You are on page 1of 4

Market Dateline PP 7767/09/2010(025354)

RHB Research Institute

RHB Equity 360°


13 August 2010 (Wah Seong, Gloves, Genting S’pore, EON Cap, Petra Perdana; Technical: AZRB)

Top Story : Wah Seong – Looking to FY11 for better numbers Underperform (down from MP)
Company Update
- Softer numbers are expected in the upcoming 2QFY10 results (expected to be on 25 August) mainly
caused by the weakness in the engineering division and pipe-coating and pipe-manufacturing divisions.
Meaningful earnings recovery only in expected in FY11
- Management remains positive on Australia and expects project awards to roll in by 2011. They are still
actively looking for M&A opportunities especially in Brazil, Middle East and the Gulf of Mexico.
- Forecasts for FY10-12 net profit estimates trimmed by 18.5%, 14.4% and 6.9% respectively due to cuts to
our pipe-coating/pipe-manufacturing divisions’ revenue and engineering division’s PBT margin
assumptions.
- Although we are generally positive on the long-term prospects of the stock, there are no visible M&A deals
in the near-term and full-year FY10 earnings look soft.
- We downgrade our call on the stock to Underperform. The share price is currently 13.3% above our revised
fair value estimate of RM2.04/share (based on an unchanged 13x FY11 PER) which suggests that the
estimated 19.7% FD EPS growth for FY11 has already been discounted by the market.

Sector Call

Rubber Gloves : Longer term outlook still positive Overweight


Sector Update
- As highlighted earlier, we believe near-term sentiment for rubber glove manufacturers could be dampened
by recent events such as: 1) orders slowing down as customers became more conservative with respect to
inventory levels during the quarter and in anticipation that latex prices would eventually come down; and 2)
time lag in passing on high latex cost, which hit an all time high in Apr ’10 as well as weakening US$.
- Notwithstanding the above, we believe the slowdown in customers’ orders for gloves is only temporary as
latex prices has since eased to RM7.00/kg and customers’ are now more likely to stock-up and would
increase their stock holdings further when prices of gloves dip further.
- Longer-term, we expect demand for gloves to remain strong given that glove is the most basic and
affordable form of protection against viruses in the healthcare industry.
- No change to our earnings forecasts for now.
- We maintain our Outperform calls on Kossan, Hartalega and Adventa. We reiterate our Market Perform call
on Top Glove. No change to our Overweight call on the sector.

Corporate Highlights

Genting Singapore : Shooting through the roof Outperform


2QFY10 Results/Briefing Note
- Genting Singapore’s (GS) 1HFY10 core net profit of S$502.1m was way above expectations, as 1H
earnings alone exceeded both our and consensus FY10 expectations. Although topline numbers made up
56.5% of our revenue assumptions, we note that 1H10 EBITDA margins of 40.4% were much higher than
our projected 28.5% for FY10. A S$86.8m deferred tax writeback further boosted the bottomline.
- Qoq, 2Q10 revenue from RWS in Singapore more than doubled despite being open only 91% more days
and despite having competition from Marina Bay Sands (MBS) since late Apr. Other than the 20-30% qoq
increase in number of tables and slots, RWS’ luck factor improved particularly from the VIP market, which
made up 60% of revenue in 2Q10 (from 50% in 1Q10).
- Breaking up the EBITDA numbers, RWS recorded core EBITDA margins of 61.2% in 2Q10 (up from 47.6%
(ex-pre-operating expenses of S$50m) in 1Q10), bringing core margins to 57.4% in 1H10, while GS’ UK
operations recorded stronger margins of 11.8% (from 10% in 1H09).
- We have more than doubled our earnings forecasts, as a result of all the changes above. We now expect
GS to record a net profit of S$1bn in FY10, rising to S$1.2bn in FY11 and S$1.4bn in FY12. Post-earnings
revision, we raise our fair value to S$2.40 (from S$1.65), based on blended average of EV/EBITDA (in line
with 12x FY11 regional average) and DCF. We reiterate our Outperform recommendation.
EON Capital : Another strong performance Market Perform
2QFY10 Results/Briefing Note
- EON Cap’s 2QFY10 results were above our and consensus expectations with 1HFY10 net profit of
RM211m (+3.4% yoy) making up 55-56.5% of our and consensus full-year net profit forecasts. Overheads
were well-contained and as a result, 1H CIR stood at 53.1%, as compared to our initial full-year projection
of 57.5%.
- 2Q pre-tax profit rose 13.4% qoq and 33% yoy mainly due to stronger net interest income (+6.5% qoq,
+14.7% yoy). Gross loans grew 4.3% qoq (+12.8% yoy), driven by consumer loans while unadjusted NIM
also expanded by 11bps qoq and yoy, aided by the two rounds of OPR hikes in 1HFY10.
- Non-interest income remained healthy, supported mainly by sustainable transactional fee income while
overheads were kept well in check, leading to CIR improving to 51.9% (1Q10: 54.3%; 2Q09: 56.1%) as
overheads were kept well in check. Absolute loan impairments were broadly stable qoq and yoy.
- Gross impaired loans ratio as at end-Jun ’10 improved further to 3.8% vs. 4.2% as at end-Mar ’10.
- We raised our FY10-12 net profit forecasts by 12.2-13.9% largely after cutting our FY10-12 projections for
overheads by 6-7% p.a..
- Indicative fair value raised to RM8.33 (from RM7.92) but Market Perform call is unchanged.

Petra Perdana : Order for AHTS Cancelled Underperform


News Update
- Petra Perdana announced yesterday that it had cancelled an MOA for the AHTS SK202 (Petra
Commander). They also added that they would receive full reimbursement of the USD 8.85m (RM28.19m)
deposit it had committed then.
- The cancellation could be due a foreseen medium-term weakness in the offshore support vessels (OSV)
market and we await the upcoming 2QFY12/10 results (expected to be on 25 August) to provide us with a
“temperature check” of actual OSV market conditions.
- At this juncture we maintain our earnings estimates pending further confirmation with management.
- We have forecasted significant earnings recovery in FY11, but in the absence of better numbers from Petra
Energy, we are still looking at a core net profit that is lower than that of FY09.
- In the longer term, we believe the continued shortage of offshore support vessels and demand from deeper
water projects will underpin the cyclical uptrend in charter rates.
- Maintain Underperform call with an unchanged fair value of RM1.15 (based on 10x FY11 PER) for now.

Technical Highlights

Daily Trading Strategy : To salvage the uptrend, the FBM KLCI must retake 1,350…
- Technically, yesterday’s “hammer-like” candle suggests a potential technical rebound ahead.
- Coupled with the positive “buy” signal on the stochastic oscillators, the FBM KLCI should open higher than
the 1,350 level today.
- Should the index manages to sustain at above the 1,350 level, it will retest the 10-day SMA of 1,360 in the
near term.
- However, if it fails to recapture the 1,350 level today, it will mean the index has triggered a major bearish
technical reversal signal on the chart.
- Not only that, the market needs to register a healthy turnover of between 800m and 1.0bn shares to sustain
any recovery attempt in the near term.
- Failure to meet these requirements will jeopardise its chances to resume the recent uptrend going forward.
- A mild support is seen near the 40-day SMA of 1,337, while a stronghold is expected near the
psychological level at 1,300.

Daily Technical Watch: AZRB – A technical rebound possible if it sustains at above the 10-day SMA…
- 10-day SMA: RM0.8885
- 40-day SMA: RM0.8235
- Support: IS = RM0.85 S1 = RM0.77 S2 = RM0.67
- Resistance: IR = RM0.98 R1 = RM1.05 R2 = RM1.20

Bulletin Board
Co/Sector News Impact Recom
Infrastructure Energy, Green Technology and Water Minister Neutral. this is easier said than done, as all N
Water Datuk Seri Peter Chin said the federal and state parties (involving of the Federal and state
governments should compromise in their talks on governments as well as the water
the proposed restructuring of water sector in concessionaires) does not seem willing to
Selangor and the ministry is still aiming to compromise on both the prices and ownership of
conclude the water sector restructuring in the water assets, which means the water sector
Selangor by Dec 10. (Financial Daily) restructuring in Selangor would still remain a long
drawn process.

Important Dates

Company Quarter Expected Results Date


AMMB 1QFY03/11 Week beginning 9-Aug
RCE 1QFY03/11 13-Aug
Wellcall 3QFY10/09 13-Aug
AFG 1QFY03/11 16-Aug
HL Bank 4QFY06/10 16-Aug
MAS 2QFY12/10 16-Aug
IOI Corp (tentative) 4QFY6/10 17-Aug
Star 2QFY10/12 17-Aug

Company Entitlement details Ex-date Payment date


New entitlements
Resintech Tax exempt interim dividend of 1.2 sen 24-Aug-10 15-Sep-10
JT International First interim dividend of 15 sen less 25% tax 27-Aug-10 8-Sep-10
PMB Technology Interim single tier dividend of 1.5% 27-Aug-10 17-Sep-10
Press Metal Interim tax exempt dividend of 2% 28-Sep-10 7-Oct-10

Going “ex” on 16 Aug


Amanah Harta Tanah TNB Interim income distribution of 3.6 sen tax-exempt 16-Aug-10 27-Aug-10
Degem Final dividend of 2 sen less 25% tax 16-Aug-10 1-Sep-10
Hektar Reit Second interim dividend of 2.5 sen 16-Aug-10 3-Sep-10
Ann Joo Resources Interim dividend of 6 sen less 25% tax 16-Aug-10 9-Sep-10
Yinson Holdings First and final dividend of 2.5 sen less 25% tax 16-Aug-10 17-Sep-10

...For more details, see individual reports attached

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad (previously known as RHB Sakura Merchant Bankers
Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions and information contained herein are based on generally available data believed to be reliable and are
subject to change without notice, and may differ or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as
an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall
give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities discussed in this
report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The
appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for
any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing investment banking and financial advisory services. In the
ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of
customers, in debt or equity securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors, officers, employees and agents of each of them. Investors
should assume that the “Connected Persons” are seeking or will seek investment banking or other services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s
previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other business areas of
the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon various factors, including quality of research, investor
client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more over a period of three months, but fundamentals are not
strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended securities, subject to the duties of confidentiality, will be made
available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the actions of third parties in this respect.