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Wednesday, June 22, 2011

Investment highlights of our other small-cap stocks (CIMB)

OUTPERFORM recommendations
For the first time in a few quarters, management is upbeat about its prospects for next year. Daibochi is making good progress with its electrostatic discharge (ESD) product called Tribosafe, which was co-developed with US-based Lubrizol. Launched last Sep, Daibochi is trying to get the product qualified by the world’s seven major E&E companies such as Seagate and Pozzetta. In addition, the company is seeing good progress in its negotiations with MNCs such as Pepsico Thailand and cigarette giant, BAT and could secure some major contracts later this year. Our target price is unchanged at RM3.92, based on 10.2x CY12 P/E, a 30% discount to our 14.5x target
market P/E. We continue to rate Daibochi an Outperform and our top pick in the packaging sector. Factors that could spark a re-rating are major contracts secured from the F&B and E&E sectors and a reversal of raw material costs.

Even before the Japanese Mar earthquake, industry plywood supply was tight in Japan. Industry sources say Japan trading houses have been slowly sourcing more logs and plywood ahead of the rebuilding which is expected to start next year. Eksons currently does not export its plywood directly to Japan but is likely to start doing so over the next year given the strong demand and limited industry supply. This should lead to higher profit margins for Eksons as plywood prices in Japan are 10-15% higher than in other markets. Our target price remains at RM1.87, based on 7.2x CY12 P/E, a 40% discount to our 12x target for the timber sector to reflect Eksons’s small market cap and lack of timber concessions. The stock remains an Outperform. Potential share price triggers include a plywood price rebound and a further sales pick-up for its property project. 25% of Eksons’s share price is supported by its net cash per share.

Jobstreet has been benefitting from the tailwinds of a tight labour market, strong demand, resumption of hiring activities, more movement among jobseekers and the recovering economy. Although competition has ratcheted up over the past couple of months especially in pricing, Jobstreet has been able to capture market share by driving up volumes across its three core markets and has, in fact, closed the gap between itself and JobsDB over in Singapore. We maintain our EPS forecasts and target price of RM3.77, still pegged to an unchanged 22.6x CY12 P/E, which is on par with its peers. Jobstreet remains an Outperform and our top pick for the wider tech
sector on the back of the potential re-rating catalysts of further market share gains and earnings momentum.

Perisai Petroleum
Perisai enjoys clearer earnings visibility following last year's restructuring. It is set to benefit from opportunities in deepwater and marginal fields. Furthermore, skilled new management is firmly in place and is backed by major shareholder Ezra’s (EZRA SP, Outperform) operational strength. Currently, Perisai’s only revenue-generating asset is a pipelay barge, Enterprise 3, which is chartered to SapuraCrest until Jun 2013. An ongoing asset injection of a vessel operator, Intan Offshore, by asset-rich Ezra will give Perisai a new revenue stream come Jun. The acquisition of Garuda, which owns a mobile offshore production unit (MOPU), will enlarge Perisai's asset base further.

We maintain our target price of RM1.40, based on our target market P/E of 14.5x. Perisai remains an Outperform, with the potential re-rating catalysts being 1) a marginal field venture, and 2) fleet expansion.

90% of Tomypak’s revenue is derived from the food & beverage sector, which is resilient even in a poor economic climate. In the long term, this sector should form a stable revenue base for Tomypak. MNCs currently contribute around 40-45% of the group’s revenue. Nestle is Tomypak’s largest MNC customer. Our target price remains at RM1.53, based on 6x CY12 P/E, a 40% discount to our 10.1x CY12 target P/E for Daibochi. The stock remains an Outperform and could be catalysed by a sharp fall in raw material prices and generous dividend yields.

Uchi has provided a more downbeat assessment as its customers now expect single digit growth in US$ revenue for 2011 due to softer demand, weaker greenback, the effects of component shortage and cost pressures. The stronger Swiss franc has also prompted its customer, coffee machine assembler Eugster to relocate its operations, which could result in some deferment of orders. The component or supply shortage from Japan could result in the deferment of two of the four new modules that Uchi has planned for 2H11. On the plus side, Uchi's biotech division has made a major breakthrough that should lead to more order flows and potentially design opportunities for more complex products. We maintain our earnings forecasts and price objective of RM1.62, pegged to an unchanged 11.6x CY12 P/E, or a 20% discount to our target market P/E. We continue to rate Uchi an Outperform given its attractive valuations and strong yields of 10-12% for FY11-FY13. The stock could be catalysed by strongerthan- expected order flow and any relief from margin pressure.

UM Land
UM Land’s 1Q11 net profit was broadly in line, at 27% of our full-year forecast. Future quarters may not be as strong depending on the timing of the Puteri Harbour launch and the response to it. We made no changes to our earnings forecasts or Buy recommendation but raised our target price from RM2.11 to RM2.53 post results after lowering the discount to its RM4.22 RNAV from 50% to 40%. The lower discount factors in the likely improvement in liquidity after the proposed 1-for-4 bonus issue as well as the group’s improving earnings prospects. Potential share price catalysts include 1) the buoyant property market, 2) more land acquisitions and 3) strong sales for new condo projects.

Xingquan International
Xingquan has entered a new growth phase as its new plant is up and running, allowing management to focus on expanding its business and opening new retail outlets across China. Last year, the shoe plant was already operating at close to full capacity. We retain our target price of RM2.05, based on an unchanged 70% discount to our large-cap regional peers’ 14x target P/E. The stock remains an Outperform in view of its low CY12 P/E of below 3x. Potential re-rating catalysts are better-thanexpected trade fair orders and a sharp decline in raw material prices.

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