Water Concession in Selangor

Puncak Niaga is believed to be seeking an extension to its water concession in Selangor by another 20 years in return for not raising its tariffs that are due in Jan-09. Sources said that the proposal was submitted to the federal government a few weeks after it sent a notice to SPAN seeking a tariff hike of 37%.

Syabas' 30-year concession to supply water to Selangor, Kuala Lumpur and Putrajaya would end in 2034. The 37% water tariff hike due in Jan-09 is its highest tariff increase throughout its concession period. An approval for an extension of Syabas' concession would mean that tariff increases would be spread-out with lower quantums and would ultimately benefit consumers.

WIMAX

Certification for WiMAX equipment on the 2.3GHz spectrum could be delayed longer than expected and this will impact the country’s rollout of wireless broadband services using the technology.

• The certification by the WiMAX Forum may only happen by end-09 or even later, said Nokia Siemens Networks, the manufacturer of such equipment because the US is close to a WiMAX rollout, scheduled for June, but only on the 2.5GHz spectrum which has been given priority. In fact, the certification for 2.3GHz could face a long delay. Thus, the four WiMAX licensees in Malaysia would be caught out by the delay.

• If they choose to roll out their services as planned without the certification, interoperability between base stations, access points and networks could be - compromised, said Nokia Siemens Networks. Going on without certification could also lead to technical glitches in their WiMAX services in the future, the manufacturer added.

• A possible solution would be for MCMC to swithc spectrums but that is unlikely as it would leave the four Wimax service providers in a lurch as the 2.5GHz spectrum has already been assigned to seven other wireless broadband service providers, which together have taken up the maximum capacity for that frequency. It is also an unlikely scenario as these WiMAX service providers have already invested in 2.3GHz equipment and has started infrastructure work from June last year.

Latest on Digi

DiGi's new CEO Johan Dennelind firmly believes that there is “still a lot of room for growth and 3G will be the driver of growth, as will mobile broadband’’ despite talk that the mobile market has reached saturation at 80% penetration. DiGi will expand its coverage to 95% of the population from the current 90%.

• The 3G spectrum is a priceless commodity that opens huge growth avenues for DiGi. It would be DiGi’s growth platform which allows it to grow its capacity and core business. “It also gives us a licence to compete in the broadband space. We want to be part of bringing Internet on mobile phones here and we would do it with the DiGi twist. But to do that, we must first find out what would trigger consumers to our direction."

• On MNP, “People in Malaysia are very number focussed and it is very difficult to take their cell numbers away. But in an MNP environment, you can keep your number, so why not go for better value, quality and coverage? “Our basic belief is that we try to do simple things and the way we are going to approach MNP is to bring the best value, coverage and quality and that definitely could be a decisive factor for users (to switch networks)."

• Dennelind expects newer players to use pricing as component mix to attack the stronghold of established players. That is why margin pressure can be expected.

Corporate Credit Deteriorates in Europe on Euro

European corporate credit quality is sinking at an ``alarming'' rate as rising oil prices, the possibility of a U.S. recession and the euro's strength restrain the region's economy, Moody's Investors Service said.

Moody's assigned 32 ``negative'' outlooks to European companies in the first quarter, almost triple the 11 that were ``positive,'' the New York-based ratings firm said in a report today. The gap is the widest since 2001 and indicates deteriorating credit quality in 12 to 18 months, Moody's said.

``The negative outlook gap is quite alarming,'' Moody's economists Christine Li and Kimberly Forkes wrote in London. ``Uncertainty about the U.S. recession, nervous financial markets, higher input costs for business and an appreciating euro are restraining the euro-zone economy.''

The International Monetary Fund in Washington estimates economic growth in the 15-nation euro region will slow to 1.4 percent this year from 2.6 percent in 2007. Moody's Chief Economist John Lonski said in a March 27 Bloomberg Television interview that the U.S. is already in a ``mild'' recession, after growth slowed to a 0.6 percent annual rate in the final three months of 2007.

Losses at banks are hampering lending, and will have a ``greater and more prolonged'' impact on non-financial businesses, Moody's said. Banks reported $308 billion of writedowns and credit losses tied to the collapse of the subprime mortgage market, according to data compiled by Bloomberg.

Oil, Euro

Crude oil futures soared to $119.90 a barrel in New York last week, the highest since trading began in 1983. The euro rose 7 percent against the dollar this year, reaching a record $1.6019 on April 22.

A 1 percentage point increase in the euro's real exchange rate reduces export growth 0.6 percent within a year, according to a note this month from Frankfurt-based Deutsche Bank AG, the biggest currency trader. The euro appreciated 9.8 percent over the past year against a basket of currencies, according to an index from the Bank of England that's adjusted for inflation.

European Central Bank President Jean-Claude Trichet told reporters at a conference in Frankfurt last week the bank is concerned that the euro's surge may hurt the economy.

Moody's Changes

Moody's cut ratings on 35 companies in the first three months and upgraded 17, the worst ratio since the third quarter of 2006, the firm said.

Financial companies were hit hardest by credit market turmoil, with downgrades rising to 17 from 14, the most since 2003 and ``a sign of rising financial stress,'' Moody's said. There were 10 more downgrades than upgrades among lenders.

Default rates among high-yield, high-risk borrowers will rise in the next 12 months, Moody's said. High-yield debt is rated below Baa3 by Moody's.

The extra yield investors demand to hold European high-yield bonds rather than similar-maturity government debt soared to as much as 815 basis points in March, the widest since 2003, Merrill Lynch & Co. indexes show. The gap increased from 496 basis points, or 4.96 percentage points, at the end of 2007.

Dangers of Small Cap Stocks

MANY investors would be indifferent to investing in large cap stocks and small cap stocks. The inherent dangers of investing in small caps need to be investigated so that investors have a better grasp of the risks involved.

There is a very popular local fund manager who has performed admirably, largely thanks to his picks in mid and large caps. However, his track record was compromised somewhat by his picks among small caps; in fact, it was pretty dismal.

The biggest attraction of small caps is the huge growth potential. Most successful large cap companies started at one time as small businesses. Small caps give the individual investor a chance to get in on the cheap. Everyone talks about finding the next Genting, YTL or IOI Corp. However, the reality is that very few small caps make the grade.

It is certainly easier to grow from a market cap of RM100mil to RM500mil but it's a totally different scale to grow from RM1bil to RM5bil. At some point you just can't keep growing at such a fast rate due to restrictions in the sector size.

While there are some funds that do invest in small caps, by and large the majority of funds are averse to them. That's because the fund would have to be small in size to invest in small caps. If you are managing a US$500mil fund, it's difficult to have sizable positions in small caps. No fund manager wants to look at 100 companies in their portfolio – the monitoring costs are too overwhelming. For mid size to large funds, to invest successfully in small caps would require hitting a lot of home runs every year – a debilitating task.

The coverage on small caps would also be scant at best. Lack of coverage means lack of exposure. Lack of exposure means the stock will not appear on their radar screen. What this means to the individual investor is that, because the small-cap universe is so under-reported or even undiscovered, there is a high probability that small-cap stocks are improperly priced, or usually under-priced.

The biggest drawback to investing in small caps is in the management. Typically, they comprise entrepreneurs who built the company from scratch to its listing capacity. We have to differentiate between people who had a great idea and those who have the ability to grow a company.

Statistics reveal that these entrepreneurs hold onto the company for far too long and do not have the expertise to take the business to the next level. It takes more professionalism and market savvy to turn a RM100mil company into a RM500mil company. Too many entrepreneurs are unwilling to appoint more professional managers, or are blinkered of the need to do so.

There are varying notions of what constitutes a small cap company. In the US, it is generally regarded as companies with market cap of less than US$500mil (which would be regarded as a mid cap in Malaysia and most of the smaller South East Asian countries).

Truth is, there are no hard and fast rules. I would categorise small caps in Malaysia as those with a market value of below RM500mil (because there are just so many of them) and then have another category for those under RM300mil as micro-caps. If we were to push the threshold higher, it would envelope the majority of stocks on the Bursa.

To better spot the better small caps is to examine the company's strategy and execution ability. First, the business needs to be scalable. Secondly, the company must know its market, competitors and its competitive edge. It also must have a clear plan to grow organically or via acquisitions. In addition, there must be increasing professionalism in the way business is run – be it at management or board level. There must exist a clear understanding of cost and capital requirements. Last but not least, is the execution ability. There should be goalposts or milestones marked and reached.

Small caps are able to ride a wave better because they are more agile given their size. The crunch comes when there is a recession or dramatic slowdown in their sector. Many small caps will perform well in a bullish environment but wither easily when the wind blows harder.

A lot of small companies arise from carving a niche in technology. However these companies also suffer swiftly from technology improvements and trend changes. Most do not have sufficient resources to commit at such an early stage into research & development in order to stay ahead of the development and technology curves.

Small caps usually do not pay much dividend as most of its profits will be reinvested to fund growth. This is an additional risk as no or little yield will mean investors would be buying for pure capital appreciation.

My final thought on the issue is that through my observation, I have noticed a certain danger of complacency among owners of small caps. Many entrepreneurs are satisfied once they get their companies listed on the stock exchange. In Malaysia, many of these owners stand to make RM10mil-RM50mil following a listing. Indeed, an attractive sum that can tempt many to “retire” and lose their drive to elevate the company.

The Dragon Roars

With the KLCI making an impressive run-up in the last two weeks, we were thinking about making a call to take profits today. Coincidentally the Chinese Dragon choose yesterday and today to wake up from its slumber, which has increased our optimism and at the same time making it harder for us to determine the direction of the KLCI ahead. After some research suggested a high correlation between the KLCI and the Shanghai bourses, it is more difficult to be on the pessimistic side of the market.

China Bottoming up
With the Shanghai stock market having corrected by around 50% to the 3000 level, the Government has decided that it is time to bring the retailers back into the market. The Government announced a string of measures to encourage retailers back into the market. Among the measures are:

~ Tax on stock transactions reduced
The transaction tax on stocks has been reduced from 0.3% to 0.1% which essentially has done away with the previous hike which was implemented a year ago.

~ Restriction on large equity sales
China has also restricted the sale of large blocks of shares via the open market. Under new regulations, large blocks of shares exceeding 1% of a company’s total shares will have to be sold off the market in a venue where negotiations can be conducted. The authorities would also have to be notified of the sale one month in advance. This move would stave off substantial shareholders unloading huge blocks of stocks in the open market and help restore retailer confidence.

KLCI highly correlated with Shanghai Composite Index
Our research has shown that the correlation between the KLCI and the Shanghai Index is an impressive 93%. This would suggest that the KLCI is a very strong follower of the direction of the Shanghai Index. Now that the Shanghai Index has a strong upward bias, it is obvious that the KLCI will see a similar uplifting force too.

Note of caution: KLCI not guaranteed to go upwards
A note of caution though, an upward direction is not guaranteed for the KLCI as currently Europe’s liquidity problems and the US housing downturn does not justify the KLCI going up too fast in such a short time span. There are currently two conflicting forces at play which is the bullish China factor and the bearish economic downturn in Europe and US. The clash of these two equally strong forces will bring about very high volatility to our local KLCI in the short term.

Strategy: Take gradual profits and trade in China Call Warrants
With the KLCI already running up by over 5% in the last two weeks, it might be appropriate for traders to start taking profits gradually and slowly and wait for more meaningful entries. To gain some perspective, most of our recommended stocks over the last few weeks have rallied by as much as 20%-50%, which signals that local stocks are slightly toppish now. It’s never wrong to lock in profits in rallying stocks and look for more meaningful entries later. Traders still on the buying side can still find trading opportunities in China call warrants and safer counters which have not made movements yet such as Axis Real Investment Trust, Dutaland and Affin Holdings. Long term investors on the other hand may take this bullish opportunity to also take partial profits and marginally reduce their exposure while maintaining the core of their holdings to ride through the volatile next few months.

In short, traders are advised to take profits on high movement stocks and can still find safe opportunities in quality stocks which have not moved. Investors can take small gradual profits and choose to hold on to their core of holdings to ride out the volatile storms ahead.

Sime Darby

We have increased our EPS forecast for Sime Darby by 3% for 2008-2009, and our SOP-based price target by 4% to RM11.40. The changes reflect better-than-expected progress in the plantations business, somewhat offset by more conservative estimates for some other divisions. Overall, we remain bullish on CPO and Sime is the world’s largest listed plantation company by hectarage. The stock is also cheap, trading on 12.9x CY08 earnings, a 20% discount to the peer average. Maintain BUY for 20% upside.

We have increased earnings from the plantations business by 4-7% for 2008-2009 due to quick-than-expected improvements to FFB yields, particularly in Indonesia. However, we have cut previously aggressive forecasts for Sime’s property division by 18% this year and 21% in 2009, due to a slowdown in mass residential property and some merger integration issues. We have also cut earnings for the heavy equipment division by 7% for 2008-2009 – again, we were probably too aggressive originally. All up, our earnings increase by 0.2% in 2008 and 3% in 2009-2010. Plantations remain the dominant business, representing 71% of 2008CL earnings.

We remain bullish on CPO prices, forecasting RM3,400/t for 2008-2009. The biofuel drive in the US and Europe is one of the key contributors to the global shortage of edible oil. The current production of corn ethanol requires 3.2bn bushels per day, and more capacity is being added. A marginal supply of edible oil will come from Indonesia and South America. Palm plantation companies are set to benefit from rising prices due to supply shortages, as soy, palm, rapeseed and sunflower oils are perfect substitutes.

Sime Darby is the largest listed plantations company by hectare and the second largest by market cap. It is also one of the cheapest at 12.9x CY08 earnings. We believe risks to earnings are on the upside, due to current CPO prices being above our forecast and still conservative estimates on improvements to the plantations business. The main near-term risk for the stock is any potential hike to Malaysia’s CPO taxes. The taxes are under review now, but we believe any increase is likely to be relatively small and nowhere near as prohibitive as the export taxes imposed in Indonesia.

2008.04.25 Market View

Bursa Malaysia shares ended off highs on Thursday, with profit-taking and selling spreading after the benchmark index failed to overcome the psychological 1,300 resistance level in morning trade. The KLCI gained 4.92 points, or 0.4% to close at 1,293.08, off a high of 1,300.15. Market breadth was bearish with 409 losers beating 325 gainers on moderating trade totaling 881.5mn shares worth RM1.36bn.

The overnight rise on US stocks, boosted by hopes the worst may be over for the financial and consumer sectors, should support early gains on the local market, with the KLCI trying to overcome the 1,300 psychological resistances again. Nevertheless, profit-taking and selling from market players clearing trading positions ahead of the weekend should act to check upside, but pockets of strength in selective lower liners should highlight trade, with some investors positioning for spill-over positive sentiment upon the listing of TM International on Monday. Immediate support is revised higher to 1,280, while next resistance upon a decisive breakout above 1,300 will be at 1,320.

SELL Kencana, Buy on Dips Petra Energy, Taann & WTK

On stock picks for the day, investors should look to take profits or sell oil & gas related counter Kencana given the recent sharp rise and short-term technical sell signal, but buy on dips Petra Energy which display significant upside potential despite overbought momentum. Meanwhile, sharp breakout rallies above the 200-day SMA on timber stocks such as Taann and WTK should end their bearish trends and signal the beginning of new up-trends.

Spot month April KLCI futures contract opened at 1,295 and surged to intra-day high of 1,309.5 on Thursday morning, before profit-taking and short sellers dragged prices lower after the cash index failed to overcome the 1,300 psychological resistance level. The contract closed at 1,289.5, off the day's low of 1,286, to lose 10 points for the day.

Expect Shallow Dip to Rebuild Support

The weak closing yesterday below the upper Bollinger Band (1,301) triggered a hook down on the 14-day RSI and sell signal on daily slow stochastic, suggesting further downside towards 1,280 is likely. A profit-taking dip which could be shallow will be good to neutralize the short-term overbought momentum before rebuilding support again, with the rising short-term SMAs cushioning downside.

US Stocks Gain as Financials Rally

US stocks gained a second day on renewed speculation that the worst is over for the financial and consumer sectors after Merrill Lynch assured investors it has enough capital to maintain its dividend, the dollar rallied and crude oil prices fell. Stocks fell earlier after new-home sales plunged more than forecasts, Starbucks and Amazon.com gave lower-than-expected profit forecasts and falling oil prices dragged down energy shares.

However, a higher-than-expected rise in durable goods orders last month and unexpected fall in initial unemployment claims helped boost speculation that manufacturing and the job market are holding up even as the housing market worsens. The S&P500 Index gained 8.89 points, or 0.6% to close at 1,388.82, while the Dow Jones Industrial Average added 85.73 points, or 0.7% to 12,848.95. The Nasdaq Composite Index rose 23.71 points or 1% to 2,428.92. Almost two stocks rose for every one that fell on the NYSE.

Sarawak Plantation

1QFY08 net profit of RM12.4m was seasonally in-line with expectations comprising 13% of our earnings estimates of RM98.4m and consensus comprising 10% of consensus estimate of RM 119.5m. 1Q net profit of plantation companies is generally the lowest due to seasonally lower CPO/FFB production.

Reaped the full benefits of higher CPO prices realised. 1QFY08 net profit of RM12.4m was 124% higher YoY primarily due to higher average CPO price realised. Sarawak Plantation recorded 1QFY08 average CPO price of RM3,033/MT which was 63% higher YoY compared to 1QFY07 average CPO price of RM1,863 /MT.

Although 1QFY08 average CPO price of RM3,033/MT was 7% higher QoQ, 1QFY08 net profit of RM12.4m was 57% lower QoQ because 1QFY08 FFB production of 74,981MT was seasonally 22% lower QoQ and management restrained sales in anticipation of higher CPO prices going forward.

No revision in earnings estimates. 1Q net profit of pure plantation companies such as Sarawak Plantation typically comprise between 10% and 20% of full year net profit estimates due to seasonally lower CPO/FFB production. Inventories more than doubled QoQ to RM30.7m and when sold, will more than compensate for the 1QFY08 net profit shortfall.

Maintain BUY call and RM4.50 target price based on 13x FY08E PER and 10% discount (for illiquidity) to RNAV of RM5.05. At 11x FY08E PER, Sarawak Plantation provides one of the cheapest exposures to upswings in palm oil prices.

Growth beyond FY10E will be driven by new areas coming into maturity. Management intends to plant 7,000ha with oil palms in FY08E which will mature by FY11E and 8,000ha with oil palms (under two 60% JVs with Pelita Holdings) in FY09E which will mature by FY12E.

UMW Holdings Berhad

The group announced on 22 Apr 2008:
proposals to acquire two automotive component makers in India for a total of USD23.5m (RM74.7m), and

a share sale agreement for the acquisition of a 60% stake in an Indian company involved in charter hire onshore drilling activities.

The proposed acquisition of the two automotive component makers in India is expected to strengthen the group’s manufacturing and engineering division via exposure to India’s fast growing automotive sector. Meanwhile, the proposed acquisition of a 60% stake in the Indian charter hire onshore drilling company is expected to boost the group’s oil and gas division’s exploration and development support operations in India and the Middle East.

The core domestic automotive division continued to register strong vehicle sales in Mar, with Toyota and Perodua maintaining their respective lead positions in the non-national and overall industry respectively.

News flow for the group is expected to remain positive, with strong results expected for 1Q08 and the upcoming listing of the group’s fast-growing oil and gas unit later this year.

We maintain our BUY recommendation with an unchanged price target of RM8.20/share, which is based on our RNAV estimate.

Acquisition of two automotive component makers in India

UMW announced on 22 Apr 2008 that it had entered into two separate share sale agreements with Dato’ Muthukumar a/l Ayarpadde for the acquisition of a 51% stake in MK Autocomponents Ltd (MKAL) and a 50% stake in MK Automotive Industries Ltd (MKD) for USD22.5m (RM71.6m) and USD971m (RM3.1m) respectively.

MKAL owns the entire share capital of Sathya Auto Private Ltd (SAPL) and Castwel Autoparts Private Ltd (CAPL), both of which operate in India. SAPL manufactures mechanical jacks, radiator caps, sheet metal components for automotive manufacturers in India whilst CAPL manufactures aluminium gravity die castings, aluminium alloys, water pump body, cover and brackets for automotive manufacturers in India.

MKD owns a 50% stake in Dongshin Motech Private Ltd of India, an original equipment manufacturer (OEM) for stamped automotive body parts for Korean car manufacturers.

Although the proposed acquisitions are not expected to have any material impact on group earnings, MKAL and MKD are expected to strengthen the group’s manufacturing and engineering division via exposure to India’s fast growing automotive sector.

Strengthening oil and gas exploration and development support in India and Middle East

Also on 22 Apr 2008, the group announced that its 65%-subsidiary, UMW India Ventures (L) Ltd (UMWIV) had entered into a share sale agreement with Jogen N. Buragohain (Jogen) for the acquisition of a 60% stake in Jaybee Drilling (P) Ltd (JDPL) for USD1.9m (RM6.0m). Jogen will at the same time subscribe in stages, for up to a 40% stake in the enlarged share capital of UMW Sher, a company wholly-owned by UMWIV, for a total of USD2m.

Upon completion of the proposed JDPL acquisition and proposed share subscription, JDPL will become the operating company for the charter hire onshore drilling activities in India whilst UMW Sher will be the asset owner holding all new assets required for the operations of onshore drilling activities in India.

Both transactions are not expected to impact on group earnings materially but are expected to strengthen UMW Oil and Gas’ exploration and development support operations in India and the Middle East.

Domestic vehicle sales remain strong, Perodua boosting training centres

At the group’s core automotive division, numbers remained strong as at the end of Mar 2008, with Toyota and Perodua maintaining their lead positions in the non-national segment and overall industry respectively.

As at the end of Mar 2008, Toyota’s share of total industry volume (TIV) was at 18.5%, up 0.9%-points from Feb 2008, reflecting the popularity of the new Altis model that was launched in Mar, and also continued strong sales for the high-volume Vios model. Toyota remained the top-selling non-national brand in the industry.

Perodua’s share of TIV was 30.8% as at the end of Mar 2008, down 1%-point from 31.8% in the previous month. The loss in market share was due to competition from the successful new Proton Saga, which was launched in Jan 2008. The new 1.3 litre Proton Saga is priced from about RM31,000 to RM40,000, competing with Perodua’s 1.0 litre Viva model, which is priced from RM37,000.

Although some loss in market share at Perodua is unavoidable, we believe the market is big enough for both Proton and Perodua, with Proton targeting mainly the sedan market and Perodua focusing on the compact car segment where consumers are looking for a second car.

Despite the slight drop in market share, Perodua remained the best-selling model in the overall market with the highest share of TIV as at the end of Mar 2008. In an effort to improve efficiency and service level to its custom

RM61m in the opening of four 3S-regional training centres (RTC) in Johor Baru, Kuching, Prai and Kota Baru, and one learning centre in Rawang. The centres will feature the 3S concept where sales, service and spare parts businesses will be placed under one roof. The centres will also conduct in-house training for staff and dealers.

Earnings Outlook:

• UMW remains a leader in its core automotive business, both in the national and non-national segment, under Toyota and Perodua, respectively. The Toyota franchise has commanded top position in the non-national segment for the last 17 years whilst Perodua has been the top selling model in the industry since 2006.

• UMW’s relatively new core business in oil and gas has also performed well, having gone from a new core business in 2002 to becoming the second contributor to group earnings currently.

• Prospective revenues and earnings are expected to remain strong, underpinned by UMW’s relatively strong foothold in the recovering automotive sector and robust growth at the newer oil and gas division, on the back of high oil prices and overseas expansion, in particular China and India.

• 2008 and 2009 revenues and earnings are expected to continue to remain strong, underpinned by:

• Continued growth in Toyota and Perodua sales on the back of new model launches (Toyota Altis in Mar 2008 and replacement model for Perodua Kembara by mid-08) and sustained demand for existing high-volume models such as the Toyota Vios, Perodua Viva and Perodua MyVi; and

• Strong growth at the oil and gas division, which will continue to enjoy a strong order book at existing oil and gas operations plus initial contributions from new businesses including Zhongyou BSS (Qinhuangdao) Petropipe Co Ltd in China by 4Q08 and UMW Naga Two (L) Ltd from Sep 2008.

Recommendation

• News flow for the group is expected to remain positive, with strong results expected for 1Q08 and the upcoming listing of the group’s fast-growing oil and gas unit later this year.

• The potential listing of the oil and gas unit will result in UMW shareholders receiving one free UMW Oil and Gas share for every eight UMW share held.

• The recently-proposed acquisitions in India do not require shareholders’ approval and should be internally funded – as at 31 Dec 2007, UMW had an estimated net cash position of RM820m.

• We maintain our BUY recommendation with an RNAV-based price target of RM8.20/share.

Bursa Malaysia

Bursa’s 1Q08 net profit dropped 40% YoY to MYR42.1 mln. The weaker performance was expected due to the lackluster market during the period. The average daily turnover (ADT) for equities declined 26.9% to MYR1.9 bln with a lower turnover velocity of 46% versus
68% in 1Q07. Trading revenue declined 38.7% YoY to MYR61.1 mln.

Stable revenue (income that isn’t directly affected by market turnover) rose 14.7% YoY to MYR26.4 mln mainly on higher listing fees due to the full effect of the fee revision (the full charge started on Jan. 1, 2008).

Total expenses increased 11% YoY (in line with our forecast) because of higher staff costs (due to increased ESOS expenses and annual increments) and depreciation expenses (due to capex spending to upgrade its IT systems and renovate its premises for new tenants).

We have fine-tuned our forecast and lowered our projected 2008-2009 net profit by 3%-4%. Current global market uncertainties and to a certain extent, political developments in the country may keep ADT low in the near term. Our expected earnings recovery will be supported by:
(i) a growth in derivatives turnover with the recent launch of direct market access (DMA) for derivatives and introduction of new derivatives products;
(ii) an introduction of DMA for equity (after
DMA for derivatives stabilized) should help to improve turnover velocity; and
(ii) potentially higher new listings driven by the Securities Commission’s recent relaxation of listing requirements. We maintain our Hold call on Bursa. Given the minimal revisions to our forecasts, our 12-month target price is unchanged at MYR10.00.

The target price is based on a PER of 22x on 2008 earnings and includes our projected dividend for the year. The accorded PER is at a discount to our target multiple of 25.6x for Hong Kong Stock Exchanges and Clearing (00388 HK, HK$148.00, Buy).

While near-term earnings outlook could be cloudy, the stock offers a decent dividend yield. Bursa has maintained a dividend payout of 91%-92% (excluding special dividends) over the past three years and we expect the ratio to be sustained in view of its small capex needs and strong cash position.

Risks to our recommendation and target price include a prolonged consolidation in equity market conditions, which may necessitate further reduction to our projected market turnover and turnover velocity, as Bursa’s performance is highly dependent on market sentiment.

UEM Builders

UEMB net profit of MYR157.4 mln in 2007 was lifted by a net gain of MYR90.4 mln arising from dilution in its equity stake in UK-listed Costain Group Plc (COST LN, GBP0.245, Not Ranked). Excluding this one-off gain, the net profit was MYR67.0 mln. We project stronger net profits of MYR89.4 mln and MYR111.8 mln in 2008 and 2009 respectively as the construction of the MYR4.3 bln Second Penang Bridge (P2X) gains momentum. At present, UEMB has a reasonably strong outstanding order book of MYR 3.5 bln and is likely to secure the MYR1.2 bln Cikampek-Palimanan Highway project in Indonesia soon. In addition, the construction margin is expected to improve as the new contracts would have incorporated increases in prices of raw materials.

UEMB is also expected to continue to derive stable earnings stream from its infrastructure maintenance business and Penang Bridge concession. We also expect 20.55%-owned Costain to return to profitability in 2008 after making certain write-downs and provisions for closure of its international divisions in 2007. Overall, we forecast the group’s EBIT margin to hover between 11% and 12% in 2008-2009.

Investment Risks
Risks to our recommendation and target price include fewer-than expected new contracts secured, lower-than-expected profit margins for construction projects, potential delay in the Second Penang Bridge and execution risks for overseas construction contracts.

Recommendation
We initiate coverage on UEMB with a Buy recommendation and a 12-month target price of MYR1.50.

We have valued UEMB using the Sum-of-Parts (SOP) method, which comprises four major components: (i) construction business, (ii) Penang Bridge concession, (iii) infrastructure maintenance and (iv) its 20.55% stake in Costain. Our target price also includes projected net DPS of 1.5 sen (2.0 sen gross).

At our target price of MYR1.50, the implied 2009 PER is 12.9x. The PER is at the higher end of our valuation range for small and mid-sized construction companies, which we feel is justified given UEMB’s expanding order book and stable recurring income from its existing Penang Bridge and infrastructure maintenance business. In addition, the recently proposed restricted offer for sale (ROS) by UEM World (UEM MK, MYR3.40, Not Ranked) of its shareholdings in UEMB at an offer price of MYR1.42 should provide share price support, in our view.

From a Corporate Social Responsibility perspective, we note that UEMB has published policies pertaining to the environment, occupational health and safety, emphasizing its commitment to environmental preservation. In addition, UEMB also supports various activities such as charities and human talent development programs which benefit the community.

Boustead Holdings

Boustead is one of Malaysian oldest conglomerates with over 70 subsidiaries and associated companies. Its operations are grouped into six core businesses, namely plantation, property, heavy industries, finance & investment, trading, and manufacturing & services.

A well-diversified group, Boustead is poised for a better year with a positive outlook for its core businesses. The plantation division’s performance will be stronger due to higher palm oil prices and the planned disposal of loss-making Indonesian operations.

Property earnings are secured from the recognition of profits from ongoing projects, Mutiara Damansara (in Petaling Jaya) and Mutiara Rini (in Johor), and recurring rental income. Its investment properties have the potential of being grouped together under one REIT to enable Boustead to realize the value of the assets.

The finance division opens a new chapter with The Bank of East Asia (00023 HK, HKD42.95, Buy) as a significant shareholder in the Affin Holdings (AHB MK, MYR2.05, Not Ranked) group.

The heavy industries division has over MYR3.0 bln orderbook (including the contracts to build the navy petrol vessels) to keep it busy in 2008 and 2009. It is now in a better financial position to seize the opportunities from the strong demand for shipbuilding and fabrication works amid tight shipyard space in the region.

Strong Stale Bull Selling to Cap Upside

Bursa Malaysia shares ended mixed on Tuesday, capping a five-day winning streak,but profit-taking on selected blue chips was offset by keen buying interest in oil & gasrelated stocks after global crude oil prices rallied to new record highs, almost reachingUSD118 a barrel on fears of pipeline sabotage in Nigeria. The KLCI was marginallydown by 0.7 of a point to close at 1,279.3, off a high of 1,284.08. Market breadth wasless bullish as 354 gainers led 300 losers on slower trading volume which totalled619mn shares worth RM1.1bn.

Upside Restricted by Weak Buying Momentum
As we had anticipated, profit-taking correction did emerge to cap upside, given theincreasingly overbought momentum on short-term technical indicators for the KLCI.We would continue to advocate investors sell on rally, as we expect strong stale bullselling to check immediate upside near the 1,300 psychological resistance level.Moreover, the weak buying momentum suggests that near-term upside should berestricted with most investors still sidelined and cautious. Immediate support on animmediate profit-taking correction is seen at the 1,260 to 1,250 region.

Reiterate Buy Oil & Gas Stocks
Nevertheless, we reiterate our buy calls on oil & gas related stocks such as Dialog,Petra Perdana, Ramunia, Ranhill and Wah Seong which are expected to out-perform thebroader market given the sustained strength in global crude oil to new record highs,which will boost demand for oil & gas related services.

US Stocks Fall on Earnings Concern, Record High Oil Prices
US stocks posted their biggest loss in more than a week as record high crude oil pricesand disappointing earnings from technology, health-care and consumer companies reignitedconcerns the profit slowdown will spread beyond banks. Texas Instruments,the second-largest US semiconductor chipmaker, fell the most since October on slowingorders from phone companies.

UnitedHealth Group, the biggest medical insurer, dropped almost 10% as sales toemployers slumped. Coach Inc. fell as discounts cut the profitability of its handbags,while Target Corp. led declines in 29 of 30 shares in the Standard & Poor's 500 RetailingIndex as crude oil surged above the USD119 a barrel level.

The S&P500 Index fell 12.23 points, or 0.9% to close at 1,375.94, while the Dow JonesIndustrial Average shed 104.79 points, or 0.8% to 12,720.23. The Nasdaq CompositeIndex dipped 31.1 points, or 1.3% to 2,376.94. About nine stocks fell for every two thatrose on the NYSE.

Reference Price for Telekom Malaysia (TM)

The reference price for Telekom Malaysia (TM) is RM3.05 and TM International (TMI)is RM7.85 with a trading date of 23 Apr and 28 Apr respectively. Both stocks will have a settrading limit down of 30% and limit up of 400%, which is only applicable for those tradingdates.

TM will remain as a component stock in the KLCI. TMI will be considered forinclusion in the KLCI after one month of listing if its market capitalisation is more than 1.0%of the full market cap of the Main Board; and the volume traded for the month is rankedwithin the top 75% band among all the companies on the Main Board. (Bursa Malaysia)Our target prices of TM and TMI are RM4.40 and RM8.11 respectively.

The RM4.40includes the RM0.37/share in cash to be raised by the issuance of 137.6m ESOS shares.

UMNO Link Companies

Since our market in Malaysia is unstable recently, why not watch closely the Government Linked Company (GLC) which under Barisan National (BN). These are some of the companies listed by TA Research house and some of it are from my memory. These are the United Malays National Organisation (UMNO) linked companies, Malaysian Chinese Association (MCA), Selangor State Government, and others related.

No. - Stock Code - Short Name - Company Name

UMNO

7078 - AZRB - AHMAD ZAKI RESOURCES BHD
8125 - DAIMAN - DAIMAN DEVELOPMENT BHD
1619 - DRBHCOM - DRB-HICOM BHD
2143 - ECM - ECM LIBRA FINANCIAL GRP BHD
1368 - FABER - FABER GROUP BHD
6874 - KUB - KUB MALAYSIA BHD
3174 - L&G - LAND & GENERAL BHD
9628 - LDAUN - LEBAR DAUN BHD
1651 - MRCB - MALAYSIAN RESOURCES CORPORATION BHD
4502 - MEDIA - MEDIA PRIMA BHD
2194 - MMCCORP - MMC CORPORATION BHD
9032 - MTD - CAPITAL BHD
3999 - NSTP - NEW STRAITS TIMES PRESS (M) BHD
5093 - PECD - PECD BHD
7081 - PHARMA - PHARMANIAGA BHD
2895 - PUTERA - PUTERA CAPITAL BHD
5030 - RANHILL - RANHILL BHD
5050 - RUBHD - RANHILL UTILITIES BHD
7158 - SCOMI - SCOMI GROUP BHD
7366 - SCOMIEN - SCOMI ENGINEERING BHD
7045 - SCOMIMR - SCOMI MARINE BHD
4421 - TWS - TRADEWINDS (M) BHD
4804 - TWSCORP - TRADEWINDS CORPORATION BHD
6327 - TWSPLNT - TRADEWINDS PLANTATION BHD
5054 - TRC - TRC SYNERGY BHD
5042 - TSRCAP - TSR CAPITAL BHD
4855 - UEMBLDR - UEM BUILDERS BHD
1775 - UEMWRLD - UEM WORLD BHD
5754 - UTUSAN - UTUSAN MELAYU (M) BHD
8958 - WELLI - WELLI MULTI CORPORATION BHD

Bulls Trying To Turn The Technical Corner

If you were to Google "Knocking On Heaven's Door," you would arrive at one of two links. The first would be a snazzy little Dylan ditty that's been covered by everyone from Axl Rose to Avril Lavigne. The second would be Friday's technology-led rally that juiced the tape to within spitting distance of resistance at S&P 1,405.

Here we are again, another critical juncture for the markets and those of us consumed with them. While technical analysis is a better context than catalyst, it assumes higher weighting in our metric mix when folks are confused and looking for legs to lean on. And make no mistake, there's no shortage of traders spun around these days.

Psychology has been reactive (bullish higher, bearish lower), fundamentals are mixed (buoyed by overseas sales and the weak dollar) and the structural imbalances have seemingly been absorbed by massive government intervention (whether or not the "panic phase" has been socialized away remains one of the more critical elements of risk analysis).

A quick sniff of the current landscape finds the DJIA and Transports trying to find footing on the other side of resistance (12,800 and 5,000 are the respective levels of lore). The S&P and NDX have yet to offer technical affirmation of the recent rally and the financials remain so far out of the game that we're left to wonder which way the ketchup will flow when the stars realign.

Over the weekend, Minyan Michael Santoli of Barron's offered food for thought on the year-to-date performance. He mused that if you're a fund that nailed the macro environment and identified the entire closet full of shoes -- from housing erosion to credit dysfunction to recession realization to the softening labor market -- you would have netted all of 5% in the S&P.

One of two reasons explains the relative traction: Either the muted downside reaction to news portends a sharp and snazzy rally -- one that will spark brilliantly once S&P 1405 is underfoot -- or government intention, coupled with the slack in the dollar, is masking disastrous imbalances that continue to build, fueled by policy and fed with complacency. Binary? In many ways, yes it is. Difficult? You betcha, on both sides of the ride. Impossible? Not on a bet, as volatility offers daily opportunities to those who trade with discipline over conviction. Sidle up to the edge of your seats, my friends, as this particular series of sessions promises to be chock full of nuts.

Gamuda (Bursa Malaysia: 5398)

Gamuda shares bottomed out above an extreme low of RM2.80 on 18 March before staging technical rebound which was capped at RM3.50 to fully cover the post election gap-down. A decisive breakout above this level on strong buying momentum is essential to fuel further upside towards RM3.80, where stronger selling interest should emerge.

The overhead 200-day SMA which is leveling above RM4.10 will prove to be a formidable ceiling. Immediate support is seen at RM3.10.

TRADING VIEW: SELL ON RALLY prior to profit-taking correction.

Malaysia Equity Strategy

Bottoming Out; Setting Our Year-end Index Target at 1,449

Bottoming-Out, Start Buying — In discounting the global equities meltdown, the market was hit by the shocking 12th General Election results where the ruling coalition parties lost the two third majority. A lot of the bad news is already in the price. In an illiquid market like Malaysia, we urge investors to start positioning.

Index Can't Fall Much More — Instead, we now expect the KLCI is set to hit 1,449 points by end-2008. Our bottom-up index target suggests 15% upside. Leading the pack is the banking sector, which accounts for 23% of the index weighting followed by plantations, telcos, utilities and gaming.

Limited Downside to 7.1% EPS Growth — Fundamentally, after three rounds of cutting, we see little downside to our 7.1% EPS growth estimates for 2008. While the worst is yet over for consensus, a few stocks have already fallen ahead of street downgrades. 2009 is set to be a better year with 11.6% EPS growth. GDP growth will be decent at 5.3% supported by strong domestic factors.

Valuation Looking Attractive — Malaysia is now trading at discounts relative to the region and its historical valuation benchmarks.

Imminent Catalysts — 1) Sentiment is too negative, partly caused by over-reaction to the spate of downgrades by the streets. 2) Some local institutions are seeing their cash levels rising to over 20%. We see buying activities picking up
imminently. 3) The upcoming 2009 budget could stir buying interest as investors
expect an expansionary budget to shore consumer confidence.

Upgrading Property as Value Emerges — Property stocks fell ahead of consensus
downgrades. After a 30-40% fall, we see value emerging. We have upgraded SP
Setia to Buy from Sell with a target price of RM4.90/share. We have also added
KLCC Property to our Top Buy list after falling 40% with a market cap of RM2.6b
against its RNAV of RM6b. We also upgraded UEM World from Hold to Buy.

Strategy: Add Beta and be Less Defensive — We are adding beta to our stock
selections by adding SP Setia, KLCC Property and UEM World to the list. We
continue to like IOI Corp, KL Kepong and IJM Plantations in the plantation space
but are dropping Sime Darby. Telcos is always on our Buy list. Small/mid stocks
like SapuraCrest and TA Enterprise should deliver str

Step by Step: Online Apply IPO

There are only few banks have the online Initial Public Offering (IPO) application services. This is the example for the Maybank.

First log in your Maybank2u account. There is a pane at the left hand side as show below. Select "eShareApplication",

follow step 1.



Step 2: Choose "IPO Application"

Step 3: Choose which IPO you want to apply. Example shown Dayang Enterprise Holdings Bhd.

Step 4: Click "Apply" to proceed.



Step 5: Click the check box.

Step 6: Click "I Agree" to proceed.



Step 7: Choose your race (there are quota for bumiputra and non-bumiputra)

Step 8: Key in your CDS account number. (15 numbers)

Step 9: Key in how many LOTS you want to apply.

Step 10: Click "Apply" to proceed.



Step 11: The final step, click "Comfirm" to complete the application.



After that you can print your application slip for your record. The money will automatic deduct from your account. This money will come back to the same account IF your application not choosen in the balloting.

The day after balloting date, if the amount go back to the account means the application not been choosen. If the money didn't come back, high possibility been choose. Partial amount come back, means partially given for the IPO share.

LCL (Bursa Malaysia: 7177)

The LCL chart are showing "on your mark" for the daily n weekly chart. The first target on breakout of this consolidation is about 6.75.

The only set back i see in the chart is the vol is rather low. Without follow through any good announcement will only encourage sellers to sell on
strength.

Sell Ahead of Further Weakness in the Medium-Term

The Bursa Malaysia market failed to follow-through on the previous week's strong gains, as increased uncertainties on the domestic political situation and sharp fall in plantation stocks dragged the benchmark Kuala Lumpur Composite Index (KLCI) lower, ignoring a mid-week rally in the US and the region. Week-on-week, the KLCI lost 36.43 points, or 2.9 percent to close at 1,221.98, with trading volume remaining light as most investors continued to stay sidelined given the uncertain outlook.

New spot month April KLCI futures contract traded on Bursa Malaysia Derivatives Bhd dipped 40 points, or 3.2 percent last week to settle at 1,220, reversing to a 2-point discount to the cash index, against the 1.6-point premium on the previous Friday. Profit-taking and selling post first quarter window-dressing caused a correction on the cash market and renewed short selling interest given the increased domestic political uncertainties.

The market began trading last week on a weaker note, as the previous week's gains for five straight days and concerns over potential for profit-taking and selling post 1Q window-dressing discouraged buying. A sharp rally on US stocks after major investment banks succeeded in raising capital to weather the worsening credit crisis lifted stocks in the region mid-week. However, the index only managed an early high of 1,264.75 before falling back, overshadowed by increased domestic political uncertainties following calls from certain quarters for a leadership change in the ruling coalition after the shocking defeat in last months general elections. The KLCI eventually fell to an intra-week low of 1,219.97 by Thursday, and then stabilized amid light bargain hunting which cushioned the index above the immediate chart support of 1,220 ahead of the weekend.

Sector-wise, plantation stocks were sold down significantly, after CPO futures prices tumbled towards the RM3,000 per tonne mark during the trough of a sell-off triggered by sharp limit-down moves on the CBOT US soybeans and soyoil market following a sharp increase in soybean plantings for the coming season. Construction, infrastructure and property related stocks with business operations in opposition controlled states also fell on concerns over potential delay in implementation of the projects by the current federal government.

On momentum indicators for the KLCI, the daily slow stochastics is falling steeply towards the neutral zone following last week's sell signal (Chart 1), but the weekly indicator remained flat at the oversold region. The 14-day and 14-week Relative Strength Index (RSI) indicators weakened further below the neutral mark to suggest further deterioration in sentiment.

Meanwhile, the daily Moving Average Convergence Divergence (MACD) positive signal line following the previous week's buy signal is flattening while the weekly MACD indicator is deteriorating deeper into negative territory, suggesting further medium-term weakness (Chart 2). The ADX line on the 14-day Directional Movement Index (DMI) trend indicator stayed in non-trending mode on contracting -DI and +DI lines, implying an extended consolidation.

Conclusion
Given the evidently weak technical momentum on the KLCI amid cautious sentiment,the Bursa Malaysia stock market should dwindle with a downward bias for high possibility to re-test the psychological 1,200 level. Technically, the falling 30-day SMA will reinforce immediate resistance from 1,250 (IR) with 1,265 (R1), last week's high, acting as next hurdle (Chart 3). Any bear market rally attempts to try and cover the post election gad-down from 1,278 should be viewed as better selling opportunity ahead of further correction ahead. On the downside, a break below 1,200 will fuel further correction towards 1,180, with a breakdown below the recent pivot low of 1,157 to enhance bearish momentum.

As such, while the market this week may stay range bound amid lack of positive leads, this could be a precursor for further falls ahead as technical momentum indicators failed to show improvement. Additionally, lingering uncertainty in the domestic political situation will prevent investors from returning to the market, thereby capping trading liquidity which is sorely needed to sustain a market recovery. Hence, investors should reduce exposure or look to sell on any counter trend rallies ahead of further weakness in the medium-term.

KNM Call

Look from the chart, KNM is most probably out of the bottom. It climb back to the 200 days moving average and seems start building a base there. MACD also turn positive and has cross over. Estimate it will rebound at least 50% to RM6.49.

Market Hit Bottom

From the charts as at 240308, both markets are showing it have bottomed.


For the US market inspite of all the bad news the Dow is turning up and having a positive cross over.



For the KLCI it is just beginning to crossover. The only worries the KL Market have is the political stability after the election.


Start buying the value stocks,most of them are at their low. The downside are limited but the upside is fantastic for medium term investors.