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Earnings growth to be stronger in 2010, says MIDF
Written by Surin Murugiah
Monday, 07 December 2009 10:58
KUALA LUMPUR: The earnings growth of the KLCI component stocks is expected to be stronger in 2010 than in 2009, said MIDF Research, upgrading its earnings growth forecast for next year slightly to 17.6% from 17.2% just prior to 3Q09 results season.
This will translate into a 2010 FBM KLCI target of 1,450, based on price-earnings multiple of 17 times, its said in its 2010 outlook.
“As in 4Q09 outlook, we are keeping our portfolio-overweight recommendation for the media, CONSTRUCTION [], oil and gas and banking sectors. For smaller sectors, we are overweight on toll concessionaires (an upgrade from neutral), as well as on glovemakers and healthcare service providers,” it said.
The research house said Bursa Malaysia was slowly moving back into the radar of global investors, adding that foreign participation in Bursa in terms of value traded rose to 25.4% in October, compared with only 21% in June.
“Foreign shareholding in BURSA MALAYSIA BHD [], as a proxy for the overall market has, in our opinion, found the trough at around the 17%-mark (17.7% in September). At the end of 2008, it was as high as 41.6%,” it said.
MIDF Research included Century Logistic, KPJ Healthcare and PROTON HOLDINGS BHD [] into its top buy list in its outlook.
It included Century as a small capitalised stock idea and KPJ as an alternative defensive play, while Proton should be in fifth gear as a turnaround story.
“We are retaining AMMB and RHBCap as the banking sector’s offering but are dropping TM because it represents less of a growth story compared with other offerings.
“We are also dropping TH PLANTATION []s and MRCB; the former because of its disappointing investor relations, and the latter because the price has appreciated such that the upside is limited,” it said.
On a sectoral basis, MIDF Research said it remained optimistic over the growth prospect for the construction sector, as the government’s efforts to pump-prime the economy would bear most of the fruits only in 2010.
“The sector was a driver of Malaysia’s economy, after growing by 7.9% in 3Q09. As the implementation of construction projects under the stimulus packages picked up pace, the industry is estimated to have expanded by 3.5% in 2009.
“Going into 2010, the government would continue to promote the public-private partnership initiatives, in line with the aspiration to increase the role of the latter in the economy,” it said.
Maintaining its overweight recommendation, it said there was enough momentum in the sector to continue as contracts flow picked up pace and pressure on margin abated as building material costs fell.
“We prefer MRCB and WCT for its reasonable valuation vis-à -vis earnings growth potential as well as relatively higher share price appreciation over the next 12-month period.
“Gamuda and IJM are worthy for their leadership in the sector for its strong track record, sizeable order book. However, upside potential is limited as share price has factored in a strong recovery mode for the two construction giants,” it said.
MIDF Research also expects a resurgence in the media sector next year, and said based on the dismal performance of the sector in 1H09 and to a milder extent in 2H09, it expected 2010 to be a brighter year for the sector boosted by stronger consumer sentiment and coupled with several major sporting events like the World Cup and the Commonwealth Games.
The mild contraction experienced in 2009 is testament that the sector was now more resilient to the adverse effects of the retrenchments in the economy, it said.
“We maintain our sector recommendation on the back of improving advertising expenditure in light of the recovering economy in 2010. We believe that pent-up spending is likely to boost adex in 1H10 after advertisers’ budget cuts back in 2009.
“We like Media Prima over Astro as the free-to-air TV near-monopoly is set for an earnings rebound in 2H09 and FY10. We believe that its share price is undervalued relative to its growth potential, while Astro’s share price rally is reflective of market expectation,” it said.
Meanwhile, reviewing the market performance this year, MIDF Research said the FBM KLCI continued the strong run with a gain of 4.7% in the fourth quarter (until Nov 30), after chalking up an increase of 11.8% in 3Q09.
The market brushed aside the so called “October jinx” with a gain of 3.4%, the fourth best monthly performance this year, it said.
“In terms of participation, the market was surprisingly active after a quiet September. Average daily volume traded was 886 million units in October, but rose significantly to 1.04 billion units in November,” it said.
The finance and plantation indices were the biggest gainers in 4Q09, overhauling property as the star performer in 2009, which shed 3.1% in 4Q09.
Meanwhile, TECHNOLOGY [], industrial, consumer and services/trading continued to be the laggards this year, said the research house.
On the hits and misses in 4Q09, MIDF Research said construction was its biggest disappointment, adding the prices of most stocks in the sector had not moved in tandem with its expectation.
“Our overweight call on banks paid dividends as banking stocks continued the strong momentum, especially on strong quarterly earnings numbers.
“The oil & gas sector’s performance was mixed. The share prices of most counters in this sector hold fort in 4Q09, but Muhibbah and Petra have disappointed,” it said.
Overall, it said 42 out of the 78 stocks under its coverage outperformed the FBM KLCI in the year- to-date, with glove-maker HARTALEGA HOLDINGS BHD [] being the top performer with a whopping 252% gain.
Meanwhile, underperformers continued to be dominated by heavyweights, it said.
“TM, DiGi, BAT and MAS were the top four underperformers in our coverage so far this year, all registering negative gains (excluding dividends paid).
As expected, strong dividend-yielding defensive stocks are not favoured in a rallying market,” it said.
This article appeared in The Edge Financial Daily, December 7, 2009.
More upside for auto sector next year
Written by Lam Jian Wyn
Tuesday, 22 December 2009 22:45
KUALA LUMPUR: Sales of motor vehicles are expected to grow by 4.3% next year, a turnaround from a contraction of 5.1%, supported by an economic recovery, better consumer sentiment and business conditions.
RHB Research Institute Sdn Bhd said the rather resilient sales in 2009 showed vehicles were still an essential item to Malaysians. This would support its sector growth projection of 4.3% (to 542,000 units) in 2010.
"We also expect demand for premium and commercial vehicles as well as heavy-duty equipment to continue improving. Consumer preference normally shifts towards economical cars during a downcycle but the reverse will happen during a recovery. Whilst there is a risk of inflationary pressure on costs, we expect better economies of scale to help mitigate this risk," it said.
The Malaysian Automotive Association (MAA) said on Monday sales of vehicles rose in November to 45,200 units, up 10.6% from the 40,865 units a year ago and it expected sales to pick up in December.
From January to November, vehicle sales declined to 489,234 units from 508,290 units in the previous corresponding period. Production declined to 444,755 units from 498,419 vehicles.
RHB said its projection of a 4.3% growth in sales to 542,000 units in 2010 was underpinned by the improvement in affordability and sentiment amid the economic recovery.
For 2010, the research house forecast demand to pick up for premium and commercial vehicles as well as heavy-duty equipment, which is a typical sign of recovery.
"While there is a risk of inflationary pressures on cost, we expect better economies of scale to help mitigate the risk," the research house said.
It said the key risks to its projections for 2010 were inflationary pressure amid economic recovery and the weakening of the ringgit against the US dollar and yen.
Despite the sector's positive outlook, RHB maintained a neutral rating on the sector. It had an outperform call on PROTON HOLDINGS BHD [], TAN CHONG MOTOR HOLDINGS BHD [] (TCM) and MBM RESOURCES BHD [] and an outperform call on UMW.
Proton's fair value was RM5.67 based on stripped-down book value, due to rising demand, improving prospects and more positive developments.
Better-than-expected Exora sales and the upcoming new Waja, as well as potential earnings contributions from tie-ups in India and Iran contribute to this rating.
Tan Chong's fair value was pegged at RM2.92, supported by the company's potential relocation of its operations from Segambut to its Serendah plant, introduction of new models in the under one-litre and one-litre to 1.5-litre category, which account for 15% and 43% of total vehicles respectively, it said.
"While management is tight-lipped on its plan for the newly acquired Ford plant in Shah Alam, we believe TCM would likely relocate its operations in Segambut to this plant given the potential development of Segambut land into high-end property landmark," it said.
RHB maintained its outperform on MBM with a fair price of RM2.93 due to higher unit car sales and associate contributions underpinned by better sentiment and its soon-to-be-launched MPV.
UMW was rated underperform with a fair price of RM6.14.
The Malaysian stock market, which had a strong run this year, will likely to continue performing well in the first half of next year before faltering in the second half as investment risks heighten, analysts said.
OSK Investment Research is optimistic that the key stock index, the FTSE Bursa Malaysia KLCI, will hit a high of 1,345 points in either April or May. It closed at 1,255.66 on December 21.
"We think the market still has more room to grow for the next five months or so, thereafter there could be a retracement in the second half due to rising interest rates in the US and risk that 2010 corporate earnings could be disappointing," Chris Eng, its head of research told Business Times.
His advice to investors is to make money before interest rates in the US start to rise.
"We think profit-taking will take place six months before the interest rates rise in the US," he remarked.
JPMorgan Securities (Malaysia) Sdn Bhd too believes the market will be better in the first half of 2010.
"We expect Malaysia equities to sustain their strong performance in the first half," said Chris Oh, its head of research.
He said the key drivers for this are an expected rebound in economic growth of 5 per cent, the implementation of large-scale infrastructure projects and reform policy that are likely to exceed investors' low expectations, a stronger ringgit and a generally positive view on emerging market equities.
His top three stock picks for next year are Public Bank Bhd, Genting Bhd and Sime Darby Bhd.
RHB Research Institute Sdn Bhd, meanwhile, upped its end-2010 index target to 1,400 from 1,370 before.
This suggests a modest upside of about 11 per cent for next year compared to this year's strong rise of 43.2 per cent (as at December 21).
"This was a strong year because it was the first year of economic recovery. Moving forward, valuations are no longer cheap but neither are they stretched. In situations like this, the market's performance will hinge on the strength of the economic and corporate earnings recovery," its head of research Lim Chee Sing noted.
He expects the 25 index stocks that RHB tracks to post average earnings growth of 15 per cent next year after a 15.7 per cent contraction this year.
He said the market was likely to be more volatile next year and urged investors to stay focused on valuations.
"Stock picking is key, shy away from speculative stocks. Always be grounded by valuations - look to companies with good growth and strong business models and managements," he said.
The sectors he thinks will be "interesting" next year are telcos, power and banks. His top three stock picks are Tenaga Nasional Bhd, Unisem Bhd and Faber Group Bhd.
Meanwhile, stock market regulator Bursa Malaysia Bhd voiced hope that local and global economic recovery would be on the cards for next year but noted that investors still seemed to be cautious. It nevertheless pledged to continue with its liberalisation efforts to attract more interest.
"Sentiment is still cautious and investors continue to stay on the sidelines, waiting for more concrete signals from the bigger economies. Despite the economic scenario, we have remained firm in our direction to liberalise and make the capital market more efficient, with changes such as the Foreign Investment Commitee deregulation and the revamp of the fund raising framework, among others
"Overall, it is our belief that in reforming to become a high performing market, this will bring in bigger investment opportunities that will contribute towards a dynamic Malaysian capital market," its chief executive officer Datuk Yusli Mohamed Yusoff told Business Times via email.
He said Bursa Malaysia would also continue efforts to attract quality listings. In a normal year where there are no adverse market conditions, one can expect to see between 30 and 40 new listings, he said.
On ongoing efforts to improve liquidity and free float, he said he was hopeful of more robust divestment activities by government holdings following a directive made by Prime Minister Datuk Seri Najib Razak.
Yusli said Bursa Malaysia's initiatives next year will revolve around ensuring diversity of products, greater liquidity, enhanced quality and better efficiency.
He hopes there will be more retail participation, which is currently low, in the mid-30s percentile.
"Education and awareness are the key and we'll continue with efforts in that direction. We've also not seen a return of foreign funds to the levels seen before the 2008 election results. I hope that foreign investors will take note of the capital market and the government's efforts to make Malaysia friendly to business and investing, and that we will see foreign funds come back to our shores," he said.
Wednesday December 23, 2009 Property sector may face oversupply next year
By EUGENE MAHALINGAM
Valuers expect burst of launches held back during crisis
KUALA LUMPUR: The property sector may experience an oversupply next year due to a burst of launches from developers that have been held back since the start of the global economic crisis.
Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector, Malaysia (PEPS) president James Wong said developers would need to come up with “creative ways” to maximise sales.
“Because there will be a lot of launches next year, there will be a lot of supply, and the success of the take-up rates will depend on the marketing strategies of the developers,” he told a press conference on the 3rd Malaysian Property Summit 2010 yesterday.
Ho Chin Soon Research Sdn Bhd director Ho Chin Soon concurred, adding that there would be a pent-up from buyers that had been eager to get into the housing market.
“A lot of developers I have spoken to are preparing to launch in 2010. After over a year of waiting (since the global economic downturn hit), the public is hungry!” he said.
Wong said property transactions for 2010 were expected to be better than 2009, adding that the residential sector would see the biggest growth.
“With the recovery of the economy in 2010, the property market will also experience a slow, steady recovery. The residential sector has been quite resilient and should experience faster growth next year.”
Wong added that the secondary market for upmarket condominiums would remain soft until the second half of 2010 because of existing oversupply and new launches.
“However, the secondary market for landed residential property remains firm,” he said, adding that the average occupancy of high-end condominiums within the KLCC area was about 60%, with yields hovering at 5% to 6%.
Wong also said the shopping complex and office building sectors would face “some oversupply.”
“Many office building projects started two to three years ago are nearing completion and therefore are facing occupancy problems as companies are postponing decisions to relocate to bigger and more expensive premises.
“Hence the take-up rate of new Grade A office buildings in Kuala lumpur remains slow. Office rents will come down as more supplies (completed units) come in (to the market) by end-2010,” he said, adding that the hotels and industrial sectors should remain flat next year.
Wong said the hotel occupancy rate in Kuala Lumpur in the third quarter of 2009 was 66%, with average room rates reported at RM277.
“Owing to competition, many hotels are undergoing rebranding and refurbishment exercises,” he said.
PEPS will be organising the 3rd Malaysian Property Summit 2010 on Jan 26, 2010 at the Sime Darby Convention Centre.
