier League (EPL) football matches for a sum reported to be over US$250m (RM855m). It is unclear if Telekom Malaysia
ubmitted a bid for the rights, but we are positive that TM did not enter into a bidding war with Astro despite having the war chest to do so, preferring instead the company return excess cash to shareholders

• Red hot competition in India
EBITDA margins and earnings growth of telco stocks in India, including Axiata’s associate is expected to be under further pressure in the short to medium term as competition continues to escalate. Mobile operators will find it increasingly difficult to maintain high earnings growth, as Bharti Airtel showed with its disappointing 2QFY10 results.

• DiGi’s 3QFY09 results review
DiGi’s 9MFY09 results were within house and consensus expectations. Besides declaring a special net dividend of 75 sen/share, it revised its dividend pay-out policy from 50% to a minimum 80% due to strong cash flow and a solid balance sheet. The move to raise its minimum pay-out may be in response to the impending listing of Maxis which is promising a minimum pay-out of 75%, and possibly 85% if market talk is true • Global developments Notable global developments include the official arrival of the iPhone in China, handset subsidies hurting Sprint’s profitability and forecasts that the telecom equipment sector will return to low single-digit growth next year.

MALAYSIA CORPORATE NEWS
Upside to Maxis shares limited to RM6.35
Assuming some investors are unsuccessful in subscribing for Maxis’ IPO shares, we believe Maxis IPO shares begin to look stretched above RM6.35 in the secondary equity market. If a 15% premium is accorded to DiGi’s valuation, Maxis may trade up to RM6.35 post-IPO, but forward PE multiples look expensive at 19.0x based on FY10 EPS of 33.6 sen and dividend yields look rather modest at 4.0%.

Maxis will be listed at an IPO price of RM5.20 per share. This implies Maxis will command a PE multiple of 15.5x (a marginal discount to DiGi’s 16.7x) based on FY10 EPS of 33.6 sen. Quite likely Maxis may command a premium over DiGi given its market leadership and larger market capitalisation. Assuming a 15% premium is accorded to Maxis based on DiGi’s forward PE multiple of 16.7x, Maxis may trade up to RM6.35 based on a PE multiple of 19.0x. However, valuations look pricey at those levels

At an IPO price of RM5.20, Maxis’ dividend yields are decent at 4.8%, based on prospective FY10 DPS of 25.2 sen assuming a payout ratio of 75%. While such yields are still lower than DiGi’s (5.6%) and TM (6.4%), there is a possibility Maxis may increase its dividend payout ratio due to strong free cash flows.

There has been market talk that Maxis may increase the payout ratio to 85%. If this materialises, this will increase our FY10 DPS estimates by 3.4 sen to 28.6 sen, whereby dividend yields will increase to 5.5% - very similar to DiGi’s.

Our back of the envelope estimates forecast Maxis FY10 EPS of 33.6 sen. Our forecast assumes EBIT growth of 5.4% in 2010 from annualised 2009 figures. Maxis needs to achieve such EBIT growth to offset new finance charges amounting to about RM185m from next year onwards. Consequently, on a net income basis, Maxis’ growth will be flat from FY09 to FY10. The new finance charges are a result of borrowing RM5bn next year to repay the holding company, Maxis Communications Bhd under the pre-listing exercise.

Astro wins EPL rights; not clear if TM submitted bid
Without too much of a surprise, Astro won the rights to broadcast the 2010-2013 English Premier League (EPL) football matches for a sum reported to be over US$250m (RM855m), according to The Edge Financial Daily on Oct 8. It is not clear if Telekom Malaysia (TM) had submitted a bid for the rights, but one can surmise that TM did make a bid, but not a very serious one.

The Edge Financial Daily did not mention that TM made a bid, but an Astro statement that the rights cost the company a “higher price than anticipated” as “competitive environment drove the rights up” suggests TM did put in a bid, but was careful in not overpaying for the rights if doing so would make if very difficult to make its IPTV business profitable. We are positive that TM did not enter into a bidding war with Astro despite having the war chest to do so. Otherwise, TM would have likely paid a very high price for the rights but currently lacks the scale and subscriber base to recoup the bidding costs. Instead, we would prefer TM return excess cash to shareholders.

Whether TM will make a serious bid for the 2014-2017 will depend very much on its scale of IPTV ambitions. We think TM may make a serious bid for when the rights are up for grabs again in the future, if developments in Singapore is an accurate depiction of TM working to expand its service offerings from fixed line and broadband only, to triple-play services (fixed line, broadband, IPTV). Singapore Telecom recently won the EPL rights, outbidding rival incumbent StarHub.

Having not won the EPL, we believe TM will unlikely have another go at Astro by making a serious bid for the 2010 World Cup. Again, the lack of scale among the key reasons. Alternatively, TM may perhaps licence some 2010 World Cup football matches from Astro to provide an incentive for consumers to sign up for its retail high-speed broadband (HSBB) service due to be launched in 1Q10, but whether Astro is open to such arrangements and how the pricing will be worked out remains to be seen.

Red hot competition in India
EBITDA margins and earnings growth of telco stocks in India, including Axiata’s associate is expected to be under further pressure in the short to medium term as competition continues to escalate. Among the latest operator to cut tariffs is Axiata’s associate, Idea Cellular (IDEA IN, non-rated) in response to Reliance Communications’ (RCOM IN, non-rated) disruptive price plan early this month.

As mentioned in our note on Axiata dated Oct 7, we had expected Idea to respond quickly to Reliance’s disruptive price plan of INR0.50/min (US 1 cent/min) nationwide, believed to be among, if not the cheapest tariff in India then. Idea’s retaliatory action is imperative for it to minimise churn and maintain its growth trajectory, due to festivities during the next several weeks and protect market share in anticipation of new entrants. At least four new mobile operators are expected to enter in the crowded Indian market. Among the new entrants are Etisalat DB Telecom Pvt Ltd and Unitech Wireless Ltd.

On Oct 12, Idea raised competition by another notch with the announcement of a billing plan under which it will charge its subscribers in Mumbai INR0.40/min for local calls and INR0.50/min (US 1 cent/min) for national long distance calls and text messages. It is very likely that Idea will roll out its new billing plan to other circles in India to, as other mobile operators will likely respond soon with their own round of tariff cuts.

While overall mobile penetration is still fairly low at c.38% in India, the Department of Telecom predicted in a recent report that the high growth rate that mobile operators currently enjoy could taper off as early as end next year. Urban markets are largely saturated while rural and semi-urban areas do not offer the higher margins of urban markets. This may led to more pressure on average revenue per user (ARPU) as mobile operators expand their reach beyond the more wealthy urban dwellers.

With escalating competition, margins pressure and declining ARPU, mobile operators will find it increasingly difficult to maintain high earnings growth. During the month, Bharti Airtel reported disappointing 2QFY10 results as while net profit was up 13.4% y-o-y, it was lower 8% q-o-q. We will keep an eye on the intensifying competition in the Indian mobile landscape, given that Idea is the second largest component (after Celcom) to our fair value of Axiata.

DiGi’s 3QFY09 results review
DiGi’s 9MFY09 results were within house and consensus expectations. 9MFY09 revenue rose 2.2% y-o-y but net profit declined 12.2% y-o-y. The lower net profit was mainly due to EBITDA margin contraction, higher finance costs due to additional borrowings and higher operating expenditure from expanding its broadband services. EBITDA margins dropped 60 basis points q-o-q to 42.7% mainly due to A&P for its broadband expansion.

Subs growth rebounded in 3QFY09 as DiGi added 163k new subs (2QFY09: 75k) q-o-q to 7,393k subs. DiGi added 139k prepaid subs to 6,193k, while postpaid subs increased 24k to 1,200k. For the first time, DiGi disclosed its broadband subs base stood at 200k. There was a slight up-tick in ARPU as usage increased q-o-q. However, DiGi noted that usage still remained below pre-recession levels. Blended ARPU increased to RM55 (1QFY09: RM54) as blended AMPU increased to 228 minutes (2QFY09: 210 minutes).

DiGi declared a special net dividend of 75 sen/share, bringing total YTD net dividends to RM1.24/share (93% pay-out ratio). In addition, it has revised its dividend pay-out policy from 50% to a minimum 80% due to strong cash flow and a solid balance sheet. The move to raise its minimum pay-out may very well be in response to the impending listing of Maxis which is promising a minimum pay-out of 75%, and possibly 85% if market talk is true.

We reiterate our HOLD rating on DiGi while DCF-derived target price is trimmed from RM20.10 to RM20.00 (WACC: 6.9%, g: 2.0%) to reflect higher interest charges as a result of additional borrowings. No changes were made to our assumptions for subscriber growth and ARPU. Our FY09-11 EPS estimates are cut by c.1%. DiGi is accelerating is investment on 3G rollout, and is targeting to increase its broadband subs base from 26k to 30k by year end. Revenue from broadband is expected to be visible from 1QFY10 onwards.

Market Commentaries & Technical Analysis

2009-09-28T20:24:00.000-07:00

Investment Theme For 2009

*** UNCERTAIN ***

1. Privatization And M&As Deals

2. A Stronger Ringgit Policy

3. Implementation Of the Ninth Malaysia Plan

4. Asset Reflation Theme

5. Iskander Development Region (IDR) In South Johor

6. Eastern Corridor Development Programme (Petronas-Led)

7. Northern Corridor Economic Region

8. Sarawak Region Corridor

9. The Sabah Development Corridor

10. Sarawak Corridor of Renewable Energy (Score)

11. RM40 Billion Public Transport Expenditure

12. The Asia Petroleum Hub In Johor

13. The Solid Waste Management Play

14. Flow of OPEC Petrodollars

15. The Trans-Peninsula Pipe Project

*** UNCERTAIN ***

16. Water & Water-Related Play

17. A U-, V-, W- Or L-Shaped Global Economic Recovery

18. Fiscal & Monetary Pump-Priming & Normalization Of Corporate Earnings

19. The Economic Stabilization Plan & Mini Budget

20. Interest Rate Cycle (Speculating End Of Easing Cycle As Economy Recover)

21. Decoupling – Emerging Economies Is Disconnected From Developed Countries (Uncertain)

22. Liberalization Of The Services/Financial Sector

23. The Malaysian Government’s Reform “Train”

24. GLCs Revamp

25. The ‘Third’ Link Bridge (Eastern Johor) To Singapore (Uncertain)

26. A ‘Third Stimulus’ Package (Uncertain)

27. Market Liberalization (Paring Down In GLCs’s Stake)

Watch List In The Coming Week

1. 2010 Budget Announcement On 23 Oct 2009;

2. Refinement To The National Auto Policy In Oct 2009

3. Mega Project Calls For Tenders And Awards (LCCT, LRT extension)

Market Commentaries

It’s been a good run on the local bourse, but before the FBM KLCI can tirelessly speed up to the next pit stop, it needs a much needed breather before positioning for its bullish lap.

After heading north over the last six months (April 2009 – Sept 2009), and gaining 38.5% on a year-to-date (Sept 2009) basis to 1,214, it is no surprise that some resistance has emerged.

The FBM KLCI has been encountering strong selling pressure, ever since it penetrated the heavy psychological resistance level of 1,200.

The short-term negative technical reading is pointing towards a further pullback. Hence, the index may retest of the 10-day simple moving-average of 1,211 and the 1,200 psychological support soon.

Another source of concern is the Shanghai Composite Index which has broken below its short-term 30-day red moving-average line. If the Shanghai market does not break back above this short-term dynamic resistance, it could trigger an increased level of profit-taking activity among regional markets, particularly our local FBM-KLCI.

Investors are advice to be prudent and taking a little money off the table, especially with such significant gains in recent times. Moreover, Marc Faber said he would not be surprised if we have seen the peak of the market for this year (2009) because economic news is not going to improve very much.

Trading volume on the local bourse was thin during the three days as most investors were still away on the Hari Raya. Some institutional fund managers, especially government linked funds were still on Hari Raya leave.

Apart from the holidays, the lack of buying interest also contributed to low trading volume last week. The market is getting tired of the recovery story. It is at a crossroads now, awaiting fresh catalysts. Many institutional investors are on the sidelines.

Some view the market is that current valuations look a bit rich now. As a result, the market is due for correction. On the other hand, due to ample liquidity could lift the market further.

The bigger picture, however, remains positive.

In the coming weeks (Oct 2009), newsflow on new construction projects such as the RM1bil low-cost terminal and the RM7bil LRT extension will start to filter through.

Also, speculation on potential policy measures in the upcoming 2010 Budget on Oct 23 2009 could give the market a boost in the coming weeks.

Pending any tangible bearish signs, positive outlook for the FBM-KLCI remains after this wave of profit-taking activities. Owing to the absence of major negative catalysts, the index should be able to sustain above these support levels for now (Sept 2009).

Investors are advice to track the leads from Wall Street and the development of the G-20 summit in Pittsburgh to assess near-term market conditions.

The potential share placements by government-linked companies such as Khazanah Nasional Bhd as a win-win proposition for Malaysia as they improve the free-float and liquidity while giving investors the opportunity to ride on the upside of the market. Placements can also help renew foreign investor interest and drive a re-rating of the market.

By CIMB … It maintains end-2010 KLCI target of 1,400, based on an unchanged mid-cycle price/earnings of 15 times. Malaysia’s dividend yield of close to 5% is an added attraction, being the highest in the region.

Technical Analysis

The support line for FBM KLCI is pegged at around 1,200 to 1,210 points, with immediate resistance at 1,220 - 1,240 points. The breakout level is marked at around 1,190 to 1,195 points.

The FBM KLCI may hit its saturation zone at 1,237.25 to 1,248.34 soon, before risks to the downside increase greatly. Investors are urged to remain cautious at the present (Sept 2009) “lofty” levels that the local stock market have attained.

The ample share placements and off-market deals that have been happening in the background, arguing that these are obvious pre-cursor to an impending market correction.

With market breadth and volumes shrinking, coupled with the emerging weak and bearish technical signals, it is just a matter of time before the benchmark index heads south. Thus, he advises investors to trade with a short-term time frame.

*****************************

After erasing the recent peak and overcoming the 1,200-point monster barrier, Bursa Malaysia’s principal index moved forward to establish a new high for the year (Sept 2009), hitting 1,210.36 session amid improving liquidity, aided largely by the strong performance of overseas equities.

A positive breakout has been detected, signalling an end to the three-week-old sideways consolidation phase. Going forward, it usually would set the stage for a rally, and based on the daily chart, the key index may reach the returning line of the existing upward channel, now (Sept 2009) resting at approximately 1,280 points.

The next upper strong resistance is envisaged at 1,300–1,305 points. However, given the modest volumes, the speed of ascent may be gradual, unless there is evidence of aggressive third-quarter 2009 window-dressing activities coming up.

Before arriving at the upper boundary of the existing channel, the FBM KLCI will encounter resistance at 1,220 points, 1,240-1,250 points and 1,260 points.

Technically, the indicators are bullish, especially the MACD, implying the market is likely to scale new heights, provided there are no nasty surprises from abroad, particularly the United States and China.

Initial support is seen at 1,196.46 points, followed by the 14-day simple moving-average (SMA) of 1,183 points, the 21-day SMA of 1,178 points, the 50 day MAV lines (1138). The 200 day MAV line is at 1106.

The lower floor is resting at 1,160 points and the recent bottom of 1,153.97 will now act as the base.

Undermining Factors

1. Blowup In US Subprime Loans & Shaky Financial Assets Associated With Them And As A Result Of Re-pricing Or Revaluation Of Risk Contributed To A Squeeze In The US Credit Markets (Stabilizing);

2. Malaysia Political Uncertainty;

3. Fear, Uncertainties, Global Liquidity Crunch & Economic Fallout (Stabilizing);

4. Volatile Foreign Exchange Market;

5. A Slowdown In Global Economy (Rate Of Decline Has Started To Moderate Since March 2009);

6. Commodities Prices (Strengthening);

7. A Global Deflationary Threat -> Hints Of Recovery – Fear Of Inflation

8. Threats Of High Commodities Prices And US Dollar Crisis

Unpredictable Risks/Surprises

1. Terrorist Attack –

2. Oil Supply Disruptions –

3. A Pandemic Disease – Swine Flu

4. Financial Shocks – Unwinding of Yen/Dollar Carry-Trade Funds, China’s Stock Market Bubble, Global Liquidity Crunch Resulting From Blowup In US Subprime Loans And Shaky Financial Assets Associated With Them & Falling Dollar;

5. Major Social And Geopolitical Upheaval –

Equity Strategy: Easing Malaysia Political Uncertainty, Outcome Of The Credit Crunch And Subprime Loans Crisis Stabilizing, Strengthening Commodities Prices, Stable Global Growth, Moderating Inflation, Easing Monetary Policy & Fiscal Stimulus Measures … Second Leg Global Recovery (Sept 2009 Onwards) !!!

Recession – Recovery – Growth – Boom - Burst

(Transition From One With China As Sole Driver To A More Balanced US/China Model)

a. Global Inflation Outlook: Controlled Versus High

b. The US Dollar Carry Trade, The Marriage of The Dollar And Oil Is Growing Estranged & Why Dollar Is Weak Since Aug 2009

c. The Malaysian Equities Market By Nomura, Morgan Stanley & CLSA

d. The US Economy By Treasury Secretary Timothy Geithner, Warren Buffet, The Fed

e. The Good, The Bad & The Ugly Aspects Arising Since Sept 2008 …

f. Market Liberalization - Paring Down Of Government Stakes In GLCs … To Increase Their Stock Liquidity

g. Betting On Next Leg Global Recovery (Sept 2009 Onwards) ... Transition From One With China As Sole Driver To A More Balanced US/China Model

h. What’s NEXT For The Malaysian Economy … The Next Challenge Is To Sustain The Recovery & Investing In Equities On Expectation Of Second Round Recovery

i. What’s NEXT For The Global Equities Market … WHAT MATTERS MORE TO MANY DEVELOPING MARKETS NOW (AUG 2009) IS WHAT CHINA , NOT US, DOES WITH POLICY

j. What’s NEXT For The US & China Equities Market

k. Jims Rogers … Next Commodity Bull Run Had Just Begun, Bets In Airlines, Agricultural Land, Water

l. The Asian Equities Markets … Investors Should Start Accumulating On Weakness During 3Q2009, To Position For Further Upside Later 2009.

m. What’s NEXT (2H2009) For The Malaysian Equities Market …

n. Carry Trades Are Making A Come Back Into Emerging Markets

o. High Commodities Prices & US Dollar Crisis Could Pose Threats To Global Economic Recovery In Coming Months (June 2009 & Beyond).

a. Global Inflation Outlook: Controlled Versus High

The very worst of the economic downturn is now (Sept 2009), almost certainly, behind us. Across the world, investors are cautiously emerging into the faint sunlight of a new economic dawn, and starting to hope for the best.

But even as we start to experience optimism (or less pessimism) about the future, a fear is also fermenting. The fear of higher inflation has been unleashed.

Most professional economists, including those of the world's main central banks, do not think inflation will be a problem for the advanced economies of the world. The range of views from investors is very wide, however. Some investors think that a Japan style deflation is imminent. Some investors believe inflation will tip into hyper-inflation (a view where the only sensible investment strategy could appear to be to stock up on canned food and bottled water, as normal economic activity collapses).

First, it is worth thinking about the sort of inflation ranges that are "controlled" versus "high". Generally speaking, if inflation averages about 2.5 percent or 3 percent over a period of a few years, economists consider the pricing environment to be "controlled".

This suggests that inflation should not go too far above 5 percent -- for were it to do so, investors and workers would question whether in fact inflation would continue to revert back to its long term average. What policy makers need to avoid is "high" inflation - numbers that go above 5 percent and then stay there.

What is wrong with higher levels of inflation? The main risk is that higher inflation would add an element of uncertainty to economic markets. If, after years of relatively well behaved inflation pressure, prices start rising more rapidly, investors would become uncertain about the future path of inflation.

At the moment, investors can assume that over a period of some years inflation in the major economies will average out around 2.5 percent to 3 percent. If something happens to challenge that assumption, investors will want an appropriate insurance premium. If an investor feels that inflation could rise as high as (say) 10 percent, they will demand compensation for that risk. This risk is what economists call "inflation uncertainty risk". Inflation uncertainty risks runs as high as 1 percent to 1.5 percent, and it is an addition to the cost of borrowing money.

This is where the real danger of inflation comes in. If the cost of borrowing money rises, companies will borrow less. If companies borrow less, they will invest less. If companies invest less, they will be less efficient - and if companies are less efficient, the economy overall is less efficient. In other words, if high inflation increases inflation uncertainty risk, economic growth is almost bound to suffer.

High inflation will also add to government debt burdens. This often seems counter-intuitive (people talk about governments "inflating away" debt), but in fact government debt is five times more likely to rise or hold steady than it is to decline under a high inflation environment. This is because governments need to refinance their debt frequently.

Around 55 percent of the US national debt has to be refinanced in the next two years (2010-2011). If the US government were to create inflation, bond investors would punish the US Treasury by raising bond yields faster than inflation increases (and the increased debt service cost would increase government debt levels).

Why is inflation likely to remain contained? There are two good reasons to suppose that inflation will remain under control:-

· First the world economy has plenty of spare capacity at the moment. Factories sitting idle, unemployed workers - these are resources that can be called upon as growth starts to recover. Any pressure for prices to rise will be held in check by using this pool of under utilized resources.

· Second, give central bankers some credit. The world's monetary authorities have spent three decades (1970s-2000s) controlling inflation. They know how to keep inflation in check, and (at least in recent years) they have tended to be rather good at achieving their policy objective. Central bankers understand that inflation generates high economic costs. As a result, expecting policy makers to respond appropriately to any signs that inflation is going to be too high.

What about commodity prices? Certainly commodity prices could rise as the world economy recovers (in particular, as emerging markets recover). However, commodity prices are only a small part of final inflation for most developed economies.

Around 70 percent of US inflation is actually caused by (domestic) labor costs, for example. Commodities contribute around 15 percent of US final inflation. As long as labor costs are held in check by spare capacity, major economies are likely to continue to enjoy low inflation.

Commodities are more of a threat to emerging market inflation rates (as commodities tend to have a higher weight in inflation calculations for emerging markets). But even taking that into account, inflation is not likely to be an economic concern in the months(Oct 2009 & Beyond) ahead.

b. The US Dollar Carry Trade, The Marriage of The Dollar And Oil Is Growing Estranged, Why Dollar Is Weak Since Aug 2009 …

The US Dollar Carry Trade …

For years (1990s-2000s), the yen was the currency of choice to fund international carry trades. But is the dollar starting to take its place (Sept 2009)?

Negligible US interest rates, its quantitative easing measures and little sign that the country is set to withdraw from its ultra-loose monetary policy anytime soon leaves it in a similar position to Japan at the start of the decade (1990s).

This puts the dollar in exactly the same position as the yen back in 2001 and makes it naturally attractive as a carry trade funding currency. The dollar is the new yen.

The carry trade strategy, in which low-yielding currencies are sold to finance the purchase of riskier, higher-yielding assets, was widely used in the years prior to the eruption of the financial crisis.

The low-yielding yen, and to a lesser extent the Swiss franc, were the most widely used as funding currencies, pushing them down to multi-year lows against a raft of currencies as risk appetite was supported by an abundance of liquidity and rallying asset markets. Indeed, both currencies rallied sharply as turbulence on global markets erupted last autumn (2008) and forced investors to unwind their positions.

But rather than lose their value as asset markets have shown renewed signs of strength and risk appetite has improved in Sept 2009, both the yen and the Swiss franc have rallied against the dollar. Indeed, the dollar fell to a seven-month low of Y90.18 against the yen in Sept 2009 and on Tuesday hit a one-year low of SFr1.0318 against the Swiss franc. The dollar has not just been weak against the yen and Swiss franc, however.

There is a change in dynamic that has made the dollar a more attractive funding currency to explain its recent fall.

The Marriage of The Dollar And Oil Is Growing Estranged …

Their divergence has snapped a longstanding correlation, for the time being at least (Sept 2009). A weakening dollar generally accompanies higher oil prices. The relationship has a solid basis. Oil is bought and sold in dollars, forcing exporters to raise prices to compensate for a less potent currency.

Higher crude prices also worsen US trade balances, pressuring the dollar. Investors concerned that quantitative easing will lead to runaway inflation and debased currencies have also flocked to commodities as a hedge.

Many are expecting a continuing decline in the dollar, combined with reinvigorated oil demand, will push oil prices higher. For now (Sept 2009), an amply supplied oil market is repelling any price support from the currency.

Now (Sept 2009) that expectations of an economic recovery are widespread, we are back to people recognising the size of the US debt and ... fiscal deficits and back to the flight from the dollar.

Because there isn’t enough of a rebound of real demand for oil and stockpiles have accumulated, we’re not seeing a spike in oil prices yet.

In the past, some big exporters have called for oil to be denominated in a basket of currencies to blunt the impact of dollar weakness, but to little avail. The main variable to consider is the import structure of oil producing countries. If they have to buy most of their imports in US-dollar denominated prices, probably they will prefer to keep oil US denominated.

While official US interest rates, such as those in Japan and Switzerland, are moored at levels close to zero, it is the rates on offer in the interbank market that are crucial in determining the profitability of carry trade strategies.

In Aug 2009, three-month dollar Libor lending rates fell below those of the yen and later dropped below those of the Swiss franc for the first time since November 2009, effectively making the dollar the cheapest funding currency.

Indeed, at just 30 basis points, three-month dollar lending rates are falling towards levels that led to two waves of yen-funded carry trades that weighed on the Japanese currency between 1996 and 1998, and then between 2001 and 2008.

Why Dollar Is Weak Since Aug 2009 …

The usual explanation for dollar weakness over recent months (Aug – Sept 2009) has been an improvement in risk appetite. This weighs on the dollar as emboldened investors sell the currency to fund investments in higher-yielding assets elsewhere.

But this fails to adequately explain the secular drop in the dollar in recent weeks (Sept 2009). Indeed, it is not clear that there was actually much further improvement in risk appetite in Sept 2009.

A likely explanation for the drop in the dollar is that it is increasingly becoming a favoured funding currency, taking over the mantle from the yen. This is likely to continue to put pressure on the dollar: Ultra-low interest rates suggests that the dollar will remain under pressure for a while yet, especially as the Federal Reserve continues to highlight that US interest rates are not going to go up quickly.

Speculative positioning data seem to back up the shift against the dollar, revealing the extent of recent (Aug – Sept 2009) deterioration in dollar sentiment. According to figures from the Chicago Mercantile Exchange, which are often used as a proxy for hedge fund activity, aggregate bets against the dollar versus the euro, yen, Swiss franc, sterling and the Australian, New Zealand and Canadian dollars in Sept 2009 rose to their highest levels since July 2008, when the dollar hit a record low against the euro.

The fact that high-yielding currencies have rallied for most of this year (Till Sept 2009) while the traditional carry trade funding currencies – the yen and the Swiss franc – have not weakened throws up one of two conclusions.

Either the carry trade has not returned and high-yielding currencies are strong in spite of any yield attraction, or another currency has supplanted the yen and the Swiss franc as the funding currency of choice. If this is the dollar it could imply that the greenback is in real danger.

It is certainly possible given the dollar’s weakness, negative positioning, and the fact that short-term US interest rates are down to Swiss and yen levels that the dollar has assumed the position of the carry trade funding currency of choice.

c. The Malaysian Equities Market By Nomura, Morgan Stanley & CLSA

By Nomura … Sept 2009

Taking a cue from the past post-crisis rallies and historical earnings upgrade cycles, it remains bullish. Economic recovery should continue to underpin earnings upgrades, supported by ongoing stimulus spending.

From a regional perspective, however, Malaysia could lag as cyclical markets elsewhere offered better returns.

Nomura noted that in the past 1997/1998 Asian financial crisis, banks had rebounded by over 200 per cent over a 12-month basis.

By Morgan Stanley … Sept 2009

The Malaysian market has developed a defensive nature, outperforming during market downturns, and underperforming during market upturns, despite having generally fallen by the wayside amid structural issues in the economy.

Nevertheless, from a macro perspective, it still expected Malaysia to deliver a reasonable growth outlook in 2010. Its 2009 and 2010 forecasts of -3.5% year-on-year (y-o-y) and +4.3% y-o-y respectively, are below consensus’ -3% y-o-y for 2009 but in line with the +4.3% y-o-y for 2010. It sees 2011 growth at 4.8% y-o-y.

However, it noted a dichotomy in terms of market sentiment. Whilst certain quarters of the market have been eager to get bullish on Singapore given the global rebound, it does not sense the same sentiment with Malaysia despite Malaysia being the second-most exposed to global trade within Asean as well as a commodity play.

The three-legged growth model of manufacturing trade, commodity trade and the public sector economy was useful in assessing the Malaysia outlook.

Trade was slowly but surely turning around as manufacturing faced the same amid an inventory snapback. Manufacturing production has already picked up ahead of trade amid a lesser pace of destocking in 2Q09. On a three-month moving average basis, exports had shown some second-order derivative. The US ISM New Orders Index (which leads by about four months) showed that a more evident turnaround was in the pipeline.

Malaysia, being the top net commodity exporter (mainly of oil and crude palm oil) in Asia, was poised to be the biggest beneficiary of higher prices. Limited global spare capacity and El Niño weather conditions could keep crude oil and edible oil prices supported at elevated levels.

Commodity trade aside, the large natural resource endowment also helps to fill government coffers in terms of revenue. Revenue from commodities constitute about 40% of total government revenue, which in turn helps to support what is one of the largest public sector economies within Asia.

Expecting government expenditure to pick up further on a sequential basis as spending tended to be back-end loaded in the second half (2009) of the fiscal year.

While Budget 2010, to be delivered on October 23 2009, would be less expansionary, expecting Malaysia to have one of the highest fiscal deficits within Asean for next year (2010).

Global backdrop and the political climate as two key risks for Malaysia.

As it is, Malaysia’s manufacturing exports are already under structural pressures, losing global competitiveness.

Separately, the coordination within the federal government given the two-party system and the coordination between the federal and state governments would be key to watch in terms of how it would affect the workings of the public sector economy.

Beyond the cyclical turnaround in 2010-11, structural gaps needed to be addressed in the longer term. Malaysia faces a ‘Dutch Disease’ of sorts, in its view”. It refers to the phenomenon where the commodity resource sector displaces the export manufacturing sector.

When commodity exports augmented the current account balance either due to a commodity boom or new supply discovery and real exchange rates appreciated, the manufacturing export sector suffered.

Capital and labour shift into the commodity sector due to its profitability and as manufacturing competitiveness erodes. Factor inputs also move towards production of non-tradeables to meet the increase in domestic demand.

Excess domestic demand from positive terms of trade could also lead to real currency appreciation, which further de-industrialises the economy. The benefits of technological know-how and productivity growth from manufacturing would whittle away and macro vulnerability to the commodity sector increased.

Malaysia’s real effective exchange rate appreciated by a maximum of 11% between 2005 and mid-2008, suggesting that there could be some causality from the Real Effective Exchange Rate (REER) to the competitive erosion of the manufacturing export sector.

The growth buffer in a young labour input and commodities trade had reduced the sense of urgency to increase competitiveness (productivity) and allowed inefficiencies like the affirmative-action policy to go on for longer.

Indeed, hard infrastructure standards are relatively high as the government spends sizeable amounts on construction but soft infrastructure gaps have persisted. The upshot remains the same — a competitive erosion in exports and FDI that could serve to undermine the economy.

Despite the benign global conditions, Malaysia’s trade surplus of machinery and transport equipment fell from US$10.5 billion in 2000 (11.2% of GDP) to US$9 billion in 2008 (4.1% of GDP). In comparison, the trade surplus of China (-US$9.3 billion to US$231.3 billion), Korea (US$41.2 billion to US$119.1 billion), Taiwan (US$19 billion to US$45.1 billion) and Singapore (US$11.2 billion to US$22.9 billion) all saw a positive delta between 2000 and 2008.

Machinery and transport equipment constituted about 49% of Malaysia’s total exports and Malaysia’s global share of these exports declined from 2.3% in 2000 to 1.7% in 2007 after China joined the WTO and saw its global share increase from 3.1% to 11.6%.

Specifically within the machinery and transport equipment segment, telecommunications equipment (from 4.5% in 2000 to 2.4% in 2007) and electronic data processing/office equipment (5.6% in 2000 to 5% in 2007) saw the most pressure in terms of declines in global share.

As net FDI in certain economies in the region (China, India, Singapore, and Thailand) continued to climb higher, net FDI in Malaysia had generally trended down from the peak in the early 1990s, and was now dipping into negative territory. Net FDI (4Q trailing sum) stood at -3.8% of GDP in June 2009 from +2.4% of GDP in June 2004.

Execution of the government’s reform measures would be key as the policy intent behind them served to arrest the structural weakness in the economy. Investors will now (2009) be closely watching for the government’s ability to execute on these measures.

By CLSA Asia-Pacific Markets … Sept 2009

It has described Prime Minister Datuk Seri Najib Tun Razak’s current positive economic and social reforms as "Najibnomics", given his economics background.

With his background on industrial economics from the University of Nottingham, Najib had been quick to effect various fiscal, government and structural reforms.

They include liberalising the New Economic Policy, ensuring greater transparency, speeding up the award of government infrastructure projects and improving ties with Singapore to draw more foreign direct investments into Iskandar Malaysia, a development region in Johor twice the size of Singapore.

In its special strategy report on Malaysia, Najib had covered good ground since taking office on April 3 2009 with a number of positive policies and actions aimed at stimulating the local economy, attracting foreign investments and foreign talent, reducing bureaucracy, tackling crime and corruption, effecting greater accountability and promoting national unity (through the 1Malaysia concept).

Although he has until March 2013 to call for the next general election, he has little choice but to work quickly as the clock is fast ticking. Najib not only has to implement new policies to reform the government and turn around the economy simultaneously, he has to deliver some decent results to ensure that the ruling Barisan Nasional coalition performs better than in the last general election in March 2008.

On the economic front, expecting the Malaysian economy to recover in 2010 while consumer sentiment was also improving.

In view of Malaysia's high savings rate at 43.3 per cent of the GDP which would support private consumption while the impact of weak imports from Western countries would not be too severe, it pointed to an economic recovery next year (2010).

Malaysia's 2009 GDP has been forecast to decline by 4.0 to 5.0 per cent this year (2009) compared to a growth of 4.5 per cent last year.

CLSA's expectations are in line with that of Bank Negara Malaysia which indicated that the country's growth outlook for the second half of 2009 is expected to improve after the economy contracted at a slower rate of 3.9 per cent in the second quarter of 2009 following a 6.2 per cent contraction in the Q1 2009.

The central bank said there were increasing signs that conditions in the global economy were stabilising as the pace of the decline in economic activity was moderating in advanced countries.

There has not been any high-profile debt default while non-performing loans in the banking system remain benign. Companies have merely been hit by shrinking revenues, thinning margins and higher receivables, while corporate governance issues have been sporadic. Most companies believe that the worst is over. Having said that, they do think the way forward will remain challenging as unemployment continues to creep up.

In terms of household income, 44 per cent said they experienced a decline in income while 10 per cent experienced an increase.

About 70 per cent said they had changed their spending patterns, reducing expenditure on food, clothing as well as leisure. Essentials like mortgages, utilities, transport, children’s education, healthcare and communications had been largely unaffected by the downturn.

By AMBank … Sept 2009

The general outlook of the FTSE Bursa Malaysia KL Composite Index (FBM KLCI) remains bright.

It had raised its fair value for the FBM KLCI to 1,350 points from 1,190 based on 2010’s price earnings (PE) ratio of 16.5 times.

Anticipating a correction phase in the third quarter of 2009 “may be behind us,” or at least “the risk of pullback was dissipating.”

There were still lingering worries over valuation after the steep run-up in share prices but the macro environment flushed with liquidity was most conducive to the equity market.

More importantly, macro fundamentals are now (Sept 2009) pointing towards a start of a growth cycle moving into the fourth quarter 2009. There is less doubt over a global economic recovery. Inflation expectations are muted, implying that the interest rate cycle is not going to rise anytime soon.

It is forecasting gross domestic product to expand by 3% in 2010.

Historically, an earnings-driven re-rating from trough to peak of the market had never been shorter than 12 months. Rally in 1998/99 and 2001/02 sustained for 16 months and 12 months respectively. This present rebound (April 2009 – Sept 2009) is just six months from lows.

It has forecast corporate earnings to expand by 17% in 2010 or more than two times faster than its trend-average growth rate of just 7% in 2000 to 2009. It expects the revision cycle to gain traction. Earnings drivers of the heavyweight sectors, such as banks and plantations, were solidifying.

By Kim Eng Research … Sept 2009

There were clearer signs of rebound in Malaysia as seen in semiconductor, CPO and even property sales.

The stock market has risen 33% year-to-date (Sept 2009) but still lagged other Asian bourses. Valuation have just broken out of the post-Asian crisis resistance level of 16 times and trading at financial year 2010 (FY10) PE ratio of 17 times on earnings per share growth of 17%.

Opine that it needs strong catalysts for the stock market to continue its northbound track, failing which it could settle back at the resistance of 16 times of around FBM KLCI 1,100 points.

d. The US Economy By Treasury Secretary Timothy Geithner, Warren Buffet, The Fed

By Treasury Secretary Timothy Geithner …

Citing emerging financial sector stability, a number of government rescue efforts in place since the Wall Street crisis are no longer needed and that banks will repay US$50 billion in rescue funds over the next 18 months (Sept 2009 & Beyond).

US still has a ways to go before "true recovery takes hold. But improved conditions in the banking industry have prompted Treasury to begin winding down emergency support programs implemented after the collapse of Lehman Brothers last year (2008).

The cautious but upbeat tone reflects a growing push by the administration to present the government financial rescue efforts as a success amid lingering public apprehension about the economy.

Banks have already paid back $70 billion of the $250 billion that the government injected over the past year (2008) to boost their liquidity. Only $11 billion of that infusion has occurred since he became Treasury secretary earlier this year (2009).

A major Treasury program that had been used to guarantee up to $3 trillion in money market mutual fund assets would be closed down on schedule on Sept. 18 2009. The program had no direct cost to taxpayers and actually earned more than $1 billion in fees paid by the mutual fund industry.

A series of emergency program initiated by the Federal Deposit Insurance Corp. and the Federal Reserve have also begun to phase out.

Still, unemployment stands at 9.7 percent and administration officials say it could rise to 10 percent in the coming months (Sept 2009 & Beyond).

Foreclosure rates are surging and the mortgage market remains tight. Geithner acknowledged that the economy would still face "more than the usual ups and downs."

By Warren Buffet …

The U.S. must address the massive amounts of “monetary medicine” that have been pumped into the financial system and now (Aug 2009) pose threats to the world’s largest economy and its currency.

The “gusher of federal money” has rescued the financial system and the U.S. economy is now (Aug 2009) on a slow path to recovery. While he applauds measures adopted by the Federal Reserve and officials from the Bush and Obama administrations, Buffett says the U.S. is fiscally in “uncharted territory.”

The government is trying to spark business and consumer spending through a $787 billion stimulus plan spanning tax cuts and infrastructure projects, while the Treasury and the Fed have spent billions more on separate programs to rescue financial institutions and resuscitate the banking system.

The U.S. budget deficit is forecast to reach a record $1.841 trillion in the year that ends Sept. 30 2009.

Enormous dosages of monetary medicine continue to be administered and, before long, the US will need to deal with their side effects. For now (Aug2009), most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself.

The “greenback emissions” will swell the deficit to 13 percent of gross domestic product this fiscal year (2009), while net debt will increase to 56 percent of GDP

The U.S. budget deficit reached a record for the first 10 months of the fiscal year and broke a monthly high for July 2009. The excess of expenditure over revenue for July 2009 climbed to $180.7 billion compared with a $102.8 billion gap in July 2008 as the government spent more than in any month in U.S. history.

Officials must still do “whatever it takes” to get the U.S. economy back on its growth momentum. Once recovery is gained, however, Congress must end the rise in the debt-to-GDP ratio and keep our growth in obligations in line with its growth in resources.

With government expenditures now (Aug 2009) running 185 percent of receipts, truly major changes in both taxes and outlays will be required. A revived economy can’t come close to bridging that sort of gap.

The dollar will weaken as the swelling U.S. deficit erodes its status as a reserve currency. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar’s destiny lies with Congress.

By The Fed … dated Sept 2009

The Federal Reserve upgraded its assessment of the U.S. economy, saying growth had returned after a deep recession, while reiterating its promise to hold interest rates very low for a long time.

The Fed would slow its purchases of mortgage debt to extend that program's life until the end of March 2010, in a move toward withdrawing the central bank's extraordinary support for the economy and markets during the contraction.

The U.S. central bank, as widely expected, held its benchmark overnight lending rates at close to zero percent.

The Fed said that information received since the Federal Open Market Committee met in August 2009 suggests that economic activity has picked up following its severe downturn.

U.S. government bond yields ended lower on the news that the central bank had reiterated a pledge to keep rates ultra-low for an extended period.

The Fed would gradually slow the pace of its purchases of mortgage-related debt in order to promote a smooth transition in markets as the Fed has been the biggest buyer. But it made clear it would purchase the full amount of US$1.25 trillion in agency mortgage-backed securities.

The U.S. central bank on Wednesday played down concerns about price pressures in an economy where the jobless rate is at a 26-year high and factory capacity is greatly underutilized.

e. The Good, The Bad And The Ugly Aspects Arising Since Sept 2008 …

The demise of the venerable Lehman Brothers September 2009 marked a defining moment for the world’s financial and economic systems. But the crisis did not last as long as expected, there are understandably structural changes going on in many countries as they adapt to the new economic realities.

The Good

i. Improving Outlook ...

The global economy is responding well to the massive injection of government spending worldwide.

It is generally perceived that the downturn has bottomed out about six months ago (March 2009). There are now (Sept 2009) some clear signs that recovery is on the way for most countries, though the process remains gradual and vulnerable, and some economists are arguing about the sustainability of those comforting indicators.

The head of the International Monetary Fund (IMF), Dominique Strauss-Kahn (Sept 2009) said a recovery of the world economy could occur earlier than expected, at the beginning of next year (2010).

The global financial institution has recently revised upwards its forecasts for the global economy. It now (Sept 2009) expects the world economy to shrink 1.3% this year (2009), a tad better than its earlier projection of 1.4% contraction, before growing again at 2.9% next year (2010), compared with its 2.5% growth projection earlier.

ii. Asia Leading ...

Asia seems to be leading the global recovery process. Most economies in this region started turning around in the second quarter of the year (2009). Malaysia’s gross domestic product (GDP) is expected to post growth by the fourth quarter of 2009.

The quick rebound of Asia seems to support the long-prophesied rise of the region as the next economic power. Economists are arguing that the crisis has accelerated the tectonic shift in world economic power to the emerging markets of Asia, in particular, China.

Asian economies suffered a downturn arising from the financial crisis due to the collapse in exports demand from industrialised economies that were going through a deep recession.

Exports demand for Asian goods is still sluggish till this day, but the Asian economies are improving faster than expected, thanks to the expansionary packages that are stimulating domestic demand.

iii. New Platform ...

Asia is coming to grips with the fact that external demand will most likely remain in the doldrums for a long time, as consumers in industrialised economies become more frugal. Hence, the export-dependent region has been displaying a sincere desire to shift to a new economic model – one that is more inward-looking.

Efforts are now (Sept 2009) moving towards boosting domestic consumption for sustainable growth. This may take some time as such efforts would involve ideology changes – that is, from the present (Sept 2009) “save more, spend less” to “save less, spend more”.

The Bad

i. Inflation Threat ...

The economy bouncing back from the trough has brought with it a quick, perhaps too soon, rebound in the global crude oil prices, which are currently (Sept 2009) hovering around the US$70 per barrel level, compared with less than US$40 per barrel at the end of last year (2008).

This gives rise to the risk of inflation, which could jeopardise the nascent recovery process. Nevertheless, the inflation risk at this stage remains subdued, as most countries are still in a deflationary stage.

Technically, Malaysia too seems to be experiencing a deflation as indicated by its consumer price index (CPI). The negative CPI for the third consecutive month in August 2009 gives the impression that the general price level of goods in the country has fallen, but as we are well aware, this is not the case.

The negative CPI is more reflective of the decline in fuel prices over the past one year (2008). But in general, the prices of most goods remain sticky since they were raised in tandem with the steep rise of fuel prices in July 2008r.

To be cautious, the current (Sept 2009) environment of low interest rates provide room for inflation to seep in. So, central banks could raise interest rates earlier than expected to rein in the risk of inflation.

ii. Bubbles Forming?

The expansionary monetary policies are feeding cheaper funds into the economy. While liquidity remains comparatively tight in most industrialised economies, emerging markets in Asia are flushed with liquidity.

Financial experts are now (Sept 2009) warning of potential asset bubbles, especially in property, forming in Asia. Liquidity in the region is far too abundant for policymakers to keep interest rates at their current (Sept 2009) lows.

Low growth and the lingering uncertainties are setting the conditions for bubbles to emerge as officials maintain their accommodative monetary stance. In an economy flushed with liquidity, prices of assets can increase even if growth fundamentals appear unsupportive.

There are already signs that the leverage in Asia is building up, while that of the West is falling. Since the collapse of Lehman Brothers, the Asian leverage has risen from 15x to 17x for the second quarter of this year (2009). The Western leverage, on the other hand, has decreased from 34x to 28x in the same period.

Asia’s leverage is coming off all-time lows and will probably go higher. This is especially so for Hong Kong, China, India and Indonesia.

iii. Joblessness ...

Meanwhile, the labour market conditions in the global economy have not improved much. Unemployment rates in most countries remain high, and they are rising.

This problem does not only plague the industrialised nations, but also some Asian economies, including China.

The unemployment rate in Malaysia was at a manageable 4% for the first quarter of 2009. The rate is expected to increase to 4.5% for the full year, compared with 3.3% in 2008.

The unemployment situation in Malaysia is mainly affecting the manufacturing sector, which is currently awash with excess capacity due to weak external demand.

iv. Declining Investments ...

Excess capacities across industries in most economies have caused the decline in private investments across the board.

In Malaysia, the sharp decline in private investments activities is due mainly to excess capacity in the manufacturing sector. Industry observers say that there could be a prolonged recovery for private investments in Malaysia due to the prevailing excess capacity.

vi. Widening Deficits ...

While the massive injection of government spending worldwide have managed to pick up the slack in most economies, higher government spending amid declining revenues have pushed some of them to face historically high levels of fiscal deficits.

This is particularly so for the US, whose fiscal deficit is expected to rise above US$2 trillion by the end of the year (2009).

Malaysia has been in a fiscal deficit position since the Asian financial crisis in 1998. The present (Sept 2009) pump-priming activities is expected to widen its fiscal deficit to 7.6% of the country’s GDP this year (2009), compared with 4.8% in 2008 and 3.2% in 2007.

Some countries like Singapore are luckier as they are merely depleting the surpluses that they have accumulated through the boom years to finance their expenditure.

vii. Protectionist Measures ...

On the global trade front, many countries seem to be putting up barriers to protect their own turf. This is despite policymakers preaching the opposite – that protectionism will only hurt global recovery. A case in point is the recent spat between China and the United States.

The Ugly

Greed Is Back …

With the improving economic outlook, the appetite for risk has also returned as investors seek to make more easy money.

Stock markets in major economies are rising. It is widely feared that their valuations are getting stretched to levels unjustified by earnings growth. It has also been reported that Western financial institutions are once again betting on high-risk instruments for better margins.

Unfortunately, as long as there is money to be made, greed is pretty much a virtue. Yet, this is the very sin that has brought the global economy into this mess. Generally the fear of missing out on the global rally far outweighs the risk of a potential sharp correction ahead.

f. Paring Down Of Government Stakes In GLCs … To Increase Their Stock Liquidity

The Government is putting its money where its mouth is. Recent developments seem to suggest that it is finally ready to reduce its shareholding in the government-linked companies (GLCs), something that has been talked about for a long time.

A strong indication surfaced on Sept 10 2009, when Khazanah Nasional Bhd placed out a 5% stake, or 55 million shares, in Malaysia Airports Holdings Bhd.

At the same time, two other Khazanah-related companies, namely CIMB Group Holdings Bhd (in which Khazanah owns 28.4%), and Pos Malaysia Bhd (32.2%), reported large off-market share placements.

On Sept 10 2009 as well, 30 million CIMB shares, or a 0.8% stake, changed hands at RM10.38 per share. It was reported that the seller is Takrif Aspirasi Sdn Bhd. CIMB’s eight largest shareholder. The following day, Utilico Emerging Markets Ltd sold 25 million Pos Malaysia shares, or a 4.7% stake.

While these two off-market transactions are unrelated to Khazanah, they support the argument that now (Sept 2009) may be a good time for the government investment arm to sell shares in the GLCs.

Rumours began swirling as to which investee company of Khazanah will be next to see a similar share sale.

That aside, market watchers believe that Prime Minister Datuk Seri Najib Razak, who is also Finance Minister, is serious about wanting the Government to lower its corporate holdings and attract new investors.

He is thoughtful in allowing the private sector to discover its own path and for the local bourse to eventually flow with liquidity.

Government’s desire to pare down its stake in GLCs will get more participation, and in an overall sense, there’s greater market liberalisation. This also profiles Malaysia as an institutional haven for global investors.

The stock market needs more shareholder diversity, and this means fewer shares in the hands of the usual local institutional funds.

Long-term shareholders such as sovereign wealth funds that have a strategic interest will be value adding for the GLCs in many different aspects. A sovereign fund won’t sell for the sake of trading gains. In fact, they may increase their stake over time, as they always need to be invested.

It is true that for a country to have long-term stability, it still needs its own capital base and local investors. However, foreign investors create competition, which is needed to put everyone on the treadmill. Otherwise, there is a tendency to lie down or stand still.

With foreign participation, Malaysia will have the benefit of exposure to foreign views and perspectives. This is because, apart from the capital infusion, what is just as important is the value brought by the new investors.

A foreign investors can contribute by enhancing many different aspects such as market access, higher technology and new management. This leads to higher productivity and competitiveness. These are key ingredients to fast track our economy to global heights.

The private sector has to play its part in reinvigorating the economy and creating some crowding-in effect.

While people may be concerned about foreign control, this should not be an issue, especially when the positive effects on the industries and companies become tangible.

For instance, should Volkswagen AG (which is a world leader in its segment), takes up a stake in national car maker Proton Holdings Bhd, it immediately creates greater global value. Upon signing on the dotted line with its new partner, Proton becomes a global player instantly!

While hot money is sometimes viewed negatively, it has its benefits. First of all, it increases optimism and confidence levels. Hot money is inevitable in any market, although, yes, too much of it isn’t good. But in Malaysia’s case, we are at the stage where we need more foreign direct investments (FDI).

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Khazanah Nasional Bhd is expected to reduce stakes in more government-linked companies (GLCs) after selling off 55 million shares, or 5%, in Malaysia Airports Holdings Bhd (MAHB) to unidentified institutional investors.

The government-linked investment arm might be looking to divest stakes in companies that it owned more than 60%. The selldown in MAHB’s was “unique” as Khazanah used to own more than 70% in the company.

The next possibilities would be those in which it has over 50% stakes, which only consist of a few companies. Time dotCom Bhd and Proton Holdings Bhd could be next as “Khazanah has always talked about divesting its interest in these companies.”

Khazanah doesn’t need the funds. It’s in line with the Government’s call to free up more liquidity to attract foreign investors. The sale proceeds, nonetheless, could be pumped into Iskandar Malaysia.

The reduction in shareholding should not have an impact on the transformation programme that the GLCs were undergoing since Khazanah still owned substantial stakes. As long as Khazanah maintains its position as one of the key shareholders, it should not be an issue. Khazanah could still retain control as long as it had board representation in the companies.

The 5% selldown in MAHB is (of) no impact. What is 5% when its stake was over 70%?. With the sales proceeds, Khazanah could boost its exposure in the services and high technology sectors. Also expecting Khazanah to tap offshore opportunities especially since asset classes in the US and Europe remain at low levels.

Meanwhile, Takrif Aspirasi Sdn Bhd, CIMB Group Holdings Bhd’s eighth biggest shareholder, sold 30 million of the bank’s shares, representing 0.8%, at RM10.38 each, valuing the block at RM311.4mil. The report did not identify the buyer of the shares.

*******************************

A total of 55 million MAHB shares were traded in three off-market transactions at RM3.30 per share for a total of RM181.5 million. The transactions, involving a combined 5% stake of MAHB, have given rise to speculation that it could be the government’s investment arm Khazanah Nasional Bhd paring down its stake in the airport operator.

Khazanah has a 72.74% stake in MAHB, which has a free float of about 27.26% representing 299.85 million shares in the company.

Sources said buyers in those off-market deals were most likely local and foreign institutional funds.

Talk has it that CIMB Investment Bank Bhd has been mandated to help Khazanah sell down its stake in line with Prime Minister Datuk Seri Najib Razak’s call to government-linked companies (GLCs) to increase their stock liquidity.

Interestingly, CIMB group chief executive officer Datuk Seri Nazir Razak was quoted as saying that the entry of foreign sovereign wealth funds, particularly from China, would be good for the country as it would create greater connectivity with the fastest-growing economy in the world.

Second Finance Minister Datuk Ahmad Husni Hanadzlah later denied the report.

If Khazanah was the seller in MAHB, then more selldowns could be expected in the coming weeks (2009 & Beyond), including those in other GLCs, as the environment now (Sept 2009) is conducive given the improved investor sentiment.

It has often been argued that GLCs, which make up some of the largest capitalised companies on the local bourse, have not been able to adequately garner foreign investor interest due to the illiquidity of their shares, the bulk of which is held by government institutions.

It is believed that GLCs’ share prices could improve in line with any enhancement in liquidity.

The government’s move to pare down its stakes, if confirmed, would be positive for the local market and help to increase the attractiveness of such counters in the eyes of investors.

There were keen interests all along in most of these GLCs. Many more such moves might follow suit, and MAHB could be the first among the pack.

g. Betting On Next Leg Global Recovery (Sept 2009 Onwards) ... Transition From One With China As Sole Driver To A More Balanced US/China Model

Looking back at the first quarter of 2009, many investors, fretting about the woeful state of the global economy, failed to focus on the things that matter - valuation and the rapid acceleration of global policy momentum. As it turned out, the combination of these factors created the backdrop for the sharp rally in global equities over the past six months (March – Aug 2009).

Looking forward now (Sept 2009) from the heights that global equity prices have achieved, it is understandable that investors are getting increasingly wary. Admittedly, the valuation case has weakened with the rallies to date (Sept 2009). But global policy effectiveness has not waned. Rather, it has begun to shift from the Chinese-led successes of the first half of 2009 to a broader, global story, with US policy achievements, in particular, emerging recently.

This leaves the prospect for another leg in the global rally in equities that began in March 2009.

Continued momentum in US economic and earnings data in coming weeks (Sept 2009 & Beyond), underpinned by US policy momentum of the second quarter 2009, is expected to drive this leg of the rally. Year-to-date (Sept 2009), economic recovery momentum has been key to identifying relative outperformers globally. With emerging markets recovering from the 'Great Recession' more quickly than developed markets, economic momentum reflected in data releases has been a focus of market attention in the current rally (Sept 2009). Recall, early in the year (2009), news of the US and Chinese economic policy changes that helped set the stage for a bottoming in global markets. With Chinese stimulus coming sooner and more aggressively, unsurprisingly, the MSCI China rose 35 per cent in the first half of 2009, compared with a meagre 5 per cent for MSCI World.

With Chinese policy now (Sept 2009) stabilising, as Beijing tries to contain rapid year-to-date (Sept 2009) loan growth, US growth momentum is beginning to benefit from Washington's stimulus efforts of the late-first quarter of 2009. Their effectiveness was most recently seen in the July 2009 expansion of the Institute of Supply Management's New Orders Index, which historically has provided a three to six-month lead to turns in the US economy. Indeed, the most recent reading suggests that investors' concerns about job growth in the United States may begin to be addressed in coming months (Sept 2009 & Beyond)), providing further economic support to the earnings drivers that may emerge come October 2008.

Looking a bit further ahead, the US third-quarter 2009 earnings season likewise looks set to provide support to the market in coming weeks (Sept 2009 & Beyond). Indeed, during the rally since March 2009, the US earnings season - the first six weeks of each quarter - was a key driver for market performance. Recall, as the first-quarter 2009 earnings season got under way in April 2009, world equities, represented by MSCI World, rallied 18 per cent before stalling in mid-May 2009 as the earnings season came to a close. Similarly, as the second-quarter 2009 earnings season got under way in July 2009, world equities rallied another 12 per cent up to mid-August 2009, as the season came to a close again. In total, on a compounded basis, the earnings-season rallies accounted for almost two-thirds of the 52 per cent rise in global equities up to Aug 21 2009.

With another earnings season quickly coming upon us in October 2009, upward revisions to earnings expectations could continue into the northern autumn 2009, potentially providing a catalyst for the next leg of the rally we have seen since March 2009.

The resumption of US economic growth momentum and positive prospects for US earnings surprises in the third quarter 2009 suggest the global economic recovery is starting to transition from one with China as the sole driver to a more balanced US-China model. Indeed, since mid-year 2009, this transition in policy and data has resulted in US equities outperforming their Chinese counterparts, with MSCI US rising 11.5 per cent up to Aug 21 2009, exceeding the 5.7 per cent increase in MSCI China over the same period.

Therefore given that valuations are no longer cheap, expected news flow leads us to believe that caution will not be rewarded by the markets in the coming months (Sept 2009 & Beyond). Rather, investors are encourage to manage their risk by managing their exposure within global equities. Expecting that Asian equities, even after a near-50 per cent rally year-to-date (Sept 2009), as indicated by MSCI Asia ex-Japan, may participate in this next leg. However, unlike the first half of 2009, where they trumped the flattish 5 per cent performance of global equities, do not believe that they will necessarily lead regional performances as they did in the first semester 2009.

Rather, investors who ignored US equities early in the year (2009) may wish to reconsider opportunities provided by this market. However, they should keep in mind that while recovery looks entrenched, the US recovery is expected to come in sub-trend, with GDP growth in the recovery phase falling short of previous cycle peaks. With this in mind, investors may seek to focus on opportunities that continue to under-price even the modest economic recovery expecting.

Despite our optimism through to year-end (2009), we must admit that the global recovery story must be strengthened further to sustain the rally into the new year (2010). China, already grappling with rapid loan growth, must moderate its aggressive easing policy of early-2009 and structurally, continue to build its domestic consumer base. As for the US, it needs to transition its economy from a stimulus-led recovery back to a private sector-driven demand story.

On balance, though, while there are certainly concerns on the horizon, news flow over the coming months (Sept 2009 & Beyond) is expected to show not only recovery but, in the case of the US, accelerating recovery that investors have been hoping for, leaving the balance of risk and reward through year-end (2009) still pointed in favour of the reward camp, and creating an opportunity for investors to broaden out their focus from first-half leader (1H2009) emerging markets to include opportunities presented by US markets (2H2009) as well.

State Of Global Economy …

As the global economy returns to the path of a synchronised recovery, thanks to the synchronised massive spending of governments worldwide, manufacturers around the world are also gaining confidence to ramp up production and inventories.

The global Purchasing Managers Index (PMI) has now (Sept 2009) entered the positive territory for the first time since May 2008. The index at 53.1 last month (Aug 2009), rising from 50 in July 2009, provides an early indication that the global manufacturing sector is experiencing recovery in the demand for their products. Such trend will certainly add strength to the economic recovery process.

In the United States, for instance, the PMI for the manufacturing sector, as measured by the Institute for Supply Management, recorded the first expansion in August 2009 with a reading of 52.9, after 19 months of contraction. Any reading above 50 for the index signals an expansion.

As for the European manufacturing sector, the easing contraction has added evidence that the region is emerging from recession. The recent survey of purchasing managers produced an index reading of 48.2 for the euro-area manufacturing sector in August, compared with 46.3 in July 2009. Although any reading below indicates contraction, the rise in the European PMI last month (Aug 2009) was the highest in 14 months.

China is still charging ahead, with its manufacturing sector staying above the 50-mark for the sixth consecutive month. China’s PMI rose at the fastest pace in 16 months in August 2009, with a reading of 54 compared with 53.3 in July.

Similarly, Singapore’s PMI also stayed above the 50-mark for the sixth consecutive month in August 2009, with a reading of 54.4 compared with 51.5 in the previous month.

For most of the economies in Asia, what’s critical in boosting their manufacturing sector is demand from major advanced economies such as the United States and Europe.

This is indicated by the recovery in the import order from the advanced economies from minus 5.6% quarter-on-quarter (q-o-q) in the three months to March 2009 to a growth of 2.9% q-o-q in the April-June 2009 period.

Specifically, the recovery in the imports of the United States from a decline of 6.7% q-o-q in the first quarter 2009 to a growth of 3.5% q-o-q in the second quarter helped lift the exports and industrial production of Asia.

In Singapore, for instance, the industrial production in July 2009 rose 12.4% year-on-year (y-o-y), compared with a slump of 9% y-o-y in the preceding month.

State Of The US Economy …

The Budding Recovery Has Staying Power: Recent business austerity is boosting profits and the need to expand, and rising global growth is lifting exports, all while massive policy efforts continue to

The worst U.S. recession since the 1930s appears to be over. The best sign: Real gross domestic product, the most comprehensive gauge of the economy's ups and downs, almost certainly hit bottom in the second quarter 2009. Monthly data so far suggest a surprisingly strong advance this quarter (3Q2009) with enough momentum to keep the upturn going in the fourth quarter 2009. Still, many investors are skeptical. The improving outlook has succeeded only in setting off a hot debate:

Is the recovery sustainable, or just a temporary bounce fueled by a few one-shot government programs?

The debate will not be settled anytime soon, but several underlying forces make a strong case that the upturn is durable. Already, spending by consumers and businesses, homebuilding, and manufacturing activity have begun the third quarter 2009 with much more oomph than expected, and many economists think annualized GDP growth in the 3%-4% range this quarter (3Q2009) is a real possibility.

The key force at work is the sheer volume of fiscal and monetary policy. Its support of demand this year (2009) and next dwarfs any such effort in the downturns since World War II. To date (Sept 2009), most of the fiscal stimulus has been tax-related, along with other income support. However, much of the stimulus from infrastructure spending and other government outlays is only now (Sept 2009) working its way into the economy. For example, since January 2009 the growth of public construction spending through July 2009 has accelerated to an 18.9% annual rate.

Plus, the Federal Reserve's support of the credit markets will continue to strengthen financial conditions, so crucial to growth, well into 2010. Housing will benefit greatly. Already, the housing component of GDP is set to add to growth this quarter (3Q2009) for the first time in 3 1/2 years.

Plus, with home prices bottoming out, prospects for mortgage-backed securities will improve, helping to further shore up housing while stanching the bleeding on bank balance sheets.

Prospects for business spending are also looking brighter, especially given the surprisingly strong performance of profits, which drive the expansion of outlays and hiring. In the second quarter 2009, profits of nonfinancial corporations, based on the Commerce Dept.'s accounting, rose at a 19.3% annual rate from the first quarter 2009—an especially solid performance for a quarter with falling GDP.

Profit margins also grew last quarter (2Q2009), a testament to the benefits of corporate cost-cutting and productivity gains. Nonfinancial companies are emerging from this recession with margins much higher than at the end of the last recession. With revenues set to pick up in the second half 2009, further gains in profits are a sure bet.

Of course, consumers will be essential to a lasting recovery, and their help will require stronger labor markets. The plus here is that businesses have been extremely conservative in their spending and hiring, which puts them in a good position to gear up quickly as a recovery takes hold. Many are doing so, as the recent easing in job losses suggests. In fact, income growth, the key to any sustained increase in consumer spending, is already getting support from wages and salaries, which rose slightly in July 2009 for the first month in almost a year.

Finally, the upturn is global, with Asia, the Americas, and Europe all set to grow simultaneously. A synchronized recovery will boost the volume of world trade, especially to the benefit of U.S. exporters. Trade typically has been a drag on U.S. growth early in a recovery, as demand picks up in advance of other economies, boosting imports and widening the trade deficit. This time the trade gap is not likely to widen as rapidly, eliminating a potentially large hindrance to growth.

In the past, steep recessions have been followed by robust recoveries as was the case in the 1970s and 1980s.

The current (March – Aug 2009) upturn seems to be starting out that way as businesses restock their exceptionally low inventories. But even if it doesn't maintain its initial burst, the strengthening supports under demand in all major sectors suggest this recovery has legs.

Refer To The Malaysia Equities Outlook 2.1

Stock Market Leading Performance Indicator

7 (0-3-Bearish 4-6-Neutral 7-10-Bullish).

CK Kok
Remisier
Futures Brokers' Rep
Kenanga Investment Bank
http://twitter.com/BursaTweets
http://bursatweets.blogspot.com
017-8860687
MSN IM: ckkok2000@hotmail.com

22.05.2009

2009-05-21T20:03:00.000-07:00

Malayan Banking RM5.20: Not Rated
– 9M results in line

In line. 9MFY09 net profit of RM1.81b (-19% YoY) met street’s FY09 forecast of RM2.38b. Excluding one-offs relating to Bank InternasionaI Indonesia (BII) acquisition and impairment loss on MCB Bank, core net profit was a similar RM1.8b. Contributions from the new acquisitions stayed small with BII contributing RM25m in net profit (6 months), and MCB contributing RM74m (8 months). No dividend was declared.

Telekom Malaysia RM3.80: Buy
– Firm fundamentals ; Buy with upgraded TP
Earnings clarity improves, on track to outperform. TM surprised with considerably lesser one-off items, that indicated sufficiently solid earnings potential to both meet its generous dividend policy, as well as seek an expansion in the direction of its triple-play aspirations. Maintain Buy as we upgrade our DDM-based TP to RM4.64 after equalizing our in-house assumptions.

Petronas Gas RM9.50: Sell
– GPTA review a risk poser; Maintain Sell
Downside risks increasing as GPTA review draws nearer. The Gas Processing Transmission Agreement (GPTA) with parent company Petronas is up for renewal in Apr 2010. With capex and interest costs expected to be lower over FY11-15, there is downside risk to PGas’ revenues should Petronas drive a hard bargain. Sell with a RM8.80 DCF-based target price.

Kossan Rubber Industries RM3.60: Buy
– 1Q09 in line. Buy
Results were in line. The sequentially weaker earnings due to losses at its Technical Rubber Product (TRP) division were expected. We retain our earnings forecasts on expectations of a stronger 2H09 driven by new capacity and TRP demand recovery. Maintain Buy.

KFC Holdings (M) RM6.90: Buy
– India beckons. Buy.
Indian potential not priced in. 1Q09 net profit was in line with our and consensus forecasts. The second half of the year is seasonally much stronger. KFC boasts expected high FCF yields estimated at 14-17% over 2009-11, and we think the low-key announcement that it has secured franchise rights for 15 stores in India has been missed by many.

WCT RM1.98: Buy
– Lower 1Q09 net profit expected
Orderbook to strengthen. 1Q09 results returned to the black (profit reversals in 4Q08), although net profit was lower YoY. Looking ahead, WCT is actively pursuing job wins; East Malaysia offers good upside to its existing RM2.2b outstanding orderbook. We have raised our target price to RM2.20, noting sunnier prospects with greater intensity of construction jobs rolled out in recent weeks. Maintain Buy.

Lingkaran Trans Kota Hldgs (LITRAK) RM2.30: Buy
– Buy for 8-9% dividends
Expect a steady cash flow stream. While we are looking at flat traffic volume growth in FY10, we believe Litrak is able to generate operating cash flows of at least RM200m p.a., sufficient to maintain a DPS equivalent to an average 8% p.a. yield at the current share price. Buy Litrak, with a target price of RM2.88.

Other Local News

CGC: Aims to guarantee RM3.5b loans this year
UEM Land: BiotechCorp to set up Biotech Hub
Loh & Loh: Unit bags RM142m job in Iskandar Malaysia
Salcon: Clinches RM94m Medini job
DiGi: Enters MVNO with Baraka
YTL Corp: Q3 net more than doubles
TSH Resources: To expand oil palm land

Outside Malaysia

US: Leading economic indicators rebounded in Apr 09
US: The Philadelphia Fed’s general economic index improved this month
US: Initial jobless claims fell by 12,000 to 631,000 last week
Eurozone: Decline in services and manufacturing sectors eased in May 09
Japan: Service demand fell the most in 12 years in Mar 09
UK: Retail sales rose for a second month in Apr 09
Taiwan: Economy shrank by 10.24% YoY in 1Q09
Singapore: Real GDP declined by slower than previously estimated in 1Q09
Crude oil: Price rose USD1.94 or 3.2% to settle at USD62.04 a barrel

Technicals

The market closed in negative territory yesterday as regional markets fell on the US Federal Reserve prediction the recession will deepen.

Summary

2009-03-12T22:07:00.000-07:00

EquityFocus
SapuraCrest Petroleum (RM0.615): Fully Valued

– Stumbled at the final hurdle

§ FY09 net profit of RM116m (+48% YoY) was marginally below our RM124m forecast due to weaker 4QFY09 performance (-29% QoQ).
§ Cutting FY10-11 earnings forecasts by 7-8% with further downside should O&G activities remain lethargic over the next 24 months.
§ Maintain Fully Valued and RM0.74 TP (1x book), with no near term exciting catalyst.

Berjaya Sports Toto(RM4.60):
– Deportation déjà vu
§ We expect 3QFY09 results to be weak on poor revenue growth after two successive Mega 6/52 Jackpot strikes and high prize payout ratio.
§ Trimming earnings estimates by up to 8% to reflect tougher operating conditions (deportation of foreign workers and economic slowdown).
§ Assuming 75% net payout ratio for the whole year, investors can expect gross DPS of 21sen or 5% dividend yield from 2HFY09 alone.

Plantation: Underweight
– POC2009 – Sings a cautious tune
§ Six speakers forecast CPO price to range RM1,400-2,368/t in 2009-10. Mostly are in unison of an impending weaker CPO price outlook in 2H09 as production is set to pick up strongly.
§ Except for one speaker who focused on the supply equation, all others expressed uncertainties on the demand outlook in the wake of unprecedented global financial crisis and recession.
§ POC2009’s price outlook is in tune with our view of a weaker 2H09 price outlook amid a deep and protracted global recession that will impact overall demand. Maintain Underweight.

Economic Trends
Industrial Production, January 2009
– …
§ Industrial Production Index (IPI, 2005=100) contracted by 20.2% YoY in Jan ’09, pulled down by the worsening drop in manufacturing (-26.7% YoY) and further decline in mining (-6.1% YoY) which pull down electricity generation (-12.4% YoY).
§ The decline in manufacturing output was broad-based as both export-based and domestic-based manufacturing industries shrank, pointing to weakness in both external demand and internal demand.
§ We are barely halfway through this downturn in industrial output as the last two recessions (1998 and 2001) saw 12-13 months of consecutive monthly (% YoY) decline in industrial output – specifically manufacturing – versus current five straight months of drop.

Other Local News
§ Economy: New Committee To Monitor Stimulus Package Implementation
§ MMC- Gamuda: 6000 jobs planned from double-tracking project
§ Telekom Malaysia: To unveil access terms for high-speed broadband
§ TMI: USD1.4b rights offer price on Mar 27
§ Plantation: Bursa Malaysia plans Islamic trading in CPO

Outside Malaysia
§ U.S: Retail sales decrease less than forecast in sign of stabilization
§ U.S: Household net worth plunged by a record USD 5.1tr last quarter
§ U.S: Warren Buffett’s Berkshire has AAA credit rating cut by Fitch
§ Germany: Economy is industrial `war zone' as global slump throttles exports
§ Switzerland: Cuts key rate to 0.25%, will buy currencies to stem Franc gain
§ Japan: Economy shrank at 12.1% QoQ pace last quarter on export slide
§ China: Industrial-output growth slows as exports slide
§ India: Posts 1st back-to-back output fall in 16 years
§ S. Korea: Unexpectedly keeps rate at record-low 2%
§ Crude Oil: Trades near USD 47/bbl after surging as OPEC weighs production cut

Technicals
The market tumbled on persistent profit taking activities on weak sentiment due to the slowing economy

J.P. Morgan Overnight Brief - 10 March 2009

2009-03-09T21:32:00.000-07:00

Below are the Overnight Brief by J.P. Morgan.

U.S.A. Equities
U.S. stocks slid into the close as market uncertainty overshadowed a deal that will fundamentally alter the landscape of the pharmaceutical industry. Against the recent trend banks held gains as investors hoped for more clarity on the government plan to firm up the financial system, with Fed Chairman Ben Beranke meeting with President Obama.

The Dow Jones Industrial Average lost 79.89 points, or 1.2%, to 6547.05. The S&P 500 gave back 6.85 points, or 1%, to 676.53. The losses were paced by telecoms, utilities and IT. Financials (+2.5%) closed alone in positive territory.The Nasdaq slid 25.21 points, or 2%, to 1268.64.

Volumes totalled 1.38bln shares on the NYSE where decliners beat advancers by 21 to 8. At the Nasdaq 1.96bln shares were exchanged and losers outpaced winners by 19 to 8.

The VIX "fear" gauge added 0.50 to 49.83.

1) M&A: Merck & Co. agreed to buy rival Schering-Plough in a $32.6bln deal. With the move, which would also assume $8.5 billion in debt, Merck is forsaking its traditional reliance on homegrown research and small acquisitions to propel growth. Schering-Plough brings to Merck biotech, consumer-health and animal-health businesses, as well as an expanded presence in high-growth markets outside the U.S. The Merck-Schering deal for cash and stock "is about size, it's about growth of in-line products and it's about diversity from a global standpoint," management said. Some $3.5bln a year in cost savings are anticipated beyond 2011. Schering-Plough is expected to "modestly" add to Merck's earnings, excluding charges related to the deal, in the first year after its completion and "significantly" thereafter. Schering-Plough shareholders
would get 0.5767 share of Merck and $10.50 in cash for each share they own. Based on Friday's closing prices, that values Schering-Plough at $23.61 a share, or a 34% premium. Merck shareholders would own 68% of the combined company. The deal is expected to close in Q4.

The Wall Street Journal reported that the board of Genentech is near a deal to sell the biotech staple to Swiss pharma company Roche for $95 per share, citing people familiar with the matter.

Dow Chemical and Rohm & Haas have reportedly reached a settlement for their $15bln merger.

2) Financials: AIG has pressed the federal government for its fourth bailout (worth $30bln) by warning that the insurer's collapse could set off a chain of events that would leave money-market funds floundering and European banks in disarray, Bloomberg reported, citing a 21-page
draft of the firm's presentation to government officials labeled "strictly confidential." The firm's fate "has the potential to trigger a cascading set of further failures which cannot be stopped except by extraordinary means," AIG said in the draft.

Bank of America soared 19% after a Barron's article said the bank can avoid the same fate as Citigroup by tightening up its operations, and could post strong earnings again once the financial crisis has passed. Wells Fargo (+16%)and USB (+15%) also posted sharp gains. General Electric Capital, the finance arm of General Electric (+5%), announced it would be selling guaranteed bank notes via the FDIC's Temporary Liquidity Guarantee Program. GE confirmed that the company was in the market for a benchmark deal under the TLGP but couldn't elaborate on timing or final terms. GE Capital will sell a benchmark-sized offering, meaning at least $500mln for each piece, which will include two- and three-year maturities. The final size has not been determined. Capital One (+5%) became the latest financial to announce a dividend cut, saying it was slashing its yield from 37.5 cents to 5 cents beginning in Q2 and holding into the future. The credit card company said the move will save $500 million annually.

3) Technology: Apple (-2.6%) was hit for a second straight session by an analyst's note suggesting the recession has caught up with the company. Thomas Weisel Partners lowered its price target for Apple shares while also cutting revenue and profit estimates for Apple's FY'09 & FY'10. On Friday, Apple shares fell as much as 6% after JPMorgan analysts did the same thing. "The global economy continues to deteriorate," which will slow sales of Apple's Macintosh computers and its iPhones smartphone, Thomas Weisel' wrote. An Apple spokesman had no comment.

4) Burgers: McDonald's (+0.4%) said its February same-store sales rose .4%. The fast-food chain's U.S. outlets outperformed the rest of the world last month, in contrast to past results showing international strength. U.S. same-store sales rose 2.8%, with McDonald's citing its breakfast offerings and chicken lineup. In contrast, Europe recorded a .2% decline, while the Asia-Pacific, Middle East and Africa region saw 0.7% growth, driven by Australia and Japan. Sales in China were muted in part because Chinese New Year fell in January this year.

5) Energy: In the oil market, fear of economic torpor was overcome by expectations of tightening supplies, as OPEC is expected cut production at a meeting next week in Vienna. The group's secretary general told reporters at an energy conference in Qatar that OPEC will cut its 2009 oil-demand forecast this week. Iraq's oil minister called for higher oil prices, saying the current level is not "profitable and fair" for producing countries, echoing similar remarks by Venezuela. Crude futures for April delivery rallied $1.55 to $47.07 a barrel. Contracts for May
delivery were not rallying as strongly, up $0.34 to $48.06. One floor trader said that narrowing of spreads along the futures curve suggests that the market may be bracing for a sustained run higher, perhaps to $60 in the next few months. "We're not overly glutted with inventories at this point. What you're seeing here is that we're getting back more to pure supply and demand moving this market."

6) Opinion: In one of the bleakest assessments yet, economists at the World Bank predicted that the global economy and the volume of global trade would both shrink this year for the first time since World War II. The World Bank said that the crisis that began with junk mortgages in
the United States was causing havoc for poorer countries that had nothing to do with the original problem. As a result, it said, nations in Latin America, Africa and East Asia have had not only their growth stifled but their access to credit as well. The bank's assessment for 2009 was grimmer than those of most private forecasters. It did not provide a specific estimate, but bank officials said its economists would be publishing one in the next several weeks. The World Bank warned that the financial disruptions are all but certain to overwhelm the ability of institutions like it and the International Monetary Fund to provide a buffer.

The head of the ECB said the world's economy is still slowing, but suggested a turning point could be near as massive fiscal stimulus packages, low interest rates and cheaper energy prices bolster prospects for growth. "We're approaching a moment where we might have a pickup," said ECB president Jean-Claude Trichet, in his most optimistic assessment to date of tentative signs of stabilisation in some markets. He cited a modest rebound in corporate bond markets as one positive sign. Trichet also suggested investors, who last week drove major U.S. tock indexes to 12-year lows, are underestimating the significance of government efforts. Policy makers worldwide have made "a very, very strong commitment ... not to let any systemic institution go under," Mr. Trichet said. This "may not be fully priced in by the market."

People's Bank of China Vice Governor Yi Gang said the fiscal stimulus
measures announced by China so far are appropriate and already seem to
be working. "At this point, I think the current package of the fiscal
stimulus is sound and it seems already effective," Mr. Yi said. "So at
this point, I think the current stimulus package is fine."

The man who predicted the current financial crisis said the US recession
could drag on for years without drastic action. Among his solutions: fix
the housing market by breaking "every mortgage contract." "We are in the
15th month of a recession," said Nouriel Roubini, a professor at New
York University's Stern School of Business. "Growth is going to be close
to zero and unemployment rate well above 10% into next year." Roubini
said he sees "no hope for the recession ending in 2009 and will more
than likely last into 2010." Roubini told CNBC that the risk of a total
meltdown has been reversed for now but that the economy is going through
"a death by a thousand cuts." He also said that "most of the U.S.
financial institutions are entirely insolvent." "The market friendly
view for the banks is nationalization," said Roubini. "Temporarily take
over the banks, clean them up and get them working again." He said that
while U.S. GDP next year could be zero, global GDP could dip into
negative territory. "We could end up ... with a 36-month recession, that
could be "L-shaped stagnation, or near depression," Roubini said. He
puts the chance of a severe U-shaped recession at 66.7%, and a less
severe L-shaped recession at 33.3%. Finally, while he says there will be
"a light at the end of the tunnel", it'll probably get worse before it
gets better. Those who believe in a second half recovery this year "are
delusional" he says.

Warren Buffett told CNBC that the U.S. economy has "fallen off a cliff."
Buffett said economic developments have been very "close to the worst
case" that he had imagined, although conditions would be far worse if
the Federal Reserve hadn't stepped in last September. Other key points:-
i) the economy "can't turn around on a dime" and a turnaround "won't
happen fast"; ii) five years from now, the economy will be running fine.
The strength of the American system will pull it through, just as it has
many times in the past; iii) Democrats and Republicans should work
together and not try to take advantage of the economic situation to
achieve partisan goals; iv) Inflation has the "potential" to be worse
than the 1970s; v) most banks are in "pretty good shape" and can "earn
their way out" of the current problems given the low cost of funds.
Banks, however, "need to get back to banking"; and vi) it is extremely
important that the government make clear depositors won't lose their
money if banks fail. Obama needs to make a "clear statement" in support
of the banking system.

Treasury Market
Treasurys bowed to supply pressure, pushing bond prices down across the
board. Investors sold bonds ahead of this week's sales of $63bln in
government debt, which kick off Tuesday with $34bln in three-year notes,
followed by $18bln in 10-year notes Wednesday and $11bln in 30-year
bonds Thursday. The two-year note yield added 1bps to 0.955%. The
10-year bond yield closed flat at 2.87%.

European Markets
European shares finished mixed. While most bank shares declined, drug
makers rallied on a large deal in the sector.

The FTSEurofirst 300 index fell 4.83, or 0.7%, to 657.30.

Bank were in sharp focus after Lloyds struck a deal over the weekend
with the British government for the U.K. to insure £250bln in Lloyds
assets and increase its stake in the bank to as much as 77%. Lloyds lost
as much as 14% but eventually closed higher by 4.1%. BNP Paribas gained
1.6% after the French lender signed a deal to buy the majority of Fortis
Bank from the Belgian government, along with an interest in Fortis'
insurance business, in exchange for official guarantees against losses.
Fortis spiked 20.8%. Among other financials Credit Suisse slid 6.2%, UBS
5.3% and Barclays 5.3%.

Insurers, ex-Aviva (+8.4% having lost 44% over the previous two
sessions), remained friendless. AXA sank 5.7%, Generali 4.2%, Zurich
Financial 2.4%, and MunichRe 1.4%.

Europe-listed pharmaceutical shares rallied after Merck said that it
would buy rival Schering-Plough for $41.1bln. AstraZeneca rose 3.5%,
Roche 3.5%, Bayer 2.2%, and Sanofi-Aventis 2%.

Italian Internet provider Tiscali plunged 47.3% after the group said
talks with BSkyB over the sale of its U.K. assets have ended and that it
will miss an interest payment on its debt.

Adidas vaulted 3% after Merrill Lynch added the German apparel maker to
its list of top stock picks in Europe.

Oil producers also gained ground as light, sweet crude-oil futures
pushed through $47.00 a barrel. BP rallied 5.9%, and Royal Dutch Shell
2.8%.

Telecom shares dialled up broad losses. Telecom Italia retreated 4.6%,
BT 3%, France Telecom 2.8%, Vodafone 2.8%, and Telefonica 2.5%.

In London the FTSE 100 tacked on 11.67 points, or 0.3%, to 3542.40.

The benchmark mounted a late-session commodity and drugs stock-led rally
to finish in positive territory, having spent much of the session in a
bank-led slump. Commodity stocks were buoyed by a gain in oil prices,
while drugs groups were given a tonic by merger activity in the sector.
At midday, the FTSE100 had been down as much as 1.6% as the ailing
banking sector once again exerted the most pressure.

Barclays tanked 5.3% after it said it would talk to UK Treasury
officials about its participation in the government scheme.

Mining stocks failed to enjoy the gains made by their oil brethren. Rio
Tinto fell 1.9%, XStrata slumped 8.1% and Anglo American gave back 1.4%.
BHP Billiton bucked the trend to advance 1.3%.

Elsewhere Brambles dipped 0.6%, British Airways slid 2% and BSkyB
declined 1.6%.

In Paris the CAC 40 Index lost 15.16 points, or 0.6%, 2519.29.
In Frankfurt the DAX Index climbed 25.62 points, or 0.7%, to 3692.03.

Commodity News
April crude rallied $1.55 to $47.076 a barrel.
April gold dived $24.70 to $918.00 an ounce.
LME base metal futures closed broadly lower amid conflicting demand
signals. Copper slid 2.9% as traders worried that some of the recent
pick-up in consumption in China could be stock-building. Nickel fell
1.8%, aluminium 0.8%, and zinc 0.4%. The CRB index dipped 1.18 to
208.41.
The Baltic Dry Index hit a fresh five-month high of 2,262, up 1.7% on
the day.

Australian Stocks
London
BXB: Brambles Plc dipped 0.6%, or 1.25p, to 213.25p (A$4.65) to
leave BIL Ltd at a 1% premium. Volume was 11k shares.
BLT: Billiton gained 1.3%, or 15p, to 1171p (A$25.55) which leaves
BHP at a 13.98% premium. Volume was 13.3mln shares.
HGG: Hendersons climbed 1.6%, or 1p, to 65.25p (A$1.4236) from the
Australian close of $1.45. Volume was 2.1mln shares.
RIO: RIO plc dropped 1.9%, or 34p, to 1791p (A$39.08) which
leaves RIO at a 21.56% premium. Volume was 6mln shares.

New York
BHP: In ADR trade BHP lost 2.1% to A$28.77 from the Australian close
of $29.12. Volume was 9.8mln ordinary shares equivalent.
NWS: NWS sank 4.9% to an A$ equivalent of $8.94 from the Australian
close of $9.36. Volume was equivalent to 6mln ordinary shares. The
spread is at $1.04, or 11.68%.
NWSLV: NWSLV tanked 5% to an A$ equivalent of $7.90 from the
Australian close of $8.27. Volume was equivalent to 22.9mln non-voting
shares.
RMD: Resmed slid 4.3% to A$5.38 from the Australian close of $5.62.
Volume was 11.8mln ordinary shares equivalent.
MPEL: Melco PBL Entertainment gained 1.1% to US$2.66. Volume was 457k
ADSs.

Toronto
LGL: Lihir Gold dived 3.9% to C$2.50 (A$3.0451) from the Australian
close of $3.15. Volume was 1,600 ordinary shares equivalent.

SPI Futures
Sycom: The March contract has fallen 15 points to 3134, a 20.5 point
discount to the ASX/S&P 200.

Sources: Bloomberg, Reuters, Dow Jones News Wires, The Wall Street
Journal, TheStreet.com, CNN, CNBC, CBS, The Guardian and the Financial
Times.

05.03.2009

2009-03-04T20:14:00.000-08:00

Equity Focus
Oil & Gas: Underweight
– Sub-par scorecard in 4Q08
§ O&G’s combined earnings slumped 182% QoQ in 4Q08 with major disappointments at Ramunia, Shell, Petronas Gas and Petra Perdana.
§ We have cut 2009-10’s earnings forecasts by 16-19%, reflecting the sector’s down-cycle and a tighter funding environment.
§ Maintain Underweight with no key re-rating catalysts, but depressed valuations could fuel privatizations.

Other Local News
§ Bursa: Proposes share buyback for the first time
§ AirAsia: Says no need for rights offer
§ MAHB: Identifies site for new budget terminal
§ QL Resources: Article entitled “More rights issues on the way?"
§ Petra Perdana: Syndicated Transferable Term Loan Facilities of up to RM150m
§ Scomi: Defers rights issue
§ MMC: Agrees in principle
§ Politics: Tri-elections
§ Economy: Almost 76% of RM7b stimulus package disbursed
§ Power: Bakun expected to be ready October 2011

Outside Malaysia
§ U.S: Stocks rise around the world; Commodities gain, Treasuries fall
§ U.S: Economy worsened in last two months as consumers held back, Fed says
§ U.S: More than 8.3m mortgages are under water
§ E.U: Services shrink at record pace, pushing region deeper into slump
§ Japan: BOJ offers to buy JPY 150 b in corporate bonds
§ China: Wen to propose new stimulus measures to bolster faltering growth
§ India: May keep cutting rates to spur growth in third-biggest Asian economy
§ Indonesia: Cuts policy rate to boost consumer spending
§ Vietnam: Budgets VND 300tr (USD 17b) to bolster growth
§ Australia: Economy contracts for first time in eight years
§ Crude Oil: Rises to 5-week high on signs China will increase stimulus

Technicals
The local bourse ended the day mixed yesterday after a volatile trading session.

2009-03-04

2009-03-03T21:54:00.000-08:00

Equity Focus
KNM Group (RM0.36): Hold

Still challenging, still grey …
We have cut core net profit by 17-21% in FY09-10, on orderbook slowdown and RM50m amortization cost p.a. recognized from Borsig post-PPA exercise.
Maintain Hold, TP cut to RM0.69 based on 1.4x BV but depressed valuations could trigger privatization talk.
Daily trading volume has been exceptionally high over the past six months, averaging 1% of KNM’s share base but key shareholders remain with no emergence of new funds.

Banking: Underweight

Moving into rising NPLs and more negative news flows
4Q08 reporting season sprung no major surprises for the banks, with combined net profit down 2.1% QoQ, but asset quality stayed firm.
Sector earnings are now expected to contract 10.1% in 2009, before recovering 6.1% in 2010 (previously 2009-10: -6.3%, +3%) as combined earnings were lowered by 5.4% (2009) and 2.6% (2010).
We downgrade the sector to Underweight, as banks enter a period of rising NPLs and more negative economic news flows.

Other Local News

PAAB: Seeks approval in principle
Can-One: No plans to privatise Kian Joo
Tabung Haji: Looks to bonds, property mart
PPB: Rewards investors with handsome payout for 2008
AirAsia: Set to raise money for expansion
Bina Puri: Gets RM693m Brunei contract
Construction: Cost of 2nd Penang Bridge stays RM4.3b
Rubber: Ministries considering floor price for dry rubber
Politics: Tree House - Assembly meets in open air, court bars further meetings
Other Local News

U.S: AIG's bailout made Bernanke `more angry' than any other episode in crisis
U.S: Bernanke says U.S. may need to expand USD 700b bank rescue
U.S: Pending sales of existing homes fall 7.7% MoM
Canada: Cuts benchmark rate to record low of 0.5%, signals further stimulus
U.K: Darling may grant BoE money-printing powers in March 5 letter
U.K: Treasury pledges USD 18b to rescue highway, school construction
Ireland: Plans emergency measures to tackle deficit as recession worsens
Japan: To tap foreign reserves to lend to companies
China: Economy may recover in first half, deputy central bank chief says
Australia: Leaves rate at 3.25% after recent cuts

Technicals
The market fell on poorer market sentiment following the steep fall of the overnight US markets

2009-03-03

2009-03-02T20:51:00.000-08:00

Equity Focus
Market Strategy

4Q08 Results – Cash Needed
Three concerns gained prominence in the 4Q08 results season – deep earnings cut as companies frontloaded provisions, significant rights issues by TMI and Maybank, and rising incidences of dividend cuts.

We have cut our 2009-10 market earnings forecasts by 7.3% and 6.1%, with our revised figures showing 4.1% and 10.5% contractions in 2008-09’s corporate earnings, before a 6.3% modest recovery in 2010 (previously 2008-10: +0.8%, -7.6%, +5.0%). The steep earnings cuts reflect nasty surprises especially towards the season’s last reporting week, with key disappointments emanating from the Steel and Tech sectors, as well as a host of various large caps.
We maintain our end-2009 KLCI target level of 900 points, which implies target P/B and PE multiples (based on 2008 and 2010 figures respectively) of 1.3x and 12.8x.

WCT (RM0.96): Hold

RM2.6b outstanding works to start the year
Ex- profit reversals, we estimate that WCT made net profits of RM42m in 4Q08 (-12% YoY, +23% QoQ) and RM176m in 2008 (+19% YoY).
Outstanding order book of RM2.6b would keep works going into 2010, while several LOI jobs, if awarded, should strengthen earnings base.
Upgrade to Hold after share price drop since Meydan. We lowered forecasts by 16-21%, but largely retained asset-based RM1.05 TP.

In The news
Dreamgate Corportion (RM0.105): Fully Valued

Still cautious

Other Local News

Muhibbah Engineering: Awarded contract worth RM109m
Retail index by year-end
Ho Hup: Plans to dispose of KL land
TM: And MIMOS in research tie-up
RHB: And AIA negotiate for a 10-year alliance
Puncak Niaga: Signs MOU to bid for Kimanis power plant job

Other Local News

U.S: Stocks drop, treasuries gain on concern about economy
U.S: AIG gets more aid after record USD 61.7b loss
U.S: Manufacturing shrinks for 13th straight month on collapsing sales
U.S: Consumer spending climbs for first time in seven months on discounts
E.U: Manufacturing contracts at record pace as export orders collapse
U.K: House prices drop annual 10%, Hometrack says
China: Manufacturing shrinks as crisis cuts demand
India: Exports fell in January by most in decade on weak demand
S. Korea: Exports drop 17.1% YoY on global recession
Indonesia: Exports plunge most in 22 years, inflation slows

Technicals
The market closed lower yesterday on weaker fourth quarter GDP number and on poorer corporate earnings

Special Technical Perspective

World Indices plunge. Is there any light at the end of the tunnel soon?
The DJIA and SP500 plunged to new recent lows
The KLCI and BOVESPA are in bearish “Rising Wedge” patterns
Step away from the bear until the dust settles down

2009-02-27

2009-03-01T19:41:00.000-08:00

Equity Focus

Toll concessions: Overweight
Seven highways get toll increase
The government has given smaller-than-scheduled toll rate increases to seven out of nine expressways, due for upward revisions this year.
Government compensation is still given for shortfalls in scheduled toll hikes, and we estimate that combined compensation to PLUS and SPRINT alone could total almost RM100m in 2009.
We stay Overweight on toll concessionaires for their steady income stream, with Buy on PLUS (TP: RM3.20) and Litrak (TP: RM2.88).

Genting (RM3.54): Hold
Mixed results
Genting recorded a 4Q08 net loss of RM120.8m due to an impairment loss of RM781.5m on Star Cruises. 2008 core net profit before MI (-10% YoY) was marginally below expectations.
Save for Resorts World, the outlook is uncertain for its other subsidiaries/segments due to the global economic slowdown.
We maintain our Hold call but downgrade our TP to RM4.00 based on an unchanged 20% discount on a revised RNAV/sh of RM5.00.

Malaysian Airlines System (RM2.70):
2008’s achievement clouded by hedges
Sequentially weaker net profit (-24%) was in line, dragged down by lower auto and associates earnings. However, dividends pleasantly surprised.
Cutting 2009-10 earnings forecasts by 10% on lower earnings from the auto division. FY09’s EPS is projected to fall by 30%.
Downgrade call to Hold and TP to RM5.45 (1.5x BV), acknowledging that there are no near term catalysts in sight.

Nestle (M) (RM27.50): Hold
4Q08 results: Who’s afraid of a recession?
4Q08’s net profit of RM77.3m (+128.4% YoY) boosted 2008’s net profit to RM341m (+16.8% YoY), above expectations, on a 19% YoY surge in exports.
A proposed final DPS of 80sen (single-tier), which lifted 2008’s DPS to RM1.91 trounced our and market expectations.
Upgrade to Hold. Placing our forecasts under review with upwards bias pending today’s analyst briefing, but maintaining our DCF-based RM29.50 TP for now.

The New Straits Times Press (RM1.06): Sell
Printing in red ink soon
2008 core pretax profit of RM46.1m outperformed our forecasts by 35% on lower finance cost and higher contributions from MNI but ex-contributions from MNI, NSTP merely broke-even in 4Q08.
We take the view that adex will grow timidly if not contract in 2009 and that NSTP will likely record a loss making 1H09.
We now utilise 12% WACC (9% previously) on our DDM to account for higher risk premium and cut our TP from RM1.22 to RM0.82. Therefore, we downgrade our call from Hold to Sell.

Petra Perdana (RM1.35): Buy
Misfiring in FY08
Petra Petra’s RM60m core net profit missed our 75m estimate due to a substantially weak 4Q08 performance (-73% QoQ).
Cutting 2009 forecast by 11%, in anticipation of slowdown in brownfield activities.
Maintain Buy but cutting TP to RM1.63. Petra Perdana is potentially a privatisation candidate.

Sime Darby (Sime) (RM5.75): Fully Valued
Poor 2QFY09 results
Sime reported a 2QFY09 net profit of RM279m (-65% YoY, -68% QoQ), below our and market expectations.
Short term earnings outlook remains bleak as regional economies continue to weaken and CPO price remains uninspiring in 2HFY09.
Maintain Fully Valued but trimmed our TP to RM5.10 based on 15x CY10 PER (previously RM5.20 on 15x FY10 PER) on lowered earnings.

Wah Seong Corporation (RM1.12): Fully Valued

No surprises; expecting greyer outlook
WSC’s core net profit of RM111m for 2008 met our RM109m forecast, on substantially stronger 4Q08 (+184% QoQ).
Maintaining FY09-10 forecasts, which implies a two-year net profit CAGR of -20%, in anticipation of slowing O&G and industrial service activities.
Downgrade to Fully Valued, as price discount to our RM1.20 TP (1x NTA) has narrowed to <10% but could see improved some short term strength; a perceived beneficiary from the upcoming UMNO election.

Mega First Corporation (RM0.71): Hold

Look beyond 2009
2008 net profit of RM40.5m (-20% YoY) was within our expectations, but final gross DPS of 3.5sen (4.9% yield) surprised on the upside.
China power demand has stabilized and coal costs are declining. While other divisions remain weak, the worst of quarters may be over.
We conservatively cut our 2009-10 net profit forecasts by 16-22%, mainly on lower contributions from non-power divisions. Maintain Hold; TP lowered to RM0.82 following earnings downgrades, unchanged 7x CY10 EPS.

Result Analyser
Bintulu Port (RM5.30): Buy

Final results above expectations

Hock Seng Lee (RM0.46): Hold

Final results within expectations

Kinsteel (RM0.405): Fully Valued

4Q08 loss on inventory writedowns

KLCC Property (RM2.90)): Buy

Beats expectations; RM505m gross revaluation surplus to boost 4QFY09

Loh & Loh (RM4.28): Hold

Final results stronger than expected

PLUS Expressways (RM2.95): Buy

4Q08 in line; raised dividend payouts

Sunway Holdings (RM0.67): Hold

Oct–Dec ’08 net profit in line

Unisem (RM0.60): Fully Valued

4Q08 net loss of RM55m on impairment loss

WCT (RM1.07): Fully Valued

Losses in 4Q08 due to profit reversals

Other Local News

Water: RM5b offer for water assets.
Tolls: Higher Toll.
MAS: Capacity, cost cuts.
Scomi Marine: Aiming for more balanced revenue base.
Latexx: To raise glove output.

Outside Malaysia

U.S: Obama seeks USD 1tr tax increase in budget plan
U.S: Fannie to draw USD 15.2b from Treasury after loss
U.S: Companies slashing jobs, orders at faster pace as recession deepens
U.S: Obama's budget proposes up to USD 750b in new financial industry aid
U.S: New-home sales plunge to record-low 309,000
E.U: Confidence at record low as recession deepens
Germany: Unemployment rises for fourth straight month
Germany: Signs USD 10b worth of trade deals with China
Singapore: Industrial output falls the most since at Least 1996
Singapore: Economy shrinks most in at least 33 years
Ukraine: Ratings cut to CCC+ by S&P on IMF loan risk

Technicals
The market closed lower in cautious trading, as investors were concerned on the lower corporate earnings of several heavyweight counters in the past few days.

JPMorgan, OSK upgrade rating on Resorts World

2009-02-27T23:19:00.001-08:00

At least two research houses have upgraded their rating on Resorts World Bhd (4715), the casino operator that reported a fourth-quarter loss on Wednesday.

JPMorgan raised the stock to "overweight" from "neutral", saying the company's casino will benefit as Malaysians reduce overseas travel in the current recession.

OSK Research also upgraded it to a "trading buy" but maintained its target price of RM2.50.

The shares fell two sen or 0.9 per cent to a three-week low of RM2.22, a day after the company reported a fourth-quarter loss of RM387.8 million compared with a net profit of RM344 million in the same quarter a year ago.

This was mainly due to a RM781.5 million impairment loss that reflected a big drop in the market value of Star Cruises Ltd, in which it has a 19.6 per cent stake.
If not for the impairment loss, its net profit would have increased by 14 per cent as its underlying leisure and hospitality business remained strong.

Citigroup, which kept its buy/low-risk call on Resorts, said the results were boosted by higher casino patronage, better luck factor in the premium player business and higher volume of business recorded.

Credit Suisse, however, held on to its "underperform" rating on Resorts on expectations of a 5 per cent drop in leisure revenues this year due to "normalised luck" and weaker economic conditions.

It expects the first quarter, however, to be good as it encompasses the Chinese New Year, which is a typically strong season for Resorts.

The foreign research house cut its target price to RM1.65 from RM1.80 before.

Analysts, in their reports yesterday, said they remained wary of potential future related-party transactions that could take place.

This, they said, may not not sit well with investors of Resorts, which has a 33 per cent foreign shareholding.

They noted that a controversial related-party transaction announced in late November - in which Resorts bought a 10 per cent stake in US gaming patent company Walker Digital Gaming (WDG) for US$69 million (RM253 million) - had a negative impact on Resorts' shares. The deal was completed by mid-December as it didn't require shareholder of regulatory approval.

(Tan Sri Lim Kok Thay, a major shareholder of Genting Bhd which in turn owns Resorts, was also a director in WDG.)

Analysts noted that there is an outstanding option for Resorts to acquire a lottery patent company, Walker Digital Lottery, from the Lim family for US$27 million (RM99 million) within 18 months of the first transaction

Maybank IB MC 2009-02-24 Preliminary

2009-02-23T22:11:00.000-08:00

MAYBANK INVESTMENT BANK BERHAD
(formerly known as Aseambankers Malaysia Berhad)

Equity Focus
Bumiputra-Commerce Hldgs (RM6.45): Fully Valued

Final results disappointed
2008 net profit of RM1.95b (-30% YoY) disappointed, due to losses at insurance, BankThai, Niaga-Lippo merger cost, and higher provision.
We lowered our earnings forecasts by 8% for 2009 and 4% for 2010, on flat capital market activities in 2009 and after numbers fine-tune.
Fully Valued with a revised TP of RM5.40 (previously RM5.20) pegging the stock on 1x P/B (2009), after rolling over our valuation period.

Ann Joo Resources (RM1.18): Fully Valued

Steep 4Q08 loss, RM335m writedown
Steep 4Q08 net loss of RM195.8m was unexpected, with heavier than expected inventory writedown totalling RM335m as scrap cost was marked down to a low of USD280/t. No final DPS was declared.
We expect capacity utilization of 67-75% over 2009-10, and have trimmed net earnings forecasts by 26-29% p.a., assuming average selling price of USD550/t p.a..
Downgrade to Fully Valued from Hold, with a revised TP of RM1.02, noting possible further writedowns given steel price volatility throughout the next quarter and low demand visibility.

Tanjung Offshore (RM0.745): Trading Buy

Strong 4Q08; surprised with a 6 sen DPS
4Q08 net profit of RM13.6m (+168% QoQ) was above our expectation. TOFF also surprised with a DPS of 6sen DPS (8% yield).
Maintain a two-year net profit CAGR of 18%, underpinned by progressive delivery of six new vessels and strong engineering equipment & maintenance outstanding orderbook in FY09-10.
Maintain RM1.00 TP (0.7x BV) but tactically upgrade to Trading Buy on attractive dividend payouts and near-rock bottom valuations.

YNH Property (RM0.995): Hold

Another disappointing quarter
2008 net profit of RM86m (+7.4% YoY) disappointed as sales recognition slowed to RM34.3m (-68.2% YoY, -57.1% QoQ) in 4Q08.
Amid worsening economic conditions domestically and globally, we foresee slimmer chance of YNH sealing the KFH deal in 2009.
We downgrade YNH to Hold and cut our net profit forecasts by 20-34% for FY09-10. TP cut to RM1.00 based on unchanged 6x CY10 EPS.

Result Analyser
Amway (M) Hldgs (RM7.10): Hold

Sub-par 4Q08

Other Local News

Cabinet: To ease Bumi equity rules
EPIC, AZRB: Denies knowledge of any privatization talk
AirAsia: Needs RM13b funding
Can-One: To buy Kian Joo's 32.% stake
Mudajaya: To inject RM718m into 2nd phase IPP venture
Water: Selangor reiterates RM5.9b offer – Khalid

Outside Malaysia

U.S: Stocks fall, sending market to its lowest close since 1997
U.S: Regulators pledge more money for banks as stress tests set to begin
U.S: Fed may need to recast plan to resuscitate commercial-mortgage bond market
S. Korea: Consumer Confidence index rises on Government spending pledge
Thailand: Economy shrinks more than expected on exports

Technicals
The local bourse closed mixed as investors remained on the sideline ahead of the last week of the reporting season of possibly weaker corporate earnings.

'Pockets of opportunities'in Malaysian property sector

2009-02-10T04:16:00.000-08:00

HwangDBS Vickers Research Sdn Bhd said the near-term outlook for the Malaysian property sector is likely to remain weak as more bad news surfaces.

"While we wait for a broad sector recovery, pockets of opportunities (still) exist in the form of mergers and acquisitions (M&As), privatisations and land deals," its analyst Yee Mei Hui wrote in a note to clients on Friday.

She said given the huge share price discounts, property developers might be better off taking equity stakes rather than buying landbank outright.

"Aside from financing and regulatory approvals, the usual M&A issues (pricing, control, synergy) would need to be ironed out, but these could prove less challenging when dealing with cash-strapped sellers."

She said companies with potential for corporate developments would be those with prime assets, rich listed parents, and bombed-out valuations such as MK Land Holdings Bhd, Eastern & Oriental Bhd, Sunway City Bhd, Selangor Properties Bhd.

Yee said major shareholders might also take the opportunity to privatise under-valued counters with poor liquidity, at much lower cost and with higher chance of success.

Privatisation exercises in the sector have picked up since 2005, offering investors a decent 20 per cent average premium.

She said potential candidates would be those with:

* rich listed parents who have flexibility to offer cash and/or share swap such as Shangri-La Hotels (M) Bhd, Guocoland (Malaysia) Bhd and DNP Holdings Bhd, but their overseas-listed parents could complicate share swap transactions;

* rich listed parents who have flexibility to offer cash and/or share swap such as Shangri-La Hotels (M) Bhd, Guocoland (Malaysia) Bhd and DNP Holdings Bhd, but their overseas-listed parents could complicate share swap transactions; * history of privatisation attempts like Selangor Properties; and,

* history of privatisation attempts like Selangor Properties; and, * under-appreciated prime assets.

* under-appreciated prime assets. "We remain cautious on the (property) sector for now, given the weaker sector outlook, and prefer property asset owners over developers due to their more defensive earnings," she said.

Her top property stock pick is KLCC Property Holdings Bhd, and top sell is SP Setia Bhd due to its rich valuation (14.6 times fiscal year 2010 forecast price/earnings).

BTimes

List of Malaysia Stock Broking, Securities And Investment Firms

2009-02-08T06:50:00.000-08:00

For Full List of Malaysia Stock Broking, Securities And Investment Firms and their branches go to BURSA

A.A. Anthony Securities Sdn. Bhd.
Tingkat 1, 2 & 3, Bangunan Heng Guan
171, Jalan Burmah
10050 Georgetown, Pulau Pinang
Tel: (60) 4 229 9318
Fax: (60) 4 226 8788
Website: http://www.aaasec.com.my/

Affin Investment Bank Bhd
14th, 21st, 24th, 26th & 27th Floor
Menara Boustead, 69 Jalan Raja Chulan
50200 Kuala Lumpur
Tel: (60) 3 2142 3700
Fax: (60) 3 2142 3799
Website: http://www.affininvestmentbank.com.my/

Alliance Investment Bank Bhd
18th-20th Floor, Menara Multi-Purpose
Capital Square, No.8, Jalan Munshi Abdullah
50100 Kuala Lumpur
Tel: (60) 3 2694 4888
Fax: (60) 3 2694 6200
Website: http://www.allianceinvestmentbank.com.my/

AmInvestment Bank Bhd
8th-9th, 11th-19th, 21st-25th Floors
AmBank Group Building, 55 Jalan Raja Chulan
50200 Kuala Lumpur
Tel: (60) 3 2078 2633
Fax: (60) 3 2078 2842
Website: http://www.amsecurities.com/

Aseambankers Malaysia Berhad
Level 31-33, Menara Maybank
100 Jalan Tun Perak
50050 Kuala Lumpur
Tel: (60) 3 2059 1888
Fax: (60) 3 2078 4194
Website: http://www.aseam.com.my/

BIMB Securities Sdn. Bhd.
1st-2nd Floors, Block Podium
AMDB Building No. 1 Jalan Lumut
50400 Kuala Lumpur
Tel: (60) 3 4043 3533
Fax: (60) 3 4041 3433

CIMB Investment Bank Bhd
6th, 7th & 10th Floors, Bangunan CIMB
Jalan Semantan Bukit Damansara
50490 Kuala Lumpur
Tel: (60) 3 2084 8888
Fax: (60) 3 2084 9688
Website: http://www.cimb.com.my/

CLSA Securities Malaysia Sdn. Bhd.
Bilik 20-01, Aras 20
Menara Dion, 27 Jalan Sultan Ismail
50250 Kuala Lumpur
Tel: (60) 3 2056 7888
Fax: (60) 3 2056 7988

Credit Suisse Securities (Malaysia) Sdn. Bhd.
Suite 7.6, Level 7
Menara IMC, 8 Jalan Sultan Ismail
50250 Kuala Lumpur
Tel: (60) 3 2723 2020
Fax: (60) 3 2026 9500

ECM Libra Avenue Securities Sdn. Bhd.
Tingkat 1, 2, 3 & 8A, Wisma Genting
Jalan Sultan Ismail
50250 Kuala Lumpur
Tel: (60) 3 2178 1888
Fax: (60) 3 2161 8818
Website: https://www.ecmlibra.com/ecmlsmy/

FA Securities Sdn. Bhd.
No. 51 & 51A, Ground, Mezzanine, & 1st Floor
Jalan Tok Lam
20100 Kuala Terengganu, Terengganu
Tel: (60) 9 623 8128
Fax: (60) 9 623 8129

HLG Securities Sdn. Bhd.
Levels 5-8, Menara HLA
No. 3 Jalan Kia Peng
50450 Kuala Lumpur
Tel: (60) 3 2168 1168
Fax: (60) 3 2161 6311
Website: http://www.hlebroking.com/

HwangDBS Investment Bank Berhad
Levels 2, 3, 4, 5, 7 & 8 Wisma Sri Pinang, 60 Green Hall
Levels 2, 3, 4, 5, 6, 7 & 8 Wisma Sri Pinang II, 42 Green Hall
10200 Pulau Pinang
Tel: (60) 4 263 6996
Fax: (60) 4 263 9597
Website: http://einvest.hdbsib.com/bin/home.asp

Innosabah Securities Berhad
Lot 11-12, Block K
Lot 6, 7 & 9, Block H
Lot 11, Block I
Sadong Jaya, Karamunsing
88100 Kota Kinabalu, Sabah
Tel: (60) 8 823 4099
Fax: (60) 8 823 4100
Website: http://www.innosabah.com.my/

Inter-Pacific Securities Sdn. Bhd.
West Wing, Level 13
Berjaya Times Sqaure
No.1, Jalan Imbi
55100 Kuala Lumpur
Tel: (60) 3 2117 1888
Fax: (60) 3 2144 1686
Website: http://www.paconline.com.my/

JF Apex Securities Berhad
3rd, 5th, 6th & 10th Floor, Menara Apex
Off Jalan Semenyih, Bukit Mewah
43000 Kajang, Selangor
Tel: (60) 3 8736 1118
Fax: (60) 3 8737 4532
Website: http://www.apexetrade.com/bin/home.asp

JPMorgan Securities (Malaysia) Sdn. Bhd.
Menara Dion, Aras 27
Jalan Sultan Ismail
50250 Kuala Lumpur
Tel: (60) 3 2270 4700
Fax: (60) 3 2270 4787

Jupiter Securities Sdn. Bhd.
Levels 8-9, Menara Olympia
No. 8 Jalan Raja Chulan
50200 Kuala Lumpur
Tel: (60) 3 2034 1888
Fax: (60) 3 2034 2288
Website: http://www.jssb.com.my/

KAF-Seagroatt & Campbell Securities Sdn. Bhd.
11th - 14th, Chulan Tower
No. 3, Jalan Conlay
50450 Kuala Lumpur
Tel: (60) 3 2168 8800
Fax: (60) 3 2168 8840

Kenanga Investment Bank Berhad
Tingkat Bawah, 1-14, 16, 17 & 20
Kenanga International, Jalan Sultan Ismail
50250 Kuala Lumpur
Tel: (60) 3 2162 1490
Fax: (60) 3 2161 4990
Website: http://www.kenanga.com.my/

Kuwait Finance House (Malaysia) Berhad
Aras 17 & 18, Tower 2
MNI Twins, 11 Jalan Pinang
50740 Kuala Lumpur
Tel: (60) 3 2055 7777
Fax: (60) 3 2166 7999
Website: http://www.kfh.com.my/

M & A Securities Sdn. Bhd.
5th, 6th, 7th & 8th Floors
M & A Building 52A Jalan Sultan Idris Shah
30000 Ipoh, Perak
Tel: (60) 5 241 9800
Fax: (60) 5 255 1015
Website: http://www.mna.com.my/

Macquarie (Malaysia) Sdn. Bhd.
Aras 10, Menara Dion
No. 27, Jalan Sultan Ismail
50250 Kuala Lumpur
Tel: (60) 3 2059 8833
Fax: (60) 3 2381 7889

Malacca Securities Sdn. Bhd.
No. 1, 3 & 5, Jalan PPM 9
Plaza Pandan Malim (Business Park), Balai Panjang
75250 Melaka
Tel: (60) 6 337 1533
Fax: (60) 6 337 1550

Malaysian Issuing House Sdn. Bhd.
27th Floor, Menara Multi-Purpose
Capital Square, No. 8 Jalan Munshi Abdullah
50100 Kuala Lumpur
Tel: (60) 3 2693 2075
Fax: (60) 3 2693 0858
Website: http://www.mih.com.my/

Mercury Securities Sdn. Bhd.
Ground, 1st, 2nd & 3rd Floors
Wisma UMNO Lorong Bagan Luar Dua
12000 Butterworth, Pulau Pinang
Tel: (60) 4 332 2123
Fax: (60) 4 323 1813

MIDF AMANAH Investment Bank Bhd
10th, 12th, 14th, 15th and 18th Floor
Bangunan Amanah Capital
No.82, Jalan Raja Chulan
50200 Kuala Lumpur
Tel: (60) 3 2163 0630
Fax: (60) 3 2163 0248
Website: http://www.midf.com.my/main

MIDF Consultancy & Corporate Services Sdn. Bhd.
12th Floor, MIDF Building
195A Jalan Tun Razak
50400 Kuala Lumpur
Tel: (60) 3 2161 3355
Fax: (60) 3 2161 7161

MIMB Investment Bank Bhd
Tingkat 18, 19 & 21, Menara EON Bank
288 Jalan Raja Laut
50350 Kuala Lumpur
Tel: (60) 3 2691 0200
Fax: (60) 3 2698 5388

OSK Investment Bank Berhad
9th, 12th & 21st Floors
Plaza OSK Jalan Ampang
50450 Kuala Lumpur
Tel: (60) 3 2333 8333
Fax: (60) 3 2175 3333
Website: http://www.osk.com.my/

PM Securities Sdn. Bhd.
Tingkat Bawah, Mezanin, 1 & 10, Menara PMI
No. 2 Jalan Changkat Ceylon
50200 Kuala Lumpur, Wilayah Persekutuan
Tel: (60) 3 2146 3000
Fax: (60) 3 2144 8082
Website: http://www.pmsecurities.com.my/

Public Investment Bank Berhad
25th Floor, Menara Public Bank
146, Jalan Ampang
50450 Kuala Lumpur
Tel: (60) 3 2166 9382
Fax: (60) 3 2166 9362

RHB Investment Bank Bhd
Aras 10, Tower One
RHB Centre, Jalan Tun Razak
50400 Kuala Lumpur
Tel: (60) 3 9287 3888
Fax: (60) 3 9280 6507
Website: http://www.rhbinvestmentbank.com/

SBB Securities Sdn. Bhd.
Tingkat 1, 2 & 3, Plaza Damansara Utama
2 Jalan SS21/60, Damansara Utama
47400 Petaling Jaya, Selangor
Tel: (60) 3 7729 7345
Fax: (60) 3 7728 1357
Website: http://www.sbbsec.com.my/

SJ Securities Sdn. Bhd.
Level 3 & 4, Holiday Villa
No. 9 Jalan SS 12/1
47500 Subang Jaya, Selangor
Tel: (60) 3 5634 0202
Fax: (60) 3 5633 0649
Website: http://www.sjsec.com/

TA Securities Holdings Berhad
Tingkat 14-18, 23, 28-30, 34 & 35
Menara Ta One, 22, Jalan P. Ramlee
50250 Kuala Lumpur, Wilayah Persekutuan
Tel: (60) 3 2072 1277
Fax: (60) 3 2072 2369
Website: http://www.taonline.com.my/taonline/jsp/index.jsp

UBS Securities Malaysia Sdn. Bhd.
Lot 7.03, Aras 7
Wisma Hong Leong, 18 Jalan Perak
50450 Kuala Lumpur
Tel: (60) 3 2781 1100
Fax: (60) 3 2781 1110

List of Malaysia Stock Broking, Securities And Investment Firms

2008-09-05T19:53:00.000-07:00

OSK188-Guinness Anchor BUY

2008-09-03T04:12:00.000-07:00

The FY08 results were within our expectations while the y-o-y earnings for the full
year went up as much as 11.4% to RM1.2bn from RM1bn. On a net basis, y-o-y net
profit gushed up 11.8% to RM125.8m from RM112m. Although no reasons were
attributed to the better performance, we reckon the improved industry volume and
higher selling price were the key reasons. Guinness has declared a final tax exempt
dividend of 14 sen and 17 sen gross dividend for the current quarter. This brings
the total dividend payout to 44 sen per share (FY07 – 45 sen). We are revising our
net earnings forecast upwards by 10.8% and 3.8% for FY09 and FY10 respectively.
Our target price has been raised to RM6.70 from RM6.60 previously. Maintain BUY.

OSK Research ups Proton to Buy, target price RM3.64

2008-08-27T23:49:00.000-07:00

KUALA LUMPUR: OSK Investment Research is revising upwards its earnings for Proton Holding Bhd substantially to RM179mil and RM184mil for the financial years ending March 30, 2009 (FY09) and FY10 respectively.

“The potential re-rating catalysts are its long term plan for a strategic partnership to tap the export market as well as set up manufacturing plants,” it said in a research note issued on Thursday.

“We are upgrading Proton to a BUY on its short term turnaround. Blending a valuation mix of both 8.0 times forward price-to-earnings (PE) and 0.5 times price/net tangible asset (P/NTA), we arrive at a revised target price of RM3.64 (from RM3.34),” it said.

OSK Research said it was applying a 0.5 time P/NTA until a solid strategic partnership for Proton materialised.

On Wednesday, Proton announced net profit of RM52.02mil for the 1Q from a net loss of RM46.75mil a year ago. Revenue rose to RM1.71bil from RM1.14bil. Earnings per share were 9.5 sen from a loss per share of 8.5 sen.

The improvement in profitability was mainly due to Proton’s domestic sales volume growth of 55% on-year, underpinned by new models, the Persona and Saga.

OSK Research said Proton’s annualised revenue came in 7% below its expectation but was 1% above street estimates on lower-than-expected volume.

“But to our surprise, 1QFY09 accounted 87% of our full year forecast and 62% above consensus,” it said.

Hence, it was trimming its cost component assumptions as Proton was reducing its distribution and administrative costs to enhance operating efficiency and reduce the size of its distributorship network.

OSK Research said the overall expansion in Proton’s margins might possibly be due to Proton cutting on its distribution expenses by slashing the number of distribution outlets from 303 to 250 by end-FY09, as well as overhead costs by reducing its dependence on vendors (from 200 to150 by end-FY09).

However, the research house said it remained concern over rising raw material prices. The higher prices would ultimately raise its core earnings assumption to RM179mil (from RM59mil) for FY09 and RM184mil (from RM66.7mil) for FY10.

OSK Research added it was reaffirming its key assumptions on the increase in raw material prices (specifically carbon steel) by 18% and 8% for FY09 and FY10 respectively.

UEM World-OSK188

2008-08-27T04:41:00.000-07:00

UEM World violated a critical support of RM2.49 yesterday. If it was a clean violation, this breakdown means that the stock is expected to face strong selling pressure going forward. Yesterday’s breakdown caused significant technical damage to the daily chart and triggered a Sell signal. It is likely that the stock will retrace to the next support level of RM2.49 and strong support can only be seen at the RM2.10 level. From the current level, look for an immediate resistance at the 50-day MAV line which is now situated at the RM2.88 level, followed by the tougher RM3.00 level.

ECM Libra-Buy Sime Darby

2008-08-19T03:06:00.000-07:00

ECM Libra call- buy Sime darby (4197). Target sell price RM8.20. Today closed at RM6.35 Volume 66734. Target 20% profit.

Click to enlarge

Glomac Bhd (5020)

2008-08-11T03:39:00.000-07:00

ECM Libra call : BUY

Target Price : RM1.06

Technical View : KLCI - The Key 1120 Pt-Level, GuocoLand (M) Bhd (RM1.47 @ 08/08/08)

2008-08-10T20:01:00.000-07:00

We did not expect the KLCI to fall close to 10 pts last Friday despite the poor performance of the US market last Thursday. However, what is important is that the KLCI was able to sustain a posture at above the key 1120 pt-level.

Last week, we saw the key index carve out two bullish candlestick patterns, which were the “Bullish Harami Cross” and the “Long Leg Doji”. Nonetheless, the market did not have the chance to stage a strong technical rebound to confirm the two bullish candlestick patterns. Anyhow, as long as the 1120 pt-level is not taken out, the odds are still high that the KLCI could march higher from the current level. Meanwhile, our bullish stance is maintained.

From the current level, look for an immediate resistance at the1148 pt-level followed by the 1165 pt-level. To the downside, the 1120 pt-level is now the immediate support followed by the 1100 pt-level.

GuocoLand made another step forward to test the 100-day MAV line, which is now situated at the RM1.52 level. It looks like the stock has formed a rather strong support at above the RM1.20 level. A successful crack above the 100-day MAV line would provide a buying opportunity for investors. We are eyeing the RM1.87 level as the upside target. Our cut-loss point is pegged at below the 100-day MAV line. From the current level, look for immediate support at the RM1.35 level.

BURSA MALAYSIA UPDATE: 9.30 A.M

2008-08-10T18:58:00.000-07:00

KUALA LUMPUR, AUG 11 (Bernama) -- At 9.30 a.m. today, there were
152 gainers, 48 losers and 86 counters traded unchanged on the Bursa
Malaysia.
The KLCI was at 1,123.37 up 3.06 points, the FBM2BRD was at
5,314.60 down 0.46 of a point, and the FBMEmas was at 7,495.78 up 29.16
points.
Turnover was at 54.243 million shares valued at RM70.133 million.
-- BERNAMA
HBS HBS

11/08/2008 09:38 AM

Axis appoints Messrs Horwarth auditor for contracts

2008-08-08T22:47:00.000-07:00

PETALING JAYA: Axis Inc Bhd has formalised the appointment of Messrs Horwath, its current external auditor, to carry out a special audit on its transactions with contract manufacturers from April 1 last year to March 31.

Axis said in a statement to Bursa Malaysia yesterday the audit would also include the balances outstanding with the contract manufacturers as at March 31.

“The audit procedures include the determination of the nature of the transactions and validation of the transactions and balances to the appropriate audit evidence,” it said.

On Aug 1, Axis told Bursa Malaysia that Horwath was unable to obtain sufficient appropriate audit evidence and explanations over several transactions, including about RM105mil due from contract manufacturers that had to be verified.

Axis yesterday said upon completion of the special audit, Horwath would present the findings and recommendations for the appropriate adjustments, if any, to the company’s financial statements.

“The preliminary draft report will be made available for discussion within eight working weeks from the date of commencement of work and the special audit is expected to start on Aug 11,” it said.