Banking (OVERWEIGHT '')

Jun Bank Stats ' Generally Positive

'''' Loans growth decelerated, despite record disbursement, due to large repayments.''

'''' Application and approval increased as well as near record levels.'' Approval rate rose further above 50%.

'''' Coupled with ample liquidity, will support sustained loans growth.

'''' Raised 2011 loans growth assumption to 12%.'' Will review individual banks' assumptions during reporting season.

'''' Average lending rate decline but due to OPR hike, 2QCY11 NIM should improve.'' However, NIM expected to decline thereafter from competitive pressure and liabilities re-pricing.''

'''' Overall asset quality improved and capital ratios still robust, mitigating major earnings risk as well as support growth, M&A and more active capital management.

'''' Maintain Overweight.'' Top picks are RHB Cap, Maybank, AMMB, CIMB and AFG.

''

Mah Sing: Icon Residence launched at Mont Kiara

'''' Mah Sing officially launched their Icon Residence project at Mont Kiara over the weekend. The project comprises 260 units with a total GDV of ~RM408m, and was 50% booked at prices ranging from RM1,000-1,300 psf.''

'''' We noticed that the crowd at the showroom was much quieter compared to Icon City's launch in Petaling Jaya just two weeks ago, which we believe can be attributed to: (1) The slowing sub-sale market in Mont Kiara. (2) The relatively steep asking price of Icon Residence at more than RM1,000 psf.

'''' Thus far, Mah Sing continues to enjoy strong take-up rates for its high-end products, which re-affirms our view that demand for the primary market in prime locations from reputable developers continues to be robust.

'''' We maintain our positive outlook on Mah Sing. No change to our BUY call, RM2.93 target price or our earnings estimates.

''

MAS (Sell '')

Meeting with CFO

'''' Released full 2Q11 operating statistics with improving ASK and RPK however, passenger load factor decreased by 0.5ppt, AFTK dropped 7.5% yoy and FTK dropped 18.9% yoy.

'''' Management expects full year capacity growth to trend down to ~6% yoy despite YTD growth of 10.3% yoy.

'''' Financing for FY11 aircraft delivery has been fully secured, while FY12 aircraft delivery is 1/3 secured.

'''' Maintained focus on managing capacity and optimize load factor and yield

'''' Sibu and Sandakan routes transferred to Firefly with more transfer of routes and frequency going forward as to reduce unit cost.

'''' Maintained target price at RM1.27 based on P/B of 1.4x.

''

Highlights of BNM Statistics (Jun 2011)

'''' Money supply expanded at a faster pace in June. M1 growth picked up to 14.5% yoy (May: +13.1% yoy) while M3 grew at a faster pace of 12.0% yoy (May: +11.1% yoy) driven mainly by higher loan disbursements (+14.5%) amid milder inflows of capital evidenced from increase in BNM reserves (+US$1.7bn; May: +US$2.7bn).

'''' Money supply expansion in June suggests domestic economic activities have resumed after weak industrial output in April and May.'' We retain our view that GDP may take a hit in 2Q (HLIB estimate: 3.9%) but growth is expected to trend higher in 2H, averaging 4.8% for 2011.

'''' We expect BNM to pay attention to growth agenda since inflation appears to be within its target (2.5%-3.5%) while there is a risk that growth may fall short of its 5.5% target. The most probable timing of the rate hike is in November when the ETP implementation is more pronounced.

'''' Indicators for liquidity in the domestic banking system picked up in June after some moderation in May. If excess liquidity continues to surge in the subsequent months, we do not rule out the possibility that the SRR may be hiked further beyond 4% by 1-2ppt before year-end.

''

FBM KLCI - Potential relief rally on optimism of U.S. debt deal

'''' The hammer formation yesterday could be a positive reversal signal as it appears that the index is trying to form a base near 100-d SMA. If prices can hold above this level for the next few days, there is a good chance that it may charge towards upside resistance at 50-d (1562) and 30-d (1571) SMAs.

'''' However, if the 100-d SMA is broken, selling pressures will intensify and index will head towards 1536 (50% FR) and 1529 (200-d SMA) zones.

''

Stock to watch - DXN: More consolidation ahead

'''' We believe DXN share prices are likely to find its base around RM1.35, implying 8.5x FY12 P/E (30% discount to industry) and also near its weekly 10-d SMA, due to smaller liquidity, limited institutional shareholdings and potential earnings dilution from a private placement.

'''' Major supports are RM1.23-1.27 levels whilst resistance zones are RM1.49-1.57. Sell into strength, cut loss at RM1.49.