Century Logistics Holdings Bhd
March 4, RM1.64

STRONG BUY: Century’s FY2009 ended Dec 31 net profit of RM20.9 million (+42%) was in line with our estimate. FY2009 revenue grew 29% to RM210.9 million, driven by a rebound in oil and gas logistics activities that involves specifically ship-to-ship transfer operations (offloading of fuel oil to bunker barges). There was a sharp rise in procurement and assembly operations, which also contributed to the company’s revenue growth. Century also benefited from new warehouse management customers secured in 2H2009. We expect Century’s ship-to-ship transfer operations to maintain the pace achieved in 2H2009, when revenue jumped over 60% from 1H2009. Crude oil prices have been trading in the US$70-US$80 range for the past six months. If this continues, it will bode well for its ship-to-ship transfer operations.

We have lifted our FY2010 earnings estimate by 26% and introduce our FY2011 forecast. Our estimates imply earnings growth of 21% in FY2010 and 16% in FY2011. In line with the higher earnings forecast, we lift our 12-month target price to RM2.30, based on a blend of 12 times FY2010 earnings and 0.7 times end-2010 book value. — Standard & Poor’s (March 3)

PPB Group Bhd
March 4, RM16.10

HOLD: PPB posted 4QFY2009 ended Dec 31 net profit of RM351 million, bringing FY2009 net profit to RM1.6 billion (+26% y-o-y). This was within our expectation despite Wilmar International Ltd’s 4Q2009 profit being ahead of our estimate, as we assumed a higher ringgit versus US dollar exchange rate. FY2009 revenue edged down 1% y-o-y as higher revenue from sugar (+45% y-o-y) offset lower contribution from flour (-19% y-o-y). The sale of its sugar business was completed in January and PPB will realise a one-off RM857 million gain in 1Q2010. The balance sheet remains strong. As at Dec 31, 2009, PPB was in a RM469 million net cash position. 1Q2010 should reflect RM1.5 billion proceeds from the sale of its sugar business. Its strong cash position will enable it to further entrench its flour and frozen food businesses.

We prefer Wilmar (“buy”, target price: S$8) because it is a more liquid and direct proxy to growing opportunities in China. We reiterate our “hold” on PPB. We tweaked FY2010-FY2011 core earnings per share by -1% to +1% after imputing stronger Wilmar earnings and adjusting for lower flour margins. Our sum-of-parts derived target price is raised to RM17.50 after imputing a higher target price for Wilmar. — HwangDBS Vickers (March 3)

Kencana Petroleum Bhd
March 4, RM1.47

BUY: We reaffirm our “buy” call on Kencana, with lower fair value of RM2 per share from RM2.11 per share due to our lower earnings forecast. We have reduced our forecast for Kencana’s FY2010 ended July 31 earnings by 8%, given delays in contribution from KM1. Commencement of Kencana’s 25%-effectively owned KM1 tender rig will be delayed further from February to June 2010 at Petronas’ request. Kencana’s 45%-owned joint venture with Global Industries Ltd has yet to finalise a Petronas contract due to legal and financing arrangements, but management expects an announcement soon. Although Kencana has not announced any significant awards over the past four months, we believe it is on the verge of a new windfall of contracts. We also expect a re-acceleration of merger and acquisition activities following the group’s recent two-for-five rights issue at 50 sen.

We have incorporated new contracts of RM1 billion to RM1.5 billion in FY2010F to FY2012F. The stock currently trades at a decent CY2010 PER of 15 times compared with Kencana’s peak PER of 22 times. We believe investors should continue to ride the up cycle in oil and gas contract flows as Kencana remains one of our preferred exposures in this sector. — AmResearch (March 3)

Eng Teknologi Holdings Bhd
March 4, RM1.90

BUY: The highlight of the company’s analyst briefing last week was management’s guidance of achieving record revenue for FY2010 ended Dec 31. Based on the guidance and using the 4QFY2009 record revenue/core earnings as a yardstick, we are keeping our FY2010 forecast. We maintain our “buy” by pegging a 7.5 times FY2010 PER.

Engtek achieved record quarterly revenue and earnings in 4QFY2009. The FY2009 net profit was the highest ever recorded by Engtek, although revenue for the year was 14.4% lower. Management maintains an optimistic outlook for FY2010, based on strong demand forecasts by its customers. Plans are underway to expand capacity to cater for higher demand, which will bolster revenue and earnings. A capital expenditure of RM40 million has been budgeted for FY2010. Barring any unforeseen circumstances, management expects Engtek to achieve record revenue in FY2010. We have revised upwards our FY2010 earnings by 37% following the company’s robust 4QFY2009 results and kept the new FY2010 forecast unchanged. Note that as Engtek was still in the red in 1QFY2009, we should see a strong y-o-y jump in the company’s 1QFY2010 net profit. — OSK Research (March 3)

Daibochi Plastic & Packaging Industry Bhd
March 4, RM3.43

OUTPERFORM: Daibochi’s trial run for the packaging of a dairy product for a major dairy producer is well on track, and orders have started gaining pace in 1QFY2010 ending March 31. We also understand that Daibochi has since started on some samples for the group’s other product ranges. Given that the dairy industry is a niche industry, requiring some rigid technical knowledge, we understand that it is not an easily penetrable industry and thus, margins are generally on the higher end. We understand that Daibochi’s forays into the non-F&B segment are starting to gain pace, namely the healthcare and the electronics sectors. For the healthcare sector, we understand that it is now in the testing stages (production level). For the electronics sector, management highlighted that their products have passed the first stage of testing and are now moving into the next stage of testing.

No changes to earnings forecasts for now. We maintain a target price of RM4.40 based on target 12 times FY2010 ending Dec 31 earnings per share. — RHB Research Institute (March 4)

Dialog Group Bhd
March 4, RM1

BUY: The Langsat Terminal One, a joint-venture project between Dialog (44%), MISC (36%) and Trafigura (20%), officially opened end-February 2010. The consortium has also started construction to expand the terminal by another 80,000 cu m (Phase 3). The 20% capacity expansion will cost RM90 million to RM500 million in development cost for Phase 1 and 2. The construction is expected to be completed in 18 months.

Our SOP-based target price for Dialog is now raised to RM1.18, factoring in the incremental discounted cash flow (DCF) value from the capacity expansion at Langsat Terminal One. Our target price does not include the DCF value of the 10-acre tank terminal (next to Langsat Terminal One), Pengerang Independent Deepwater Terminal. There is still 10 acres of land adjacent to the existing Langsat Terminal, which occupies a total area of 40 acres. The valuation does not include Dialog’s 60:40 joint venture with Jubail Commercial Port to develop the 3.45ha Jubail Supply Base. The company has a good track record in earnings delivery, as well as rewarding shareholders via dividend and bonus issues. Maintain “buy”. — Affin Investment Bank (March 3)

This article appeared in Capital page of The Edge Malaysia, Issue 796, Mar 8 - 14, 2009.