9 January 2009 Newz Bits

TALKING POINT

Initiating coverage on KL Kepong
Future growth of the Group will be driven predominantly by its plantations in Indonesia. KLK’s yields are generally healthy amongst its peers, with yields of 23-25mt/ha and an average OER
of 20.5% – 21.0%. We recommend a HOLD call with target price of RM9.90 based on a discounted cash flow valuation methodology. At current prices, we see limited downside risks but there are no major catalysts that would push the stock price back to 2007 levels in the coming 12-month term. We deem the recent recovery in CPO prices to be necessary but possibly premature as more negative economic data is expected in coming months.

HIGHLIGHTS
On Malaysia
• Government will decide PLUS toll rate hike next week
• Race to build permanent LCCT has started
• AmBank Group sees windows of opportunities to merge and acquire smaller rivals
On The Global Front
• Bank of England cuts benchmark interest rate by 50 bps
• China’s exports probably fell the most in a decade in December
REPORTS
• KL Kepong – Initiating coverage (Hold; RM10.00; TP: RM9.90)

The government will decide next week whether to allow PLUS Expressways Bhd to raise toll rates by 10% or to compensate the concessionaire. Works Minister Datuk Mohd Zin Mohamed said he would present a working paper on it at next week’s cabinet meeting. PLUS had last increased toll rates in 2005, after which it was supposed to get another hike in 2008, which was delayed to 1 January 2009 due to inflation. (NST)
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The race to secure the new permanent LCCT has started. MAHB has finalised its master plan for a new LCCT near the existing main terminal in Sepang, while AirAsia (AIRA MK, Buy, TP: RM1.90) yesterday came out with more details on its proposed terminal in Labu, Negri Sembilan. Sources said that MAHB would submit its master plan to the government soon. The irony is AirAsia is part of the steering committee that finalised and approved the airport operator’s master plan,
according to a source. Meanwhile, AirAsia group CEO, during a media briefing yesterday, said the carrier is in talks with infrastructure funds and bankers on the funding needed to develop the RM1.6bn airport named KLIA East@Labu. Also, they said that Sime Darby Bhd (SIME MK, Buy, TP: RM6.40) has not finalised whether they will be an equity holder, developer or just outright sell the land to AirAsia and this would be finalised in April. In a separate news item, it was noted that the MOF, not Transport, will have to decide on MAHB’s proposal to build a permanent LCCT in Sepang considering that MAHB is a GLC under the MOF. (Financial Daily, BT & Starbiz)
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Tenaga Nasional Bhd (TNB MK, Buy, TP: RM8.20) reiterated its stance that it is not going nuclear, but does not fully discount it from forming a part of the country’s future generation mix. According to Tenaga’s vice-president, Datuk Wira Md Sidek Ahmad, nuclear power has a long gestation period and it takes up to 15 years to develop a full fledged nuclear plant. He also said that the group is now observing the current Five Fuel Policy that concentrates on oil, gas, hydro, coal and renewable energy. (Financial Daily)
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UMW Toyota Motor Sdn Bhd, a unit of UMW Holdings Bhd (UMWH MK, Hold, TP: RM5.30), closed 2008 with record sales of more than 100,000 units and is finalising its target number for 2009, amid expectations of a slowing market. Without disclosing any forecast, managing director Kuah Kock Heng said the company is hopeful of maintaining its current 18% share in the overall industry sales. UMW Toyota sold over 101,600 units of Toyota vehicles last year, some 19,600 units more than the 82,000 units recorded in 2007. Toyota’s market share rose to slightly over 18% from 17.1% in 2007. Meanwhile, the company is not planning to launch any new Toyota model in the next six months, but only to introduce a Vios variant kitted up by Toyota Motor Co’s tuned-up arm TRD during the period. The company, Kuah said, will work with Toyota’s financial arm Toyota Capital to offer attractive loan schemes to drive sales during the tough period. (BT)
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The AmBank Group says there are windows of opportunities to merge and acquire smaller rivals although the economy may be weakening. Our investment bank is looking out for such opportunities. We have people going around, but there’s nothing specific yet, chairman Tan Sri Azman Hashim said. (BT)
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The Association of Banks in Malaysia (ABM) stated that the ability of banks in the country to lend remains undiminished, but that does not mean that they will discard prudent lending practices. According to its chairman Datuk Seri Abdul Hamidy Abdul Hafiz, prudent lending practices needed to be adhered to in order to maintain public and investor confidence in the Malaysian banking system. (Financial Daily)
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Bank Kerjasama Rakyat Malaysia Bhd’s new RM460m headquarters, called the Bank Rakyat Twin Towers, will improve the bank’s efficiency when completed in 2011. The 1.8m square feet Bank Rakyat Twin Towers, one of 32 storeys and the other 38 storeys, will be built on a 3.78-acre piece of land located at Jalan Travers, Kuala Lumpur which was bought for RM43m in 2006. (StarBiz)
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Protasco Bhd, Weida Bhd and Scomi Group Bhd are among the Malaysian contractors vying for infrastructure jobs in Syria worth more than €500m (RM2.4bn). The Syrian government is committed to easing traffic congestion in the capital city of Damascus. It is embarking on more infrastructure works like highways, sewerage treatment, monorail line and underground car park, Works Minister Mohd Zin Mohamed said yesterday. On upcoming projects that are being finalised by the Syrian government, Mohd Zin said Protasco Bhd’s wholly-owned unit HCM Engineering Sdn Bhd has a good chance of winning the €284m (RM1.4bn) job to upgrade the Damascus Ring Highway. Asked about Scomi’s bid for a monorail job in Damascus, he said the project was still in the preliminary stage as the Syrian government had yet to determine the length and alignment of the track. (BT)
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The Works Ministry has spent RM120m to implement infrastructure development projects listed under the RM7bn economic stimulus package announced by the government in November last year. Works Minister Datuk Ir Mohd Zain Mohamed said he had directed departments and agencies under his ministry to speed up the projects before March 31. (Financial Daily)
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ABM has stated that contrary to perception that lending is being limited, there had been an overall increase in small and medium enterprises (SME) loans approval last year compared to a year ago. ABM chairman Datuk Seri Abdul Hamidy Abdul Hafiz said that there was no evidence from member banks of any unusual increase in SME loan application rejections last year. He further added that at times, there was a lag period between loan submissions and disbursements because applicants might have handed over incomplete submissions. (StarBiz)
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Most U.S. stocks gained as an advance in energy shares and Citigroup Inc.’s agreement to allow some homeowners to avoid foreclosure helped the market erase an early slide spurred by a worsening earnings outlook at retailers. The DJIA lost 27.2 points (-0.3%, close 8,724.5). The S&P 500 gained 0.3% (+3.1 pts, close 909.7) and the Nasdaq composite advanced 1.1% (+17.9 pts, close 1,617.0). In currency trading, the dollar tumbled versus the euro and the yen. A day after a 12% tumble, oil was down 69 cents to US$41.94 a barrel. (CNNMoney, Bloomberg)
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U.S. consumer borrowing dropped by a record US$7.9bn in November as Americans scrambled to boost savings in face of the deepening recession and amid an investor exodus from securities backed by credit-card and other loans. The slump brought consumer credit down to US$2.57trn, and capped the first back-to-back monthly decline since 1992, the Federal Reserve said yesterday. The biggest decrease came in securitized assets, an area where Fed policy makers are creating a new US$200bn lending program to shore up credit. Yesterday’s figures foreshadow a prolonged drop in consumer spending as households try to reduce debt with their net worth declining and job losses accelerating, analysts said. (Bloomberg)
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The number of Americans collecting unemployment benefits surged to a 26-year high as the labour market worsened in a year-long recession. Initial jobless claims unexpectedly fell by 24,000 to 467,000 in the week that ended Jan. 3, the lowest level in almost three months, the Labor Department said yesterday. The total number of people getting benefits rose a week earlier to 4.6m, the most since 1982. While the government projects a surge in firings in late December and early January, job cuts may have come earlier last year as sinking sales and the worst credit conditions in seven decades forced companies such as General Motors Corp. and Chrysler LLC to pare costs. The claims report came as President-elect Barack Obama warned the U.S. risks sinking deeper into an economic crisis without a stimulus package of about US$775bn. (Bloomberg)
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The Bank of England cut the benchmark interest rate to the lowest since the central bank was founded in 1694 as policy makers tried to prevent the credit squeeze from deepening Britain’s recession. The bank rate was reduced a half-point to 1.5%, bringing policy makers closer to the point at which they will run out of options to fight the financial crisis with conventional tools. The pound rose against the euro and the dollar because some investors had bet on a larger reduction. (Bloomberg)
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China’s exports probably fell the most in a decade in December amid a deepening global recession, making it more likely extra measures will be implemented to stimulate growth. Shipments from the world’s fourth-largest economy dropped 5.3% y-o-y after tumbling 2.2% in November, according to the median forecast of 16 economists surveyed by Bloomberg News. The customs bureau may release the figures as early as today. Consumer confidence has tumbled to a 15-year low in Europe, China’s largest market, as the global economy grapples with the most severe downturn since the Great Depression. Profits have slumped at manufacturers with operations in China, such as Hon Hai Precision Industry Co., the world’s biggest contract maker of electronics. (Bloomberg)
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