Wah Seong Corp Bhd (Sept 2, RM2.10)
BUY. Reiterate “buy” with higher target price of RM2.75 on Wah Seong Corp (WSC). We have switched our valuation method to sum-of-parts (previously PER) to better reflect the group’s exposure to deepwater coating contracts. We continue to like WSC for reasons that include its oligopolistic position as a pipe-coater and lucrative margins from deepwater coating. WSC’s 2Q2009 results came within expectations. The stronger results came on the back of improved contributions by the specialised pipe-coating business, growing circa 4.5% q-o-q and 1.9% y-o-y.  We note Ebit margins of oil and gas division came under slight pressure to decline 2.33 ppts to 7.56%. Nevertheless, we are confident of higher margins with the capture of coating jobs such as the Gorgon and PNG projects. Current order book stands at RM1.3 billion, comprising RM611 million of pipe-coating and corrosion protection contracts, RM416 million of engineering contracts, RM195 million from its industrial services division and RM78 million from its exploration products and services. We were made to understand that WSC is tendering for jobs collectively worth RM4 billion, with heavy emphasis on deepwater coating jobs, and we think this bodes well for its growth earnings, moving forward. — MIDF Research  (Sept 1)

NPC Resources Bhd (Sept 2, RM2.10)
BUY. Excluding an exceptional loss of RM1.2 million, 1H2009’s net profit of RM14.2 million has already achieved 57.3% of our FY2009 forecast. We consider the results to be above expectation as fresh fruit bunches (FFB) production is typically stronger in 2H2009. Q-o-q, 2Q2009 revenue rose 40% to RM84.4 million, mainly on higher average crude palm oil (CPO) price realised. Pre-tax, however, fell 23.8% to RM8.7 million, affected by lower FFB production leading to reduced milling throughput and an exceptional loss of RM1.2 million. The exceptional loss was due to a disputed CPO sales contract in February 2008 whereby the Palm Oil Refiners Association of Malaysia had awarded a damages claim of RM1.2 million to its counter party. Y-o-y, 1H2009 turnover and Ebit shrank 34.5% and 33.7% respectively on the back of lower CPO price. Ebit margin, however, was stable at 14.5%, which we believe was related to better cost controls and higher milling efficiency. Upgrading our FY2009 forecast after raising our 2009 CPO price assumption to RM2,200/MT (previously RM2,100/MT). We are using a lower CPO price of RM2,300/MT for FY2010, despite our average forecast of RM2,400/MT for the sector. Reiterate “buy” and increase target price to RM2.96 after rolling forward our 12 times PER to FY2010. — Kenanga Research (Sept 1)

Media Prima Bhd (Sept 2, RM1.41)
BUY. We are reaffirming our “buy” rating on Media Prima Bhd (MPrima) with higher fair value of RM2 per share (versus RM1.80 per share previously), based on 10% discount to our revised discounted cash flow (DCF) valuation of RM2.20/share. We have rolled forward our base year to FY2010F and increased our long-term growth assumption to 3% from 2% as we believe TV advertising expenditure (adex) is gaining traction. Nielsen has reported that market share for TV adex rose to 35% in 1H2009 from 33% in 1H2008, at the expense of newspaper adex which decreased to 54% from 57%. Despite lacklustre 1H2009 earnings due to weak adex amid weak economic situation, we are upbeat on MPrima’s FY2010F’s outlook as we believe it is among the best proxy to ride on the economy recovery given its highly correlated earnings with GDP growth. We expect World Cup 2010 and Commonwealth Games [to contribute to its earnings]. We estimate earnings to jump by nearly 50% in FY2010, after posting a 30% contraction in FY2009. MPrima is trading at PE of 10 times based on forecast earnings, as opposed to historical PE band of 15 times to 18 times. Even at our fair value of RM2/share, MPrima is trading at implied FY2010F’s PE of 13 times, still below its historical PE band. — AmResearch  (Sept 1)

Xingquan Bhd (Sept 2, RM1.31)
BUY. We reiterate our “outperform” recommendation. Re-rating catalysts include better-than-expected September trade fair order value growth and same-store sales improvement in 4Q2009. During its autumn/winter trade fair from March to April 2009, Xingquan secured RMB550 million (RM270 million) orders for delivery in 1H2010. The next trade fair featuring the spring/summer collection will be held in September 2009. Management continues to guide for strong growth in FY2010. It maintains that its niche position as an outdoor sports player allows it to continue growing in a highly competitive market. Xingquan will focus solely on outdoor sports products from September onwards. Our target price is unchanged at RM2.60, still based on six times CY2010 P/E, a 60% discount to listed peers under our coverage in view of Xingquan’s smaller size. Xingquan is a candidate for a re-rating as its unexpectedly weak share price has taken its P/Es to just three to four times, which do not reflect its niche position as an outdoor sports player. Xingquan intends to pay out 10% to 20% of its earnings as dividends. It has plans for an interim dividend for 1HFY2010. — CIMB Research (Sept 1)

Guinness Anchor Bhd (Sept 2, RM6.65)
HOLD. The company’s 4Q2009 net profit of RM27.4 million (+40.6% y-o-y), lifted full year profit to RM142 million (+12.8% y-o-y). The strong 4Q2009 was due to better sales resulting from promotional activities held for Guinness’ 250th anniversary. Over the year, Ebitda margin was higher at 17.2% versus FY2008’s 16.5% whilst revenue advanced 7.6% y-o-y to RM1.3 billion, driven by market share expansion and price increases. Our TP is raised to RM7 after rolling over our DCF valuations. We downgrade our call to “hold” after the recent run-up in its share price and an outside chance of an excise duty hike come October 2009 (2010 Budget). Dividends should nonetheless remain good, returning an expected 9% to 10% gross yield based on our forecasts for more than 80% net payout. Better-than-expected 4Q2009 performance, coupled with Carlsberg’s weaker profits in the same period, make us agree with Guinness’ view that it continued to gain market share. We raise our FY2010 to FY2011 net profit forecasts by 5% and 12% respectively to account for both market share and resulting margin expansion. This is based on the assumption that Guinness manages to raise sales volume by 3% to 5% per annum while excise duties remain unchanged. — Maybank Investment Bank Research (Sept 1)

Hovid Bhd (Sept 2, 25 sen)
BUY. Hovid reported a net profit of RM500,000 for FY2009, which included an unrealised forex loss of RM15.6 million at Carotech from translation of US dollar loans due to a weaker ringgit. Hovid registered a core net profit of RM16 million for FY2009 after excluding the forex loss, which was still 40% below our full year forecast largely due to higher depreciation charges and interest expenses. Despite lower than expected results, we maintain our FY2010 forecast as we are expecting better prospects moving forward. We maintain our recommendation as “trading buy” at an unchanged target price of 30 sen based on eight times PER of FY10 EPS.  Q-o-q, overall revenue was relatively flat despite a 22% increase in revenue from the Hovid segment as it was negated by an 11% decrease in revenue from the Carotech segment. The decrease in the Carotech segment was largely due to the delay of shipment of biodiesel to Europe until July 2009 based on a request from its customer, who we believe to be its major customer — Trafigura. However, operating profit for the company in 4QFY2009 was 140% higher y-o-y largely due to revenue contribution from the supply contract between Carotech and Trafigura as well as lower raw material prices, namely, CPO prices. — OSK Research (Sept 1)

This article appeared in Capital page of The Edge Malaysia, Issue 771, Sep 7-13, 2009