RHB Cap (BUY)

Merger Talks With OSK

'''' RHB Cap and OSK submitted applications to BNM, seeking approval to commence merger negotiations.''

'''' For illustration only, assuming that RHB Cap acquires OSK at 1.34x P/B (30% discount to Maybank's acquisition of Kim Eng at 1.91x) for cash and annualizing OSK 1HFY11 results, RHB Cap's FY11 net profit could be enhanced by circa 1.2%.

'''' Tier-1 and RWCAR (at bank level) would be diluted by circa 66bps and 86bps to 10.1% and 13.1% respectively.

'''' Despite minimal impact, the acquisition will be positive for RHB Cap as it will gain immediate IB presence in the region and also almost double its brokerage market share to number one position.

'''' Maintain Buy. Target price unchanged at RM9.49 based on Gordon Growth with ROE of 14.7% and WACC of 10.8%.

''

Gamuda (BUY)

Record breaking year

'''' FY11 earnings came in at a record high of RM425m (20.7 sen/share), in line with HLIB forecast but 7.6% above consensus numbers.

'''' Strong performances from all divisions buoyed Gamuda's earnings to record highs, which grew by 32% YoY. Outstanding active order book fell to RM2.3bn (RM2.1bn from EDTP), translating to only 1.2x FY11's construction revenue. Hence, the MRT tunnelling project is crucial for Gamuda to replenish its order book.

'''' Launches in Bandar Botanic, Horizon Hills and Jade Hills continued to do well with some ~RM300m new sales achieved during 4Q11. Unbilled sales remained at ~RM1bn, translating to 1.4x FY11's property revenue. For FY12 property sales target, Gamuda has already secured ~RM350m new sales out of the targeted RM1.35bn in local property sales.

'''' As for Vietnam, response has been poor due to the high interest rate environment and the lack of development track records. The management has revised their Vietnam property sales target downwards drastically by >50%, from RM1.5bn to RM650m.

'''' FD SOP valuation trimmed by 2.8% from RM3.92 to RM3.81 as we introduced a 10% discount in our SOP valuation to reflect the current risk adverse appetite in the market.

''

FBM KLCI: Heading towards relief rally targets at 1400-1423 pts

'''' Technically, after filling the 1377-87 gap, upside momentum has increased with potential rebound targets at 1400 psychological barrier, 1423 (mid Bollinger band) and 1443 (30-d SAM). Supports are situated near 1364 (5-d SMA), 1341 (lower Bollinger band) and 1310 (26 Sep pivot low).''

PCHEM: Relief rally targets at RM6.00-6.10

'''' PCHEM rebounded 6% from recent low of RM5.23 to close at RM5.55 yesterday amid strong buying spree (especially from EPF) as the 31% plunge from 52-wk high has bashed down its valuations to relatively undemanding against market P/E (as it is the 3^rd largest market cap on Bursa) and its regional peers.

'''' Technical rebound targets are RM5.85-6.00 whilst supports are RM5.23-5.47 Cut loss below RM5.20.

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