IJM Plantations Bhd (April 22, RM2.39)
BUY: We do not expect a sustainable rally in crude palm oil (CPO) price in 2009 after the recent surge, driven by declining production and a significant reduction in stock levels. We are revising our FY2009 (ended in March) CPO price assumption for IJMP to RM2,640 per tonne from RM2,600 per tonne, based on the selling price achieved. We are also revising FY2010 CPO price assumption to RM2,130 per tonne from RM1,930 previously.

Based on our latest checks, the palm kernel selling price achieved by the company was around 20% lower than our previous assumption for FY2009. Accordingly, we are lowering our palm kernel price assumption to RM1,180 per tonne. After factoring in these adjustments to estimates, earnings would ease 7% to RM125.1 million for FY2009. However, we are raising FY2010 earnings by 23% to factor in a higher average CPO price assumption for FY10E. We rate IJMP “buy/medium risk”. Foreign shareholding is less than 8%. We expect IJMP’s share price to re-rate towards our 12-month target price of RM3.25. In our view, IJMP would be a good proxy to firm CPO prices.  Based on our sensitivity analysis, every RM100 per tonne change in CPO price could alter FY2010 net profit by 11%. — Citigroup (April 20)

NTPM Holdings Bhd (April 22, 33 sen)
BUY: We met the company’s management recently and take comfort in knowing that NTPM is dedicated to maximising shareholder value through stringent cost management. Supported by the resilient nature of its business, declining raw material prices, strong balance sheet and the upcoming contribution from the new recycling business as well as its decent dividend yield of more than 7%, we maintain our “buy” recommendation, with a target price of 39 sen after adjusting for bonus shares, based on 10 times CY2009 EPS.

Despite slowing consumer spending, sales of NTPM’s main products have been increasing consistently, as evidenced by the stronger 9MFY2009 y-o-y sales. To cope with the increasing demand, NTPM is expanding its existing production capacity and setting up new lines for the recycling business, for which some of the products could be commercialised in the next two months.

We believe that there is ample room for NTPM to grow locally, going forward, as tissue consumption in Malaysia remains low at RM14 per capita/year versus more than US$33 in developed countries. — OSK Investment Research (April 20)

Tenaga Nasional Bhd (April 22, RM7.20)
HOLD: TNB’s 1H2009 recurring net profit (RNP) of RM1.47 billion came above our and street expectations, making up 68% of our FY2009, ending Aug 31, 2009 RNP of RM2.17 billion, and 73% of street’s RM2.01 billion. TNB’s outperformance was a result of its generation mix leaning away from coal generation and lowering fuel costs. Year on year, 1H2009 net loss of RM270 million dipped 110%. Forex losses amounted to RM1.56 billion versus 1H2008’s RM34 million gains.

But positive impacts were erased by higher coal cost (TNB’s average coal prices grew 85% y-o-y to US$100.9 per tonne and lower unit demand. We revise upward our FY2009/10 net profit by 30%-16% to RM1.35 billion-RM2.62 billion.

We maintain a “hold” call with new fair value of RM7 (+12%) based on discounted cash flow valuations. The stock is trading at a 10-year low to historical averages and saw two-year low foreign shareholding of 11.9%.

However, such levels are unsustainable without strong demand and near-term catalysts, such as July tariff revisions, are likely to yield a neutral impact on TNB. — Kenanga Research (April 16)

Zhulian Corp Bhd (April 22, RM1.25)
BUY: We maintain our “buy” recommendation, with a raised 12-month target price of RM1.30 from RM1.10. The higher target price is the result of higher peer valuation. The company has declared a first single-tier dividend of three sen per share, improving on its first dividend payout of two sen per share in the previous year.

Our valuation methodology is unchanged and our target price is derived from 6 times from 5.5 times our projected FY2009 EPS. We continue to like Zhulian for its healthy balance sheet (it remains debt-free and has net cash per share of 29 sen), strong cash flow generating business and attractive dividend yield of 10.6%. In our opinion, current valuations are attractive as the stock is trading at an undemanding PER of 5.1 times. Zhulian’s net profit of RM16.8 million (+10.0% y-o-y) for 1QFY2009 (November) was within our expectations, accounting for 22.4% of our original full-year forecast.

Revenue grew 16% y-o-y to RM71.1 million and operating profit rose 49.4% y-o-y to RM19.4 million. With no surprises from the latest results, we leave our net profit estimates for FY2009/10 broadly unchanged at RM75.8 million and RM88.4 million respectively. — Standard & Poor’s (April 17)

Nestlé (M) Bhd (April 22, RM29)
UNDERPERFORM: We acknowledge that Nestlé’s band of household brands (Nescafe, Milo, Maggi, Kit Kat), huge consumer base and backing from the world’s biggest food group are a recipe for a defensive investment. Nestle has strongly outperformed the KLCI and we believe there is not much upside left to the share price.

We believe investors’ appetite will shift from defensive to higher-beta investments. Other factors limiting interest in Nestlé are lack of liquidity, especially at its current demanding PERs of 16 to 19 times, and expected gearing of more than one time in FY2011 against single-digit EPS growth.

We downgrade Nestlé from “neutral” to “underperform” while keeping our forecasts and RM29.10 target price unchanged. The de-rating catalysts are substantial upturn in commodity prices, deceleration of export growth, and investors’ switch to higher-beta, bombed-out stocks.

For exposure to food and beverage, we prefer QSR Brands Bhd, which is trading at attractive PERs of 7 to 8 times while offering double-digit growth and decent dividends. — CIMB Research (April 20)

Astro All Asia Networks plc (April 22, RM2.57)
HOLD: Astro CEO (TV operations) Rohana Rozhan mentioned that growth would still be possible because pay-TV business is recession-proof. Pay-TV, which accounts for about 90% of Astro’s revenue, is targeting net subscriber additions of about 300,000 in Malaysia this year. This is lower than FY2009’s net additions of 374,000, a historical high. We do not share management’s optimism in terms of susbcriber growth as we think the economic downturn will lead to customers cutting down on less crucial spending, such as entertainment.

Against the economic downturn, we see declines in net additions in 4Q2009 persisting in FY2010. Recall that net additions were down from 96,000 in 3Q2009 to 81,000 in 4Q2009. We forecast FY2010’s net additions of 260,000 subscribers versus 374,000 posted in FY2009.

We are reaffirming our “hold” rating, but putting our fair value under review pending a company visit. We foresee Astro posting net earnings of RM200 million in FY2010 after having registered a loss of RM530 million in FY2009, largely due to provisions related to its Indonesian venture. Astro has written off some RM1.2 billion for its Indonesian venture. — AmResearch (April 17)

This article appeared in The Edge Malaysia, Issue 752, April 27-May 3, 2009