Left Brain Right B - the DBS Vickers Securities Equities Research

Regional Equity Strategy 4Q 2009
Country Assessment
Sector recommendation and stocks for Malaysia
SECTOR REMARKS STOCK SELECTION
Concessionaires
Overweight
Gaming
Overweight
Shipping
Neutral
Motor
Underweight
The July 2009 deadline for the Economic Planning Unit (EPU) to address the
potential future increases in toll rates has since been extended to end-2009. Of
late, Asas Serba Sdn Bhd a private company submitted a proposal to the Works
Ministry to buy all the toll concessionaire companies in the country for RM50bn. It
has promised to cut toll rates by 20% in return for an extension in the concession
period for the concessions. We think the probability of this occurring is low given
financing a purchase consideration of RM50bn has to be government backed as
the private sector will unlikely be able to swallow such a colossal amount.
We do not think the government will privatise PLUS, based on the Prime Minister’s
recent statements that PLUS is an important company for the government and a
cash cow. Also its listed status is a key positive for the Malaysian equity market and
its overseas ventures. Having said that, with the government paring down its stakes
in other GLCs, there is always the odd possibility of this happening. We recently
downgraded our rating on Litrak to Hold as we think the privatisation angle at
current price is increasingly difficult to execute. All in, we are confident that any
decision will be at least NPV neutral for the concessions.
Our pick is PLUS, which will yield 5% based on its KPI dividend of 16 sen and is
strong liquid proxy to stable free cash flows.
Gaming operations should remain robust given its inelastic demand and being a
small ticket item. Despite the H1N1 outbreak, visitor arrivals to Genting Highlands
held up (during SARS outbreak in 2003, visitor arrivals grew 1.3%).
The soft launch of Resorts World at Sentosa (RWS) may come as early as end-09.
We expect Genting Highlands’ operations to remain largely resilient given 87% of
visitor arrivals consist of locals (70% day-trippers) while Singaporeans 5%.
Risks: a) Strict regulation on junket operators may affect RWS’ VIP business; b)
viability of Genting Malaysia’s potential M&As with its RM5b cashpile.
We expect petroleum tanker rates to improve from end 2009 onwards and grow by
c.25% y-o-y in 2010 in anticipation of better tonnage demand and supply growth
balance prospect. Downside risks to tanker rates could be limited as demand and
supply growth gap is likely to narrow in 2010. Meanwhile, we also believe
downside risk to container freight rates is limited, after touching its lowest level
since 1993 and considering the supply-demand gap will narrow next year. We
project average container freight rates to be unchanged y-o-y in 2010, supported
by an expected recovery in demand. Our top pick is MISC (Buy; PT RM9.60). We
like MISC given its better earnings outlook and it still lags the market despite its
3.7% weighting in the FBM KLCI.
Improving consumer sentiment continues to lend support for auto sales. Aug09 TIV
(total industry sales) recorded the first y-o-y growth of 2.8% (-6.5% m-o-m) since
Oct08. We expect Sep09 sales to remain firm for the Hari Raya season, before
entering the seasonally low fourth quarter. The NAP (National Automotive Policy),
which has been postponed till Oct09, was speculated to offer incentives to foreign
car manufacturers to use Malaysia as their export hub while Proton is rumoured to
be getting a foreign partner (speculated to be VW) who can help to take up
Proton’s excess capacity. The downside risks are that the NAP could disappoint
(especially when it comes to execution) and that Proton may not secure a new
partner.
PLUS
Genting
MISC
APM
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