Wednesday, March 2, 2011

Maybank IB Research overweight on construction, property, and oil & gas

KUALA LUMPUR: Maybank Investment Bank Research (Maybank IB Research) is retaining its domestic focus strategy and is overweight CONSTRUCTION [], property, and oil & gas.

In its strategy report issued on Tuesday, March 2, it said construction will be supported by the ETP news flow, while property would gain from government land development news flow, rising values from the Greater KL/KV MRT project, and its inflation hedge offering.

Petroliam Nasional Bhd's marginal oil fields and enhanced oil recovery (EOR) drive will support the O&G sector. Telcos and REITs continue to offer decent yields.

'Since early this year, we have initiated coverage on four stocks of which three remain a Buy. We like Kencana for the marginal oil field play, and Petronas Chemicals for its 'synthetic' proposition. Media Chinese is a value Buy at 9.0 times 2011 PER, 31% discount to its peers (average 13 times),' it said.

On its assessment of the recent October-December 2010 quarter financial results, it said earnings upside surprised equal downside disappointments in the recent reporting season -- (21% above; 59% within; 20% below expectations).

Maybank IB Research said 4Q10 corporate earnings for its research universe remained on an uptrend ' up 7.8% QoQ and 21.2% YoY. 2010 earnings growth was intact at 30.4% versus its expectation of 32.8%.

'Our 2011 growth forecast is now a tad higher at 17% (previously 15.8%) and 2012 growth is 10.5% (vs. 9.3%). We retain our 1,710 year-end KLCI target, which implies 15.2x forward earnings,' it said.

Gaming and media shine

Banking, PLANTATION [], telco, construction and property earnings were in line. Positive surprises came from gaming (GENTING BHD [], Genting Malaysia) and media (Star, Media Chinese), while transport and oil & gas (vessel operators) disappointed.

AirAsia posted its strongest quarter ever, while Malaysia Airports and MAS were hit by FRS 139 impairments. Major disappointments came from MISC on weak petroleum freight rates, and Proton on lower domestic sales volume and losses at Lotus.

Changes in calls

Maybank IB Research lifted Genting Malaysia to a Buy (from Sell) as we see resilient gaming revenues despite a burgeoning gaming industry in Singapore, maiden contributions from the Aqueduct and greenfield casino opportunities.

It however, downgraded MMHE and IJM Corp to Hold (both from Buy) with share prices closing in to its targets. AMMB is also a Hold now (previously Buy), as the research house expects its share price to underperform in a rising interest rate environment.

The research house downgraded MISC to Hold and Proton to Sell (both from Buy), with no near-term share price catalysts. Petronas Chemicals has found its way into our top 11 stock Buy list, taking over from MMHE.

Party spoiler, domestic catalysts, downside risks

The lunar 'rabbit' has brought about a wave of civil unrest at the Middle-east North Africa (MENA), leading to rising crude oil prices. The KLCI, which surged to a record 1,574 on Jan 17, has seen its 'party' spoilt. YTD gains have been erased, with a net negative 17 points from 2010's YE close.

'Our 1,710 2011 YE target takes the view that the situation at MENA plays out by mid-2011. We expect foreign fund outflows from equities to continue (net selling was RM3.4 billion in February).

'Domestic catalysts from the ETP and positive government news flow will provide the support. The downside risk to our 1,710 YE target is if crude oil price sustains at above US$150 per barrel,' it said.

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