Sime Darby Bhd (Aug 26, RM8.23)
OUTPERFORM: Sime Darby’s property development division will be one of the group’s main profit drivers in the coming years with the development of the Sime Darby Vision Valley (SDVV). The SDVV covers an area of 1.2 million acres and is expected to generate a gross development value (GDV) of RM25 billion to RM30 billion in the next two decades. Sime Darby will launch a new 1,000-acre residential sustainable neighbourhood development called Elmina in early 2010. Besides Elmina, it will also launch The Glades — which is Phase 5T of its Putra Heights development — in 1Q2010. The Glades is a premium gated development with an estimated GDV of RM700 million.

We have projected Sime Darby’s property development division to post an improved profit of +10.8% y-o-y in FY6/2010 and a profit contribution of +23% to +26% per annum to the group. There is no change to our forecasts and SOP-based fair value of RM8.80. We maintain our “outperform” recommendation and advise investors to adopt a trading strategy. — RHB Research (Aug 24)

MISC Bhd (Aug 26, RM8.80)
BUY: Tanker and container rates may have bottomed out after hitting record lows. We believe downside risks for charter rates are limited now, given an improved demand-supply growth balance outlook for next year. We expect tanker rates to rise by 25% in FY3/2011F on slower tonnage supply growth and recovering global oil demand. The liner division could post smaller losses going forward as MISC reduces capacity and withdraws from the Grand Alliance consortium.

The offshore and heavy engineering divisions will cushion earnings. We expect these divisions to account for 37% to 44% of MISC’s pre-tax profit in FY2010F- FY2011F. Its existing long-term offshore contracts and current large heavy engineering order book provide good earnings visibility for at least two to three years. The heavy engineering division should remain busy with its current order book of RM9.3 billion. Apart from the better earnings outlook, we believe MISC is worth a “buy” because it is still lagging the market despite its 3.7% weighting on the FBM KLCI. MISC’s share price YTD has underperformed the market, rising only 6% against the FBM KLCI’s 30%. — HwangDBS (Aug 24)

Sunway City Bhd (Aug 26, RM3.40)
NEUTRAL: SunCity’s revenue for FY2009 ended June 30 fell 16.8% y-o-y to RM1.09 billion. For the three months ended June 30, revenue fell 12.3% y-o-y to RM230.3 million. Full-year net profit fell 53.9% y-o-y to RM211. 4 million, with 4QFY2009 net profit down by 20.4% to RM44.6 million. FY2009 profit was lower than that of FY2008, mainly due to the exceptional gains recorded the previous year. SunCity recognised a fair value gain of RM316.2 million in FY2008 following the revaluation of Sunway Pyramid and Sunway Carnival Mall. Recurring income from its property investments grew 15.9% y-o-y. Revenue contribution from property investments increased to 25% in FY2009.

SunCity has no plans to embark on new launches in 2009 except for Sunway Vivaldi, but promotional packages for RM1.3 billion worth of unsold units coming from Sunway SPK, Southquay, Palazzio and Vivaldi are likely to go on. Interestingly, sales doubled to RM88 million in 4QFY2009. We believe SunCity’s performance is sustainable, supported by unbilled sales of RM700 million and high-yielding investment property. We have a “neutral” recommendation, with a target price of RM3.40, based on an EPS of 34 sen per share. — Inter-Pacific Research (Aug 25)

JT International Bhd (Aug 26, RM4.80)
UNDERPERFORM: At JTI’s quarterly analyst briefing, management said it expects a double-digit contraction in total industry volume (TIV) this year, relative to 2008. Other key takeaways were that JTI continued to gain market share in 2Q, with sustained strength for Winston and Mild Seven brands. Illicit trade is believed to have shot up to an estimated 30% of TIV.

JTI’s volume slipped 3% in 1H2009 against a 12% decline for the industry. This led to a 1.9% point expansion in its market share to 21.4% from 19.5% in 1H2008. JTI’s relative resilience was underpinned by the continued strength of its key brands Winston, which inched up 3% y-o-y, and Mild Seven, which rose 8% y-o-y in 1H2009. However, JTI’s other brands are flagging. We think JTI is unlikely to distribute any more special dividends this year as it is looking to rebuild its cash reserves. Thus, we are projecting a traditional 30 sen gross dividend per share for FY12/2009, which translates to a yield of 6%. We reiterate our “underperform” call, with an unchanged target price of RM4.05. As a defensive stock, JTI is likely to lag behind as the market trends higher. — CIMB (Aug 24)

QL Resources Bhd (Aug 26, RM3.40)
BUY: The company’s 1QFY3/2010 net profit of RM22.3 million came in within expectations. In addition to 4% earnings growth y-o-y, the company rewarded shareholders with a one for five bonus issue, likely to be completed in 4QFY2010. Group revenue for 1QFY2010 was up 12% q-o-q due to positive sales growth in all segments. Pre-tax profit was 14% higher due to profit margin expansion in all divisions except for palm oil activities. The bonus issue will raise share capital from 330 million shares of 50 sen par value to 396 million. Following the bonus issue, our FY2010 EPS will be adjusted downwards by 15% to 26.4 sen.

We are maintaining our net profit growth forecast of 15% for FY2010 and 12% for FY2011. We maintain a “buy” recommendation, with a target price of RM3.70, based on 12 times PER applied to FY2010 EPS of 31 sen. Its latest closing share price of RM3.25 adjusted for a bonus issue of 66 million new shares will be 17% lower at RM2.71. We have an amended target price of RM3.20 from the current fair value of RM3.70 as a result of applying the same 12 times PER to new FY2010 EPS of 26.4 sen. — Kenanga Research (Aug 25)

Malayan Banking Bhd (Aug 26, RM6.47)
HOLD: Maybank reported a FY6/2009 net profit of RM691.9 million, or -76% y-o-y, on an impairment loss of RM2 billion. The impairment includes RM1.6 billion for Bank Internasional Indonesia and RM353 million for MCB Bank. Maybank also reported a quarterly loss of RM1 billion in 4QFY2009. In FY2010, domestic operations are expected to be on a par with sector performance. Thus, we have only factored in a loans growth of 8% for FY2010, and 10% for FY2011 and FY2012. Net interest margin is likely to be lower by 2.16% at -2.22% for FY2010-FY2012.

Although we maintain our FY2010 net profit forecast of RM2.8 billion, we have fine-tuned the assumptions for higher loans growth and operating cost. For FY2011, we have cut our net profit estimate by 7% to RM3.2 billion on higher operating costs due to its more aggressive expansion in new overseas markets. Our FY2012 net profit forecast is RM4.5 billion (+7.6% y-o-y) on the back of no loans growth and 12% non-interest income growth from transactional fees. We upgrade Maybank from “sell” to “hold”, with a fair price of RM6.60 based on 1.8 times price-to-book multiple. At RM6.60, we value Maybank at 16.6 times FY2010F PER and 14.5 times FY2011F PER. — UOB KayHian (Aug 26)

This article appeared in Capital, The Edge Malaysia, Issue 770, Aug 31-Sep 6, 2009.