What’s New
CIMB-RHB-MBSB has announced details of their merger which entails taking MBSB private at MYR2.82/sh, and merging CIMB and RHB via a share swap of 1.38 CIMB shares for every 1 RHB share.


What’s Our View

The outright winner, is MBSB (MBS MK; Not Rated, FV: MYR2.82), which is to be taken private at MYR2.82/sh. Investors will have an option of cash or RCPS in a new unlisted mega-Islamic bank, which would likely be palatable only to strategic shareholders.

The deal is neutral on CIMB, whereby we estimate a post-merger dilution in FY15 ROE to 11.4% from 12.3%. Pegging on a lower FY15 P/BV target of 1.35x (FY14 1.7x previously) results in an unchanged TP of MYR7.60, which translates to a FY15 PER of 12.2x, in line with Maybank. We maintain our HOLD call on CIMB.

Valuing CIMB at MYR7.60/sh and taking into account the 1.38 swap ratio, RHB would be valued at MYR10.45 (+20% upside). Our TP is raised to MRY10.45, and we upgrade RHB to BUY from HOLD.

OSK (OSK MK; Not Rated) could eventually hold just 3% in the enlarged entity and we think it would make commercial sense to dispose off this shareholding. On revaluing its stake and applying a 20% discount to its RNAV, we derive a FV of MYR2.64 (+15% upside).

Key risks at this juncture would be (i) regulatory approvals, (ii) EPF’s right to vote on this deal and (iii) Aabar’s acceptance.

Good stock, whats there to worry? I been tracking the premiums ever since I entered the stock about 5 weeks ago. Nothing to suggest anything has changed. In fact most analysts still think the outlook remains bullish for the commodity.

Aluminum Costs Seen Rising More Even After LME Wins Case

A courtroom victory allowing the London Metal Exchange to ease backlogs of deliveries of aluminum may do little to reduce the cost of the metal used in everything from beer cans to auto parts.

While yesterday’s appeal court ruling in London clears the way for the LME to impose new rules at its warehouses, rising demand for aluminum and output cuts by producers including Alcoa Inc. (AA) and United Co. Rusal will still boost costs, according to Harbor Intelligence and BMO Capital Markets. Rusal, which plans to appeal the ruling to the U.K. Supreme Court, yesterday cited a “substantial deficit” in the market.

Aluminum users including MillerCoors LLC argued last year that LME rules were helping to create artificial limits on warehouse supply. With shipment delays at some locations lasting more than a year, the metal surged into a bull market in July and reached an 18-month high a month later. To secure deliveries, buyers are paying record premiums that probably will remain near all-time highs for at least another three months, London-based researcher CRU said after the ruling.

“We think the premiums are going to go up for the remainder of the year and possibly early next year,” said Jorge Vazquez, an analyst at Harbor Intelligence in Austin, Texas. “More aluminum is being consumed than is produced. You need more metal.”

Aluminum for delivery in three months rallied as much as 18 percent this year, touching $2,119.50 a metric ton on the LME on Aug. 29. The surcharge to secure aluminum in Europe climbed 79 percent this year to a record $500 a ton, and the U.S. Midwest surcharge is up 87 percent at 22 cents a pound, according to Metal Bulletin data. The premium in Japan is also at a record, the company’s data show.

Rising Demand

“For now, premiums continue to rise inexorably,” Nic Brown, head of commodities research at Natixis SA in London, said by e-mail yesterday. “That could continue in the short-term.”

Demand for the metal will exceed output by 1.7 million tons this year, and the deficit in 2015 will reach 1.4 million tons, according to Standard Chartered Plc. Producers outside China have cut almost 3 million tons in capacity since late 2011, according to Jefferies Bache Ltd. Morgan Stanley yesterday raised its aluminum forecast by 8 percent for 2015 to $2,072.

“The consensus expectation now is for the all-in price to continue rising,” probably over the next 12 months, said Gayle Berry, a strategist at Jefferies Group in London.

New Rules

The LME, which regulates a network of about 700 storage depots, wants to require warehouse companies with wait times longer than 50 days to deliver more metal than they take in. Moscow-based Rusal, the biggest producer, had sued to block the new rules. The U.K. Court of Appeals yesterday upheld a March ruling in favor of Rusal by a lower court judge.

The rule should come into effect in February, subject to a two-week consultation that started yesterday, the LME said after the appeal ruling. Wait times in Detroit and the Dutch port of Vlissingen, the biggest LME aluminum locations, stretch to as long as 21 months, according to Harbor.

The wait times for aluminum in Detroit lengthened by 51 days in September to 649 days, while Vlissingen wait times are 608 days, Harbor Intelligence estimates. The premiums should be lower without the queues, according to Commerzbank AG.

Fewer Backlogs

Backlogs have already disappeared at three warehouse locations this year. Inventories monitored by the LME dropped the past 41 days, the longest streak in 10 years. Goldman Sachs Group Inc., whose Metro International Trade Services LLC operates in Detroit, said in June it complied with the LME rule. Aluminum stockpiles at Vlissingen warehouses, most of which are operated by Glencore Plc’s Pacorini Metals, are down for a 70th session to the lowest since May 2013.

Prices are down 7.3 percent from this year’s peak, trading at $1,964.75 today on the LME.

“Market conditions today are fundamentally different than the conditions in existence at the time the rule change was first proposed,” Rusal said yesterday. “The LME’s rule change, if now adopted, is likely to have little effect on queues or premiums.”

Warehouses are no longer attracting the metal because the premium is so high, according to Harbor’s Vazquez. Goldman is seeking a buyer for Metro and JPMorgan Chase & Co. sold Henry Bath & Son Ltd., a Liverpool-based warehouse company, to Mercuria Energy Trading SA.

While premiums may decline as more metal is released into the market, prices of aluminum will keep going up, Jessica Fung, an analyst at BMO Capital Markets in Toronto, said in a report yesterday.

“There is actual real demand for the metal,” Fung said. “LME prices are expected to continue to improve on the back of this demand.”

Financial assistance amounting to RM150 million provided to SMEs for the purchase of accounting software - Should help Censof ?

Not sure what other conviction do ppl need to buy now. GST is going ahead, companies have to switch soon...

Just gonna hold and wait till next quarterly result. Then exit happily XD

Gst is confirmed already

Hocklai: Cuscapi went up after its coverage. What happened was its failed to deliver operational targets. What about Myeg, Hovid, Pharmaniaga etc which they initiated coverage and went up by abit? I assume you just don't want to mention those then since it doesnt support your point. Things can change along the way, just need to be aware all the time of the changes and trade accordingly.

Well when comparing cuscapi and ifca, one is providing a service which is an option basis, whereas the other is providing services which are required by law to be complied with. Guess thats the big difference?

Going all in now. Go big or go home XD

Hitting its sweet spot this year IFCA should see very strong earnings growth over the next few years, supported by the domestic and China markets. We project 228% 3-year net profit CAGR for the company. 2014 should be the start of a sweet period for IFCA. It could also surprise with a dividend later this year. We are initiating coverage on IFCA with an Add call. Our target price is
set at RM0.78, based on 21x 2016 P/E (which is in line with its domestic peers MyEG and Cuscapi).

Investors with higher risk appetite can consider its warrants (exercise price RM0.10/share, expires in Feb-2016). Potential catalysts for the stock include stronger-than-expected GST jobs, potential dividends and a move to the Main Board in 2016. Software solutions provider for property sector
IFCA MSC (IFCA) is an enterprise software solutions provider focused particularly on property
development, golf clubs, hotels and the construction sector. The company dominates in the domestic property sector, with around 70% market share. Most of the major domestic property developers, such as Sime Darby, SP Setia, EcoWorld and Mah Sing, are IFCA’s customers.
Sweet spot this year Three key factors that will turn operations around for IFCA from this year onwards are i) software migration from Windows-based to web and mobile platforms for its domestic customers, ii) China sales taking off in the past few years, and iii) domestic GST software upgrades and training in 2014/2015.

We estimate IFCA should be able to secure RM60m-70m in sales from GST software upgrades and training in 2014/2015. 228% 3-year profit CAGR. We project IFCA’s 3-year net profit CAGR to be 228%. Profit margins should expand quickly as revenue growth from the domestic and China
markets is expected to accelerate. Malaysia is its largest market but China could overtake in the next few years. Its major customers in China include the Wanda and R&F groups. Wanda is China’s largest commercial property company and the world’s largest cinema chain operator.

What happens after GST?
China and the domestic software migration from Windows-based to web/mobile platforms should keep the company busy after the completion of the GST jobs. IFCA is also looking to expand its regional reach. Markets the company is targeting include Japan, the Middle East and Thailand.

CIMB just raised their TP to 78 sen. Strong buy!

(Link: http://research.itradecimb.com/index.php?ch=5013&pg=5014&ac=71215&bb=file)

u mean US become exporter instead of importer?

hard to take someone so seriously when they've been talking a lot of trash too XD

not when dow jones drop.. more like IF it drops another round. Market so unpredictable lately

really talk like an idiot this jolie lol

Surprising to see how the stock is holding up when the rest are falling!

Oil prices will eventually stop going down. Shale gas producers will be out of operations if it falls further. Now its just a matter of investor confidence and a function of whether any of major markets will carry out any stimulus measures

RI price hasnt been determined yet right? The 0.25 is the par value of the shares no?

http://www.theedgemalaysia.com/business-news/311032-pj-development-osk-property-will-merge-soon-says-ong-leong-huat.html

http://www.theedgemalaysia.com/business-news/311032-pj-development-osk-property-will-merge-soon-says-ong-leong-huat.html

Kinda hard to expect any cash deal to seal the deal. At the end of the day, the valuation of the company should be reflected in OSK's share price. OSK/OLH benefits from the deal the same way you should. They don't get cash from the deal either...

http://www.bursamalaysia.com/market/listed-companies/company-announcements/1761141

Tabung Haji keeps on acquiring!

RHBCap valued @ 10.03, CIMB @ 7.27, MBSB @ RM2.82

CIMB to own 70% of enlarged entity.

Its on Edge online. What would the price of OSK be there?

When do they normally post the next quarterly result? Should be a good quarter again

The counter looks cheap to me for the following reasons:

(i) Order book vs Market Cap of RM1.5bn vs RM703m
(ii) Entrance of recent insti investor, Pelaburan Mara @ 80 sen per share
(iii) Lembaga Tabung Haji's large skin in the game @ 31.6% shareholding
(iv) Expansion plans for its shipyard which will allow it to undertake larger jobs

Normally you wouldn't see companies raising money from the market unless you have something solid, especially companies like THHE which has a chequered past. If you screw up again, you'll never earn investor's trust again.

That and the fact that THHE has declined nearly 21.18% in the past 1-year when comparable peers have all fared better.

http://www.bursamalaysia.com/market/listed-companies/company-announcements/1760413

Yet again EPF buying and selling the stock. Why stick around if they don't see much value in the counter? Surely they think its worthwhile

Where's that Russian joker?

Entered in @ current level. Looks dirt cheap to me!

Smelling blood here.

Killerkid, what was your entry px?

I'm wondering what caused the panic sale

Guys, reckon this is a good time to enter?

Looks good. Wonder if the stock still has legs to carry on

Fair point. Some people do come here to get opinion before investing (like myself) though. Especially if the counters do not provide a lot of information and a lot of self research is required.

If I recall correctly, McDonald's meals are still quite reasonable. It still falls under the "value for money" segment. For about RM10-12 per meal (mind you its cheaper during lunch and dinner time), I get burger, fries and a soft drink. I highly doubt the inflation will spike to the serious levels you've mentioned. The GST factor should bring about a one-time rise in costs yes but you don't expect it to be an ongoing factor.Yes agreed, it is expected to go up, but income levels are rising aswell. Why are you disregarding that part too?

People like myself need to work longer to earn more money, id rather spend less time eating in and just grab myself something from these fast food outlets. Thats my line of thought anyways. Just thought I'd give a different perspective for others to consider. I used to own this stock and would consider owning it again given the right entry price.

Don't know which outlet you've been going to..but the doomsday theory you are predicting is still definitely far away. Yes fuel hike will eat into their bottom line, but they can definitely pass some of it to their customers. Even if they decide to absorb it, prices of their raw materials such as flour, soybean and corn are still at low levels.

OptimusprimeV: Simply saying oil prices to head to USD60/bbl does not make sense. Shale producers require oil prices to be at around USD80/bbl for them to breakeven. Even at current prices, they would certainly feel the heat already. At the prices you've "predicted", you will definitely see many oil/shale producers stopping production, which will ultimately reduce the oversupply issues.

tried to avg down my holding in knm too, so far brought it down to 90 sen. But don't wanna put all eggs in one basket though. :/

Can wait as long as you want Ahmad, before you know it the price jump and you missed it :P

Moment you see calvintaneng sniffing around, you should sell. XD

hehe, joel, just teasing you only. Jangan simpan di hati ok :)

Was tempted to take profit but think want to see how this JV thing pans out first

Joel damn champion, in the morning post positive report on the counter, second half of the day sell already :P Most of the stocks i'm following now is in the red. Maybe its just general market sentiments.

if you JV, you increase chances of getting a bigger slice of the pie, albeit sharing with your JV partner. Might be harder to simply attract customers if everyone goes on their own (i.e. might have to compete in terms of reduced prices etc). Think this is a smarter move. Doesn't necessarily indicate the company is incompetent.

EPF keeps on buying and selling the shares. Trying to flush out small players. I've just entered at 85.5 sen. The price tends to move upwards from current level, plus it should be benefiting Budget 2015 announcement.

huat: haha, applying 30x PER would definitely be stretching it! nevertheless the basis of your assumptions for the earnings looks reasonable. Lets hope it gets coverage from analysts.

http://www.theedgemalaysia.com/business-news/310192-kenanga-ib-research-starts-coverage-on-press-metal-target-price-rm887-.html

huat2, you mentioned market is looking at earnings growth of 50-70%. Can you share with me the source behind your statement?

Link to proposed bonus issue from Bursa (Link: http://www.bursamalaysia.com/market/listed-companies/company-announcements/1755321)

huat2, agreed with you. Thats my thoughts anyways. Still holding onto the counter. Backed by improved liquidity via bonus issue and decent earnings prospects.

psd57, reckon people are buying the counter on expectations of better future earnings. Suspect factoring in the forecasted rise in earnings for FY15, the pe will drop significantly to more reasonable levels.