Technology: HDDs (Neutral)

Growth Neutralized

'''' Seagate was fortunate that all its factories in Thailand were fully operational and remain largely unscathed. Seagate's HDD shipment had surpassed WD in 2Q12.

'''' In the consumer market, weak demand in personal computers (PC) drags down the demand for HDD. According to preliminary results by Gartner, worldwide PC shipments totalled 92.2m units in 4Q11, a 1.4% decline qoq, muting the boost of holiday season sales.

'''' This negative outlook is partly due to the market preference of tablets, such as iPads substituting PC due to convenience and handy. In the recent CES in Las Vegas, we saw that PC makers begin to embrace ultrabook, thin laptop computers built with new Intel low-power chip and solid-state drive (SSD) instead of HDD.

'''' As for the enterprise market, HDD demand is forecasted to undergo growth in tandem with global spending on IT. Gartner predicted global IT spending would rise 3.7% in 2012 while Forrester Research expects 5.5% growth.

'''' SSD has set a solid footprint in HDD's space and raised doubts on HDD's future as the long term storage solution. While SSD remains considerably more costly, the flash-based storage devices are coming down in prices much faster compared to HDD. SSD is making a small scale in-road into the market in the form of hybrid hard drive (HHD), which is the combination of HDD and SSD.

'''' Despite expectations of modest demand growth, other negatives (input cost, FOREX and replacement by SSD) are likely to weight down share price performance.

'''' Notion (HOLD, TP: RM2.03) is our top pick for the sector due to its unique position, having diversified away from HDDs to the higher-margin Camera business.

''

HSL (BUY)

Kick starting 2012 with a road project

'''' HSL has secured a RM82.2m sub-contract from PN Construction S/B for a road project from Balingian to Jalan Persekutan, Sibu/Bintulu. The project is slated for completion in 1Q2014.

'''' By assuming a PAT margin of ~13%, the latest road project translates to ~1.9 sen/share for the company. Overall, we estimate that HSL has ~RM1.1bn in outstanding order book, translating to ~2.4x FY2010's construction revenue and ~1.1x order book-market cap ratio.

'''' Maintain BUY as we expect further exciting developments coming from the company. Our TP has been upgraded by 10% from RM2.09 to RM2.30 as we roll over our P/E multiple of 12x to average FY12 and FY13 earnings.

''

KLCI: Consolidation before trending higher again

'''' We remain cautiously optimistic of KLCI resuming its uptrend after a mild profit taking consolidation.

'''' If the index swing past last week's high of 1565 pts, then the index is likely to edge closer towards the our envisaged resistance targets near 1570-1580.

'''' Support levels are 1550, 1556 (5-d SMA) and 1540 (10-d SMA).

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CANONE: Building its base

'''' At RM1.81, CANONE is trading at implied 6x P/E on adjusted EPS of 30.3sen (FIG#5). The pullback from RM2.24 appears to be at its tail end, as prices have been consolidating above the 61.8% FR, supported by its extremely oversold slow Stochastics. Further strong support can be found around RM1.68 (lower Bollinger band).

'''' Buyers may start to nibble when price approaches the RM1.70-1.80 territory to ride the technical rebound wave. Technical rebound targets are RM1.95 (76.4% FR), RM2.00 psychological barrier and RM2.24. Significant resistance is RM2.53 (123.6% FR). Cut loss below RM1.68 as it will fall back to refill the RM1.37-1.59 gap on 6 Jan.