Monday, May 30, 2011

Stock To Watch: KNM: A Breach Below RM1.93 Will Drive Prices Lower To Up-Trend-Line (UTL) Support At RM1.70

Stock to watch – KNM (RM2.10)

KNM – A breach below RM1.93 will drive prices lower to up-trend-line (UTL) support at RM1.70

KNM is one of Malaysia’s leading service providers to the global oil and gas industry, its key activity being the fabrication of process equipment, terminals, refineries and processing plants. In 1Q11, bulk of its revenue was derived from Asia & Oceania (41%), Europe (54%) and Americas (5%) overseas contracts.

Although orders visibility is rising, margin improvement remains a concern due to price undercutting activities at the mid-end segment. Following the breakdown below the 200-d SMA (RM2.38), mid Bollinger band (RM2.52) and lower Bollinger band (RM2.25) supports, KNM’s near term outlook remains bleak.

Further key support is 76.4% FR of RM1.93 (around the downtrend channel). If this support is violated, share price is likely to drive lower to long term UTL support around RM1.70.

For risk-takers, a good level to accumulate is around RM1.93-2.00 for rebound play towards RM2.38 and RM2.52 levels. Cut loss below RM1.90.

Daily Fibonacci Retracement KNM Chart: A Breakdown Below Crucial Support Of RM1.93 Will Drive Down Prices To Up-Trend-Line (UTL) Around RM1.70
KNM 31-05-2011

Daily KNM Chart: Testing The Lower Down Trend Channel
KNM 31-05-2011a



Source: HLeBroking

Dow Jones closed for Memorial Day Holiday, 31-05-2011

Wall Street Recap: Dow Jones closed for Memorial Day Holiday
Week-on-week, the Dow Jones ended 0.6% lower at 12442 points, recording its 4th consecutive weekly loss.

This week, Wall Street will run a gauntlet of data expected to indicate an uneven economic recovery. Major U.S. economic reports scheduled for this week are Chicago PMI (31 May); May ISM and ADP employment (1 June); April factory orders (2 June) and May payroll data/non-manufacturing index (3 June).


Source: StockCharts.com

Daily KLCI Resistance At 1552-1565 Points

Bursa Recap: KLCI down 5.9 points ahead of new tariff announcent
Regional bourses ended mixed in thin trading with Wall St closed for Memorial Day holiday on 30 May. Investors are cautious before the release of U.S. jobs data on Friday as well as awaiting more debt restructuring plans from Greece this week.

In line with the cautious regional markets and worries about domestic rising inflationary pressures and slower GDP growth in anticipation of electricity tariff & gas price hikes, the FBM KLCI was down 5.9 points to 1542.8 points.

Due to the nagging external and domestic uncertainties coupled with the start of a two-week school holiday, volume declined to 0.7 billion shares worth RM1.24 billion against last Friday’s 0.95 billion shares worth RM1.69 billion.

FBM KLCI outlook: Inflationary concern will dampen sentiment
With higher gas & electricity rates, FBM KLCI is likely to face a temporary setback in its current rally, as sentiment will be dampened by worries about the rising inflationary pressures and slower GDP growth. Besides, persistent Euro debt crisis and the impending release of key U.S. economic data will drive more investors to the sidelines. However, this should be cushioned by the positive impact on TNB.

Hence, we expect renewed sideways consolidation with immediate resistance at 1552 (23.6% FR) and 1565 (April’s high), whilst support levels fall on 1537 (38.2% FR), 1525, 1516 (lower Bollinger band) and 1507 (May’s low) points.

Daily KLCI Resistance At 1552-1565 Points
FBM KLCI 31-05-2011


Source: HLeBroking

CIMB – Building Its Base Before Further Breakout

Stock to watch – CIMB (RM8.29 - TRADING BUY)

CIMB – Building its base before further breakout

Our institutional research maintained a BUY rating on CIMB with a RM9.58 target price despite a seasonally weaker 1Q2011 results. This is mainly due to its strong proxy to economic growth and active capital markets, robust prospects of Indonesia banking industry and growing regional universal bank platform.

Since staging a breakout above its downtrend line (DTL) in early May, CIMB has been consolidating above the mid Bollinger band and 30-d SMA. There could be a start of a new rally soon once the MACD gains further strength. Immediate resistance targets are RM8.36 (61.8% FR) to RM8.50 (50% FR), followed by RM8.82 (38.2% FR). Uptrend will remain intact if CIMB is able to consolidate above the lower Bollinger band of RM8.13.

Cut loss below RM8.05 (2-month low).

CIMB Daily: Building Its Base Before Further Breakout
CIMB 30-05-2011


Source: HLeBroking

Dow Jones Industrial Average Is Bottoming Up, 30-05-2011

Wall Street Recap: Dow Jones up 38 points on better consumer sentiment index
Small gains from last Wednesday to Friday helped the Dow to rebound from weekly low of 12356 to close at 12442 points (-0.6% week-on-week) last Friday, but still recording its 4th consecutive weekly loss. Wall Street will be closed on Monday for Memorial Day holiday.

Wall Street managed to pare losses by the end of the week with a strong May consumer sentiment index of 74.3 (consensus: 72.5), following a raft of mostly negative economic data including higher jobless claims, weaker-than-expected 1Q2011 GDP growth, and a slump in pending home sales.

Major U.S. economic reports scheduled for this week are Chicago PMI (31 May); May ISM and ADP employment (1 June); April factory orders (2 June) and May payroll data/non-manufacturing index (3 June).

Dow Jones Industrial Average Is Bottoming Up
DowJones30-05-2011


Source: StockCharts.com

Daily KLCI Resistance Upgraded To 1552-1565 Points

Bursa Recap: KLCI up 7.8 points to record a +0.5% weekly gain
Week-on-Week, the FBM KLCI gained 0.5% following a 7.8 points jump last Friday. The positive performance last Friday was spurred mainly by the 28 sen increase in Tenaga in anticipation of a tariff hike, as PM said the government will study the report submitted by the National Economic Council on the electricity tariff.

Trading volume increased to 965 million shares worth RM1.69 billion as compared to Thursday’s 817 million shares worth RM1.43 billion.

FBM KLCI outlook: Immediate resistance upgraded to 1552-1565 points
From a weekly low of 1525.7 pts on 24 May, the FBMKLCI rebounded to as high as 1550 points before ending at 1548.7 points last Friday, in line with our envisaged 1547-1552 resistance targets last week. With the improving technical readings, the index is slated to retest higher upside targets this week with resistance at 1552 (23.6% FR) and 1565 (April’s high) levels. A significant resistance will be the all time high of 1577.

For current uptrend to continue, the 1525 level must hold. A breach below 1525 points will trigger downside towards 1516 (lower Bollinger band) and 1507 (May’s low) points.

Daily KLCI Resistance Upgraded To 1552-1565 Points
FBM KLCI 30-05-2011

Source: HLeBroking

Friday, May 27, 2011

Dow Jones Heading Towards 30-days SMA And Mid Bollinger Band

Wall Street Recap: Dow ends flat amid lackluster data
The Dow Jones ended 8 points higher in a choppy session, with technology and consumer discretionary stocks (e.g. Tiffany & Co and NetApp Inc) leading the way after upbeat earnings.

However, sentiment remains cautious in the wake of rising weekly jobless claims and weak 1Q11 GDP of 1.8%.

Signs of a sluggish economic recovery sent 10-year Treasury yield to one year low at 3.06%.

Dow Jones Heading Towards 30-days SMA And Mid Bollinger Band
DowJones27-05-2011



Source: StockCharts.com

KLCI Immediate Resistance At 1547-1552 Points

Bursa Recap: KLCI up 7.4 points to record its 3rd straight gains
Key Asian bourses KOSPI (+2.8%), Australia (+1.7%) and NIKKEI (+1.5%) ended higher, as an overnight rebound on Wall St and recovery in commodities lured buyers back to resource-related stocks and bargain-hunters picked up blue chips.

In the absence of petrol and tariff hikes and strong regional markets rebound, the FBM KLCI ended 7.4 pts higher to 1540.9, driven by bargain hunting in selected heavyweights such as TENAGA (+14 sen to RM6.30), GENTING (+16 sen to RM11.10), YTL (+6 sen to RM1.62), SIME (+5 sen to RM9.11) and MAYBANK (+4 sen to RM8.83).

FBM KLCI outlook: Immediate resistance remains at 1547-1552 points
From a weekly low of 1525.7 on 24 May, the FBM KLCI rebounded to as high as 1543.6 before ending at 1540.9 yesterday, thanks to buying support on selected blue chips.

As the FBM KLCI is steadily consolidating above 50% FR (1525), 30-d SMA (1531) and 50-d SMA (1529), the index is poised for a rebound to retest the critical 1547-1552 resistance. Nevertheless, trading volume remained weak around 830m shares/day, suggesting lack of conviction.

We reiterate that a breakout at this congested zones with higher average daily volume of one billion shares or more will augur well for more sustainable rally towards higher tough overhead barrier at 1565 (April’s high) and 1577 (all time high) points.

KLCI Immediate Resistance At 1547-1552 Points
FBM KLCI 27-05-2011


Source: HLeBroking

Thursday, May 26, 2011

MAS: 1Q11 Bleeding from Jet Fuel and Low Yield

26 May 2011
Price Target: RM1.27
Share price: RM1.58


Results
Below – Reported 1Q11 core net loss at RM352m vs HLIB FY11 estimate of RM243m profit and consensus of RM296m profit.

Deviations
Low passenger yield and cargo yield as well as high operating costs (mainly jet fuel cost)

Dividends
None

Highlights
# 1Q11 passenger demand was boosted by international segment (+15.3% yoy), offsetting lower demand from domestic side (-8.8% yoy). Passenger yield dropped 3.1% yoy due as international traffic command lower yield.

# 1Q11 cargo demand, FTK dropped by 8.2% yoy, and further hit by lower cargo yields of -2.8% yoy.

# Operating cost increased substantially by 16.4% yoy, largely due to higher jet fuel costs and staff costs.

# MAS hedged 25% of expected FY11 fuel requirement, while average price increased to US$93/bbl (WTI). Management is imposing higher fuel surcharges on selective routes.

# Net gearing expected to further deteriorate as MAS take in delivery of new aircrafts. Capacity is expected to increase marginally in FY11.

# Management bullish on Firefly in complementing the group’s existing routes, boosting MAS revenue in the next 5 years. However, its average load factor is still below AirAsia and MAS.

# Tough operating condition going forward due to softening demand, impact from Japan crisis, high jet fuel price and RM appreciation.

Risks
World crisis (ie. war, tourism and epidemic outbreak), prolong surge in jet fuel price and the development of high speed train between Singapore and Pulau Pinang.

Forecasts
Reduced earnings for FY11 to losses of RM503 to account for higher jet fuel cost. Subsequently, FY12 and FY13 earnings cut to RM169m and RM939m respectively.

Rating
Sell

Positives:
- Beneficiary of strong air traffic into Malaysia, inline with government initiatives to boost tourism sectors.
- Reduced unit operating cost with delivery of new aircrafts.

Negatives:
- Restructuring plan (BTP) subject to implementation risk.
- Competitive pressure on airfare from LCCs and FSCs.
- Surging jet fuel prices.

Valuation
Reduced target price to RM1.27 (from RM2.10) based on P/B of1.4x, or at 0.2x discount to average peers of 1.6x.


Source: HLeBroking

Genting Plantations - Overweight: Earnings In Line With Expectations

26 May 2011
Price Target: RM9.50
Share Price: RM7.95


Results
1Q11 reported net profit of RM94.3m accounted for 21.6% and 21.7% of consensus full-year estimates and our full year forecast. We consider the results within expectations as we expect stronger quarters ahead arising from higher FFB output.

Deviations
None.

Dividends
None.

Highlights
More details on GBD acquisition. Management revealed that GBD Holdings Ltd (which it recently acquired for US$13.3m or RM40m), is a biodiesel plant situated on a piece of 33.45 acre land in Lahad Datu. Management said the acquisition is cheap, as: (1) The land itself is already valued at RM21m based on current market price of RM14 psf, which is about half of the acquisition price; and (2) The biodiesel plant (with capacity of 200k tonnes p.a.) is in good condition and the plant has a current replacement cost of US$35m. Management is planning to retrofit the plant as it has recently come across 1-2 deals (which it is hoping to conclude soon), which will allow it to produce high value-added products in the near term. We have yet to reflect this into our forecasts.

Indonesia. GENP has planted 932ha of oil palm in Indonesia in 1Q11, which is relatively lower than last year on the back of weather and claim issues, and it is now guiding a lower planting target of 6,000 ha for 2011 (vs. 15,000 ha that it guided previously) on the back of the slow planting progress. The Indonesian government’s recent moratorium on new permits for logging and palm oil concessions will not affect its planting plan.

Capex. Management lowered its guidance for 2011 capex from RM470m to RM360m mainly on the back of lower planting target in Indonesia.

Risks Downside risks
1) Sharp plunge in CPO prices;
2) Worse-than-expected weather condition that will result in lower-than-expected
FFB yield;
3) Escalating production cost, in particular, production costs; and 4) Labour shortage.

Forecasts
2011-2013 net profit forecasts cut by 3.8-5.1% as we raised our tax effective rate assumptions, based on management’s guidance.

BUY
Positives:
1) High CPO prices; and
2) Increasing contribution from oil palm in Indonesia.

Valuation
TP cut by 2.6% from RM9.75 to RM9.50 to reflect:
(1) Lower net profit forecasts; and
(2) The roll forward of our base year from 2011 to 2012 for valuation purpose. Our new TP is based on 17x revised 2012 EPS of 55.9 sen.

KLK - 1HFY11 Core Net Profit Rises 70%

26 May 2011
Price Target: RM27.01
Share Price: RM21.50


Results
1HFY11 reported core net profit of RM721.9m came in within our expectation at 48.8% of our full-year forecast. Against market consensus, the results accounted for
52.5% of the full-year market estimates.

Deviations
None.

Dividends
None

Highlights
YoY. 1HFY11 core net profit rose by 69.8% to RM721.9m mainly due to:
(1) Higher earnings contribution from the plantation and manufacturing divisions that more than offset a slight decline in contribution from the retailing division (on the back of seasonality); and
(2) Higher associate earnings.

QoQ. Stripping off EI of RM51.4m, 2QFY11 core net profit declined by 19.3% to RM322.5m mainly due to:
(1) Lower contribution from the plantation divisions (excluding fair value gain/loss in 1Q and 2Q) arising from lower palm and rubber production;
(2) Losses at the retailing division on the back of seasonality; and
(3) Higher finance costs.


Risks
Downside risks:
1) Sharp plunge in CPO prices;
2) Worse-than-expected weather condition that will result in lower-than-expected
FFB yield;
3) Escalating production cost, in particular, production costs; and
4) Labour shortage.

Forecasts
Maintained.

Rating
BUY (TP: RM 27.01)

Positives:
1) High CPO prices;
2) Rising rubber prices; and
3) Maturing tree profile.

Negatives:
Liquid trading volume

Valuation
TP raised by 34% to RM27.01 as we roll forward our valuation base year from CY2011 to CY2012 for valuation purpose.


Source: HLeBroking

TM 1Q11 In-line; Seasonally Soft Data

26 May 2011
Price Target: RM4.20
Share Price: RM3.90


Results
# 1Q11 Results were largely in-line with our expectations for a softer 1Q11.

# EBITDA margins improved qoq to 33% due to lower interconnect, international outpayment, lower maintenance, supplies and materials costs (due to lower project costs).

# 1Q11 Core PBT of RM184.4m (-9% yoy, +7% qoq) improved qoq largely due to an accelerated depreciation provision of RM66m in 4Q10.

Deviations
Other income (sales of scrap and insurance claims) caused us to miss our 1Q11 Core PBT estimate.

Highlights
# Unifi take-up rates accelerated with 7.4% in 1Q11 vs. a 4.3% in 4Q10. There were 63.5k Unifi subscribers in 1Q11, comprising 8.4k business and 55.2k residential subscribers.

# 1Q11 Unifi blended ARPUs improved to RM199 (from RM188 in 4Q10) with business ARPUs of RM414 and residential ARPUs of RM159.

# Streamyx 1Q11 net adds slowed to 28k from 84k in 4Q10. Streamyx blended ARPUs flattened qoq to RM77.

# TM expects to sign a definitive HSBB Wholesale agreement by end May 2011.

# TM is waiting for the right time and price to sell its remaining Axiata shares. TM will continue to reward shareholders when it has excess cash and the company targets a gross debt to EBITDA ratio of 2x (from 1.8x currently).

Risks
Government regulations, competitive risks.

Forecasts
Fine-tuned but largely unchanged.

Rating
BUY (TP: RM4.20, unchanged)

Positives
– Earnings uplift from a convergence of multiple growth drivers including Wholesale, HSBB and Streamyx and further cash management potential.

Negatives
– Unattractive wholesale pricing could limit wholesale growth. HSBB equipment subsidies.

Valuation
At current price, TM is trading at an FY11 and FY12 PER of 21.7x and 19.0x respectively. Net dividend yields of 5.1% and the potential for further cash management would serve to underpin the share price.

We believe TM will be one of the prime beneficiaries of the coming convergence between mobile, fixed and media players. We maintain our BUY call and target price of RM4.20 (based on DDM, WACC of 6.3%, TG 0%).


Source: HLeBroking

CIMB Group - Overweight. Not Changing KPIs Despite Weak 1Q

26 May 2011
Price Target: RM9.58
Share price: RM8.27


Results
1QFY11 net profit of RM916.5m (+4.4% qoq; +9.4% yoy) was 21.4% of HLIB and consensus forecasts. However, we considered this to be in line due to seasonality (1Q was 23.8% and 21.9% of FY10 and FY09 actual full year earnings). Moreover, management is not changing its FY11 KPIs in view of strong IB pipeline ahead, some IB deals have yet to filter down to in

Deviation
Largely in line.

Dividends
None.

Highlights
1QFY11 results impacted by large bond sales and redemptions as well as NIM erosion (mainly CIMB Niaga) but partly offset by low provisions.

However, consumer operations continued to show strong performance while capital markets deal pipeline is strong.

Additional buffer from RM426.3m MTM gain of AFS. We also understand that its derivatives (mainly IRS) would continue to show MTM gain in a rising rate environment.

Expect 10bps erosion in FY11 NIM. However, net interest income is expected to continue with its growth trajectory, especially in Malaysia, Thailand and Singapore.

Although loans and deposit growth are behind KPIs, it expect stronger corporate segment in 2H (when ETP financing commence) while the 16.9% yoy growth in CASA would help to mitigate NIM compression. CASA is now 34.6% of total vs. circa 28% in 2007.

Thus, although 1Q ROE as well as loans and deposits growth fell short, management is not changing its FY11 KPIs of 17% ROE, 18% loans growth and 20% deposits growth.

Asset quality continued to improve while impaired loan formation was lower qoq and yoy.

Risks
Unexpected jump in impaired loans, lower than expected loan growth and impact on non-interest income if there is a slowdown in capital markets.

Forecasts
No changes.

Rating
BUY

Positives
- Proxy to economic growth and active capital markets, robust prospects of Indonesia banking industry and growing regional universal bank platform.

Negatives
- Non-interest income may fall short if capital markets soften.

Valuation
Target price maintained at RM9.58 (Gordon Growth with ROE of 18.4% and WACC of 9.7%).


Source: HLeBroking

Dow Jones Shows Signs Of Stabilisation, 26-05-2011

Wall Street Recap: Dow ends +39 points on technical rebound
The Dow ended 39 points higher on technical rebound after tumbling 249 points in the past three sessions, set off by rising commodity prices and energy and natural-resource stocks.

Dow Jones rose as much as 84 points intraday but the gains were offset by lower-than-expected April durable goods orders report and persistent nagging concern over the European debt problems.

Daily Dow Jones Shows Signs Of Stabilisation
DowJones26-05-2011


Source: StockCharts.com

Daily KLCI Is In Triangle Consolidation

Bursa Recap: KLCI ends flat in lackluster trade
Regional markets ended mixed as concern over slowing economic growth and high inflationary pressures coupled with possible contagion effect of heightening Greek debt crisis to other heavily-indebted countries.

After climbing as much as 5.5 points, the FBM KLCI ended with a merely +1.5 points to 1533.6 as most investors remained sidelined amid the lack of market moving news. The gains were capped mainly by the sharp fall in Tenaga (-33 sen to RM6.16) in the absence of fresh positive news about a possible tariff hike.

Meanwhile, the government has decided to maintain the prices of RON95 petrol, diesel and liquefied petroleum gas for the time being after the weekly cabinet meeting.

FBM KLCI outlook: Low volume to cap strong gains ahead
Unless FBM KLCI is able to breach the 1546-1552 resistance zones with average daily volume over one billion shares, the index will likely consolidate further until fresh catalysts emerge.

Immediate supports are 1515-1525 points with a more solid floor at 1507 (6 May low). As long as the 1507 low holds, we remain positive of the FBM KLCI’s near term upside target resistance of 1552-1565 points.

Daily KLCI Is In Triangle Consolidation
FBM KLCI 26-05-2011


Source: HLeBroking

Wednesday, May 25, 2011

Global Market Weekly Review, 25-05-2011

Most Federal Reserve officials prefer to raise rock-bottom interest rates before selling assets when the time comes to tighten policy, restoring their main tool for managing the economy, according to Apr meeting minutes. The minutes also showed worries about inflation rising among Fed officials last month before a big surge in oil prices subsided. During an extensive discussion of how the central bank might pull back its massive support for the world's largest economy, officials indicated unloading the mortgage debt the Fed piled on during the financial crisis would be a priority in eventually shrinking the Fed's US$2.7 trillion balance sheet.

Japan’s economy shrank more than estimated in 1Q11 after the March 11 earthquake and tsunami disrupted production and prompted consumers to cut back spending, sending the nation to its third recession in a decade. GDP contracted an annualized 3.7% in 1Q11, following a revised 3% decline in 4Q10. The median forecast was for a 1.9% drop.

China will impose punitive power prices on businesses that exceed consumption limits in Zhejiang province, a manufacturing hub bordering Shanghai, to curb demand during an expected electricity supply shortfall this summer. The provincial government has set power consumption limits on 44 industries including electricity generation, cement and dyeing businesses, according to a statement on its website.


Source: ING Funds Berhad

Malaysia Fixed Income Market Review, 15 - 21 May 2011

Fixed Income
Benchmark Malaysian Government Securities (MGS) yields were range-bound during the week. Most players were seen staying at the sidelines ahead of April’s Consumer Price Index (CPI) and 1Q2011 Gross Domestic Product (GDP) data releases. The 5- and 10-year benchmark MGS yields both closed 1 basis point higher at 3.54% and 3.99% respectively, while 7-year yield closed 2 basis points (bps) higher to settle at 3.76%. However, the shorter-end remains supported, with the 3-year yield closed unchanged at 3.28%.

On Wednesday evening, both CPI and GDP results were released. The Malaysian economy printed a 4.6% year-on-year (YoY) growth in the 1Q2011, lower than economists’ consensus of 4.9%. Overall domestic growth was supported by higher private sector spending and stronger regional demand for commodities as well as non-electrical and electronic exports. Inflation accelerated further, with April CPI coming in at 3.2% YoY, above market consensus of 3.1%. Meanwhile, Domestic Trade, Cooperative and Consumerism Minister Datuk Seri Ismail Sabri Yaacob commented that there will be a review for prices for all petroleum products including RON95 in June.

For local private debt securities (PDS) market, trading continued to focus on AAA- and AA-rated bonds. Investors mainly took opportunity to do some mark-to-market trades. Selected PDS names were dealt weaker on expectation that MGS yields will move higher in the coming weeks, where some investors were seen bargain-hunting along the AAA and AA segments.

Fixed Income Outlook
On local macroeconomics, we expect economy to remain sustainable albeit some slow down in momentum evidenced by the latest economic data. Domestic consumption and private investment are expected to continue to drive the economy growth. CPI numbers have been gradually climbing up. Nonetheless, further subsidy rationalization by the government remains a swing factor for any significant change in the inflation outlook.

Following Bank Negara Malaysia (BNM)’s move to resume interest rate normalization by another 25bps, we expect the central bank to continue to increase Overnight Policy Rate (OPR) by another 25 – 50bps in 2H with timing subject to the central bank’s assessment of growth and inflation outlook. The latest Monetary Policy statement reiterated higher downside risk to global recovery while domestic economy remains firmly on steady growth path, and upward pressure on prices driven by high commodity and energy prices as well as signs of demand-pull factors.

On supply and demand dynamics, the much anticipated Government related papers on the back of public or private funding needs arising from mega projects announced under the Economic Transformation Programme (ETP) have not been materialized. Further delay will widen the current supply demand gap given liquidity remain ample in the local financial market. On this backdrop, yields movements may be capped despite we are in a rate hike cycle.

In terms of foreign participation, current sentiment and currency outlook remain favorable. Nonetheless, the record high holding by the offshore investors present risks should the reverse occurs. We expect intensified suspicion of momentous reversal of capital flows on any signs of change in sentiment and waning Asian currency theme, especially in the current volatile external environment.

For corporate bond market, we maintain our view that credit fundamentals in general should continue to improve. However, the credit market has been driven much by the ample liquidity with less than expected new supplies. We expect the current valuation especially the popular high-grade names to remain stretched due to insufficient supply with significant pent up demand for yields .

Fixed Income Strategy
We maintain our slight underweight duration call across all fixed income assets. In terms of asset allocation, focus remains on corporate bonds. We continue to like banking sector supported by the overall well capitalized domestic banking system with healthy asset quality and sustainable loan growth.

We aim to participate in new issuances for further diversification and yield enhancement. Last but not least, we look to trade MGS on high conviction.



Source for MGS levels: Bond Pricing Agency
Source: ING Funds Berhad

FBM KLCI Investors Remain Cautious Amid Uncertainties, 15 May – 21 May 2011 Review

Equity
Global equities market swung between gains and losses throughout the week. Trading ranges was tight as the market trapped within consolidation mode. Investors remain cautious as there are still a lot of uncertainties in the economy. Furthermore, the sharp decreases in commodities prices accelerated the selling as investors further reduce riskier assets.

On the local equities market, the FBM KLCI recovered back to its 20-day simple moving average (SMA) which was situated at 1,540 points. The buying momentum turned positive immediately after the index cross above the 20-day SMA. Trading activities concentrated in the second and third liner sent the FBM 70 to an all time high. The FBM KLCI outperformed the MSCI Asia ex-Japan which dropped 0.58%. Average daily value was lower week-on-week (WoW) but still above its three month average of RM1.76 billion.

Results released during the week were mostly within expectation. We will see more results announcement in the coming week, and expect some potential earning revision for plantation sector.

Equity Market Outlook
The market staged a technical rebound after enduring massive selling for the past few weeks. The recovery was sharp and the momentum is there which prompted us to believe the market could make a comeback to reclaim back the previous high. We see banks and plantations as the index movers for the coming week. Technically, the index was in recovery mode. However, the index might face some selling pressure as regional markets remain volatile. We need to see some stability in external markets in order to enable local investors to regain confidence in equities. As long as the Dow Jones continues to consolidate above 12,500 points, the long-term uptrend for global markets remains intact.

Equity Market Strategy
Stock picking is still our strategy with preference for liquid fundamental stocks on weakness.


Source: ING Funds Berhad

Air Asia: Lower Passenger Yields; Higher Fuel Prices

25 May 2011
Price Target: RM3.40
Share price: RM3.06


Results
Below – 1Q11 results was below our expectations and concensus. 1Q11 core earnings was RM127.3m (+14.3% yoy; -62.6% qoq), achieving 13.4% of HLIB estimates and 15% of consensus.

Deviations
Lower than expected average ticket prices and average ancillary income.

Dividends
None.

Highlights
# 1Q2011 passenger yield (ticket sales/RPK) dropped by 11.1% qoq and 10.2% yoy to 14 sen and likely to sustain at the current level.

# 1Q2011 average ancillary income per passenger increased by 1.5% qoq and 31.2% yoy to RM49.9.

# Thai AirAsia and Indonesia AirAsia continued to post positive earnings in 1Q11. Loans to associates dropped further to RM263 million from RM380 million in previous quarter.

# Philippines AirAsia is expected to commence operation by 4Q2011 with 2 A320s, while Vietnam AirAsia to commence by 2Q2011. Singapore “night-stopping” is targeted to start by 3Q2011.

# Net gearing improved to 1.57x (1Q11) vs 1.75x (4Q10).

# Jet fuel hedged at 17% for 2H11 at average of US$124/bbl. Fuel surcharge will be continued despite jet fuel price dropped back to US$125/bbl.

# Strategies are being developed to further increase its ancillary income such as JV with Expedia, loyalty program and offering duty free products.

Risks
World crisis (ie. war, tourism and epidemic outbreak), delay in KLIA2 completion, prolong surge in jet fuel price and the development of high speed train between Singapore and Pulau Pinang.

Forecasts
Reduced FY11 earnings by 14.2% to reflect lower average passenger yield. Subsequently, FY12-13 earnings are cut by 10.6-10.9% respectively.

Rating
BUY

Positives:
- Beneficiary of strong air traffic into Malaysia, inline with government initiatives to boost tourism sectors.
- Largest and lowest cost LCC in Southeast Asia with strong brand name.
- Re-rating catalysts via IPO exercises of AirAsia X, Thai AirAsia and Indonesia AirAsia.
- Strong ancillary income.

Negatives
- Surging jet fuel cost.
- Potential price war between AirAsia and Firefly.

Valuation
Target Price cut to RM3.40 from RM3.80 (based on Sum-of- Parts), following the cut in forecast.


Source: HLeBroking

Dow Jones Eases 25 Points In A Volatile Session

Wall Street outlook: Dow Jones eases 25 points in a volatile session
In volatile trading, the Dow Jones rose as much as 41 points in the early session following Goldman Sachs upgrade on commodities and a better-than-expected April new home sales report.

However, the Dow Jones subsequently slipped 25 points to end at 12,356 as investors worried about continued slowdown in the economy during the 2H2011 following the end of QE2 in June as well as the persistent debt troubles in peripheral euro zone countries.

On the economic front, following much weaker-than-expected New York and Philadelphia Fed manufacturing surveys last week, the Richmond Fed survey showed on Tuesday that manufacturing in the central Atlantic region stalled to -6 in May (Apr: +10) after expanding for seven months.

Daily Dow Jones At Crucial Support Of 120-Days SMA
DowJones25-05-2011

Source: StockCharts.com

FBM KLCI Continue Its Triangle Consolidation

Bursa Recap: KLCI up 3.1 points amid regional markets muted gains
Sharp losses on Wall Street and fears that Europe's debt crisis might be spreading to larger economies led to choppy trading and muted gains in Asian stock markets despite positive calls on commodities by Goldman Sachs.

In line with the mild recovery in the regional markets, FBM KLCI climbed 3.1 pts to 1532.1 led by Tenaga (+27sen to RM6.49) on hopes of a tariff increase from the government.

Market breadth was positive with 437 gainers as compared to 312 losers but trading volume moderated 7% to 830m shares.

FBM KLCI outlook: Continue consolidation
The local bourse will continue its triangle consolidation in lacklustre trade, as investors are adopting a wait-and-see approach in the wake of external headwinds.

Overall, profit taking consolidation over the last two days was within our targeted support levels of 1515-1525, with a more solid floor near 1507 points (6 May low).

As long as the 1507 low holds, the FBM KLCI’s near term upside target resistance of 1552-1565 pts remain intact.

FBM KLCI Continue Its Triangle Consolidation
FBM KLCI 25-05-2011


Source:HLeBroking

Tuesday, May 24, 2011

Wall Street Outlook: Road Ahead Is Not So Smooth

Wall Street Outlook: Road ahead also not smooth
U.S. stocks suffered steep losses as investors' concerns over the financial health of European sovereigns triggered a flight to safer assets. Investors focused on negative headlines from the Continent over the weekend where S&P cut its outlook on Italy's credit rating to negative from stable. Adding to the downbeat tone, Spain's ruling Socialist party suffered devastating losses in regional elections and Germany’s ruling party were humbled in a vote in the city-state of Bremen. Sentiment wasn’t helped by slower May manufacturing data from China that came ahead of similarly downbeat PMI numbers from Europe and particularly Germany. A rally in the greenback added to the woes however the sliding euro pared its losses after European trading ceased and that helped to prevent further downside in the major U.S. stock averages. The Dow Jones Industrial Average dropped 130.78 points, or 1.05%, to 12,381.26. The S&P 500 slid 15.9 points, or 1.2%, to 1317.37.

On Wall Street, with the breach of key supports of 50-d SMA coupled with the mid and lower Bollinger bands, the Dow is likely to extend its downward consolidation for a while despite plunging 3.8% from 52-week high of 12876.

Critical support is 120-d SMA of 12070. A breach below this support will drag the index lower towards 11555 (16 May low).

The European Union is selling EUR4.75 billion (US$6.7 billion) of 10-year bonds to help fund the bailouts of Ireland and Portugal. The EU is offering the bonds through its European Financial Stabilisation Mechanism, or EFSM, according to three people with knowledge of the transaction, who declined to be identified before it’s completed. The deal is the third from the fund and follows Portugal’s request for rescue loans on 7 April.

Daily Dow Jones: Crucial Support At 120-Days SMA
DowJones24-05-2011


Source: StockCharts.com

FBM KLCI Has A Choppy Road Ahead

Bursa Recap: KLCI ends 12 points lower amid regional markets slump
Asian markets were in a sea of red amid signs of U.S. economic sluggishness and escalating worries about Europe's sovereign debt crisis after Italy and Greece were slapped with credit downgrades.

Commodities prices also slumped as the greenback strengthened, as well as signs of worldwide slowdown in economic growth, manifested in slumping markets and rising inflation rates. Major losers were Vietnam (-3.5%), SHCOMP (-2.9%), KOSPI (-2.6%), JCI (-2.4%) and HSI (-2.1%).

In line with the regional declines, FBM KLCI tumbled 12 points or 0.8% to 1529, led by MISC (-34sen to RM6.69), IOICORP (-8sen to RM5.23), MAYBANK (-7sen to RM8.80), GENTING (-12sen to RM11.06) and AMMB (-11sen to RM6.40). Market breadth was negative with 175 gainers as compared to 630 losers.

FBM KLCI Outlook: Choppy road ahead
FBM KLCI near term outlook is cloudy due to the external uncertainties as markets are going through "a global correction" because of slowing growth in China, the contraction in Japan's economy and Europe's debt problems.

Given the extended fall on Dow overnight and the deteriorating technical indicators following the 12-point slump yesterday, the local bourse is likely to extend its downside consolidation for a while.

Immediate upside resistance levels are 1546 (upper Bollinger band), 1552 (23.6% FR) and 1565 (5 April high).

With the sharp decline yesterday, support levels are now 1525 (50% FR) and 1515 (lower Bollinger band). More solid supports can be established at 1507 (6 May low) and 1500 points.

Daily KLCI: Crucial Support At Lower Bollinger Band
FBM KLCI 24-05-2011


Source: HLeBroking

Monday, May 23, 2011

Sime Darby Invests In Liberia

May 23, 2011
Price Target: RM10.76
Share Price: RM9.14


News
# Sime Darby is planning to invest US$3.1 billion (RM9.3 billion) in its oil palm and rubber plantation ventures in Liberia over the next 15 years.

# Recall in 2009, Sime Darby Plantation (a subsidiary of Sime Darby) was awarded a 63-year concession of 220,000ha in Liberia to be developed into oil palm and rubber plantations. To-date, Sime Darby had invested RM50m in Liberia.

# With the commencement of planting activities, Sime Darby is on track to develop 120,000ha in the first 11 years of its concession agreement. The concession area covers four counties, i.e. Grand Cape Mount, Bomi, Bong and Gbarpolu, which will be fully developed and managed by Sime Darby Plantation (Liberia) Inc.

# The entire concession area is expected to be fully planted by 2030.

# Production is expected to begin by June 2015 and Sime Darby expects its plantations in Liberia to produce some 10,800 tonnes of CPO.

Financial impact
No major impact to Sime Darby’s earnings in the near-term, as production will only begin by end-FY15.

Pros / Cons
Positive, as this allows Sime Darby to further expand its land bank. However, this is not unexpected, as the plan was already announced some time back.

Risks Downside risks
1) Sharp plunge in CPO prices;
2) Worse-than-expected weather condition that will result in lower-than-expected FFB yield;
3) Escalating production cost;
4) Labour shortage; and
5) Recent court case with EMAS, which may wipe off ~20% of our FY11 net profit forecast in the worst case (although unlikely to happen).

Forecasts
Maintained

Rating
BUY


Positives:
1) High CPO prices, hence, upside to its FY11 headline KPI; and
2) Entrance of new management and post kitchen sinking suggest the worst is over.

Valuation
Maintain SOP-based TP of RM10.76 and BUY recommendation on the stock.



Source: HLeBroking

Dow Jones Down 93 Points To Register Its 3rd Straight Weekly Drop, 23-05-2011

The Dow Jones skidded 93 points last Friday and recorded its 3rd weekly decline with a 0.7% loss, as investors grew more wary that Greece will default on its debt.

Sentiment was also dampened by reduced earnings forecasts from Staples (office supply retailer) and Gap (the largest U.S. apparel chain) that undermined confidence in the economy.

Major U.S. economic reports this week are April new home sales (24 May), April durable goods orders (25 May), weekly jobless claims and 1Q11 final GDP (26 May) and April consumer spending and May consumer sentiment (27 May).


Daily Dow Jones Is Downside Bias As Mid Bollinger Band And 30-Days SMA Supports Were Broken

DowJones23-05-2011

Weekly Dow Jones: A Fall Below Mid Bollinger Band Will Drive Index To Lower Towards 11600-12000 Levels
DowJones23-05-2011a


Source: StockCharts.com

KLCI Sideways Consolidation Due To Lack Of Clarity

Bursa Recap: KLCI ends flat week-on-week
In line with the mixed regional markets amid weak economic data from Japan and U.S. and escalating debt crisis in Europe, FBM KLCI lost 3 points to end at 1541 last Friday. Market breadth was negative with 361 gainers against 378 losers, whilst trading volume dropped 2.5% to 869 million shares worth RM1.37 billion.

Following the 3-point decline last Friday, the FBM KLCi ended flat with a 0.3-point weekly gain whilst average daily traded volume shrank 5% to 891 million shares.

FBM KLCI outlook: Sideways consolidation due to lack of clarity
From a weekly low of 1536 on 16 May, the FBM KLCI rose to as high as 1550 on 19 May before ending lower at 1541 last Friday.

Latest batch of economic and earnings reports and nagging European debt crisis do seem to indicate weakening economic recovery in the short to medium term, particularly on the developed markets. Unless we see a great deal of positive surprises on economic indicators and encouraging domestic 1Q11 corporate earnings reports, the external uncertainties will continue to weigh on our market.

Given the 93 points decline on Dow last Friday, slightly weakening tone on FBM KLCI and dull trading volume, the local bourse is likely to extend its sideways consolidation until further positive catalysts emerge.

Weekly upside resistance levels are 1552 (23.6% FR) and 1566 (April’s high).

Weekly support levels are 1537 (38.2% FR), 1532 (30-d SMA) and 1525 (50% FR).

Daily KLCI Closed With A Shooting Star Formation, Indicating KLCI Could Signal Lower Sideways Consolidation Ahead
FBM KLCI 23-05-2011

Weekly KLCI: Uncertainty Ahead With The Doji Formation
FBM KLCI 23-05-2011a


Source: HLeBroking

Friday, May 20, 2011

Daily Dow Jones Is Bottoming Up

Wall Street Recap: Dow Jones up 45 points in a volatile session
In a volatile session, U.S. overnight markets extended its gains for a 2nd consecutive day in spite of a batch of weak economic data. Debutante Linkedln's share prices which doubled helped spur hopes that successful Initial Public Offering (IPOs) will help drive more capital off the sidelines as investors tweak portfolios for 2H11. The Dow Jones Industrial Average rallied 45.14 points, or 0.36%, to 12,605.32. The S&P 500 jumped 2.92 points, or 0.22%, to 1343.60.

Sentiment was also boosted by Fed’s minutes that officials are in no hurry to raise interest rates.

Daily Dow Jones Is Bottoming Up
DowJones20-05-2011


Source: StockCharts.com

Thursday, May 19, 2011

Daily FBM KLCI Is Still Upside Bias

Bursa Recap: KLCI gains 2.8 points, off +9.3 points intraday
Regional markets ended mixed following a 0.9% slump in Japan’s Jan-Mar quarter GDP (consensus: -0.5%) as the March natural disaster pushed the country back into recession.

In line with the cautious regional bourses, FBM KLCI also ended with lower gains of 2.8 points from as much as +9.3 points intraday amid the 0.12% upgrade in the MSCI All Country Asia ex Japan Index Fund and positive expectations of the ongoing 2-day Invest Malaysia in New York.

Trading volume declined to 891 million shares worth RM1.49 billion as compared to Wednesday’s 0.94 billion shares worth RM1.91 billion.

FBM KLCI outlook: Lackluster trade to cap further strong gains
The FBM KLCI tested our targeted weekly 1545-1552 resistance zones yesterday but profit taking capped a strong closing. We reiterate our view that the technical breakout of key resistance levels at 1530 points (downtrend line) and 1537 (38.2% FR) coupled with the golden cross in MACD bode well for further upside in KLCI to retest 1552 points.

However, average daily volume needs to build up to one billion shares for a more sustainable uptrend to surpass 1552 points and retest April’s high of 1566 points.

Immediate supports stay at 1530 and 1525 (50% FR). More solid support is situated at 1515 (lower Bollinger band).

Daily FBM KLCI Is Still Upside Bias.
FBM KLCI 20-05-2011



Source: HLeBroking

Tenaga - Price Target: RM5.90

20 May 2011
Price Target: RM5.90
Share price: RM6.28


Highlights
Malaysia government has been rumoured to either increase electricity tariff rate or the petroleum price by next week in a bid to reduce the government’s burden on subsidies due to surging resources prices i.e. petroleum.

According to Malaysian Insider, the government is more likely to raise electricity tariff.

Pros/Cons
# The last tariff review was in Mar09, benchmarked against coal price of US$85/mt and natural gas price of RM10.70/mmbtu. Tenaga’s earnings had been affected by the surge in coal price to above US$130/mt and currently at US$117/mt, but partly offset by RM appreciation (+20% since March 2009). Currently, Tenaga’s coal cost is effectively benchmarked against US$100/mt (US$85 x 1.2).

# For Tenaga to recoup its surging fuel costs, we estimate that the average electricity tariff rate would need to increase by ~4.6% (Assuming average coal price at US$120/mt).

# However, any revision in electricity tariff rates will not be directly beneficial for the government, unless accompanied by natural gas revision. Hence, the government may take the opportunity to reduce its natural gas subsidy (i.e. increase natural gas price), in view of the main objective to reduce its burgeoning subsidies.

# We estimate that natural gas price may be raised to RM14.40/mmbtu (+RM3.70) to totally offset Tenaga’s incremental earnings from a 4.6% hike in electricity tariff
rate. Petronas may save RM2.7bn, assuming a RM3.70 hike across the board (power and non-power segment) versus estimate of RM2bn savings from a 10sen hike in petroleum products prices alone.

# Hence, Tenaga may not fully benefit from the higher electricity tariff rate if the government hikes the natural gas price at the same time.

Risks Downside risks
# Prolong surge in coal price and natural gas price revision.

# Delay in tariff revision.

Forecasts
Unchanged

Rating Hold
Positives
# Economic growth driving power demand.
# Appreciation of RM.

Negatives
# Natural gas supply disruption.
# Current high coal cost environment.
# High commitment on IPPs payments.
# Adhoc tariff revision.

Valuation
Target price maintained at RM5.90 based on DCFE with Cost of Equity at 11.5%. Review in rating subject to tariff revision that addresses both natural gas and coal cost.


Source: HLeBroking

KLCC Property Earnings Evaluation

20 May 2011
Price Target: RM3.46
Share price: RM3.28


Results
# 4Q11 net profit declined 64.6% yoy to RM166.5m, mainly due to lower property revaluation adjustment (4Q11: RM204.8m; 4Q10: 758.0m).

# We estimate normalised FY11 PATAMI to be RM280.2m (+20% yoy), which is in-line with our FY11 estimate of RM270m.

Deviations
None.

Dividends
7.0 sen single-tier dividend was declared for Q4, bringing full-year dividends to a total of 12.0 sen per share.

Highlights
Property rental income rose 5.1% yoy, attributed to 12% rise in hotel revenue for FY11. Hotel segment earnings also rose 50% yoy in the same period to RM39.0m, which we believe is due to improved occupancy rates and ancillary income from F&B operations.

Risks
38% EPS dilution from RCULS conversion by the parent company, KLCC Holdings.

Forecasts
After rolling over our numbers, we maintain topline estimate of RM1.02bn for FY12, and slightly reduce our FY12 net profit estimate by 6.9% to RM283m.

Rating
HOLD


Positives
High occupancy rates (>90%), consistently strong human traffic and desirable tenant profile due to prestigious and desirable KLCC address.

Stability of rental yield and scope for capital appreciation.

Negatives
Uncertainty over extent of dilutive impact from RCULS.

Valuation
# In the absence of major catalysts, we maintain our HOLD rating.

# Our price target has been marginally raised from RM3.41 to RM3.46, based on unchanged 15% discount to RNAV of RM4.07.

# The RCULS issue needs to be resolved before KLCC Property can enjoy significant re-rating.


Source: HLeBroking

Silver Prices Plunged Over 28% In The Week To 5 May 2011

Silver Market Safe Haven Asset Plunged 28.4% In One Week!

Silver prices plunged 28.4% over the week to 5 May 2011, highlighting the immense volatility inherent in an asset many are calling a “safe haven”.

Key Points:
# Silver prices plunged over 28% in the week to 5 May 2011.
# While the recent margin increases by the CME have been cited as a reason for the pullback, the volatility highlights the huge influence of speculative forces in the silver market.
# Silver demand does not appear to justify the meteoric rise in silver prices.
# Other commodities have plunged over the same period; While the media has cited concerns over US economic growth as well as China tightening policy as factors, the extent of declines serves to highlight the influence of investment demand in driving commodity prices.
# Investors may thus wish to reassess the investment merits of precious metals and commodities in a portfolio, especially when one seeks “safe haven” assets.

Massive plunge in silver after strong YTD gains
Over the week ending 5 May 2011, silver prices plunged by a massive 28.4% in USD terms, falling from a 31-year closing high of US$48.44 a troy ounce on 28 April 2011 to just $34.70 a week later. This sharp drop comes after a huge 56.7% year-to-date increase (as of 28 April 2011), following an 83.2% gain over the course of 2010 (See Chart 1).

Chart 1
Silver(USD per Oz)

Speculative Forces at work?
The plunge in silver prices coincided with the raising of margin requirements by Comex (a division of the Chicago Mercantile Exchange), which after 9 May, would require an investor to deposit $21,600 per silver contract (which represents 5000 troy ounces of silver), up almost 84% from two weeks earlier. While many media reports attribute the sharp declines in silver to the latest move by the Chicago Mercantile Exchange, a better interpretation of the situation would be that speculative demand has been the main driver of silver’s returns in recent years.

Chart 2
Silver Demand

According to data from The Silver Institute, total worldwide demand for silver (see Chart 2) has grown by an annualised rate of just 2.1% since 2001, in stark contrast to the 23.5% annualised return for the price of silver, an increase of more than 6.5 times over the same period! More importantly, total fabrication, which includes industrial, decorative, photography and jewellery demand, has barely increased from 2001 to 2010 (a cumulative rise of just 0.6%), while investment demand appears to be the main driver for growth in silver demand. On the supply side, mine production has gained 21.4% from 2001 to 2010, suggesting that supply constraints are not a key issue in driving silver prices. Given the tepid industrial demand growth coupled with rising mining production, one may come to the conclusion that growth in investment demand (whether speculative or otherwise) has been the main overriding factor in driving up the price of silver in recent years.

Declines in other commodities over the same period
In addition to silver, other commodities also declined in recent weeks, with oil being one of the notable under-performers. WTI Crude Oil prices plunged 14.7% (in USD terms) from 29 April to 6 May 2011, a relatively hefty decline within the space of a week, while broader commodity indices also posted sharp declines (see Chart 3). While investment experts point to various fundamental factors like an apparent slowing of growth in the US, as well as monetary tightening in China potentially impacting commodity demand, the substantial movements (both to the upside as well as the downside) in global commodity markets serve to highlight the influence of speculative investments on commodity prices.

Chart 3
Silver Indices

Reassessing Investment Merits
On the back of the strong volatility and sharp correction in commodity prices, investors may wish to step back from the frenzy and reassess the notion of holding silver or other commodities as an investment. The basic requirement for any investment is to be able to achieve a positive return for the investor. The value of a stock is based on the present value of future profits (and corresponding cashflows), both of which have the potential to grow alongside the economy over time, while bonds are structured to provide a positive yield to investors.

On the other hand, commodities have no positive cashflows (with the exception of the convenience yield, which is not applicable for non-physical holdings of commodities), and futures prices usually incorporate the cost of storage, which can eat away at an investment even if the price of the commodity does not change. In addition, commodity prices are notoriously difficult to forecast or justify, with our analysis of silver demand indicating a clear mismatch between demand growth and price growth. This clearly suggests that speculative or “investment” demand is likely the key driver for many commodities, and makes an investment in commodities a speculative bet at best. Given the lack of foreseeable cashflows and profit from such instruments along with the many difficulties in forecasting price movements, it is difficult to find many investment merits for commodities (whether in physical or derivative form).

Safe haven assets not that safe
Also, precious metals like gold and silver have been termed “safe haven” assets in recent years, but their historical performance has done little to cement that status. Investors who bought gold at the 1980 peak lost 70.3% on their investment over the subsequent 20 years, and then waited another 9 years to break even. Investors who bought silver at the 1980 peak have fared worse; despite the rapid run-up in silver prices over the past few years, they have yet to break even. As the latest price movements in silver will attest to, a 28% price decline over a week is not what one should expect from a “safe haven” investment. Investors who are seeking safe haven assets are likely to fare better with a well-diversified portfolio of traditional assets like bonds and equities, with bonds providing a stable base for the portfolio and equities capturing economic growth upside and keeping pace with inflation.

Lastly, Investors are recommended to construct a diversified portfolio consisting of fixed income and equity funds because an investment portfolio with proper asset allocations can help investors reduce investment risks.


Source: FundSuperMart
Author : iFAST Research Team

AMMB Holdings Delivering Profitable Growth & Dividend

19 May 2011
Price Target: RM7.71
Share price: RM6.44


Results
4QFY11 net profit of RM316.3m (-2.8%% qoq; +30.9% yoy) took FY11 to RM1,342.8m (+33.1% yoy), in line with HLIB and consensus (102.8% and 99.5% of full year forecasts respectively).

Deviations
Largely in line.

Dividend
Final single tier dividend of 12 sen. Management indicated that there is no intention to designate the dividend under DRP given that it has robust capital ratios. Total full year single tier dividend of 18 sen is slightly higher than HLIB’s projection of 17 sen.

Highlights
# Despite weaker quarter-on-quarter performance (mainly due to impairment loss on financial investment vs. gain and lower investment and trading income), overall FY11 earnings growth was commendable. This was mainly driven by continued loans growth in profitable segments (mainly business and corporate), strong growth in non-interest income and lower provisions. Low single digit growth in overheads also helped.

# FY12-14 KPIs – net profit CAGR of 14-16% and ROE of 14-16% vs. HLIB’s projection of 12% and 14.1-14.5% respectively. This gives room for surprises.

# Continued rebalancing of loans mix has resulted in a small positive assets-liabilities gap. Thus, when compared with FY08 negative assets-liabilities gap, the group is now able to benefit slightly from rising interest rate rather than having a negative impact.

# Asset quality continued to improve with LLC now over 100% for the first time. The trend is expected to continue.

# Thus, credit charge is expected to trend lower to the 50bps mark over the longer term vs. 68bps in FY11.

Risks
Unexpected jump in impaired loans, lower than expected loan growth and impact from Basel III on capital.

Forecasts
FY12-13 raised by 3-4.4% following final results and introduced new FY14 forecast.

Rating
BUY (TP: RM7.71)


Positives:
Value propositions from ANZ have improved asset quality, risk management and competitiveness. Improving profitability and higher dividend guidance as well as focus on profitable growth is bearing fruits.

Negatives:
impact on interest income from rising interest rate albeit marginal.

Valuation
Target price raised from RM7.23 to RM7.71 (following our earnings revision) based on Gordon Growth (ROE of 14.2% and WACC of 9.5%).

Source: HLeBroking

Dow Jones Up 81 Points, Snapping Three Straight Losses, 19-05-2011

Wall Street outlook:Dow Jones up 81 points, snapping three straight losses

U.S. overnight markets snapped its recent losing streak following a rebound in commodity prices. Material and energy stocks were the biggest gainers as crude oil +3% to settle back above $100/barrel alongside a broad commodities rally after a 2 week sell off, for the first time in a week after a report showed U.S. inventories held steady last week. Overall sentiment however remained lackluster with modest trading volumes as concerns on the global economy about the euro-zone debt and a slowing economy continue to lurk at the back of investors' minds. The Dow Jones Industrial Average rallied 80.60 points, or 0.7%, to 12,560.18. The S&P 500 jumped 11.70 points, or 0.9%, to 1340.68.

However, these concerns subsided following Dell’s strong earnings and Fed's April minutes that it is in no hurry to tighten monetary policy even as they held detailed exit-strategy talks.

Most Federal Reserve officials prefer to raise rock-bottom interest rates before selling assets when the time comes to tighten policy, restoring their main tool for managing the economy, according to Apr meeting minutes. The minutes also showed worries about inflation rising among Fed officials last month before a big surge in oil prices subsided. During an extensive discussion of how the central bank might pull back its massive support for the world's largest economy, officials indicated unloading the mortgage debt the Fed piled on during the financial crisis would be a priority in eventually shrinking the Fed's US$2.7tr balance sheet.

Daily Dow Jones: A Closed Above Mid Bollinger Band Could Signal More Upside Bias Ahead.
DowJones19-05-2011


Source: StockCharts.com

HapSeng Is Technically Oversold With Major Support At 200-Days SMA

Stock to watch – HapSeng (RM5.35-Trading Buy)

HapSeng is a progressive and well-established company with diversified businesses in plantations, property investment and development, credit financing, trading of fertilizers and automotive, as well as building materials and stone quarries.

After surging to 52-week high of RM7.52 on 10 Jan, HapSeng tumbled to as low as RM5.28 before closing at RM5.34, following its recent below expectations private placement.

Near term outlook remains negative as share price is trading below major resistance levels of RM5.85 (downtrend line) and RM5.72 (mid Bollinger band). However, downside risks are limited due to oversold indicators and the private placement deal at RM5.25/share, with sideways consolidation trend underway.

If the RM5.25 support is broken, more solid support is seen at RM5.00 psychological level and RM4.90 (200-d SMA). Cut loss below RM4.90.

Daily HapSeng Chart: Technically Oversold With Major Support At 200-Days SMA.
HapSeng 19-05-2011


Source: HLeBroking

FBM KLCI Golden Cross In MACD Could Signal Steadier Gains Ahea, Major Resistance At 1552 Points

Bursa Recap: KLCI gains 5 points in line with regional rebound
Despite the overnight fall on Dow, regional markets closed steadier as a rebound in commodities prompted investors to look beyond Greece’s debt problems and mixed U.S. economic data.

In line the 0.12% upgrade in the MSCI All Country Asia ex Japan Index Fund and positive expectations of the ongoing 2-day Invest Malaysia in New York, FBM KLCI jumped 5 points to 1541.3. However, market breadth remained cautious with declines outpaced advances 415 to 360 ahead of the 1Q11 GDP announcement.

BNM reported that the Malaysian’s 1Q11 GDP grew slower at 4.6% against 4.8% in the 4Q10. The central bank also maintained its GDP forecast of 5.5% to 6% for 2011, after having factored in inflation and other risk factors.

FBM KLCI outlook: Major resistance at 1552 points
We reiterate our view that the strong technical breakout of key resistance at 1530 points (downtrend line) and 1537 (38.2% FR) coupled with the golden cross in MACD bode well for further upside in KLCI to retest the 1545-1552 points.

However, average daily volume needs to build up to one billion shares for a more sustainable uptrend to surpass 1552 pts and retest April’s high of 1566 points.

Immediate supports stay at 1530 and 1525 (50% FR). More solid support is situated at 1515 (lower Bollinger band).

FBM KLCI Golden Cross In MACD Could Signal Steadier Gains Ahead.
FBM KLCI 19-05-2011


Source: HLeBroking

Monday, May 16, 2011

Daily Gamuda Chart: On Track To Stage A Positive Breakout As Technicals Are On The Mend.

Stock to watch - Gamuda (RM3.68-Trading Buy)

Gamuda – Poised for a positive breakout


Gamuda’s volume is picking up as newsflow of the MRT works ison track to commence by July. Meanwhile, the tenders for the underground tunneling portion are being finalized and will take place in 4Q11. As the only local contractor qualified to undertake the tunneling works and given its PDP role, the Gamuda-MMC JV is tipped as the main contender for this package.

Gamuda could break out of its descending wedge resistance soon, given the strong close above its 5-d SMA and bullish technicals. The stock could edge higher if the candles can surpass the middle Bollinger band of RM3.71 and 50-day SMA (RM3.75).

Further resistance levels are seen at RM3.85 (upper Bollinger band), RM3.95 (38.2% FR) and RM4.06 (23.6% FR). Supports are RM3.63 (76.4% FR) and RM3.57 (lower Bollinger band). Cut loss below RM3.55.

For leveraging, Gamuda-WD is a good option given its higher liquidity and longer expiry date.

Daily Gamuda Chart: On Track To Stage A Positive Breakout As Technicals Are On The Mend.
Gamuda 16-05-2011


Source: HLeBroking

Daily Dow Jones Has More Downside Bias After Falling Below The Downtrend LIne And 10-Days SMA, 16-05-2011

Wall Street outlook: Dow Jones falls 0.8% on inflation and Euro debt crisis concern
The Dow fell 0.3% last week after registering a 0.8% decline last Friday to 12596 pts. The selldown was triggered by hawkish comments from European Central Bank on the peripheral euro zone sovereign debt crisis, swing prices of commodities and
higher April CPI.

As the QE2 comes to end in June, investors are grappled with the implications of a worsening European debt crisis, uneven global economic growth and rising inflations, reflecting growing worries that stocks are on the precipice of a pullback.

Daily Dow Jones Has More Downside Bias After Falling Below The Downtrend LIne And 10-Days SMA.
DowJones16-05-2011


Source: StockCharts.com

FBM KLCI To Consolidate Higher Despite External Uncertainties

Bursa Recap: KLCI jumps 12.7 points to record a 1.7% week-on-week gain
The FBM KLCi surged 12.3 points to 1540.7, led by banking, plantation and oil & gas stocks.

After a 1.3% weekly drop in the week ended 6 May, KLCI rebounded 1.7% after commodity prices recovered from the previous week's plunge, and banks rose after raising their BLR following BNM’s decision to raise the OPR by 25bsp to 3%.

Sentiment was also boosted by news that Petronas will invest RM60 billion in a refinery and petrochemical complex in Pengerang, Johor, which borders Singapore.

FBM KLCI outlook: To consolidate higher despite external uncertainties
FBM KLCI rebounded from intraweek low of 1515.4 last Tuesday to as high as 1545.2 last Friday before ending 1.7% higher at 1540.7. The strong rebound was commendable despite external upheavals i.e. wild swings in commodities and Wall St, European
debt woes and concern of more rates hike in China.

Following the positive breakout of key resistance at 1530 points (downtrend line) and 1537 pts (50% FR) last week, technical indicators have turned more bullish. The bullish technicals and positive expectations of more ETP roll-outs could drive FBM
KLCI to test higher resistance at the 1543 (38.2% FR) and 1552 (23.6% FR) zones. Further upside is April’s high of 1566 points.

Immediate supports are 1537, 1530 and 1525 (50-d SMA). More solid support is situated at 1515 (lower Bollinger band).

Daily KLCI Upside Target At 1543-1552 Points On Positive Breakout And Strengthening Technicals.
FBM KLCI 16-05-2011


Source: HLeBroking

Thursday, May 12, 2011

Global Market Weekly Review, 12-05-2011

China’s central bank said controlling inflation is its top priority, even after a manufacturing survey indicated that growth may slow in the second-biggest economy. “Stabilizing prices and managing inflation expectations are critical,” the People’s Bank of China said in a first-quarter monetary policy report published on its website. Bank reserve requirements have no “absolute ceiling,” the report said, restating a 16 April comment from Governor Zhou Xiaochuan.

Portugal reached an agreement with officials preparing its European Union-led bailout that will provide as much as EUR78 billion (US$116 billion) in aid and allow more time to reduce the country’s budget deficit. The three-year plan set goals for a budget deficit of 5.9% of Growth Domestic Product (GDP) this year, 4.5% in 2012 and 3.0% in 2013, Prime Minister Jose Socrates said. The government in March targeted a deficit of 4.6% of GDP this year, 3.0% in 2012 and 2.0% in 2013.

European Central Bank officials warned of catastrophic consequences if Greece is allowed to restructure its sovereign debt. “Default or debt restructuring is a dramatic economic and social event for the country which experiences it -- I would call it political ‘suicide’ -- which leads many into poverty,” Executive Board member Lorenzo Bini Smaghi said. Fellow board member Juergen Stark said restructuring “wouldn’t be a solution to the problems that Greece needs to overcome.


Source: ING Funds Berhad

Malaysia Fixed Income Market Review, 1 - 7 May 2011

Fixed Income
The Malaysian Government Securities (MGS) market traded range-bound as investors were sidelined ahead of the Monetary Policy Committee (MPC) meeting on 5 May 2011. Trading volume for government bonds also fell by some 41% week-on-week on shortened trading week.

Bank Negara Malaysia (BNM) raised the Overnight Policy Rate (OPR) by 25 basis points (bps) to 3.00%, resuming interest rate normalization the interest time this year. BNM also further raised Statutory Reserve Requirement (SRR) by 100bps to 3.00% effective 16 May 2011, to address the significant build-up of liquidity in the financial system. The Monetary Policy Committee Statement reiterated rising downside risks to global economy recovery on the back of higher energy and commodity, possible
supply disruptions post Japan’s earthquake as well as volatile capital flows to emerging countries. Domestically, BNM remains confident of continual economic growth.

Despite the 25bps interest rate hike, bond market was muted post announcement. MGS market remained well supported ending the week relatively unchanged. Yield on 3-year benchmark was down by 2bps to close 3.27%, 5-year up by 1bp to 3.56% while the 10-year closed at 4.03%.

On economic front, March 2011 exports moderated to 7.8% year-on-year (YoY), higher than consensus forecast of 4.2%, but retreated from 10.7% in the previous month as shipments of electrical and electronics products to US and Asia fell. Imports reported a 12.1% growth YoY, beating consensus’ 8.6%. Meanwhile, foreign reserves hit new high of USD130 billion in April, sufficient to finance 9.3 months of retained imports and 5 times the short-term external debt.

For local private debt securities (PDS) market, trading continued to focus on AAA- and AA-rated bonds. Separately, State Government commented on the expectation of positive outcome on the water issue while waiting for response and feedback from the Federal Government.

Fixed Income Outlook
On local macroeconomics, economy should remain sustainable albeit some slow down in momentum as seen in the latest economic data. Domestic consumption and private investment are expected to continue to drive economic growth. Consumer Price Index (CPI) numbers have been gradually climbing up. Nonetheless, further subsidy rationalization by the government remains a swing factor for any significant change in the inflation outlook.

The central bank’s move to resume interest rate normalization by another 25bps was not entirely surprising, given strong hints from the previous hawkish MPC statement in March. The latest statement continues to highlight higher downside risk to global recovery while domestic economy remains firmly on the steady growth path, justifying the 25bps hike this time. On inflation prospect, BNM reiterated upward pressure on prices in the 2H 2011 as commodity and energy prices are expected to remain elevated, coupled with domestic demand-pull factors. We expect BNM to continue to increase OPR by another 25 – 50bps in 2H 2011 with timing subject to the central bank’s assessment of growth and inflation outlook.

On supply and demand dynamics, the much anticipated Government related papers on the back of public or private funding needs arising from mega projects announced under the ETP have not been materialized. Further delay will widen the current supply demand gap given liquidity remain ample in the local financial market. On this backdrop, yield movements may be capped even though we are in a rate hike cycle.

In spite of much speculation on global capital movements in response to global uncertainties, momentum of foreign inflows into Malaysian government bonds and short-term bills was little affected thus far. While current sentiment and currency outlook remain favorable, the record high holding by the offshore investors present risks should the reverse occurs. We expect intensified suspicion of momentum reversal of capital flows on any signs of change in sentiment and waning Asian currency theme, especially in the current volatile external environment.

For corporate bond market, we maintain our view that credit fundamentals in general should continue to improve. While there were more bond issuance in the last two months, some of the new supplies were privately placed out to only selective investors. We view this unhealthy and should the trend persist, we are likely to see widening gap between demand and supply in the open market. This may also lead to adverse implications in terms of liquidity and pricing of the local credit market.
Unless more corporate issuance come on stream in the next few months, we expect the current valuation especially the popular high grade names to remain stretched due to insufficient supply with significant pent up demand for yields.

Fixed Income Strategy
Overweight corporate bonds with focus on “AA” rated bonds. Look to participate in new issuance for yield pick-up.


Source for MGS levels: Bond Pricing Agency
Source: ING Funds Berhad

FBM KLCI Down 1.27% But Fared Better Vs Region, 1 - 7 May 2011 Review

Equity
Asian stocks traded lower in the week, weighed down by weak performance on Wall Street and commodity-related shares which were battered by falling crude-oil and metals prices. The local market was not spared. Driven by a collapse in commodity
prices coupled with concerns of more rate hikes in emerging markets to curb spiraling inflation as well as BNM’s monetary normalization, FBM KLCI lost 5.7 points to end at 1515.5 points. However, Malaysia did better than the rest of the region as the FBM KLCI was down 1.27% against the steeper 2.58% decline in the MSCI ex-Japan. Average daily trading value rose 5% to RM1.39 billion (RM1.32 billion previously) but was still 26% below the three-month average of RM1.87 billion.

Equity Market Outlook
We see the market slight upward bias following a steady base building over the last two weeks. We were positively surprised with the response from the Malaysia Corporate Day in London as well as Dato’ Sri Idris Jala’s optimism that the Economic Transformation Programme (ETP) could be more successful than the Government Transformation Programme (GTP) as the private sector has been very enthusiastic about it.. We think the news flow on Entry Point Project will continue be the major
catalyst for construction and property sectors.

Equity Market Strategy
Stock picking is still our strategy with preference for liquid fundamental stocks on weakness.


Source: ING Funds Berhad

Dow Jones Tumbles 130 Points On Commodities Sell-Off, 12-05-2011

Wall Street outlook: Dow Jones tumbles 130 points on commodities sell-off
Apart from the wake of a disappointed Walt Disney results. Energy and commodity shares plunged amid worries about global demand, pulling US indexes back from their three day rally. The second major pullback in commodities prompted investors to flee from other risky assets too including stocks. A stronger dollar and data showing an increase in US fuel supplies sent crude oil prices lower by more than 5%.

In addition, China pledged to open more of its markets to U.S. companies after a two-day gathering of top officials that underscored the gap between the two nations over how fast the Chinese currency should rise. Treasury Secretary Timothy F. Geithner continued his push for a stronger yuan, which lawmakers say would boost American competiveness and job growth. Chinese officials agreed on the upward direction of the currency, while splitting on the pace. “We have differences on the degree of appreciation,” Deputy Finance Minister Zhu Guangyao said. The Dow tumbled as much as 183 points before ending 130 points lower at 12630.

Meanwhile, stronger dollar also contributed to lower commodities prices following a decline in the euro on renewed worries over the finances of Greece and Portugal.

After market close, Cisco shares slumped as the company expects its fiscal fourth quarter to show weakness.

Daily Dow Jones Is Downside Bias As 5-Days SMA Cuts Below The 10-Day SMA.
DowJones12-05-2011

FBM KLCI Profit Taking Is Likely To Be Well-Absorbed

Bursa Recap: KLCI surges 12.7 points on stronger regional bourses and speculation of early snap polls
Asian stock markets ended mostly higher but were off their morning highs after April’s CPI of 5.3% (consensus: 5.2%) in China suggested further tightening measures from Beijing are likely.

In line with higher regional bourses, higher April’s palm oil exports and speculation of an early election in 2H11, the FBM KLCI soared 12.7 pts to 1236. Leading movers were SIME (+21 sen to RM9.05), GENTING (+18 sen to RM11.36), MAYBANK (+7 sen to RM8.77), PETCHEM (+15 sen to RM7.03) and HLBANK (+52 sen to RM12.02).

Last night, PM rallied his party, UMNO to remain united as the country faces the prospect of possible snap polls at end 2011.

FBM KLCI outlook: Profit taking is likely to be well-absorbed
The FBM KLCI is likely to witness some profit taking activities today on overnight Dow’s plunge. However, any profit taking activities are likely to be well-absorbed in anticipation of more positive newsflows from the acceleration of ETP projects, 1Q11 reporting season and speculation of early snap elections.

As technicals are on the mend following the strong breakouts of key hurdles at mid Bollinger band (1527), down-trend-line (DTL) of 1530 and 30-d SMA (1534), KLCI is likely to retest higher upside targets at 1552 (23.6% FR) and 1566 (April’s high).

While the three days recovery is encouraging, subsequent gains must be backed by revival of buying momentum in excess of one billion shares to sustain the uptrend. Immediate support levels are 1527, 1521 and 1516 (lower Bollinger band).

KLCI Is Likely To Trend Higher As Technical Are On The Mend.
FBM KLCI 12-05-2011


Source: HLeBroking

Wednesday, May 11, 2011

Daily Dow Jones Is Consolidating Upwards With Immediate Targets At 13000, 11-05-2011

Wall Street extended its rally to a third day as investors drew encouragement from Microsoft's $8.5 billion acquisition of Skype Technologies and strong wholesale inventories data. Reports that Greece are in line to secure a new €60 billion aid package - possibly reducing the chances of default - buoyed sentiment while the strong trade data out of China yesterday helped boost optimism about the health of the global economy. The Dow Jones Industrial Average rallied 75.68 points, or 0.6%, to 12,760.36. The S&P 500 jumped 10.87 points, or 0.8%, to 1357.16.

U.S. Fed Chairman Ben S. Bernanke’s US$600 billion strike against deflation is paying off, as stock and debt markets rise, bank lending grows and economists forecast faster growth. The Standard & Poor’s 500 Index has gained 13.5% since the Federal Reserve chairman announced on 3 November the plan to buy Treasuries through its so-called quantitative easing policy. Government bond yields show investors expect consumer prices to rise in line with historical averages. The riskiest companies are obtaining credit at the cheapest borrowing costs ever and Fed data show that commercial and industrial loans outstanding are rising for the first time since 2008.

Daily Dow Jones Is Consolidating Upwards With Immediate Targets At 13000.
DowJones11-05-2011


Source: StockCharts.com

Tuesday, May 10, 2011

FBM KLCI Shows Some Signs Of Bottoming Up

Bursa Recap: KLCI rose 4 points to record its 2nd straight gains
The FBM KLCI rose 4 pts, in line with regional markets amid rebound in commodities and expectations of improvement in supply chains following news that Toyota Motor’s output will likely return to normal two or three months earlier than expected.

Leading movers were MAYBANK (+5 sen to RM8.70), TM (+10 sen to RM4.12), CIMB (+4 sen to RM8.19), IOICORP (+4 sen to RM5.30) and HLBANK (+30 sen to RM11.50).

FBM KLCI outlook: Some signs of bottoming up
The local market should continue its sideways consolidation given the absence of fresh market leads, ongoing external uncertainties and 1Q11 reporting season.

Technically, following a steady base building over the last two weeks, there is a possibility of an upward consolidation from now in anticipation of +DMI to stage a crossover above the –DMI and the bottoming up signs in momentum and trend indicators.

Immediate resistance target is DTL around 1530, followed by 1533 (30-d SMA) and 1537 (38.2% FR). Retracement supports are situated at 1513 (61.8%) and 1498 (76.4% FR). Further supports are 1487 (200-d SMA) and 1474 (6-month low).

FBM KLCI Shows Some Signs Of Optimism As The Technicals Gradually Improve.
FBM KLCI 11-05-2011


Source: HLeBroking

Palm Oil Stock Increases On Higher Output

Highlights
# Apr 11 CPO production rose for the third consecutive month, with mom and yoy growth of 8.0% and 17.1% respectively to 1.61m tonnes (see Figure 1), due largely to recovering yield arising from the weakening signs of La Nina effect.

# Exports rose by 7.8% (mom) and 2.8% (yoy) to 1.33m tonnes in Apr 11, due mainly to higher exports to the US, India, and Nigeria (see Figure 3).

# Despite the strong CPO production growth, inventory rose by a much smaller quantum (+3.5% mom and +3.0% yoy) thanks to higher off take as well as lower imports.

# Average CPO spot price in Apr 11 fell by 2.2% mom to RM3,421/tonne from RM3,498/tonne in Mar 11. While we believe that CPO prices will likely to remain volatile (on the back of geopolitical uncertainties and improving palm oil output), we believe CPO price will likely stay above RM3,200/tonne in the near term, as:

(1) Erratic weather condition since last year may still have lingering effect on CPO output in the coming months;
(2) Demand from China has picked up since Apr 11; and
(3) Soybean oil’s premium over CPO remains high despite the recent price correction (see Figure 1: Price Gap between Soybean Oil & CPO), suggesting that there is still room for CPO price to advance. Hence, we are maintaining our average CPO price assumption of RM3,200/tonne for 2011.

Catalysts
# High CPO price to sustain into 2011.

# Positive correlation between CPO price and P/E. However, P/E is currently lagging behind CPO price.

# Adverse weather condition extending beyond 1Q 2011 that leads to lower-than-expected CPO output, hence brings up prices of CPO further.

Risks
# Global vegetable oil (including CPO) production comes in higher than expected, which will result in lower-than-expected CPO prices.

# Demand rationing by certain oil consuming countries (such as India) when vegetable oil price skyrockets to certain level, which would in turn bring down vegetable oil consumption.

Rating - OVERWEIGHT
Positives
# Strong earnings outlook, given our bullish view on CPO prices and demand.

Negatives
# CPO is part of the commodities market, whereby price is subject to speculation and over-reaction by financial market.

Top Picks

# Sime Darby (BUY, TP: RM10.76 based on SOP); and
# Tradewinds Plantation (BUY, TP: RM4.67 based o 12x FY12/11 FD EPS of 38.9 sen).

(i) FBM KLCI Vs Plantations Index. (ii) CPO Price - Spot Price. (iii) CPO Price - 3-month Future.
CPO 11-05-2011

Figure 1: Price Gap between Soybean Oil & CPO.
CPO 11-05-2011a


Source: HLIB Research
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