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Sunday, February 13, 2011

Stocks to watch: Banks, plantations, Rimbunan Sawit, REDtone (Edge)

The Malaysian stock market saw a total of RM28.10 billion erased from its market capitalisation during the Feb 7-11 period, aggravated by foreign selling of mostly banks and PLANTATION [] stocks with high foreign shareholdings as they shifted part of their funds to developed markets including the US.

Market capitalisation was reduced from RM1,302.61 billion to RM1,274.51 billion while the 30-stock FBM KLCI fell 2.67% or 41.08 points from 1,535.60 to 1,494.52. The FBM 100 fell 2.42% or 250.05 points from 10,300.05 to 10,050.00 while the broader FM Emas shed 2.34% or 248.44 points from 10,601.25 to 10,352.81.

According to Credit Suisse Research, global emerging markets recorded US$11.5 billion of outflows in funds, of which almost half were from China and Brazil, in the past three weeks,

MIDF Research head Zulkifli Hamzah told that as expected, the selldown by foreign investors continued on Friday and it will probably take a couple more days for the selling to unwind before price stabilises.

“On some technical angle, such as the RSI, the market is already in the oversold territory. However, this can persist for a while which is a good opportunity to accumulate in our opinion. There was strong buying by local institutions on Friday and that should mitigate further downside in the market,” he said.

“We do not think that it is a case of foreigners cashing out of Malaysia en bloc. Amidst the selling, some foreign investors have been picking up good stocks at depressed prices. Indeed, gross purchases by foreigners had been evenly matched until Wednesday, and peaked on Thursday. These came after China’s decision to raise interest rates. Foreign investors dumped Malaysian banking stocks fearing that the local authority may follow suit and tighten monetary condition via the SRR (statutory reserve ratio), rather than the OPR (Overnight Policy Rate) route,” he said.

Stocks to watch include banks and plantations which had been oversold in the recent weeks. CIMB Equities Research said it was downgrading the regional plantation sector from Trading Buy to Neutral.

The downgrade was because most of the planters have outperformed the market since its sector upgrade; spot CPO price has done better than expected, is close to its peak and should head south in the second half. CIMB Research also said the sector valuations are broadly in line with market price-to-earnings. But this is balanced by the bright earnings outlook in the current year and M&A potential.

“We raise our CPO price forecasts by 16% to US$1,100 (RM3,200) for 2011 and by 5% to US$1,000 (RM2,900) for 2012 given the smaller-than-expected supply.

Meanwhile, AmResearch remained positive on the banking sector and it sees minimal impact of any possible increase in the statutory reserve requirement (SRR) by Bank Negara.

It said the SRR is currently at a historically low level of 1%. Its sensitivity analysis indicates a –0.3% to –2.2% downgrade to net earnings, based on an SRR rate hike of 1%.

“The ones which may be affected the most would be EON Cap (-2.2%), Alliance Financial Group (-2.1%), Maybank (-2.1%) and Public Bank (-1.4%).

“We estimate every one percentage points increase in SRR rate to reduce the amount available for lending by RM7.65 billion just for eight local banks alone. Nonetheless, we remain positive about the banking sector. Our buys are CIMB, Maybank, Hong Leong Bank and RHB Cap,” it said.


Rimbunan Sawit Bhd’s subsidiary, R.H. Plantation Sdn Bhd is buying 4,857 hectares of oil palm plantation in Niah for RM118 million. It had entered into a memorandum of understanding with Sheba Resources Sdn Bhd to purchase the land. Sheba Resources is the registered owner of the land which has been charged to Agro Bank Malaysia Bhd for RM145.69 million.

The Edge weekly reports that with REDtone’s Malaysian operations in the red, the telco is looking to prepaid shopping cards in China to innovate its way to profitability.

In Latexx Partners Bhd, Lembaga Tabung Haji acquired 2.69 million sahres on Feb 7 to 9, raising its shareholding to 6.97% or 15.38 million shares.

On Jan 31, fund management company Navis Asia VI Management Company Ltd has offered RM852.03 million to acquire all the assets and liabilities of Latexx Partners or RM3.10 per share. At Friday’s closing price of RM2.83, there is upside for investors to pick up the shares.

In RHB Capital Bhd, its single largest shareholder, the Employees Provident Fund disposed of 5.88 million shares on Feb 7 and 8, reducing its stake to 46.6% or 1.003 billion shares.

Network Guidance Sdn Bhd (NGSB) has withdrawn claims for damages totaling RM400 million and loss of profit of RM500 million against TELEKOM MALAYSIA BHD [] and TM Net Sdn Bhd over an alleged breach of contract.

In the re-amended claim, NGSB sought a declaration that both parties had entered into an agreement for a joint-venture project but TM breached the agreement.

As a result of the breach of agreement, NGSB suffered loss and damages. NGSB said it is now claiming special damages totalling RM23.95 million.

AIRASIA BHD [] has signed an agreement with Airbus S.A.S to revise the delivery dates of 10 Airbus A320 aircraft from 2012 to 2015. The move was to allow some flexibility to switch from its current order of the classic A320 to a new generation A320 aircraft which is more fuel efficient when such aircraft come into production in the near future.

With the deferment, the delivery of 24 aircraft in 2012 would be reduced to 14 aircraft, while the number of deliveries in 2015 will be increased from nine aircraft to 19 aircraft, it said.

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