Steel (Neutral)

More corporate exercises n the pipeline?

'''' We believe that several factors will also keep news flows within the Malaysian steel sector alive over the near term, in particular, M&As and upstream expansion plans.

'''' In view of the potential corporate exercises ahead, we have shortlisted four companies that could potentially engage in the two corporate exercises mentioned above, which are: (1) Ann Joo Resources; (2) Hiap Teck Ventures; (3) Lion Group of companies; and (4) Perwaja Holdings Bhd.

'''' M&A and upstream expansion aside, we also believe that CSC Steel is a potential privatization target by its parent China Steel (which owns 45% of CSC Steel), as it carries many characteristics of a privatization candidate.

'''' Although corporate exercises could excite investors, fundamentally, we are maintaining n our Neutral stance on the steel sector, given the sector's unexciting near-term earnings outlook.

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Public Bank (HOLD '')

No Surprises "Again!!!"

'''' 2QFY11 results in line with HLIB and consensus.

'''' Declare single-tier interim dividend of 20 sen.

'''' 1HFY11 20% earnings growth given that all line items heading toward right directions.

'''' Loans growth on track to meet management's target of 14-15%.'' New HP act has no significant impact.

'''' However, guiding for lower NIM as liabilities re-pricing catch up and competitive pressure.'' FY11 looking at 10-15bps reduction yoy.

'''' Asset quality continues to improve.

'''' Suspect minimum common equity ratio could be 10-10.5%.'' Unless it is accelerated and much higher than expected, there is no need for cash call.

'''' Maintain Hold and target price of RM14.22 (Gordon growth with ROE of 24.4% and WACC of 9.3%).

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Sime Darby (BUY)

Reaches yard settlement agreement

'''' Sime Darby Marine Puteri Offshore I (SDMPO I, a 50%-JV company of Sime Darby) entered into the yard settlement agreement and release agreement with Tetra Applied Technologies for the refund of US$21.6m in return for SDMPO I releasing its claims, rights and interests over the derrick lay barge (DLB, which was supposed to be used in the Maersk Oil Qatar Project).

'''' All in, SDMPO I will receive up to US$14.7m (RM44.2m) of the total refund of US21.6m, representing a 28% recovery from the provision of RM155m.

'''' Positive albeit non-recurring, as the RM22.1m writeback will lift Sime Darby's FY12 earnings by 0.6% to RM3,631m.

'''' Maintain SOP-based TP of RM10.99 and BUY recommendation on the stock.

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FBM KLCI - Held hostage by U.S. debt deal''

'''' As technical indicators are weakening amid a breakdown of 1561 pts (50-d SMA), there is greater pressure that KLCI may retest last week's low of 1552 pts. A breach below 1552 pts will exert more selling force towards 1543 pts (100-d SMA) and 1536 (50% FR from 1474-1597) pts.'' Upside resistance levels are 1570 (30-d SMA), 1576 (mid Bollinger band) and record high 1597 pts.

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Dow Jones

'''' On Wall St, if a debt limit deal can be ironed out before 2 Aug, the Dow is expected to consolidate near 12340 pts, before retesting the downtrend line resistance near 12720 pts and 12843 (upper Bollinger band). On the other hand, failure to reach a deal by 2 Aug will trigger a downward correction towards'' uptrend line support near 12000 and 3M low of 11822 (16 June) levels.

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