Proton Holdings Bhd (Feb 4, RM3.97)
BUY: Proton Holdings guided that the company will study the plan to consolidate the older Shah Alam production facility into the Tanjong Malim plant. The plant consolidation could be effected by 2011, unlocking value in the Shah Alam property, worth RM485 million, and create annual savings of about RM50 million. We expect the seasonally weaker 2QFY2010 pre-tax profit to shrink over 50% from RM100.7 million in 1QFY2010, reflecting discounts and the impact of the launch of Perodua’s MPV Alza on the Exora.

We raise our FY2010-FY2011 pre-tax profit forecasts by 3.5% and 6.8%, as higher R&D grants offset lower sales. FY2011 sales are expected to ease 6% to about 150,000 units without new funding for the government trade-in rebate programme.  Our analysis shows significant upside to RNAV calculation of RM5.45 a share, which conservatively excludes savings from the plant consolidation exercise and values Proton below its trailing NTA of RM8.63. A more optimistic scenario could peg Proton’s RNAV to RM7.20, assuming the extra RM50 million annual savings via the plant rationalisation, and applying eight times (instead of five times) PER to FY2010 earnings.

The long overdue strategic partnership with a multinational car producer has not materialised, but an alliance to develop and manufacture sub-compact cars for Asia is likely. — UOB Kay Hian (Feb 2)

Lafarge Malayan Cement Bhd (Feb 4, RM6.38)
BUY: We have turned more positive on Lafarge, ahead of a surge in construction in 2011.We raise our PER target to 14 times on FY2011 earnings (from 12 times) and our target price to RM7.40 (from RM6.40). Lafarge should be on target to meet our RM383 million FY2009 net profit forecast (9M2009: RM293 million), on flattish 4Q2009 sequential earnings.

The increasing number of construction awards since 2H2009 should lead to active procurement of cement from 2H2010 onwards. We project industry cement demand to grow by 5% in 2010 and 8% in 2011. Cement demand is expected to reach 17.5 million tonnes in 2011, surpassing 2008’s high of 16.6 million tonnes.

We expect Lafarge to sustain its 41% market share and maintain our earnings forecast, which implies a 3% growth in 2010 and a stronger 15% growth in 2011. Lafarge’s balance sheet has strengthened considerably with net cash of RM13 million as at Sept 2009 versus net debt of RM320 million as at Dec 2008.

Dividend for 2010 may surprise on the upside. Our new target price pegs the stock at one standard deviation above its PER mean since mid-2005. — Maybank Investment Bank (Feb 2)

SapuraCrest Petroleum Bhd (Feb 4, RM2.40)
BUY: SapuraCrest petroleum CEO Zainol Izzet Ishak retired in January 2010, and SapuraCrest has promoted current COO Rohaizad Darus to CEO effective February 2010. We expect the group’s strategy and direction to remain unchanged under its executive vice-chairman and major shareholder Datuk Shahril Shamsuddin.

The group’s gross order book stands at RM11 billion. Since the Gemusut Kakap project was awarded to the group’s 50%-owned Sapura Acergy — SapuraCrest’s net order book (excluding minority interests) works out to RM9 billion.

Management indicates that SapuraCrest’s tender book stands at RM3 billion to RM4 billion. Assuming a success rate of 30%, we could be looking at more jobs worth RM1 billion — an additional 10% of the group’s current locked-in sales of RM11 billion.

We reiterate our “buy” call on SapuraCrest with an unchanged fair value of RM3.12 a share — based on a CY2010F PER of 22 times. SapuraCrest remains our top pick in the oil and gas sector, given its dominant position in the deepwater pipe-laying market, healthy balance sheet, sizeable oil and gas asset ownership, substantial Seadrill equity participation of 24% currently and strong FY2009-FY2012F earnings CAGR of 25%. — AmResearch (Feb 2)

Telekom Malaysia Bhd (Feb 4, RM3.14)
BUY: Our scenario analysis indicates that TM’s investment in the high-speed broadband (HSBB) network is unlikely to derail its commitment to distribute 20-sen a share net dividend. The scenario assumed conservative ARPU of RM150 for >10Mbps bandwidth, marginally higher than the RM130 TM is charging for 4Mbps.

Note that this does not include revenue from the sale of content such as IPTV. Demand from the youth and business segments is expected to drive broadband revenues.

Based on its existing business, TM is expected to continue generating positive free cash flow, even after factoring in HSBB capex totaling RM9 billion over 10 years. In addition, TM has RM2.8 billion in cash as of September 2009 to support its dividend commitment.

Note that our forecasts factored in capex from HSBB, but not revenue. Clearer visibility of HSBB revenues (access and content) and lower capex for existing business are catalysts for upgrade. The stock offers potential 6% net dividend yield, which limits downside to its share price. Given additional 11% potential upside to our raised target price, we upgrade TM to “buy”. — HwangDBS (Feb 2)

Latexx Partners Bhd (Feb 4, RM3.85)
OUTPERFORM: Latexx is scheduled to release its 4QFY2009 results after market close on Feb 5. 4Q earnings are expected to be much higher on both q-o-q and y-o-y basis, boosted by higher production capacity and more nitrile sales.

Full-year net profit is likely to meet our forecast of RM51.9 million. Pending the results release, we retain our earnings forecasts but highlight that there is upside to our FY2010-FY2011 numbers once management reveals more details of its natural rubber (NR) protein-free glove agreement.

We maintain our “outperform” call and target price of RM5.44, which is pegged to 11.6 times FY2011 PER or a 30% discount to Top Glove’s target PER of 16.5 times.

Latexx also aims to be a premium rubber glove player by moving towards the NR powder-free and nitrile range. Latexx recently tied up with Budev, a Dutch company, to develop protein-free NR gloves, which are currently not available in the market.

Potential share price triggers include the upcoming strong results and improving earnings ability, driven by its major expansion plans and move towards premium products. Latexx’s three-year EPS CAGR of 104.4% is the highest in the industry. — CIMB Research (Feb 2)

Hunza Properties (Feb 4, RM1.26)
OUTPERFORM: Hunza YTD revenue swelled by 133.8% y-o-y to RM116.5 million in 1HFY2010, while YTD net profit surged by 107.7% y-o-y to RM25.7 million. Its 1HFY2010 top line and net profit were 68% and 78% respectively of our full-year forecast. Hunza exhibited a strong rebound from 1QFY2010 due to RM26.1 million, or 22.4%, revenue contribution from Diamaward (M) Sdn Bhd in 2QFY2010.

The Infinity and Gurney Paragon projects recorded substantially strong sales during the current quarter. Hunza bought 42 acres of freehold land in Bayan Baru for RM82 million, to be developed into a multi-billion ringgit integrated project.

It plans to raise RM100 million through a rights issue. We expect the funds to be channelled to the construction of Gurney Paragon retail mall. Paragon is expected to tap the middle to high-income group, with rental expected to be RM6.50 psf.

We have revised upward our earnings forecast for FY2010 by 33%, after taking into consideration unbilled sales of RM200 million, sizeable land bank, positive sales momentum and strong sales in 1HFY2010. We are recommending an “outperform” call, with our target price pegged at RM1.83 using forward PER of 5.2 times and projected FY2011 EPS of 35 sen. — Inter-Pacific Research (Feb 3)

This article appeared in Capital page, The Edge Malaysia, Issue 792, Feb 8-14, 2010