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Wednesday, June 22, 2011

TRADING BUY recommendations (CIMB)

Latexx Partners
Latexx recently accepted YTY’s offer to merge their glovemaking businesses in return for RM1.25bn in cash and shares. This works out to 9x FY12 P/E, in line with the sector. We view this positively as Latexx’s EPS will increase by an estimated 16% and it will become the world’s largest nitrile glovemaker and the third most profitable in our universe. We rate Latexx a Trading Buy with a target price of RM2.60, based on 10.44x CY12 P/E, which is at a 20% discount to Top Glove’s 13.05x benchmark P/E. The stock could be catalysed by this news and prospects of enhanced results post merger. However, we caution that there are merger negotiation and execution risks.

Muhibbah Engineering
Muhibbah’s share price had a rollercoaster ride last week after news of receivership for the Asia Petroleum Hub (APH) project, for which it is a major contractor and is owed RM371m. We think it may not be all that bad for Muhibbah as it all hinges on the lifting of the receivership status, which depends on whether APH can line up RM2.4bn new funds. According to Muhibbah, APH maintains that its talks with the new investor are at an advanced stage and there are grounds for lifting of its receivership status.

We maintain our TRADING BUY call, EPS forecasts and RM2.75 target price, which we continue to peg to a 10% discount to RNAV. The stock has been bashed down and could be re-rated in the event of positive news on APH or project flows for both the construction and oil & gas segments.

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