28 April 2010 – Highlights on The Global Front

• US: Home prices in cities rise less than forecast
• US: Confidence increases on jobs outlook
• UK: Retail sales expectations reach five-month high
• Greece: Credit rating cut to junk at S&P as contagion spreads
• Portugal: Suffering Greek contagion

US: Dow plunges 213 points, breaks 11K
Stocks fell Tuesday after Standard & Poors cut Greece’s debt rating to junk and lowered Portugal’s debt rating, raising fears that a euro zone debt crisis could slow the global economic recovery. The slide was the Dow’s biggest one-day point drop since Jul 15, 2009, when it lost 257 points. The Dow Jones industrial average lost 1.9% (-213.0 pts, close 10,992.0). The Nasdaq lost 2.0% (-51.5 pts, close 2,471.5) and the S&P 500 lost 2.3% (-28.3 pts, close 1,183.7). US light crude oil for June delivery fell US$1.76 to settle at US$82.44 a barrel on the New York Mercantile Exchange. (CNNmoney)
US: Home prices in cities rise less than forecast
Home prices in 20 US cities rose less than forecast in February from a year earlier, a sign a housing recovery will take time to develop. The S&P/Case-Shiller home-price index of property values in 20 cities increased 0.6% from Feb 2009, the first gain since Dec 2006, the group said in New York. The median forecast of economists surveyed by Bloomberg News projected a 1.3% advance. Home prices in February were 30% below the peak reached in Jul 2006, indicating the industry that helped trigger the worst recession since the 1930s will take years to recover lost ground. The home-price index was forecast to rise after a y-o-y drop of 0.7% for January, according to the median forecast of 23 economists surveyed. Estimates ranged from a decline of 0.8% to a gain of 1.6%. (Bloomberg)
US: Confidence increases on jobs outlook
Consumers in the US turned more optimistic in April as the growing economy raised hopes jobs will become available. The Conference Board’s confidence index rose to 57.9, exceeding all forecasts of economists surveyed by Bloomberg News and the highest level since Lehman Brothers Inc. collapsed in Sep 2008, according to data from the New York-based private research group. The measure averaged 97 during the last expansion. Americans’ outlook for the next six months climbed to the highest level since Oct 2007, two months before the recession began, as almost one in every five people polled thought the world’s largest economy and employment would improve. The median forecast of 78 economists surveyed by Bloomberg projected the confidence index would rise to 53.5. Estimates ranged from 48 to 57. (Bloomberg)
UK: Retail sales expectations reach five-month high
A UK retail index stayed positive in April as expectations of sales rose to a five-month high, the Confederation of British Industry said. Retailers saying sales volumes rose from a year earlier outnumbered those reporting declines by 13 percentage points, the same as last month, the nation’s biggest business lobby said in a statement in London. The gauge of expectations rose to 17 from 14 in April. The report is based on a survey of 75 companies between Mar 24 and Apr 14. UK retail spending is recovering after the worst recession on record drove unemployment to a 16-year high in the quarter through February. Footwear and food grocers reported “strong” annual sales growth, while trading at home-improvement stores stabilized after three months of declines, the CBI said. The gauge tracking the three-month moving average pace of overall retail sales growth gained seven percentage points to 16 in April, the highest since Aug 2007, the group said. (Bloomberg)
Greece: Credit rating cut to junk at S&P as contagion spreads
Greece’s credit rating was cut three steps to junk by Standard and Poor’s, the first time a euro member has lost its investment grade since the currency’s 1999 debut. The euro weakened and stock markets throughout the region plunged. Greece was lowered to BB+ from BBB+ by S&P, which also warned that bondholders could recover as little as 30% of their initial investment if the country restructures its debt. The move, which puts Greek debt on a par with bonds issued by Azerbaijan and Egypt, came minutes after the rating company reduced Portugal by two steps to A- from A+. The turmoil comes as European Union policy makers struggle to agree on measures to ease the panic over swelling budget deficits. Leaders of the 16 euro nations may hold a summit after the Greek government’s decision last week to tap a €45bn (US$60bn) emergency-aid package failed to reassure investors, a European diplomat and Spanish official said. (Bloomberg)
Portugal: Suffering Greek contagion
With a higher debt burden and a slower 10-year growth rate than Greece, Portugal is being punished by investors as the sovereign debt crisis spreads. The risk premium on Portuguese bonds rose to more than double the past year’s average this month. Portugal’s credit default swaps show investors rank its debt as the world’s eighth-riskiest. Standard & Poor’s cut its long-term local and foreign currency sovereign rating for Portugal to A- from A+ and said the outlook was negative. Portuguese spreads, the extra yield that investors demand to hold its debt rather than German equivalents rose to 260 basis points, the most since at least 1997. Portuguese Prime Minister Jose Socrates’ push to convince investors his country will avoid Greece’s fate is being hobbled by an economy that’s expanded less than an annual average of 1% for a decade and is reliant on tourism and industries such as cork and pulp. (Bloomberg)

28th April 2010 – Highlights on Malaysia

HIGHLIGHTS
On Malaysia

• TM: Mulls over quad play
• Media Prima: Moves to delist NSTP
• Sunrise: May consider REIT at later stage
• SunCity: To buy Sunway Parking Management from Sunway Pyramid
• Mutiara Goodyear: To launch projects worth RM1.6bn
• Transmile: Files civil suit against former CEO Gan
• Consumer: Beer price to go up 3.6% in May
• Economy: Ringgit appreciation not a concern, says Zeti

TM: Mulls over quad play
A mobile/cellular gamble may be the next thing that Telekom Malaysia Bhd (TM) (T MK, Hold, TP:RM3.54) will have to consider getting itself into if it wants to enhance its existing triple play offering. But TM will have to wait till early next year as it had in 2008 signed an agreement with Axiata Group Bhd that forbids it to get involved in the cellular business. However, early next year it will be free of that bond and can offer the missing link which is the cellular/mobile services to complement its triple play offer. (StarBiz)
Media Prima: Moves to delist NSTP
Media Prima Bhd (MPB) (MPR MK, Buy, TP:RM2.17), which has completed its takeover exercise of the New Straits Times Press (M) Bhd (NSTP), is proceeding with the delisting of NSTP group. MPB said it had requested NSTP to undertake the proposed delisting exercise. As of 14 Apr 2010, MPB holds an 89.62% stake comprising 194.68m shares of RM1 each in NSTP. MPB said it was prepared to extend a voluntary general offer to acquire all the remaining shares not already owned at RM2.40 per NSTP share, to be satisfied by the issuance of six shares each in MPB at an issue price of RM2 and one new warrant in MPB for free, for every five NSTP shares accepted. (Financial Daily)

Sunrise: May consider REIT at later stage

Sunrise Bhd (SUN MK, Buy, TP:RM3.30) may consider injecting some of its property assets into a real estate investment trust (REIT) as they begin to deliver stable income, says its chairman Tong Kooi Ong. “We have invested considerably in a pool of investment assets over the last few years, which are now starting to bear fruit,” he said. “For the medium term, our overseas focus will be on Canada. We do not have plans for the moment to venture into Vietnam or China”, he added. Sunrise plans to launch two projects later this year, an office tower project in Kuala Lumpur, as well as a residential project in Vancouver, Canada. (BT)

SunCity: To buy Sunway Parking Management from Sunway Pyramid
Sunway City Bhd (SunCity) (SCITY MK, Buy, TP:RM4.33) has proposed to acquire Sunway Parking Management Bhd (SPM) from its 52%-owned subsidiary Sunway Pyramid Sdn Bhd (SPSB) for RM12.6m. SunCity said SPM owned a piece of vacant land adjacent to the Sunway Pyramid Shopping Mall and the land offered an attractive development opportunity given its proximity to the mall. It added that a 28-storey mixed commercial building with office and retail elements and with 1,027 car parks were planned for development on the piece of land. Purchase consideration comprised of RM1.17m for SPM shares and the repayment of RM11.43m in shareholders’ advancement owing to SPSB. (Financial Daily)
Mutiara Goodyear: To launch projects worth RM1.6bn
Mutiara Goodyear Development Bhd plans to launch four housing projects worth RM1.6bn this year to ride the economic recovery. The projects would be developed over a 40ha land in Kuala Lumpur, Selangor and Penang. “People are still buying properties and demand would be there for at least another two to three years,” executive chairman Hamidon Abdullah said. The company still has more than 350ha of landbank which can be developed for another RM3.4bn. (Malaysian Reserve)
MBfH: Shareholders reject privatisation bid
Minority shareholders of MBf Holdings Bhd (MBfH) have rejected a selective capital reduction and repayment proposal (SCR) in an extraordinary general meeting (EGM). This result had scuttled the privatization bid by its CEO Tan Sri Dr Ninian Mogan Lourdenadin. On Jan 11, Lourdenadin offered to privatize the company through the proposed SCR which would see minority shareholders receive 65 sen per share and warrant holders 5 sen per warrant. It was Lourdenadin’s second bid to take MBfH private as he has previously offered minority shareholders 21.5 sen per share a few years ago. (Malaysian Reserve)
GCB: Two major shareholders launch takeover bid
Two major shareholders of General Corporation Bhd (GCB) have launched a takeover of the company for about RM505.5m or RM1.70 per share. GCB said it had received a letter from Consistent Record Sdn Bhd (CRSB), a company owned by Tan Sri Low Keng Huat and Datuk Marco Low Peng Kiat, to acquire its entire business and undertakings, including all assets and liabilities. CRSB had stated in the letter than certain family members of the shareholders and the shareholders’ intend to transfer their 32% stake in GCB to the company. (Malaysian Reserve)

Deleum: Eyes RM200m-RM300m deals
Deleum Bhd expects to see continuous growth in 2010, backed by new projects and its entry into a new segment in the industry. It is bidding for contracts worth between RM200m and RM300m this year mainly for its offshore business which currently represents 95% of its bottom line. “We have bid for jobs and will continue to participate and enter tenders which are in nature with our business,” said Deleum group managing director Chandran Aloysius Rajadurai. The company currently has an order book worth RM1bn that will keep it busy until 2015. (BT)
Transmile: Files civil suit against former CEO Gan
In a rare move, a listed company that is facing a possible delisting if it does not regularise its financial position has taken a civil suit against its former principal executive for grossly overstating the company’s revenue more than three years ago, an incident that was uncovered in 2007. Transmile Group Bhd announced that it has filed a civil suit against its former CEO Gan Boon Aun and former CFO Lo Chok Ping for failing in their duties and trust towards the company. It claimed the defendants had breached their duty of fidelity and trust to the company by grossly overstating  the revenue and causing questionable payments and receipts pertaining to transactions between its two wholly-owned subsidiaries and several parties. (Financial Daily)
TRC Synergy: Gets RM20.4m Putrajaya job
TRC Synergy Bhd’s subsidiary, Trans Resources Corp Sdn Bhd, has bagged a RM20.39m contract for the construction of government apartments in Putrajaya. TRC said it had on Apr 23, received a letter of award from Putrajaya Holdings Sdn Bhd for the proposed construction and completion of remaining and rectification works for 622 units of government apartments at Parcel 5R6 in Precinct 5, Putrajaya. (Financial Daily)
Consumer: Beer price to go up 3.6% in May
Beer and stout will be dearer starting next month, thanks to the sharp increase in input costs, particularly the imported malt. According to Carlsberg Brewery (M) Bhd managing director, Soren Ravn, the country’s breweries had agreed to raise the prices of beer and stout by an average of 3.6% next month to pass on the higher input costs to consumers. “The price of raw material has increased by an average of 10% annually for the last five years, putting pressure on margins,” Ravn said. He also mentioned that the recommended retail price would be industry wide, involving the main breweries, namely Guinness Anchor (M) Bhd and Carlsberg. (Financial Daily)
Economy: Ringgit appreciation not a concern, says Zeti
The recent appreciation of the ringgit was not a concern, said Bank Negara Malaysia (BNM) governor Tan Sri Dr Zeti Akhtar Aziz, explaining that the strong local currency reflects the improved economic fundamentals. However, Zeti revealed that the central bank would be concerned if there was “excessive movement” on the ringgit within a short period of time. It also posed concern if there were disorderly market conditions or any misalignment to economic conditions. “Right now, the market has remained orderly and is seen to reflect market conditions and underlying fundamentals” she said. Zeti also said that decision for interest rate normalisation would be made at the next policy meeting on May 12 and 13. (Financial Daily)

TSH Resources – 2QFY09 : Improving Sequentially

· Earnings sequentially stronger, but below expectations
Annualised, TSH 6MFY09 net profits came in 23% below our estimates and 11% below consensus numbers. The Group performed well in 2Q comparing q-o-q from a profitability perspective owing to CPO prices which hit a high of RM2800 during the period. However, results were still weaker when compared y-o-y. The group also noted q-o-q improvements in their cocoa and wood business which saw revenue growth of 37% and 7% respectively. The cocoa segment turned to the black this quarter while wood products continued to turn in a loss. We note that the cocoa segment has performed below our expectation and are hence adjusting down our assumptions.

· Ekowood losses narrow
Ekowood reported a PBT loss of RM1.3m for the quarter compared to the 1QFY09 loss of RM2.2m. The group notes that the narrowing losses have been due to cost cutting exercises within the company. We think the year will continue to be difficult as their earnings rely on the recovery of housing markets in the US and EU. We maintain our expectations of an RM10m loss for the company for this year.

· Look to Indonesia for future growth
TSH, despite these trying times, continues to have bright prospects. The group has now a hectarage of 78,000ha, of which only 21,000ha is planted. Of their planted area, some 60% is still under the age of 4 years hence FFB growth for the group will drive earnings going forward. Besides that, they continue with their planting programme in Indonesia and are planting 5000ha this year and gradually more in 2010 onwards.

· Slight downgrade to earnings, Buy call maintained
We adjust our earnings downwards slightly by 5.3% for FY09 and 1.2% for FY10. We continue to like TSH for their large tract of immature and unplanted land in Indonesia. We are moving our DCF based TP to a PE based valuation methodology. Using a historical average PE of 11x (average since 2006) and pegging FY10 EPS, we derive a value of RM2.10 for the stock and hence maintain our BUY call.