Saturday, September 3, 2011

#Stocks to watch:* Sime, MEGB, AirAsia, Salcon, plantations

KUALA LUMPUR: After the rally on Bursa Malaysia on Friday, Sept 2, the rebound could be short-lived in the week ahead following the 2% overnight fall on Wall Street on prospects of another recession.

World Bank President Robert Zoellick warned on Saturday the world economy was stepping into a "new danger zone"'' as growth slows and investor confidence weakens.

Zoellick urged Europe and the United States to tackle their debt problems, and noted that near record-high food prices and volatile commodity markets are threatening the most world's vulnerable people.

"The financial crisis in Europe has become a sovereign debt crisis, with serious implications for the Monetary Union, banks, and competitiveness of some countries," he said in Beijing.

Reuters reported that US jobs data showed zero jobs growth in August and brought investors face-to-face with the prospect of another recession.

The declines left Wall Street lower for the sixth week out of seven as declining issues far outweighed winners on a light-volume day ahead of the long U.S. Labor Day holiday weekend.

The Dow Jones industrial average was down 253.16 points, or 2.20%, at 11,240.41. The Standard & Poor's 500 Index was down 30.46 points, or 2.53%, at 1,173.96. The Nasdaq Composite Index was down 65.71 points, or 2.58%, at 2,480.33. Friday marked the S&P's biggest drop in two weeks.

Meanwhile, Hwang DBS Vickers Research (HDBSVR) said with the earnings reduced for the stocks under its coverage, its year-end FBM KLCI target was lowered to 1,520 (14 times 2012 earnings) from 1,730.

'With the slowdown in economic growth, there could be risk to our earnings projections. In the 2008-09 financial crisis, our 2009 earnings were cut by 18%.

'At that time, the impact on earnings was compounded by a collapse in CPO and oil prices. Without these factors, the extent of earnings risk should be less than 2008. More resilient sectors are telcos, gaming and PLANTATION [],' it said.

HDBSVR said it continued to like names with strong domestic drivers and reasonable valuations such as BOUSTEAD HOLDINGS BHD [] (8.0 times forward earnings, 7% yield), DRB-Hicom (7.0 times earnings, 0.8 times book).

'Alliance Financial Group (AFG) is the cheapest banking stock in our universe,' it said, pointing out that AFG's scalable domestic franchise and non-interest income traction would support earnings growth and returns on equity expansion.

Among the stocks which could see trading interest on Monday are SIME DARBY BHD [] following its proposed acquisition of a 30% stake in Eastern and Oriental Bhd (E&O) which was reported to be 60% above market prices.

Also in focus would be Masterskill Education Group Bhd (MEGB), AIRASIA BHD [], SALCON BHD [] and plantations.

MEGB shares tumbled on Friday, closing 14 sen ot 10.6% to RM1.18 after it posted lower earnings of RM11.6 million for the quarter ended June 30 compared with RM22.40 million a year ago.

AirAsia saw the Employees Provident Fund (EPF) Board continued to raise its stake in the low-cost carrier, with the latest acquisitions involving nearly 10 million shares. The EPF bought 4.277 million shares on Aug 25 and 5.720 million shares the next day.

The latest acquisitions saw the EPF increasing its shareholding to 346.047 million shares or 12.47%.

Salcon secured a RM20.4 million sub-contract from Octagon Engineering (M) Sdn Bhd to upgrade and repair the Sg Chukai in Terengganu under the Chukai and Kemanan flood mitigation project.

The contract was for 18 months from September 2011 to February 2013. Salcon expected the project to contribute positively to its earnings or the financial year ending Dec 31, 2012.

Plantations could see extended trading interest on firmer crude palm oil prices but investors should expected profit-taking after the strong gains on Friday.

Meanwhile The Edge weekly reported the recent reverse takeover of R and A Telecommunication Group Bhd by KZEN SOLUTIONS BHD [] has prompted one of its peers to follow suit.

This time around, the reverse takeover involves the injection of Instacom Holdings Bhd, a turnkey design and engineering solutions provider for telecommunications networks, into ACE Market-listed I-POWER BHD [].

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