Monday, March 14, 2011

CIMB downgraded TOPGLOV to NEUTRAL with TP RM4.89

Top Glove is likely to report a 15-25% qoq decline in 2QFY8/11 net profit to RM25m-30m on 16 Mar, taking 1H net profit to RM61-66m or only 49-53% of our full-year forecast and 63-68% of consensus. We are likely to slash FY11-13 EPS by 16-36% as we overestimated the company’s ability to pass on costs and did not foresee rubber’s rapid price rise. Preliminarily, we are looking at a cut in target price from RM7.27 to RM5.73, still based on our target market P/E of 14.5x. Ahead of the results, we downgrade our recommendation from Outperform to NEUTRAL. Top Glove is trading at a 1-year forward P/E of 11.3x versus 8.5x for the sector, a premium which we believe is unjustified. But this offset by rubber price’s downtrend, which will enable Top Glove to claw back earnings in future quarters.

Source: CIMB Research Report

Japan Quake: Losers & Gainers at KLCI

Everyone knows it now... Japan earthquake...

The latest new from Bloomberg says:

"The Bank of Japan may today inject more short-term cash into the banking system after the nation’s most powerful earthquake on record, while keeping its asset- purchase plans unchanged as officials gauge the longer-term effect on the world’s third-largest economy. Governor Masaaki Shirakawa told reporters late yesterday he’s ready to unleash “massive” liquidity starting this morning in Tokyo, as the BOJ seeks to assure financial stability..."

Which Company will benefit?

Timber sector ... according to reports from The Edge.

Meanwhile, AmResearch said following the earthquake in Japan, it had have contacted timber players, who are also unsure of the extent of damage stemming from the latest earthquake and the aftershocks.

“Though reconstructions are to be expected, the timber players do not expect a sudden and significant jump in timber exports towards the reconstruction process.
“Of the two timber companies under our coverage, Ta Ann exports 90% of its plywood production to Japan. Its timber products are shipped to trading houses in Osaka, which is located further south of Tokyo, in the central-southern region of Japan. We advise accumulate Ta Ann on weakness (UNDER REVIEW; FV: RM5.61/share) as the recent price pullback has caused an upside of more than 15% over our fair value for the stock,” it said.


1. The whole market basically due to negative sentiment. Besides, Malaysia export to Japan is RM6.1b or about 11.4% of total export in Jan-2011.
2. I do not recall many Company in Malaysia which has direct business exposure in Japan, except YTL. If you read the news at this link it says "YTL Corp To Turn Niseko Village Into All-Season Resort‎"... they bought it for US$66m, it's a ski resort. With this quake, tourist should avoid Japan for some time, but the impact should be limited...

Thursday, March 10, 2011

Malaysia IPI rose less than expected

This is the news from The Edge website:


Malaysia’s industrial production index (IPI) increased 1% in January 2011 from a year ago. It increased 0.4% from December 2010.

The Statistics Department said on Thursday, March 10, the December IPI was revised 4.5% on-year.

“The increase in January 2011 was due to the increases in two indices: manufacturing (4.5%) and electricity (0.3%). However, the index of mining posted a decrease of 6.7%,” it said....


1. This is lower than the consensus expectation of 1.2% growth. It seems like the strong GDP growth in GDP in 2010 unlikely to repeat in 2011. Our PM has also indicated lower target of between 5% to 6% GDP growth this year.
2. With the lower than expected growth in IPI, Bank Negara likely to maintain interest rate in the evening today. The policy should continue to bias towards maintaining growth, although the intention to control inflation has strengthen. Thailand has just increased its interest rate recently.

Friday, March 4, 2011


There's a warrant for SPSETIA which is convertable to its mother share anytime, that's SPSETIA-WB.
Some background information as of 335pm:

Market Price: RM1.48
Mother Price: RM6.11
Conversion Price: RM4.48

Looking at the market price, there's an arbitrage opportunity by using this strategy:
BUY WB @ RM1.48, pay RM4.48 to convert to mother share... Cash Out = RM5.96
Then SELL it at market @ RM6.11, Cash In = RM6.11
Profit = RM6.11-RM5.96 = RM0.15

BUT more detailed analysis shows some explanations on why the market is not executing this strategy:

1. Time Lag:
There's time to execute this strategy, to complete the forms, submit it, then wait, then queue to sell the mother share at open market. Probably takes 1 week to 1 month to execute this strategy. If the mother share falls, this strategy does not work anymore...

2. Share dilution
SPSETIA has 1020.35m shares outstanding and WB 160.25m shares. Assuming full conversion of the warrant, EPS will be diluted. Again let's assume market is efficient enough to price SPSETIA lower due to the dilution, meaning the new value (if all warrant convert) = RM6.11*1020.35/(1020.35+160.25) = 6234.39/1180.6 = RM5.28. Compared with cash out put of RM5.96, there no more arbitrage opportunity...

At the 1st hindsight, looks like there is arbitrage opportunity. But with closer look, the market is smart enough...

Thursday, March 3, 2011

Comment on TM

As posted in my previous post that predicts TM will distribute the special dividend, TM announced its 29 sen capital distribution and 13.1 sen dividend.

My take on TM:
1. If my investment time horizon is short term, it's time to take profit since the news already out.
2. But if you are long time investor, just keep this share since it kees giving dividend year in year out. Gross dividend yearly about 26 sen, should maintain at least for the next 2 years.
3. Long term growth coming from UniFi, this high speed broadband thing should be successful for TM due to Malaysian hunger for speed. With more and more people addicted to Facebook and Youtube, there seems like the demand is there for TM.

JP Morgan maintain BUY Call on SP SETIA with TP of RM6.80

SP Setia has proposed to purchase a 268-acre piece of freehold land within the Cyberjaya Flagship Zone for M$420MM or M$36psf, which we believe is a fair price for the location. According to the company, the land is estimated to have a GDV of M$3B, with commencement of development expected to start in FY12,
spanning over six years. Management plans to replicate its success with its eco-themed development, Setia Eco Park in this new area in Cyberjaya.

Other developers like Mah Sing and UEM Land already have a presence in Cyberjaya only since the past 1-2 years, and response to their launches here have been encouraging overall.

We maintain an OW on SP Setia, but our preferred property play or top pick in the sector is IJM Land which trades at a steeper 30% discount to our RNAV versus SP Setia's 12% discount to our estimated RNAV of M$6.80/share. IJM Land is also backed by strong fundamentals and earnings growth. Our preferred entry level for SP Setia remains at below M$6.00.

Source: J.P. Morgan Research