Saturday, October 2, 2010

RHB-Market Strategy

Market Strategy
Top Slicing And Accumulate On Weakness
Whilst we acknowledge that the long-term economic picture remains positive for the equity market, the revival of a “double-dip” recession fear can have a disproportionate impact on the market in the foreseeable future. Under such circumstances, it may be timely for investors to be vigilant and do some top slicing on stocks where valuations have become rich in the run-up of the market. This would then provide more room for investors to accumulate fundamentally-robust stocks on weakness.

Under such circumstances, stock picking is key . As key risks are mainly external, we believe investors may find greater price stability in companies that have less or hedged exposure to overseas markets. Meanwhile, there is room for some tactical plays in the 4Q given the impending release of : (i) The 2010 Budget with a list of projects for implementation over the next two years; (ii) The detailed ETP blueprint; and (iii) The possibility of Sarawak state elections being held (before May 2011). Overall, we believe the market will be volatile in the months ahead and, therefore, any significant pullback in the market should be taken as an opportunity to pick stocks and reposition for the new year. A list of our tactical plays and longer- term picks is reflected in Table 11.

Tactically, the construction and property sectors would still be the focus in the 4Q (see Table 12) despite the significant run-up in some stock prices. Whilst the theme is not new, news flow would likely pick up given : (i) The completion of the feasibility study on the RM36bn MRT project; (ii) The likely award of the first four packages of the RM7bn Ampang and Kelana Jaya LRT line extension project; (iii) More details on the Klang River clean-up/beautification project that will generate substantial construction jobs for the sector; (iv) The award of “high-impact” projects worth RM62.7bn to be implemented over the next two years; and (v) The eventual formal award of Federal land parcels to “master developers” and the subsequent farming out of the sub-divided smaller land parcels to various developers. Although the recent mulls on lowering cap on loan-to-value on high-end residential properties may dampen sentiment on property investment, we believe it will be outweighed by positive news flow from the various government development plans, particularly the award of Federal land parcels to developers. Moreover, the property sector is still at an early stage of rising price cycle, underpinned by : (i) Young demographics of the population; (ii) The availability of cheap financing; (iii) Low deposit returns and property being a preferred asset to hedge against rising inflation; and (iv) Strengthening currency attracting greater foreign participation in the local property market.

Further out, we still see values in the banking sector as investors begin to look forward to next year’s earnings and valuations. The sector, in our view, represents a good proxy to the economic recovery and will likely continue to outperform the market during the early stage of an economic upcycle. At the current levels, the sector’s weighted average FY11 PER of 13.5x compares favourably to the FBM KLCI’s estimated PER of 14.5x. The banking stocks’ PER valuations are also not excessive relative to their respective historical trading levels. As earnings growth gains momentum, particularly for banks with exposure to high-growth markets, investors’ interest on the banking sector will increase. In addition, there is also scope for some of the banks to raise dividends following the less stringent Basel III capital requirement announced recently.

Apart from construction, property and banking, we continue to overweight the power, motor, media and timber sectors. For the power sector, the main focus going forward would be on industry reforms, which could include : (i) Renegotiations on the first generation power purchase agreements (PPAs) with the independent power producers (IPPs); (ii) The removal of subsidies for natural gas; and (iii) A formal tariff formula for TNB. We believe the formalisation of a tariff formula for TNB would lead to a re-rating on the stock as this would allow TNB to pass on higher fuel costs to users in a more timely manner and we also understand from the regulator that the formula could incorporate efficiency/service quality measures that reward (or penalise) TNB according to the achievement of targets. Such measures could spur TNB to improve efficiency and service quality. In our view, it is a matter of time before such a formula is introduced. Meanwhile, TNB is trading at a significant discount to the FBM KLCI benchmark with healthy electricity demand growth in a recovering economy.

The motor industry , on the other hand, is in the second year of a new 3-year cycle with rising car sales. Consequently, we are of the view that it is still a good time to invest in motor stocks even though share prices have picked up significantly. Similarly, the media sector is experiencing strong recovery in advertising revenue on the back of a recovering economy and supported by the various sporting events. While newsprint prices have crept up recently, the margins of media companies continue to improve on account of the weakening US dollar vis- a-vis the ringgit. In addition, we have upgraded the timber sector to overweight recently given the improving outlook for the industry where average selling prices of plywood and logs have been rising since the start of the year on the back of steady demand from Japan (mainly plywood) and India (mainly logs).

Overall, we believe stock picking is key to greater portfolio performance moving forward as the market has run up significantly. Apart from the sectors mentioned above, we have a neutral call on all other sectors and will concentrate on picking winners in these sectors.

RHB-Property Overweight Still In Hot Flavour

Property : Overweight Still In Hot Flavour
We maintain our positive stance on the property sector. The key risk that threatens the property sector – a blanket imposition of the loan-to-value (LTV) cap has been addressed by the Prime Minister that new measures are likely to target at home purchasers who own more than two houses. Meanwhile, first and second home buyers are still entitled to 90% LTV cap. This news has significantly eased the concern by investors, as the impact would be less significant. In our view, although some speculative buying activities may die down due to lower margin financing or ability to leverage, fundamental demand will still be supported by young population as they are typically the first or second home owners, and buyers who own more than two homes are generally the affluent group.

Based on our analysis, we expect ARPP (Average Residential Property Price) to continue to hold well over the next two years until 2012/2013. Below are the key drivers for property demand going forward:
1. Young population growth – the key force driving demand. We believe the faster growing young demographics of the country (relative to other age groups of 0-14 and > 65) is the key driving force for property demand. Historically, the cycle of private consumption roughly coincides with the cycle of growth in young demographics lagged by 19/20 years. Hence, given the strong growth in population aged 15-64 in year 1992, we believe this will then translate to high private consumption growth in 2010-2012, and hence stable increase in ARPP (see charts below) until 2012/2013. Based on RHBRI’s economics team’s projections, private consumption is estimated to grow by 5.6% in 2010 and 5.4% in 2011. Note that the strong growth in private consumption is already seen from the substantial pick-up in property as well as motor vehicle sales since end 2009.

2. Cheap financing in addition to developers’ incentives. In our opinion, even if 70% cap on LTV is to be implemented on buyers who own more than two houses, we believe developers will still continue with their aggressive incentives/ rebates to attract buyers. A check on the ground, depending on negotiations with developers, some developers even allow buyers to make their downpayment by using credit cards and split into few tranches. Other incentives include rebates to customers, interest absorption scheme etc. In addition, the system is still flushed with liquidity, given the current (relatively) low interest rate environment. Competition among banks have also kept discount to BLR at around 1.8-2.2%, compared to a premium above BLR prior to 2005, which partly explains the “cooler” property market during that period.

3. Strengthening in ringgit to spur foreign participations. Thus far in 2010, MYR/USD has strengthened by about 10.5%, driven by BNM’s liberalisation policy for international trade purpose. The continued strengthening in ringgit is likely to attract foreigners’ participation in the Malaysia property market, due to higher expected return. Our view is also concurred by recent comment made by Ireka – a high-end residences developer, which saw foreign buyers returning to the Malaysian property scene, as more than 50% of the company’s ongoing SENI Mont’ Kiara project is taken up by foreigners. We also note that over the past few months, some foreign-based funds (ADF Tiger III and ARA Asia Dragon Fund) have acquired properties in Malaysia - AEON Melaka Mall and 1 Mont’ Kiara, showing increasing interests in Malaysian properties.

4. Property – a preferred vehicle to hedge against inflation. The property sector will continue to be an asset reflation play. According to Bank Negara Malaysia’s sensitivity study, the gradual removal of subsidies would push inflation to 4% in 2011-12, before easing to 3% in 2013. Therefore, we believe the cost- push factors would make real estate a preferred inflationary hedge to preserve values, given limited alternative choices.

Apart from the recent mulls on lowering cap on LTV, the property sector is still fueled with good news with the announcement on government development plans. These include the 3,300-acre RRI land in Sungai Buloh as well as the Sungai Besi Financial Centre. In addition, the proposed MRT lines (Red line: Kota Damansara-Golden Triangle-Serdang; Green line: Sg Buloh-Kepong-Kg Baru-KLCC-Cheras-Kajang) will also benefit certain developers which have landbank along the affected areas. A number of areas have also been identified as MRT stations in future (such as Pusat Bandar Damansara, Dataran Sunway, 1 Utama/The Curve, Subang Bestari, Balakong, Sg Besi Financial Centre, Matrade etc). Hence, values of properties located in the selected areas are expected to appreciate. Companies that stand to benefit include SP Setia (KL EcoCity), Mah Sing (Icon Residence and Star Avenue) and Glomac (Damansara and PJ projects).

As for MREITs, the two recently listed retail-based REITS (Sunway REIT and CapitaMalls Malaysia Trust) have seen stronger investor interests, due to their larger asset size as well as liquidity and hence investibility. Based on our discussion with industry players, REITs have returned into flavour by foreign funds which are looking for dividend yield. The yields angle is amplified by the strengthening in ringgit, as return on investment becomes more attractive (7-8% yield + 10% YTD currency gain).

However, over the longer-term, we like MREITs for their defensive yield, which is more attractive than the current 10-year MGS and fixed deposit rate. In addition, we are also hopeful that the Government may relax the current tax regime on REITs in the upcoming Budget 2011, where withholding tax for local and foreign individual unitholders could be reduced/removed from the current level of 10% vs 0% in Singapore and Hong Kong. Among the REITs under our coverage, we like Sunw ay REI T (OP, FV = RM1.05) for its asset size and liquidity, and Axis REI T (OP, FV = RM2.67) for its strong acquisition track record.

Overall, we maintain our Overweight stance on the property sector. Our top picks for developers are I JM Land (OP, FV = RM3.00), Mah Sing (OP, FV = RM2.06), and Suncity (OP, FV = RM5.48).

RHB- cautious on MAS

Airlines: Lower Sector Profitability In 2011 International Air Transport Association (IATA) projects the global airline industry to register lower profits of US$5.3bn in 2011 vis-à-vis US$8.9bn projected for 2010 (see Table 51), largely due to pressure on yields and load factors on the back of the deliveries of about 1,400 new aircraft that will add some 6% additional capacity to the system, outpacing the demand growth projected at 5%. It is upbeat on the air travel and freight markets in Asia, the Middle East and South America in 2011, but cautious on Europe and North America on high joblessness that undermines consumer confidence.

We remain cautious on MAS as: (1) It is still saddled with fuel hedges at high prices; (2) Its quarterly operating results remain volatile with losses during the latest two quarters; and (3) The massive funding requirement for its fleet renewal programme in 2010-2015 may mean more cash calls down the road.

RHB-FBM KLCI From The Technical Perspective

Fibonacci Projection Points To 1,668 Target

Fibonacci Projection Points To 1,668 Target
In our quarterly strategy piece dated 30 June 2010, we had forecasted for a weaker trend on the FBM KLCI in the 2H. This was due to the weak and unconvinced crossover of the 1,300 important psychological level and the beliefe that the index may not be able to surpass the key 1,350 level with its existing technical momentum then. Also, on that strategy piece, we laid down a scenario should the index fail to penetrate the 1,350 level soon, it would lose its momentum and head south to trigger a “Head & Shoulders Formation” that could lead to a major correction towards the 1,050 – 1,150 region. As it turned out, not only the FBM KLCI surpassed the critical 1,350 level with sterling performance, it has avoided a trigger of the major “Head & Shoulders Formation” on the chart in late July 2010.

The positive reversal, that was led by a surprise removal of the critical resistance level of 1,350 in late July (see Chart 6) marked a fresh breakout pattern on the chart, and led to a renewed rally towards the 1,390 – 1,400 resistance zone in just less than one month. Indeed, the FBM KLCI surpassed the major resistance region of 1,390 - 1,400 in August to kick-start a strong rally. This rally carried on for more than five weeks to hit a fresh 32-month high of 1,479.59 in mid-September. That prompted us to turn even more bullish on the near-term chart outlook on the FBM KLCI. The subsequent removal of the 1,450 level with a strong breakout momentum in recent weeks has further confirmed the removal of the final important resistance zone of the index at 1,390 – 1,400. That brought a fresh target to the next level of the all-time high resistance at 1,524.69, which was last hit in January 2008 (see Chart 6).

As shown in Chart 6, the positive turn in July has also twisted the 10-week SMA from cutting to below the 40-week SMA near the critical level of 1,300. For now, the reversal of the 10-week SMA becomes the basis of our bullish medium-term view on the index. So long as the 10-week SMA continues to head upwards, and stay above the 40-week SMA, it will continue to chart a positive medium-term outlook on the index. To date, the 10-week and 40-week SMAs are both trending near 1,414 and 1,332 respectively.

In conclusion, the FBM KLCI has staged a surprise breakout from the 1,350 and 1,390 – 1,400 region to reverse the previous cautiously negative technical outlook in July and early September 2010. With the sustained buying momentum in the past few weeks, the index is poised to retest the all-time high level of 1,524.69 in the weeks ahead, in our view. Although the trading momentum has reached the grossly overbought region, the uptrend for short-, medium- and long-term outlook remains firmly intact. Even if the index were to stage a sharp short-term pullback, the medium- to longer-term outlook will likely stay bullish, in our view. As a result, we are bullish on the FBM KLCI’s short-, medium- and long-term technical outlook and foresee a near-term test of the 1,524.69 all-time high level soon. Upon the removal of the all-time high resistance level, the index will likely propel towards our Fibonacci Projection target of 1.618x at 1,668 in the first half of 2011.

RHB-High Dividend Yielding Stocks

RHB Top Picks

FBM KLCI Movements In 2010 -rhb

Friday, October 1, 2010

4Q2010 Market Outlook & Strategy -RHB

4Q2010 Market Outlook & Strategy

Volatility As Economic Worries Persist
◆ Whilst we believe that the equity market may move into a phase of greater volatility in the months ahead until a clearer picture emerges on the strength of the global economic recovery, the impending release of the 2011 Budget, detailed ETP blueprint, award of major infrastructure contracts and Federal land deals, and the Sarawak state elections would likely create news flow and spur investors’ interest on the construction and property sectors.

◆ Nevertheless, as valuations of the local bourse are no longer cheap, it is susceptible to any adverse developments in the external sector, including the revival of a “double-dip” recession fear. Domestically, any significant credit tightening by the Central Bank on mortgages and credit card spending could also cause the market to undergo a phase of correction. Moreover, as we head into the 4Q, we believe investors’ focus would gradually shift to 2011. This implies that investors would likely make a reassessment of the global economy, take stock and reposition their portfolios for the year ahead.

◆ Although we are less sanguine on the near-term outlook, we believe there is still room for the market to trend higher in 2011. This is primarily predicated on the view that the global economic recovery is more sustainable than feared, which in turn implies sustained corporate earnings growth (+12.9% projected for 2011) that will continue to create new shareholders’ value for investors. Our end-2011 FBM KLCI target remains unchanged at 1,640, based on 15x mid-cycle 2012 earnings. This, however, will not be without volatility as the global economy enters into a period of slowing growth in an uneven phase of recovery.

◆ Whilst we acknowledge that the long-term economic picture remains positive for the equity market, the revival of a “double-dip” recession fear can have a disproportionate impact on the market in the foreseeable future. Under such circumstances, it may be timely for investors to be vigilant and do some top slicing on stocks where valuations have become rich in the run-up of the market. This would then provide more room for investors to accumulate fundamentally-robust stocks on weakness

Fajarbaru Builder Group -rhb

Fajarbaru Builder Group
Share Price : RM1.01
Fair Value : RM1.37
Recom : Outperform (Maintained)

Lands RM62.4m Automotive Industrial Park Infrastructure Job

♦ First key contract in FY06/11. Fajarbaru has been awarded by the East Coast Economic Region (ECER) Development Council a RM62.4m contract for earth and infrastructure works for Phase 2, Automotive Industrial Park, Pekan-Peramu, Pahang, covering an area of 110 acres. This is the first key contract Fajarbaru has secured so far in FY06/11, boosting its outstanding construction orderbook by 16% from RM397m to RM459m (see Table 2). Assuming an EBIT margin of 10-12%, the contract will fetch RM6.2-7.5m EBIT over the 18-month construction period commencing Oct 2010.

♦ Forecasts. Maintained as we have assumed Fajarbaru to secure RM250m worth of new jobs per annum in FY06/11-12.

♦ Risks. The risks include: (1) New contracts secured in FY06/11-12 coming in below our target of RM250m per annum; and (2) Rising input costs.

♦ Construction stocks to do well. We are upbeat on construction stocks as we believe they will continue to generally outperform the market from 4Q2010, buoyed by news flow from: (1) The infrastructure development for the Greater KL National Key Economic Area (NKEA) under the Economic Transformation Programme (ETP), particularly, the RM36bn MRT project; (2) The RM7bn Ampang and Kelana Jaya LRT line extension project; and (3) Federal land deals.

♦ Maintain Outperform . Fajarbaru, via Fajarbaru Builder Sdn Bhd – Signatium Construction Sdn Bhd JV, has been pre-qualified to bid for the LRT line extension project as main contractor as well as segmental box girder sub-contractor. Also, additional kickers will come from its still undemanding valuations, coupled with a strong balance sheet with a net cash of RM124.5m as at 30 Jun 2010, translating to a whopping 75sen/share. Indicative fair value is RM1.37 based on 10x fully-diluted CY11 EPS of 13.7sen, in line with our benchmark 1-year forward target PER for the construction sector of 10-16x.

Market Cycle

STI Technical Review-cimb

STI continued to see-saw around the 3,100 levels. As mentioned yesterday, the sideways pattern looks like a triangle consolidation pattern and could end today. As long as 3,082 is not breached to the downside, next leg should be a rally to new highs, likely to fill up the huge 3,060- 3,146 gap. Following resistance is seen around the 3,223 levels. if prices tanks below 3,082, then a deeper correction is taking place with the breakout level of 3,043 the first target. Following support at 3,000 psychological level.

Optimism on a technical rebound persists -rhb

- From a positive perspective, heavy T+4 force-selling pressure from last Friday’s 1.73bn shares transacted has been well absorbed by yesterday’s improved trading volume, amid a mild gain on the FBM KLCI.

- But due to the index’s failure to overcome the key resistance of the 10-day SMA near 1,465 for a fourth consecutive day, the short-term technical readings on the index have gradually turned negative.

- In fact, we expect the current consolidation to continue with a further dip on the index to cover a small technical gap at 1,453.99 and to retest the 1,450 critical support soon.

- However, as we reiterated earlier, as long as the index can sustain at above 1,450, the short-term outlook on the FBM KLCI will remain positive.

- As such, aggressive investors can prepare to bargain for value stocks that have retraced significantly from their recent tops, for a technical rebound in the near term should the index sustain at above 1,450 eventually.

FBM KLCI Index Technical Review -apex

Closing: 1463.50
Support: (S1) 1430 / (S2) 1400
Resistance: (R1) 1480 / (R2) 1525

Comments: The FBM KLCI climbed 1.72 points to 1463.50 yesterday to continue its sideways trend. Total market volume rose to 1.05 billion units from 905 million units previously. The RSI remained flat and is hovering below the overbought region. Other technical indicators are still pointing downwards with the MACD value crossed below the signal line and a weakening ADX value. Given the index’s performance so far this week, we believe the near term consolidation could continue. Long term outlook remains positive with the index holding firmly within an uptrend channel. For the downside, the immediate support level is pegged at 1430 followed by 1400.

Resistance levels are at 1480 and 1525 respectively.


Source/转贴/Extract/: youtude
Publish date:01/10/10

Thursday, September 30, 2010

Cambridge Industrial Trust -dbs

Cambridge Industrial Trust
HOLD S$0.545
Price Target : 12-Month S$ 0.54 (Prev S$ 0.51)

Tapping cash pool for new purchases
• Acquisition of Scorpio East Building for S$21.1m at initial 8% yield
• Positive acquisition with slight 2% accretion to DPU in FY11F, and terming out WALE.
• Rolling forward our numbers to FY11, TP is raised to S$0.54. Maintain HOLD.

Acquiring up to S$60m worth of properties to date.
Cambridge REIT (“CIT”) announced the acquisition of Scorpio East Building, a recently completed light industrial building located in Paya Labar iPark, for S$21.1m (2% discount to valuation of S$21.5m). With this latest purchase, CIT will have acquired close to S$60m worth of properties to date. The Initial yield of the property is estimated to be c8.0% (based on Scorpio East’s annual rental of S$1.7-S$1.9m), which is in line with CIT current implied yield of 7.9%. The property will be leased back to the vendor for 5 years. The manager intends to fund the purchase through a combination of debt/equity.

Slight accretion to DPU and terming out the weighted average lease expiry (“WALE”)
The manager has remained proactive in re-positioning its portfolio, replacing recent asset divestments with new asset purchases. Including this acquisition in our numbers, our FY11 DPU is raised by c2%. In addition, CIT will see its tenant expiry profile terming out further, reducing the concentration of expiry in FY13-14.

HOLD call maintained, TP adjusted to S$0.54.
With our revised DPU estimates and rolling forward our numbers into FY11, our target price is raised to S$0.54. Maintain HOLD in view of limited upside. CIT currently offers FY10-11F yields of 9.1%.

Starhill Global REIT-ocbc

Starhill Global REIT:
We estimate that Singapore retail contributes roughly 51.9% of Starhill's FY10F gross revenue and 47.6% of FY11F gross revenue. We are positive on the retail property sector as:
1) tourism and increasing consumer confidence are likely to drive retail spending; and
2) we find the sector attractive, relative to the residential sector, which has significant policy overhang.

Starhill is one of our top picks for the sector as it trades at a significant 35% discount to book value vis-à-vis the meager 3% discountto- book offered on average by the broader S-REIT sector.

We believe this discount is unjustified when considering Starhill's high-quality assets, healthy balance sheet and its strong sponsor.

Wednesday, September 29, 2010

BEYONICS -limtan

􀁺 4Q ended July ’10 sales fell a disappointing 7% yoy and 3% qoq to S$373mln (lowest since early ’09’s $352mln).

􀁺 And gross margin fell to only 1.88% versus 2.4% a year ago and 2.2% a quarter ago due to diseconomies of scale.

􀁺 Bottom-line was barely in the black with profit of $77,000, down from $780,000 a year ago and $628,000 a quarter ago. If not for forex gain of $400,000, the company would be loss making in 4Q.

􀁺 We understand that dis-economies of scale due to lower demand, intense competitive pressures, higher raw material costs and lower production yields were the main culprits.

􀁺 And management warned of more challenging times ahead with weak and sluggish demand from US and Europe, increasing raw material costs, currency fluctuations and higher labour costs.

􀁺 Despite its weak financial performance and outlook, its stock price has more or less tracked Armstrong since early 2009, due to market’s perception that they are in the same sector.

􀁺 But with Beyonics’ trailing PE of 18-19x being way above Armstrong’s 8-9x and providing a yield of only 2% against Armstrong’s 9%, we maintain that it is better for investors to switch into Armstrong.
􀁺 4Q ended July ’10 sales fell a disappointing 7% yoy and 3% qoq to S$373mln (lowest since early ’09’s $352mln).

􀁺 And gross margin fell to only 1.88% versus 2.4% a year ago and 2.2% a quarter ago due to diseconomies of scale.

􀁺 Bottom-line was barely in the black with profit of $77,000, down from $780,000 a year ago and $628,000 a quarter ago. If not for forex gain of $400,000, the company would be loss making in 4Q.

􀁺 We understand that dis-economies of scale due to lower demand, intense competitive pressures, higher raw material costs and lower production yields were the main culprits.

􀁺 And management warned of more challenging times ahead with weak and sluggish demand from US and Europe, increasing raw material costs, currency fluctuations and higher labour costs.

􀁺 Despite its weak financial performance and outlook, its stock price has more or less tracked Armstrong since early 2009, due to market’s perception that they are in the same sector.

􀁺 But with Beyonics’ trailing PE of 18-19x being way above Armstrong’s 8-9x and providing a yield of only 2% against Armstrong’s 9%, we maintain that it is better for investors to switch into Armstrong.

DXN’s dividend policy a lure -edgemy

DXN’s dividend policy a lure

KUALA LUMPUR: DXN Holdings Bhd’s share price has added 14.3% since it announced a dividend policy of paying out at least 50% of the group’s net profit to shareholders on Sept 23.

To make its dividend policy more attractive, DXN said it would pay the dividend on a quarterly basis, with immediate effect.

The dividend payout could translate into attractive yield for shareholders, provided that DXN could maintain its strong 1QFY11 (FY ends Feb 28) earnings in the subsequent quarters.

The multi-level marketing (MLM) company reported a net profit of RM10.08 million or 4.43 sen a share in 1Q, which had doubled year-on-year (y-o-y). While revenue had only increased 4.7% y-o-y for the quarter, earnings were boosted by improved pre-tax margin to 18.5% from 10.1% due to better cost efficiencies in its core business.

If annualised, DXN’s full-year FY11 earnings per share could total 17.72 sen a share of which a minimum 50% payout would mean a gross distribution of at least 8.86 sen, or 7.4% yield based on DXN’s closing price of RM1.20 yesterday. In FY10, DXN posted a net profit of RM28.41 million or 12.38 sen a share.

There is currently no routine coverage on the stock, but two consumer sector analysts said DXN may start to attract more interest from the investing community, like another MLM outfit Hai-O Enterprise Bhd (Hai-O).

Hai-O was a stellar performer in the MLM industry, and its share price reflected that fact until recently when the counter faltered due to overstocking concerns.

The stock saw a strong run-up of 393% from its two-year low of RM1 on Oct 28, 2008 to reach a high of RM4.93 on March 17, 2010, beating the performance of Bursa Malaysia’s broader market.

But the stock’s rally had ended as the company had been affected by the revised direct selling act, which had tightened regulations in the MLM industry to stop members from front loading stocks, as this could subsequently lead to members not being able to sell the excess stocks.

“It (the Act) also deters MLM leaders/members who were previously front loading to continue their recruitment activities as they are now unable to make quick profits as they did previously,” said RHB Research in an earlier report.

Hai-O’s shares closed at RM3.20 last Friday near its nine-month low of RM2.96 recorded on Sept 1, 2010.

However, RHB Research states that “we believe that Hai-O will be able to pull through and come back stronger in the longer term, with members of higher quality and productivity”.

Market observers said DXN and other MLM players could restrategise their marketing plan to adhere with the revised direct selling Act. Nonetheless, they said the impact of the Act was less severe on DXN, whose stronger profit in 1Q was due to better operating efficiencies and not caused by a short spurt of growth in revenue due to its members front loading on stocks.

86% of revenue from a broad base of overseas market
DXN is an international MLM company founded by Datuk Dr Lim Siow Jin in 1993. It has more than 800,000 million active members. The company, which is based in Malaysia, is well known for its health product Ganoderma or “Ling Zhi mushroom” business.

Its product lines include dietary supplements, food and beverages, personal care products, household products and water treatment systems.

OSK Research in a trading idea note on Aug 13, 2010 states that almost 98% of the products sold via DXN’s MLM network is developed and produced by the company.

What is more interesting is that the group derives 86% of its revenue in FY10 ended Feb 28, 2010 from a broad base of emerging market countries with huge growth potentials like Mexico, Peru, Chile, Hungary, Poland, the Philippines and Indonesia. DXN had also recently established a business entity in Russia.

Lim Siow Jin, the founder who is also executive chairman/CEO of DXN, owns 45.94% of the company’s shares while Lim Boon Yee, DXN’s managing director, owns another 18.6% stake.

The stock closed seven sen higher at RM1.20 yesterday. It had gained 118.2% year to date and valued the company at 8.2 times FY10’s earnings.

This article appeared in The Edge Financial Daily, September 28, 2010

Sunway City Bhd -apx

Sunway City Bhd
Price (27 Sept 10) RM 3.90 - Buy
TP: RM4.70
Landbank expansion in Penang

Sunway City announced on Bursa that it would be acquiring 81 acres of freehold land in Sg Ara, Penang for a total cash consideration of RM38.8 mil, which
translates into RM11 psf. The proposed development for the land bank consists of semi-detached houses and bungalows, with an estimated GDV of RM800
million. Maintain Buy with a TP of RM 4.70 per share.

81 acres freehold land - Sunway City announced on Bursa that it would be acquiring 81 acres of freehold land in Sg Ara, Penang from Sungei Ara Holdings Sendirian Berhad for a total cash consideration of RM38.8 mil, which translates into RM11 psf (considered attractive in Penang Island).

Strategically located - The land is situated within the vibrant South-West of Penang Island and is surrounded by matured township consisting of Rain Tree Garden, Regency Heights, Vistaria Apartment and Sunrise Garden etc in Sungei Ara and Sunway City’s existing Sunway Merica project. It is approximately 4km from Penang International Airport and about 15 min drive to the new Penang Second Link Bridge, which is currently under construction.

RM800 mil GDV - The land bank will be developed into 351 units of semi-detached houses and bungalows, with an estimated GDV of RM800 mil. The indicative selling price is ranging from RM550 psf to RM700 psf, which we deem achievable given the buoyant property market in Penang Island. The new land acquisition will replenish Sunway City’s landbank in Penang, lifting its total GDV in Penang to RM1.12 bil from various developments.

No change to our earnings forecast for now – Our earnings forecast is unchanged for now pending further details on the project. However, we expect earnings
contribution from the project will only be meaningful from late 2012 and onwards.

Maintain Buy with an unchanged TP of RM4.70 Based on the forecasted FY10 core EPS of 42.7 sen, we value the stock at RM4.70, which is derived from a blended
valuation of 1x net asset value and 5-years average PER(adjusted) of 9.8x. We favour Sunway city due to its attractive valuation and defensive qualities.

Tuesday, September 28, 2010

Shipping Sector – Slowdown on the Horizon -phillip

Slowdown on the horizon
2010 is seen as the turnaround year for shipping companies. They reversed the large losses in 2009 and started reporting profits in 2010. The third quarter of the year is the peak season for shipping as companies start manufacturing goods for the Christmas season. In fact, we expect even higher profits for shipping companies in 3Q10 compared to 2Q10. However, investors should note that 3Q10 is unlikely to be repeated in the near-term because we expect a slowdown in shipping to start from 4Q 2010. As inventory restocking has already occurred in the second half of 2009 and the first half of 2010, we think that the slowdown may last for two to three quarters, i.e. up to the first half of 2011. Nevertheless, shipping companies are likely to remain profitable, as the downturn in the industry during the financial crisis is unlikely to repeat itself.

Order of new ships
In a sign of confidence in the recovery of the shipping industry, shipping companies have placed orders for new ships. Neptune Orient Lines (NOL), Singapore’s largest shipping company, placed an order for 12 new container ships valued at US$1.2 billion to be built by Daewoo Shipbuilding & Marine Engineering Company. The ships would be delivered in 2013 and 2014. NOL mentioned that the new vessels would be used to meet future growth needs and to replace vessels with charter agreements that will expire in the next few years. In another development, Evergreen Group also ordered 10 container vessels worth US$1 billion from Samsung Heavy Industries Company. This shows that shipping companies are hopeful that the industry will continue to perform well in the next few years after overcoming the nearterm slowdown.

International Monetary Fund (IMF) economic growth projections
Despite concerns of economic slowdowns and high public debts in the developed countries, the IMF raised its economic growth forecasts in July 2010. In fact, world output growth is estimated to be 4.6% and 4.3% in 2010 and 2011 respectively. U.S. is expected to grow at 3.3% in 2010 and 2.9% in 2011 while China is likely to expand at 10.5% in 2010 and 9.6% in 2011. Furthermore, world trade, which directly affects the shipping industry, is forecast to increase by 9.0% in 2010 and 6.3% in 2011. The strength in the global trade provides certainty for shipping companies.

Baltic Dry Index (BDI)
The BDI, an indicator of dry bulk shipping rates, has been volatile in 2010. It declined to 1,700 on 15 July 2010, less than two months after reaching a high of 4,209 on 26 May 2010. The BDI is unlikely to rise above the 3,500 levels after China imposed anti-speculation measures on the property sector. This curbs the demand for iron ore, which is needed to build steel structures for the construction of homes. Furthermore, there is reduction of output by Chinese steelmakers to meet energy-efficiency targets.

On 22 September 2010, the BDI is 2,486. We expect it to hover between the 2,000 and 3,000 levels for 4Q10 and 1H11. At these levels, dry bulk shipping companies are expected to remain profitable as shipping rates are above breakeven levels.

Berlian Laju Tanker -cimb

Maintain OUTPERFORM on BLTA with unchanged SOP target of Rp680. BLTA is primarily a chemical tanker operator with a very small crude tanker shipping portion, hence we will not discuss the company in detail in this report. Chemical tanker rates, like crude tanker rates, are in the doldrums, and stronger pace of recovery will be
required to drive earnings improvement, which Drewry expects to materialise from 2011 onwards as the demand-supply equilibrium improves. While recognising that near-term chemical tanker fundamentals are unattractive, we believe that BLTA’s attractive valuations of just 0.4x P/BV and its plans to separately list the cabotage business will help it pare down debt and tap a separate source of equity market capital to grow the cabotage business. We have not changed our earnings forecasts in this report. Our target is at a slight discount to its sum-of-parts, fully diluted for the conversion of the convertible bonds due 2015. Potential share price catalysts include gradually recovering shipping freight rates into 2011 and beyond.

Sunway City -ecm

Sunway City
RM3.90 - Buy
Target Price: RM5.84
Expands landbank in Penang

• Acquires 81 acres land for RM38.8m
Sunway City announced the acquisition of an 81-acre freehold land in Sungei Ara, Penang for RM38.8m cash or RM11 psf. The group plans to undertake a RM800m residential development comprising of 351 units of semi-detached houses and bungalows. The said land is located in the south-west of Penang Island and is surrounded by matured township consisting of Rain Tree Garden, Regency Heights, Vistaria Apartment and Sunrise Garden, etc in Sungei Ara and the group's existing Sunway

Merica project. It is located near Penang International Airport and the new Penang Second Link Bridge which is currently under construction and is easily accessible via Jalan Dato Ismail Hashim.

• Cheap on first look
On first look, the acquisition looks cheap at RM11psf as compared to land cost of around RM30psf in Mah Sing’s Southbay and SP Setia’s Pearl Island projects. However, we understand from management that land cost would rise to RM40psf if conversion premium, earthworks and infrastructure costs are included. The said land is currently used as a fruit orchard and there are no squatters which is a plus. We believe the all-in land cost is reasonable as it makes up 18% of estimated GDV, well within industry norm.

• But indicative selling price seems aggressive
While we are positive of the acquisition as it represents one of the largest landbank available in Penang where land is scarce, we view the estimated selling price ranging from RM550psf to RM700psf as aggressive when compared to RM360psf in Setia Pearl Island (semi-detached) and RM560psf in Legenda @ Southbay (bungalow). The project, which will take 5 years, is slated for launch in FY11 which we believe is also aggressive as layout plan has not been secured yet.

• Reiterate BUY
Taking a more conservative view than management, we believe meaningful earnings contribution will only commence from FY13 and as such, no changes to earnings estimates are required for now. However, we tweaked our FY10-FY12 numbers by +1.2% to +3.9% for housekeeping changes following recent acquisition of remaining minority stakes in Sunway Lagoon not already owned. Sunway City remains a BUY as it is still undervalued, currently trades at 41% discount to RNAV of RM6.58 (previously RM6.36). Our TP is raised from RM5.70 to RM5.84 as we continue to peg a 14x P/E to mid CY11 earnings. This is undemanding given its 22.2% EPS CAGR over the next 3 years. Key risk includes (1) slower than expected sales, (2) delay in launches, and (3) imposition of lower loan to-value ratio for mortgages by BNM.

Straits Times Index Technical Outlook -dbs

We maintain our 3160 upside objective for the STI. The index maintained above its 15-day exponential moving average (currently at 3057) throughout last week, indicating that the short-term rising trend stays intact.

While the 14-day RSI currently reads 68.6 (reading above 70 considered overbought), we think the index can still maintain its rising path in the shortterm. The short-term market breadth McClellan Oscillator retreated 11pts, from the moderately overbought reading of nearly +30 to a milder reading of +19pts last week.

This shows that rotational interest has yet to give way to broad based euphoria and this provides a healthy check on the market. Underpinned by possible quarter-end window dressing this week, anticipation about the 3Q reporting season and the likelihood that the current interest in equities can extend till the launch of the 19 overseas ADRs on October 22, we see the STI testing the near-term resistance at 3160.

If strength extends beyond that, the next technical resistance is at 3250. We peg short-term support at the 15-day exponential moving average, currently at 3057 and still rising.

Monday, September 27, 2010

DXN Holdings Bhd-hlg

DXN Holdings Bhd
Share price: RM1.13
3-month Technical target: RM1.36

Share prices surge 24% since our BUY call on 13 Aug
 On the back of growing interests from wider coverage by media and analysts after its 1QFY11 results (released on 28 July), DXN’s traded volume and share price jumped 5% and 16% wow to 2.3m shares/day and RM1.13, respectively.

 To recap, after hitting a high of RM0.975 on 16 Aug, profit taking pushed its share prices to an intraday low of RM0.825 on 25 Aug. However, after a brief consolidation, DXN;s share prices continued its uptrend to close at RM1.13 last Friday.

Accumulate as management is guiding for a stronger 2QFY11 and turning into netcash position
 ACCUMULATE. Despite the share prices rally, we still like DXN for:
(1) its current business structure of controlling and effectively managing the supply chain - upstream and downstream;
(2) its strong foothold in the international markets and ahead of many competitors in global expansion;
(3) stable and strong financial position, sound management and strong dividend yield;
(4) DXN’s dividend policy of distributing at least 50% of its net profit to shareholders, to be paid on a quarterly basis; and
Possible earnings and dividend upgrade as management is guiding a stronger 2QFY11 results and overall FY11 performance.

 Pending the release of its 2Q results in mid Oct, we maintain our 3M technical target of RM1.36, implying a 8.2x (about 25% discount to industry P/E of 10.7x) on 16.6sen FY11 EPS. In terms of P/B, DXN is also trading at huge 65% discount to the industry’s P/B of 3.4x.

Poised to break the upper channel

 DXN tested its resistance upper boundary of its channel formation around RM1.15 last Friday. Some selling pressure could emerge over the next few days but it stands a chance to break out of the channel.

 Should price swing above the resistance trend line, we expect the bulls to gain pace quickly. Thereafter, price should move a tad closer towards RM1.21 and RM1.30. Our positive stance is also premised on the improving technical landscape.

 Risk takers may buy now in anticipation for a breakout run while a more risk-averse investor may accumulate near its key SMAs support at RM1.10 (50% FR), RM1.05 (38.2% FR) and RM1.00. Cut loss below RM1.00.

Sunday, September 26, 2010

胡立阳牧羊人理论 (财经追击 25.09.10)


Warren E. Buffett(沃伦•巴菲特)
Be fearful when others are greedy, and be greedy when others are fearful
别人贪婪时我恐惧, 别人恐惧时我贪婪
投资只需学好两门课: 一,是如何给企业估值,二,是如何看待股市波动
吉姆·罗杰斯(Jim Rogers)

乔治·索罗斯(George Soros)



高估期间, 卖对, 不卖也对, 买是错的。
低估期间, 买对, 不买也是对, 卖是错的。

Tan Teng Boo

There’s no such thing as defensive stocks.Every stock can be defensive depending on what price you pay for it and what value you get,
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