Saturday, November 6, 2010

#Stocks to watch:* UEM Land, Sunrise, O&G, Sapura Resources

KUALA LUMPUR: Stocks at Bursa Malaysia and Singapore may play catch-up with the global markets and Wall Street on Monday, Nov 8 after Wall Street closed higher, spurred by political changes and more cheap money from the Federal Reserve.

On Wall Street, U.S. stocks rose for the fifth straight week as investors took heart from Republican gains in the elections and on news that more cheap money from the Federal Reserve was on the way.

According to Reuters, following a 3.6% rise in the S&P 500 this week, investors locked in profits on Friday, Nov 5, offsetting an unexpectedly strong payrolls report that reinforced optimism about the economy.

The Dow Jones industrial average edged up 9.24 points, or 0.08%, at 11,444.08. The Standard & Poor's 500 Index added 4.78 points, or 0.39%, to 1,225.84. The Nasdaq Composite Index rose 1.64 points, or 0.06%, to 2,578.98.

The S&P 500 has risen about 16% since September and indexes surged to two-year highs on Thursday, but investors began to question how long the upward trend could continue without a breather.

At Bursa Malaysia, stocks in focus would be UEM Land Bhd and its takeover of SUNRISE BHD [], oil and gas-related companies after crude oil hit a two-year high above US$87 a barrel and SAPURA RESOURCES BHD [].

UEM Land Bhd has proposed a conditional takeover for all of Sunrise Bhd shares at RM2.80 per offer share via a share swap or an alternative offer by the issuance of redeemable convertible preference shares. The merger would result in the enlarged group benefiting from the stronger combined asset base of over RM5 billion.

UEM Land said by leveraging on the Sunrise Group's robust financial strength and prospects, UEM Land is expected to be better positioned to accelerate its own business expansion and to secure new development projects.

UEM Land had offered to acquire Sunrise shares (excluding treasury shares) at RM2.80 which would be via the issuance of UEM Land shares at an issue price of RM2.10 each. Sunrise shareholders would receive about 1.33 consideration shares for every one offer share.

The second option was it would issue redeemable convertible preference shares of one sen each in UEM Land at an issue price of RM1 each. Sunrise shareholders would receive 2.80 RCPS for every one offer share.

The proposed offer is conditional upon UEM Land having received, before the close of the proposed offer, valid acceptances which would result in the offeror holding more than 50% of the voting shares of Sunrise.

Sunrise executive chairman Datuk Tong Kooi Ong said the proposed acquisition of Sunrise Bhd by UEM LAND HOLDINGS BHD [] will enable Sunrise to realise its value over a shorter period of time while allowing it to be part of a potential regional player.

"The acquisition will substantially enhance the capital structure and allows Sunrise to generate more sustainable earnings with possibility of new businesses," said Tong during a press conference following the announcement of the proposed acquisition on Thursday, Nov 4.

Meanwhile, oil and gas related counters could see rising interest following the sustained increase in crude oil price.

RHB Research Institute had said 'hot money' inflows into emerging markets and strengthened ringgit could be potential short-term drivers to commodity prices including crude oil.

'We understand that further monetary easing in the US could cause a rise in commodity prices including crude oil. While this could eventually stoke inflation, we foresee that rising crude oil prices would provide near-term support to the trading interest of the sector and potentially sustain the upward momentum in oil and gas stock share prices,' it said in a recent report.

RHB Research said it was reviewing its valuation targets for several oil & gas stocks under coverage as we foresee trading interest in the sector to persist in the near term. For Dialog and Kencana it rolled forward its valuations to CY11 EPS in line with its valuation for the market. It left its fair valuations of Wah Seong, KNM and Petra Perdana unchanged.

Sapura Resources Bhd could see trading interest after Ekuiti Nasional Bhd (Ekuinas) acquired a 51% stake in an integrated education provider APIIT/UCTI Education Group for RM102 million from Sapura Resources.

Ekuinas inked a share sale agreement with Sapura Resources on Thursday, Nov 5 to acquire the 51% for RM102 million, which hinges on the approval of Sapura Resources shareholders at an EGM to be held later and the completion of final due diligence.


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