Left Brain Right B - the DBS Vickers Securities Equities Research

Regional Equity Strategy 4Q 2009
Country Assessment
STRATEGY
Banks: Positive Outlook. We expect: (i) stronger non-interest
income on the back of improved pipeline of debt and equity
deals in 2H09; (ii) possible capital repayment and/or higher
dividend payouts could be a feature given that banks are
generally well capitalized; (iii) stronger growth with lower
provisions and better loans growth.
Among the heavyweights on the index, this sector is trading
at relatively low PE multiples with Public Bank and BCHB
trading on 13x forward earnings (although the common
and our preferred valuation benchmark is P/Bk). Within our
coverage, only Maybank trades above 16x forward earnings.
Large caps sorted by PE: banks at relatively lower multiples
(x)
25.0
20.0
15.0
10.0
5.0
-
Telekom
Axiata
Petronas Gas
Sime Darby
Source: DBS Vickers
MISC-F
IOI Corporation
KL Kepong
Maybank
BAT
Average
In terms of picks, we like: (i) Public Bank for its superior
asset quality, extraordinary loans growth and inspiring ROEs
of above 23%; (ii) capital market recovery plays: AMMB and
BCHB; (iii) high quality laggard such as Hong Leong Bank
that also has impressive ROEs and EON Capital, which is the
cheapest bank in our universe at 0.9x book value.
Digi.Com
Tenaga Nasional
Genting Malaysia
Genting
AMMB Holdings
CIMB
Public Bank
YTL Power
PPB Group
PLUS Expressway
Hong Leong Bank
RHB Capital
Construction pump-priming: a sustainable theme. We
remain optimistic about the construction sector and expect
positive newsflow in the coming 12 months. The upcoming
Budget in October would likely focus on key mega projects
in the pipeline such as the LCCT, remaining phases of the
inter-state water transfer and LRT extensions. The sector
had been one of the better performers in the market
rebound. As a result, some profit-taking is bound to
happen. Yet, we believe this would be good opportunity to
accumulate stocks as we expect further upside. We believe
our and market assumptions for potential new orders are
conservative, in our opinion.
Our large cap picks in the sector are IJM Corp and Gamuda.
As the excitement in the sector heats up, there may be
attractive upside for the small-mid cap contractors – which
have smaller orderbooks and earnings base. Our picks in this
space includes MRCB and Sunway Holdings. Fajarbaru (Not
Rated) could be an upstart to watch for specific projects
such as the LCCT.
Property: Room for more upside. We have seen continued
warm response for recent launches in KL and Penang.
Developers are now resuming launches (including high-end),
compared to their earlier focus on clearing inventories.
Selling prices may be raised soon and incentives gradually
pulled-back, resulting in margin expansion. We expect
continued positive newsflow, ample liquidity and underinvestment
in the sector to drive valuations higher.
Our picks: large cap sector leader SP Setia and high-end
niche developers E&O and DNP.
Updates on key mega projects
Project Est value (RMbn) Comment Potential beneficiaries
Remaining portions of Interstate
2-3 Prequalification for Kelau Dam expected to commence IJM, UEM
water transfer
soon; actual award likely towards 2Q10.
Low Cost Carrier Terminal 2.0 Prequalification closed end-July. Tender likely in October
2009.
WCT, Fajarbaru, IJM
Southern stretch of double
tracking rail
7-9 Mentioned by PM as project that the govt would consider
awarding to Chinese companies. Nevertheless, Msian
contractors may get subcontracts.
LRT extension 6-7 Syarikat Prasana Negara expected to call for civil works
prequalification next month.
New LRT lines 10-20 Talk on intended work commencement in 4Q09, although
likely to be delayed given the preparations required
(design, determining alignment).
Source: Bursa Malaysia, DBS Vickers
IJM, WCT
IJM, MRCB, Gamuda, WCT, UEM
IJM, MRCB, Gamuda, WCT, UEM
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