IPO ... MOL

MOL created vibes when the people got to know of the windfall the company, and its major shareholder Tan Sri Vincent Tan, stands to make from the listing of Facebook. But despite the vast amount of money MOL will get when Facebook shares are publicly traded, MOL did not rest idly waiting to cash out from it's prized investment.

It leveraged off Friendster, which it bought in 2009, by not continuing solely on its social networking business but one that gets people transacting on its website. After getting privatised in 2008 by Tan, the company has been on a rapid expansion into countries in the region, making its presence not only known across the causeway in Singapore, but also Thailand, India, the Philippines, and Indonesia.

Its revenue has climbed steadily and by financial year ended June 30, 2011, MOL recorded RM465.3mil in revenue, a 24% increase from a year ago. While revenue for its first half ended Dec 31, 2011 climbed to RM352mil, almost matching the RM374mil in revenue it achieved for 2010, and is on course to achieve its full-year revenue target of RM750mil this year, deriving its revenue mainly from mobile reloads, online games and social payments.

It is eyeing avenues in e-commerce and physical non-cash payments as its next phase of growth. The company ambitious plans are to potentially become a regional online social gaming portal and potentially re-listing the company.

It is looking at a listing early 2013.

The rationale for listing would not be so much for capital raising but to raise the profile of the company, and allow the public to share the company's growth story.

MOL's a small stake in Facebook currently is valued at about RM450mil. It got those shares in exchange for selling off some patents it owns in Friendster, the pioneer social networking site MOL bought for US$39mil in 2008, to Facebook.

The revamped Friendster has become a social gaming website. MOL has provided a platform for game publishers to promote their wares but also leverages on its payment system to provide users and publishers a medium to transact. Now, MOL has collaborations with over 140 game publishers including big names like Electronic Arts and Zynga.

The company achieved RM135.3mil in social gaming revenue for its financial year ended June 30, 2011, a 93% increase in revenue compared to 2010, and will be targeting to hit the RM300mil mark for its financial year ending June 30, 2012.

Despite having a clear direction for the company's future, analysts are questiong the viability of MOL's business model. Acting as a medium for games and users, what will happen if the popularity of the games die down. Although MOL might look strong right now (Feb 2012) with the Facebook shares as a core asset, investors still need to delve deeper into the books of MOL to scrutinise its financial standing.

Its next phase of growth would be in the digital payment collection area particularly e-commerce and social shopping.

The company is currently regulated by Bank Negara after getting approval in 2002 as an e-money operator for its core product, MOLPoints, the online micropayment service.

WahSeong ... Feb12

Its planned venture into oil palm cultivation in the Republic of Congo is considered risky as the company has no experience in this field. It is also the first listed company to do so in the republic.

The concerned is due to sociopolitical risks in the country. Market observers do not see any catalysts in the short term coming from this venture as it will take some time before Wasco can reap the harvest. If it succeeds in this, the oil palm venture will be good recurring income for the long term.

On Feb 3, 2012, it had entered into an agreement with Silvermark Resources Inc and Ginat Dragon Group Ltd to subscribe for up to 51% equity interest in Atama Resources Inc (ARI) for US$25 million. Silvermark and Giant will hold the remaining 49%.

ARI has a 30 year oil oil palm plantation concession agreement with the government of the Republic of Congo. Under the concession, ARI has the right to occupy 470000 ha to develop oil plam plantations and compexes.

At this juncture, 180000ha or 38% of the concession land has been identified as highly suitable for plantation. ARI will begin planting by 2QFY2013 and the development of the 180000ha is expected to be completed in 10 phases over 15 years.

Wasco will raise half the rm75 million share subscription in ARI via bank borrowings while the rest will com from internally generated funds. As at end Sept 30, 2011 Wasco had rm515 million in cash and rm726 million in borrowings. It has a net gearing of 0.2 times based on its shareholders’ funds of rm987 million.

Although the bank borrowings portion for the share subscription in ARI will only raise Wasco’s gearing to 0.25 times, the venture might become a financial burden in the future. Estimate that it will cost between US$4000 – US$6000 per hectare to develop oil palm to maturity.

Based on the initial 180000ha that have been identified and the US$4000 per hectare development cost, the capex is estimated to be at least US$48 million per year. Wasco will also need to pay RM15 per hectare to the government.

Once ARI becomes a 51% subsidiary of Wasco, its borrowings will need to be capitalized or consolidated in the latter’s balance sheet to develop oil palm plantations. This will undermine Wasco’s ability to seek new borrowings for its oil and gas ventures. This will become a burden unless it manages to hive off its oil and gas business soon, which is currently its bread and butter.

The venture will have a long gestation period. Wasco and its partners are looking at an unplanted area, which may take about five years to see first harvest.

The foray could be a move by management to seek recurring income after hiving off the oil and gas segment. Currently, all of Wasco’s six business divisions are parked under its wholly owned subsidiary Wasco Energy Ltd (WEL).

Under thr proposed demerger exercise, the non oil and gas pipe manufacturing, renewable energy and trading businesses will be parked under Wasco, while WEL will run the oil and gas business. The demerger exercise had been slated for mid 2011, but it was postponed. However, with the new venture, Wasco may be able to complete the demerger soon as the share subscription in ARI is expected to be completed in 2012.

Once Wasco completes the share subscription, it will appoint four of the eight directors in ARI. A director of IGB is also a director in ARI. IGB’s group MD Robert Tan is also the chairman of Wasco, and his family holds a 40% direct and indirect stake in the latter.

IOICorp ... Feb12

IOI Corp Bhd is mulling a relisting of its property arm that would see the group unlock values in that segment and enhance the attractiveness of the parent company to investors as a more plantation-focused company.

The group is in discussion with two investment banks on this to get feedback, especially on the right timing of the exercise.

The relisting of its property division would increase the stature of IOI Corp as a pure plantation play which would likely have higher valuations. It will reduce the conglomerate discount and transform IOI Corp into a pure plantation play, with a controlling stake in a valuable property company IOI Properties. Sole industry companies usually tend to fetch higher valuations.

IOI Corp may wish to also time the relisting of its property arm in line with a more bullish view on the property sector.

IOI Corp had privatised its arm in 2009. Then known as IOI Properties Bhd, IOI Corp had on Februuary 2009 launched a takeover offer at RM2.60 per share. The takeover was successful and IOI Properties was subsequently delisted on April 28, 2009. It is today wholly-owned by IOI Corp. IOI Corp has been actively growing its property business since.

In January 2012 it acquired six acres of land in Singapore for RM995.5mil to build high-end condominums and will have to settle the entire amount to the government of Singapore within 90 days from the date of the tender acceptance letter.

Presently, it has seven projects which it is developing locally with estimated gross development values (GDVs) of almost RM20bil.

Properties can testify to its track record in building property projects that have sold well. Excluding the latest land buy in Singapore, it is also presently developing high-end projects in the southern neighbouring island state with GDVs close to RM6bil.

IOI Properties has completed property development projects in Puchong, Putrajaya, southern Johor and Singapore before.

Meanwhile, IOI Corp was in talks with banks to raise more funds. It is in a good position to do so, considering its huge cash flows from its plantation side of the business.

The funds raised should give IOI Corp sufficient funds to not only pay for the Singapore land acquisition but also ready funds in the event it chooses to buy more assets such as plantation land.

Based on its results for the first quarter ended Sept 30, 2011, IOI Corp had total short and long-term borrowings of RM688.24mil and RM4.87bil respectively. Most of these debts are denominated in the US dollar, the Singapore dollar and the yen. IOI Corp had cash and cash equivalents of RM3.22bil as at Sept 30, 2011.

HSL ... Feb12

There will be a flurry of job announcements from Feb 2012 onwards relating to the SCORE and in particular the Samalaju Industrial Park.

Sarawak Hidro Sdn Bhd is a ramping up the 2400 MW Bakun bydroelectricity dam. SEB is looking at spending over rm6 billion to develop over rm3 billion coal fired power station in Mukah and a 500kV transmission network linking Bintulu to Kuching in 2012.

HSL will be a direct beneficiary of the massive and rapid developments within SCORE, given its expertise in infra and construction, and specially in land reclamation, considering Sarawak’s large areas of swamps and marshland.

HSL currently has rm1.6 billion worth of projects in hand, of which rm1 billion is outstanding. HSL is actively bidding for energy related projects as well.

Other potential projects include the remaining packages of the Kuching central sewerage worth about rm1.7 billion, additional flood mitigation packages worth rm250 million in Sibu, the development of a port and additional water treatment plants at Samalaju and various road and rural water supply jobs.

HekTar ... Feb12

Results highlights
• Broadly in line; maintain BUY. Hektar REIT’s FY11 core net profit of RM38.9m was spot on at 99.7% of our full-year forecast. It declared a final DPU of 3.0 sen, bringing full-year DPU to 10.5 sen, slightly lower than our forecast of 10.8 sen. We maintain our BUY recommendation, earnings forecasts and DDM-based target price of RM1.50. We like Hektar’s above-industry-average yields of >8%, which are an attraction in volatile market conditions. Another catalyst could be upward rental reversions for one-quarter of its NLA in 2012.

• Healthy rental reversions. Hektar enjoyed a healthy average rental reversion of 20% for 124 new tenancies (35% of total NLA) in 2011, led by Subang Parade, which saw the renewal of 68 tenancies at rates that were 31% higher, primarily because of the new retail space for Cube and Rosette. Wetex Parade also benefited
from a 20% increase in rentals for 24 tenancies in 2011, a result of the new entertainment outlet at Quadrix. Mahkota Parade’s rental rates started stabilising, registering a positive rental reversion of 3% in 2011, a change from 9M11’s -1%. • 9.0% rise in 2011 shopper traffic. Total shopper traffic for the overall portfolio rose by 9.0% yoy to 22.1m visitors. After 3 consecutive years of negative growth, Mahkota Parade’s visitor traffic showed a strong 14.0% growth in 2011 to 8.2m visitors due to the completion of major refurbishments in May 2010. Subang Parade and Wetex Parade too reversed the negative growth trend in 2010 to register a
5.8% and 7.6% growth in shoppers in 2011, respectively.

• Further rental reversions in 2012. About a quarter of Hektar’s NLA (24% of total rental income) will be up for renewal this year. We believe there is a high chance of further upward rental revisions.

Recommendation
Maintain BUY. We maintain our BUY recommendation, earnings forecasts and DDMbased target price of RM1.50. We like Hektar’s above-industry-average yields of >8%, which are an attraction in volatile market conditions. Another catalyst could be upward rental reversions for one-quarter of its NLA in 2012.

EPMB ... Feb12

 It is diversifying to reduce dependence on its automotive parts manufacturing business. The company is looking into real estate development, road construction, and more water concessions in Indonesia to safeguard its revenue stream.

Its project in Kota Serang in Indonesia will serve as a platform for the company to undertake more infra jobs.

While it is now venturing into water concession, it is worth noting that EPMB is also a contract manufacturer of water meters for Elster Group.

Its auto business is seeing falling sales.

As at Sept 30, 2011 it had cash of rm76.19 million against debt of rm200.35 million, translating into a net debt of rm124.16 million.

It may raise more funds in the form of bonds, rights issue or bank loans to finance the diversification plans.

Its net assets per share stood at rm1.68.

Proton and Perodua contributed some 80% of its revenue. Its dependence on these two automobile producers could pose a risk to its earnings should rival component manufacturers secure a slice of business from these two automotive players. It is worth nothing that DRBHicom (owns Proton) also manufactures automotive parts and components.

Nonetheless, the broadly positive review for Perodua’s replacement MyVi augurs well for EPMB. This is in tandem with the greater upstream localization policy by Perodua.

It also supplies components for Toyota vehicles in the Middle East.

Kencana ... Feb12

Kencana Petroleum and SapuraCrest Petroleum are the likely candidates to secure licences to develop the new marginal oilfields.

More brownfield services jobs worth between RM3 billion and RM4 billion are projected to be awarded to local oil and gas services providers in 2012.

Given their strong financial asset backing and job experiences, Kencana Petroleum Bhd and SapuraCrest Petroleum Bhd, which are in the midst of consolidation, are the likely candidates to secure licences to develop the new marginal oilfields.

The two companies, together with Petrofac of Britain, were the first recipient of the newly introduced risk service contract (RSC) licence to develop the Berantai oilfield offshore Peninsular Malaysia, as announced in January 2012.

Kencana Petroleum and SapuraCrest Petroleum are on the verge of a merger, slated to be concluded in the first quarter of 2012.

In August 2011, Petronas also awarded the RSC licence to a group comprising Dialog Group Bhd, Australia-listed ROC Oil and its exploration and production arm, Petronas Carigali Sdn Bhd, to develop the Balai cluster oilfield offshore Sarawak. These fields are fast-track projects that are expected to commence oil and gas production in one or two years versus the more sophisticated deepwater fields, which may take three to five years to kick start.

There will be the listing of a merger entity between SapuraCrest Petroleum Bhd and Kencana Petroleum Bhd called SapuraCrest Kencana Petroleum in March 2012.

GenP ... Feb12

Sources say that there is a potential sale of the plantations division by the Genting group. While it is cashflow producing, it isn’t exactly their core business.

But at its current price, Genting Plantations has a market capitalisation of some RM7.18bil, which makes it an expensive acquisition target by any party. It is trading at an estimated price-to-earnings ratio of 16 times for the 2012 financial year, somewhat higher than its peers United Plantations Bhd (12 times), and Sime Darby Bhd (15 times), but cheaper than IOI Corp Bhd’s 17 times.

Another positive factor for Genting Plantations was its bustling Johor Premium Outlets (JPO).

The mall, which sells off-season luxury items at a discount, is the only Premium Outlet in South-East Asia, while 58 others are in countries such as the United States, Japan and South Korea. Its stable of brands include Armani, Burberry, Canali, Coach, Ermenegildo Zegna, Guess, Michael Kors, Ralph Lauren and Salvatore Ferragamo.

JPO is a 50:50 joint venture between Genting Plantations, a Genting Bhd subsidiary, and Premium Outlets, the retail outlet division of Simon Property Group Inc.

Under the second phase of its development, Genting plans to spend RM100mil to increase the number of stores to 130 from the present 70. The company is also expected to invest up to RM1bil to develop the area, including constructing a 2,000-room hotel and a water theme park and a meeting, incentive, conference and exhibition centre.

MBSB ... Feb12

Mercury Securities Sdn Bhd research

“Q4 results within expectations”
MBSB recorded 4Q/FY11 results (quarter ended 31st December 2011) that were within our
expectations. Meanwhile, the group’s FY11 revenue and NPAT of RM1260.4 and RM325.4
million were higher by 64.9% and 122.9% y-oy, respectively.

“Personal Financing driving loans growth”
MBSB recorded 4Q/FY11 revenue and NPAT of RM347.1 million and RM83.8 million, which were higher by 66.2% and 554.2% y-o-y, respectively. The strong earnings performance was mainly due to the higher income from Islamic banking operations (particularly personal financing). The increase in PBT for its personal financial segment was mainly due to the higher loans releases and larger loan base. This was partially offset by the higher “other operating expenses” incurred due to the higher business volume During 4Q/FY11, the group’s mortgage loans and financing segment recorded a decrease in PBT. This was mainly due to the lower loan impairment recorded during 4Q/FY10. During the same quarter, the group’s corporate loans
and financing segment had recorded higher loss before tax (LBT). The LBT was mainly due to
the higher individual allowance charges made during the quarter.

The group’s 4Q/FY11 NPAT was lower by 11.8% q-o-q versus its preceding 3Q/FY11. The decrease in NPAT during the quarter was mainly due to the lower other operating income, lower net interest income and higher impairment allowances on loans.

OUTLOOK/CORP. UPDATES
In tandem with domestic GDP growth, we expect that MBSB’s revenues from financing activities would grow as well. It is commonplace for consumers to take up loans or financing, especially for housing, motor vehicles, credit cards or personal financing. In particular, MBSB’s management is relishing strong demand from the public sector, i.e. the more than 1 million civil servants.

“Domestic demand sustained”
Malaysia had reported a reasonable unemployment rate of 3.1% (November 2011) and CPI of 3.0% (December 2011). Bank Negara Malaysia (BNM) had maintained its overnight policy rate (OPR) at 3.0%. Meanwhile, Malaysia recorded a strong 3Q/2011 GDP growth of 5.8%, amidst weak economic growth in the developed regions (US, EU and Japan). Some export-focused sectors may face slower demand.

MBSB’s management is optimistic for strong growth for its personal financing to civil servants, given the strong demand and its attractive rates (as low as 3.99% for those that qualify). Back in 2Q/FY11, personal financing had overtaken mortgage as the main contributor to its gross loan portfolio. Nevertheless, MBSB
does face specific competitors for this niche market – with rivals such as Bank Rakyat, BSN, RCE Capital and AgroBank. MBSB is able to get payments from its civil-servant clients in a “fail-safe” way via its direct salary deduction code with ANGKASA. ANGKASA (Angkatan Koerasi Kebangsaan Malaysia or National Cooperative Organisation of Malaysia) is the apex cooperative overseeing all types of cooperatives
throughout Malaysia.

“Expanding range of financial products”
Continuous operational improvements targeted under MBSB’s transformation programme “Taking MBSB to the Next Level” have contributed to the group’s strong FY11 results. While the group’s loans growth is largely driven by personal financing, the group is continuing its strategy to diversify its product portfolio. Currently personal financing constitutes about 49% of the group’s financing portfolio with mortgage financing about 31% and corporate financing about 20%. The group’s Mortgate Ultimate and move into banccassurance products has been revealed to be relatively successful. The group is expecting to launch
several new products (e.g. credit card and hire purchase) this year, and also give more focus on fee-based income (e.g. EPF kiosk, Epay services, Western Union) and to improve customer service levels.

During the past year, the group had established a Customer Call Centre, appointed marketing agents and had joined BNM’s CCRIS database (w.e.f. January 2012). MBSB plans to establish additional Sales and Service Centres (SSCs) and Representative Offices (REP) to further extend its network. The group had opened a fullfledged branch in Shah Alam (Selangor) and a REP in Tanah Merah (Kelantan) during 4Q/2011.

“Supporting corporate sector”
For the corporate segment, besides its up-andcoming contract financing and SME Cash Express programme (launched early 2011), MBSB also offers project/bridging financing, vendor financing, floor stocking, industrial hire purchase and commercial financing. Its Contract Financing product is targeted at companies that
have been awarded government contracts (e.g. oil and gas). MBSB’s existing financing to the property development sector has also contributed to the company’s improved margins.

MBSB is also supporting the government's Economic Transformation Program (ETP), seeking to help finance Private Finance Initiative (PFI) projects (e.g. for education sector). The group’s wholesale financing business segment is related to PFIs and structured businesses. In mid-January 2012, MBSB had signed an agreement to provide banking facilities of up to RM51 million to Labuan Shipyard and Engineering SB (LSE). This involves Murabahah Tawarruq Financing Facility (trade facilities) of up to RM41 million and Kafalah Bank Guarantee of up to RM10 million for the purpose of the engineering, construction, testing and delivery of 77-meters Dynamic Positioning 2 (DP2) Diesel Electric Propulsion Platform Supply Vessel (PSV).

“Stunning loans growth”
As at 31st December 2011, MBSB’s net “loan, advances and financing” stood at RM15.2 billion, an increase of 42% y-o-y. This easily exceeded the local banking industry’s average growth rate of 13.6%. The group’s deposits which stood at RM13.5 billion as at 31 December 2011 had grown by 29% y-o-y. In FY11 the group had raised funds via the securitization of RM1.0 billion of personal financing assets with Cagamas (through Maybank Bhd, Affin Bank Bhd, RHB Bank Bhd and AmBank Bhd), an EPF Bai Al-Inah Islamic
Financing Facility of RM0.5 billion and a rights issuance of RM0.5 billion. The growth in its loan assets was supported by the effective management of its liability programme.

“KPIs easily surpassed”
As a GLC (government linked company), MBSB maintains a set of Target Headline Key Performance Indicators (KPIs). These KPIs have been set and agreed by MBSB’s Board of Directors and management as part of the broader KPI framework in place under the GLC Transformation programme and is disclosed on a voluntary basis.

The group’s FY11 net return on equity (ROE) and revenue growth had easily exceeded the targeted Headline KPIs. This was mainly due to the strong performance of its financing (especially personal financing) business segment and also higher “other operating income”. This gain was partly off-set by the higher operating
expenses and higher loan impairment.

VALUATION/CONCLUSION
At the next AGM, MBSB will propose a final FY11 cash dividend of 7 sen less 25% tax for shareholders’ approval. Based on MBSB’s issued and paid up share capital (as at 31st December 2011) of 1,215.5 million shares, the total dividend payable would amount to RM63.8 million. Earlier on in September 2011, MBSB’s had paid out an interim cash dividend of 5 sen less 25% tax amounting to RM45.6 million for its FY11. For FY12, we have assumed that MBSB will maintain a dividend payout policy of at least 30% of its annual net earnings.

“Stock price outperforms KLCI”
With a relatively high adjusted beta (correlation factor) of 1.48 to the KLCI, MBSB (+17.0% YTD) had managed to outperform the KLCI (+0.5%) this year. Market conditions have been volatile during the past year, impacted by the “Arab Spring” uprisings, major Tohoku natural disaster in Japan, “sovereign debt” issue in Europe and the “debt ceiling” issue in the US.

“Maintain Buy Call with new TP”
Based on our forecast of MBSB’s FY12 EPS and an estimated P/E of 8 times, we set a conservative FY12-end Target Price (TP) of RM2.71. This TP offers investors a 23.1% upside from MBSB’s current price. Our TP for MBSB reflects a P/BV of approximately 1.8 times over its FY12F BV/share. The group’s
FY12F P/E, P/BV, ROE and dividend yield are all at reasonable levels. The group has been in a
net cash position (excluding customer deposits as borrowings) since its FY09. MBSB’s net
earnings have more than doubled-up during its FY10 and FY11, and we foresee that its earnings
growth rate (in percentage terms) would start dropping from its peak during its FY12.

The group recorded a solid improvement in its total net NPL ratio from 15.7% for its FY10 to 8.8% for its FY11. This is principally due to the restructuring of major corporate legacy accounts achieved during the year and an expansion of financing and loan bases. The group’s previously “high” loan impairment ratio was due
to legacy accounts. Besides, most of the impaired property loans are backed by collateral.

Group management is still actively dealing in restructuring and recovering a few major legacy corporate accounts. MBSB’s business also faces possible routine risk factors such as a slower rate of economic growth, weak financing demand, rising loan impairments, rising cost of funds, new regulations, weak NIMs, high LD ratio and stiff competition from other existing banks/financial institutions. In addition, MBSB also faces routine challenges in improving its internal IT infrastructure, market share, skills of marketing staffs, facilities, deposit taking, customer service, branding / recognition and branch networking.

Bursa ... Feb12

- Strong growth in derivatives trading volume
- Equities trading volume held up despite uncertainties
- Bursa remains good proxy for domestic economy
- Renewed retail trading interest bodes well

Bursa Malaysia’s earnings results for 4QFYDec11 were right in line with our forecast.
Total turnover was lower, both y-y and q-q, at RM95.7 million in 4Q11. This was due, primarily, to lower average daily trading value (ADV) for the securities market amid heightened global uncertainties. Trading activities by foreign institutions were visibly lower with funds pulling out of risky emerging market assets. There were only two initial public offerings (IPO) in the last quarter, compared with a total of 26 in the first nine months of the year.

ADV for the period dropped to RM1.41 billion, down from RM2 billion in the previous corresponding quarter and RM1.89 billion in 3Q11. As a result, securities trading revenue was lower at RM40.3 million, compared with RM50.8 million in 4Q10 and RM48.9 million in 3Q11.

Positively, the derivatives market held up quite well. Derivatives trading revenue in 4Q11 was up 19% y-y to RM12.6 million on the back of higher average daily contracts traded (ADC). ADC rose to 34,779, up from 27,776 in 4Q10. This was attributed to increasing awareness and accessibility for investors following the migration to the Globex electronic trading platform. Some 2.12 million contracts were traded in 4Q11, up from 1.72 million in 4Q10.

Stable and other operating as well as interest income were up some 5% y-y to RM42.8 million in 4Q11. The amount combined was sufficient to cover all operating expenses during the period. Despite lower turnover, net profit was 5.2% higher y-y at RM31.3 million in 4Q11. Aside from slightly lower depreciation charges – following the full depreciation of the old derivatives trading platform – the effective tax rate was also lower at 26% compared with 36% in the previous corresponding quarter.

For the full-year, turnover was up 16.4% to RM420.1 million while net profit grew 29.3% to RM146.2 million. This was due, in part, to strong trading interest in global equities at the start of 2011. There were 28 IPOs last year, just one less than that in 2010. ADV for the year rose to RM1.788 billion compared with RM1.574 billion in 2010. Securities trading revenue totaled RM193 million, or roughly 51% of total operating revenue.

Derivatives trading revenue also grew strongly, to RM51.2 million from RM37.6 million in 2010. ADC rose to 34,747, up nearly 39% from the previous year’s average of 24,818 contracts daily. Contributions from the
segment accounted for about 13% of total operating revenue. Stable and other operating income grew some 9% y-y to RM137.1 million, accounting for the remaining 36% of Bursa’s total operating income of RM381.3 million. Other income, primarily interest income, was also higher at RM38.8 million from RM29.8 million in 2010.

Outlook and Recommendation
For the current year, Bursa intends to focus on rolling out strategies it has already laid a strong foundation for in 2011 under the company’s 3-year plan. For the securities market, the company will focus on improving liquidity and encourage greater retail participation. Bursa is undertaking more roadshows around the nation and in the region to promote the local bourse as an attractive investment destination. The number of day traders has risen from 36 to 58 over the past one year.

Despite reservations that global equities could see more volatility, equity markets have registered steady gains through the month of January. US markets had their best start to the year in 15 years while relevant bellwether
indices in key Asian markets closed sharply higher for the month.

Although the FBM KLCI bucked the uptrend to finish marginally lower in January, this was likely due to profit taking on key blue chips following the year-end surge. Overall sentiment stayed on a fairly even keel.
In particular, trading interest in lower liner stocks was quite robust with more than 1.82 billion shares transacted daily in January, valued at RM1.87 billion, on average. Trading volume spiked sharply higher in the first four trading days in February, with ADV touching RM2.94 billion.

The positive start has bolstered expectations for the rest of the year. Global stocks prices are being driven by data underlining a slow but steady improvement in the US economy in recent months. Most importantly, the job market appears to be on the mend, with unemployment falling to 8.3% in January, which is key to sustained consumer spending. The biggest worry is the ongoing sovereign debt crisis in the euro zone. If
events take a turn for the worst, they could cause havoc in financial markets and potentially derail the US and global economies.

Should, however, Europe manage to muddle through and data out of the US continues to be positive, rising investor confidence are likely to lift global stock prices higher. This would, in turn, boost interest on the local bourse. This is especially so with the higher than average amount of cash now believed to be sitting on the sidelines. The domestic economy should be relatively resilient, supported by both private consumption and public spending with the rollout of projects under the Economic Transformation Programme. On the other hand, speculations of an early general election and uncertainties over the results may temper any rally in the near to medium term.

On balance, we are assuming that securities trading revenue would average slightly lower than that in 2011.
We are however, assuming that the growth in the derivatives market will continue with rising visibility of the Bursa Malaysia Derivatives and its products on Globex. Bursa’s market awareness programmes to promote its range of products to global investors as well as easing entry requirements for local participants appear to be bearing fruits. It has implemented a fast-track programme for dual licensing to enhance the distribution channel and accessibility. The dual licensing allows equity dealers to offer derivatives products.

Bursa is planning to implement a new derivatives clearing system in 1H12 and introduce more features under the existing securities trade system to improve the overall system infrastructure. Meanwhile, the ASEAN Trading Link is slated to go live by mid-2012. Under the first phase, Bursa will link up with the Stock Exchange of Thailand and Singapore Stock Exchange for cross border trading.

Stronger revenue from derivatives and resilient stable and interest income are expected to more than offset the slightly lower revenue from securities in 2012. Net profit is forecast to improve marginally to RM147.6 million or 27.8 sen per share. That translates into forward P/E of roughly 27.4 times.

Bursa’s share price has gained more than 19% since our BUY recommendation in mid-October 2011. Nevertheless, its share price remains well below last year’s high of RM9.02. Thus, we are keeping our
recommendation on the stock in view of the better outlook for the global economy and more robust retail trading interest on the local market. We believe Bursa would be among the first blue chips to rally in the event of a sustained global economic improvement.

The company remains financially sound and in a net cash position. It had cash in bank some RM500 million at end-2011. Bursa proposed a final dividend of 13 sen per share, bringing total dividends to 26 sen per share for 2011 – or 95% profit payout. Assuming a similar payout, dividends are estimated at roughly 26.3 sen per
share in 2012. This will earn shareholders a decent net yield of 3.5% at the current share price.

Tenaga ... Feb12

ZJ Research Report

1QFY12 Results Review
• Tenaga Nasional Bhd (TNB)’s 1QFY12 net loss narrowed to RM224.7 mln from a loss of RM453.9 mln in 4QFY11 and RM440.2 mln in 3QFY11. However, after excluding the foreign translation loss of RM419.1 mln, the Group actually returned to the black with a core net profit of RM194.4 mln, vs. a core net loss of RM119.3 mln in 4QFY11. While 1QFY12 core net profit constitutes only approximately 10% of our FY12 projection, we consider the results to be broadly in line with our expectations as we anticipate a better performance in 2HFY12, given the expected lower use of alternative fuels going forward.

• 1QFY12 revenue rose 12.5% y-o-y to RM7.73 bln due to the tariff hike (effective 1 June 2011) and higher electricity sales, which registered a 3.9% y-o-y unit electricity demand growth in Peninsular Malaysia. EBITDA nevertheless, fell 40.4% y-o-y as opex escalated 29.5% y-o-y mainly on higher generation costs. TNB incurred an additional RM1.6 bln on fuel costs and IPP payments in 1QFY12 compared to 1QFY11 as a result of the gas supply issues. As such, EBITDA margin shrunk to 15.1% in the quarter under review from 28.5% a year ago.

• On a brighter note, gas supply to TNB and the IPPs may see an increase of 70 mmscfd to 1,120 mmscfd from the current 1,050 mmscfd level as we understand Petronas is trying to source additional gas supply from Thailand. We note though, that at 1,120 mmscfd, it is still below the optimal level of 1,350 mmscfd and the critical level of 1,150 mmscfd. We reckon the issue of gas supply will only ease towards the end of 2012 when the LNG re-gasification plant in Malacca commences operations.

• On another positive development, the Group has secured RM2 bln in compensation from the Government to subsidize the fuel costs incurred. So far, it has received RM1 bln, and expects to receive the other RM1 bln in February 2012.

• Against this backdrop, we retain our view that TNB’s FY12 performance would be better and
maintain our existing FY12 and FY13 net profit estimates of RM2.2 bln and RM2.4 bln
respectively.

• On the corporate front, CEO Dato Che Khalib announced he will step down from his post when his contract ends in June 2012. TNB is currently seeking a suitable replacement, and expects to announce the appointment of the new CEO in April 2012.

Recommendation
We continue to maintain our Hold call on Tenaga at this juncture with an unchanged DCF-derived fair
value of RM6.40. We opine that while much of the negative news have already been priced in, there is
lack of clear earnings growth catalysts at this juncture in the absence of a full cost pass-through
mechanism, coupled with the uncertain macroeconomic environment that may impact our domestic
demand for electricity. Given that the general election may be imminent, any electricity tariff hike is
unlikely to take place anytime soon too, in our opinion.

Spritzr ,,, Feb12

Mercury Securities Sdn Bhd Research report.

“1H Results in-line”
The group recorded a revenue RM45.1 million during 2Q/FY12, an increase of 25.8% y-o-y.
The increase in revenue was mainly contributed by the higher sales of various bottled water products coupled with the increase in demand from Thailand when massive floods hit Bangkok in October 2011.

“Demand up due to Bangkok floods”
We believe this increase was due to production by bottling plants being hampered by floodwaters and also the large number of flood refugees. Meanwhile, the group’s 2Q/FY12 NPAT of RM3.3 million was higher by 14.1% y-o-y. This was mainly attributed to the higher sales of the more profitable mineral water products.

For 1H/FY12, the group recorded revenue of RM86.3 million, an increase of 22.2% as compared to 1H/FY11. However, group NPAT for 1H/FY12 was lower by 13.9% compared to 1H/FY11. This was mainly due to the higher finance and operating cost incurred attributed to the group's expansion plan and the setting-up costs of the bottling plant in Shah Alam, Selangor.

Comparing versus the preceding 1Q/FY12, the group’s 2Q/FY12 revenue was higher by 9.3% q-o-q. This was mainly attributable to the unforeseen sales of bottled water products to Thailand during the massive Bangkok floods in October-November 2011. Group 2Q/FY12 NPAT more than doubled-up q-o-q versus 1Q/FY12. This increase was mainly attributed to the higher sales of the more profitable mineral water products during the quarter.

OUTLOOK/CORP. UPDATES
On the demand side for Spritzer, the domestic economic environment still appears supportive. This is so due to the fact that most of the group’s sales are derived from the domestic market (whereby the group is the
market leader). Nevertheless, the group faces challenges such as domestic inflation and the volatility of raw material prices. The group plans to continue focusing on improving its productivity and operational
efficiency in order to remain competitive. In line with its expansion plan and higher installed capacity, the group will further increase its product range to cater to the needs of various market segments. This would include the introduction of bottled water suitable for the use of water dispensers.

Malaysia had reported a reasonable unemployment rate of 3.1% (November 2011) and CPI of 3.0% (December 2011). Bank Negara Malaysia (BNM) had maintained its overnight policy rate (OPR) at 3.0%.
Meanwhile, Malaysia recorded a strong 3Q/2011 GDP growth of 5.8%, amidst weak economic growth in the developed regions (US, EU and Japan).

“BonusWarrants given out”
On 30th September 2011, the group had proposed a Bonus Issue of up to 32,664,667 warrants in Spritzer on a 1-for-4 basis. The bonus issue was subsequently approved by The Controller of Foreign Exchange (via Bank Negara Malaysia) and Bursa Malaysia.

Spritzer’s shareholders had also approved the bonus issue at an EGM held on 24th November 2011. On 14th December 2011, a total of 32,658,666 free Warrants had been issued and alloted to the shareholders (1 Bonus Warrant for every 4 existing Ordinary Shares held on 13th December 2011. These warrants were
subsequently listed on Bursa Malaysia on 20th December 2011.

VALUATION/CONCLUSION
We expect that Spritzer would maintain the same level of DPS (2.5 sen dividend per share, tax exempt) in FY12 as in the past 2 financial years. With a beta (correlation factor) of 1.00 to the KLCI, Spritzer (-4.6% YTD) has slightly underperformed the KLCI (-1.1% YTD) this year. Market conditions have been volatile
during the past year, impacted by the “Arab Spring” uprisings, major Tohoku natural disaster in Japan, “sovereign debt” issue in Europe and also the “debt ceiling” issue in the US. As Spritzer is not an especially large market-cap stock, this may put a dampener on its market visibility and trading volume.

“Maintain Hold Call”
Based on our forecast of Spritzer’s FY12 EPS and an estimated P/E of 11 times (within its historical range), we set a FY12-end Target Price (TP) of RM0.88. This TP offers a slight 6.7% upside from its current market price and reflects a P/BV of 0.77 times over its FY12F BV/share.

We would upgrade our call to a Buy Call once Spritzer reports sustained improvement in its
earnings performance. We note that its improved 2Q/FY12 results were partly due to the demand
from Thailand during floods. As such, it is hard to say that this strong performance will be
repeated in the following quarters.

We are actually comfortable with Spritzer’s topline (revenue) performance. Nevertheless, there are factors affecting its profit margins, particularly raw materials (PET resins) for bottling. Spritzer’s P/E, P/BV, net gearing, dividend yields and ROEs are all at reasonable levels.

In the mean time, Spritzer’s business also faces possible routine risks such as a slower rate of economic growth, weak product demand growth, foreign exchange fluctuations, rising production costs (raw materials – e.g. PET resins for plastic bottling) and stiff competition from other major bottled water manufacturers.

BSLCORP ... Feb12

Inet Research.


1. 1QFY12 Results Review


> BSL’s revenue in 1QFY12 increased slightly by 7.1% to RM48.1m from RM44.9m in 1QFY11. Growth mainly came from its Printed Circuit Board (PCB) and module assembly division, whose revenue rose 23.6% to RM13.1m from RM10.6m during the period under review. The increase was due to additional assembly work done for a multi-national electronics company in 1QFY12.

> Meanwhile, BSL metal stamping division saw revenue up marginally to RM32.5m from RM31.6m.
Orders for metal back covers and other components for LCD and LED TVs were steady in 1QFY12,
which is a seasonally low period.

> BSL’s operating profit in 1QFY12 was up slightly to RM4.0m from RM3.5m in 1QFY11. Higher OP in
the module assembly division (rose to RM1.7m from RM0.7m) offset lower OP in stamping division (fell
to RM2.6m from RM2.9m).

> OP margin in stamping division fell to 7.9% in 1QFY12 from 9.2% in 1QFY11 due to fulfilment of cost
down requests from its clients.

2. Key Investment Risks
> BSL exited the automotive component manufacturing business in FY11. As such, the company now
mainly depends on its stamping division to drive growth. Meanwhile, if BSL module assembly division is
unable to secure constant assembly jobs, the division will continue to dampen Group earnings in FY12. In
FY11, the division made operating loss of RM1.2m as it has yet to achieve profitable level of economies
of scale.

> Both stamping and module assembly divisions mainly depend on clients from electrical and electronics
sectors. Demand for such products may be adversely affected by the current global economic uncertainties
in the US and Europe.


3. Earnings Outlook
> In the stamping division, BSL’s management is taking steps to mitigate expected lower orders from clients
due to weak economies in the US and Europe. However, the management hopes that TV makers will be
gearing up for expected higher demand driven by the 2012 Olympics Games in London. Sales of LCD and
LED TVs tend to increase when major sports events such as Olympics and World Cup Football are held.

> On the division’s OP margin, BSL is aiming for 8% in FY12, versus 8.7% in FY11. The slightly lower OP
margin is due to cost down requests from clients. BSL explained that such requests are a norm because
prices of electronics products are higher at the early stage of its product life cycle and decline over time
until new models are introduced.

> On BSL’s module assembly division, the new factory in Rawang, which has 80,000 sq ft for assembly
work and 40,000 sq ft for warehousing, will be completed in 2QFY12. BSL management said it is chasing
for assembly work for the new factory among existing and potential clients. BSL management hopes to
achieve profits for the division in FY12. The division performance in 1QFY12 is an indication of its
profitability if it is able to achieve economies of scale.

> We maintain our forecast operating profit of RM12.8m and RM14.7m in FY12 and FY13 respectively,
from RM7.8m in FY11. Its earnings growth is banked on BSL’s ability to grow its stamping division with
OP margin of about 8%, as well as achieving breakeven for its module assemble division.

> Take note that FY11 earnings were impacted by impairment of RM1.9m due to cessation of the
automotive parts division and losses in module assembly division.

4. Valuation & Recommendation
> BSL is trading at 34.5 sen currently. Based on forecast EPS of 9.3 sen and 10.8 sen in FY12 and FY13
respectively, it is trading at single digit forward PE of 3.7 times and 3.2 times. Also take note that BSL is
in net cash position of RM11.2m cash, or net cash of 11sen per share.

> Hence, we are maintaining a BUY call on BSL with a target price of 47 sen, imputing a PER of about five
times on forecast FY12 EPS of 9.3 sen. BSL’s small market capitalisation and lack of trading liquidity are
a consideration on the single-digit PER valuation given.

> Nevertheless, the target price implies a potential upside of about 34%, and is reasonable as it is imputes a
forward PER of only 3.9 times on an ex-cash basis and is about half of its book value of 89 sen as at end-
November 2011.

Fibon ... Feb12

TA Securities Research

Results Preview
Fibon will be releasing its 2Q12 result by tomorrow. We expect net profit to be in the range of approximately
RM1.1mn to RM1.5mn. We believe this could be due to increase in contribution from the European region
particularly Ireland. Moving forward, we expect this trend to continue.

Stable Raw Material Price
The management guided that price of its main raw materials (Resin and fibre glass) is expected to be stable
on the back of a steady crude oil price. This is in line with our view on oil price which could hover within a similar range compared to last year (USD95-100/barrel). As such, we do not anticipate any margin compression resulting from higher material cost. We remain confident that the company would be able to maintain its PBT margin at approximately 40%.

Europe…The Next Thrust
The management is currently focusing to secure new customers from the European region. The negative
economic outlook of Europe is a cause for concern. That said, management stressed that most of its customers only use Europe as the main procurement point for raw materials, repackage and export the final products to other parts of the world. In fact, they indicate that the group actually unable to cope with the demand from the continent. There is an on-going collaboration in R&D exercise with the European customers that requires its existing plant to undergo some upgrading of machinery.

This could lead to improvement in quality as well as efficiency. Domestically, our check with the management indicate that negotiation with Tenaga Nasional Bhd is still ongoing. It may take some time before the deals could be concluded. Conclusion of a deal would have positive impact on our earnings forecasts. We have yet to impute any contribution from this project.

Upgrade to Buy
We maintain our earnings estimate. However, we adjusted lower target price to a more realistic
RM0.55, based on CY12 PER of 9x (10x previously). The share price has declined as much as 30% since
our Initiation report on the company. We think the sharp correction is much to do with the uncertain
economic outlook and poor 1QFY12 result. We now think that risk factors have been priced-in and
valuations have fallen to a much more attractive level (CY12 PER of 8.8x). Moreover, we see potential for
upside revision in earnings if the group delivers on the business opportunities in Europe. Hence, we
upgrade Fibon to a Buy from Hold previously. Key risk factors to our view include 1) increase in raw
material prices (e.g. resins and fibre glass 2) deceleration in global economy and 3) delay in product delivery to customers.

NHFatt ... Feb12

Inet Research

1. Investment Highlights/Summary
- NHF is involved in the manufacturing of metal and plastic automotive body parts for the replacement market.

-  NHF’s niche position in auto body replacement market provides a steady and relatively less volatile earnings stream. The sizeable local car population of 9.6m cars provides a steady demand for its range of products for the domestic market.

- The current investment in new products and plans to expand into overseas markets underpins the sustainability of its future earnings stream.

- Excluding goodwill impairment, NHF is currently trading at a P/E of only 6.2x based on our EPS forecast of 38.5 sen for FY12. We have arrived at a target price of RM3.00, based on a target P/E of 8x for FY12.

- Not only is the stock is trading below its NTA of RM3.30, it also comes with an attractive dividend yield of 5.5%.

2. Company Background/Overview
- History
The Group was founded in 1977 by the late Chairman cum Managing Director, Kam Lang Fatt @ Kim
Leng Fatt. The founding trading company, New Hoong Fatt Auto Supplies Sdn Bhd (NHFAS) has carved
a niche in the local automotive replacement parts market through its efficient services and wide range of
products.

NHF ventured into the manufacturing of metal automotive body replacement parts such as door, hood,
fender and trunk lid in 1989 through the setting-up of a wholly-owned NJ Metal Stamping Sdn Bhd (now
known as NJ Manufacturing Industries Sdn Bhd). In 2000, NHF set-up a factory to manufacture plastic
automotive replacement parts such as bumpers, grilles, door mirrors and door handles to become a more
complete manufacturer of metal and plastic automotive parts. The Group has since grown to become
leading player in genuine and alternative automotive replacement body parts in Malaysia.

NHF made its debut on the then Second Board of Bursa Malaysia (previously known as KLSE) in 1998.
The listing of NHF was transferred to the Main Board in 2001.

Corporate structure



Note: only active subsidiaries are shown

- Key areas of operation

NHF is principally involved in the following activities:
-  Manufacturing of metal and plastic automotive body replacement parts
o Metal parts – hood, fender, door, panel, radiator support, trunk lid
o Plastic parts – lamps, bumper, grille, mirror, door handle
- Manufacturing of tools, moulds and dies; and
- Wholesaling, marketing and trading of motor vehicle parts and accessories in the replacement market of both local and export markets.

More than 2,000 items are manufactured in-house. In addition to its own manufactured products, NHF
also sources parts and accessories from other local and overseas manufacturers. NHF is also the sole
distributor of USA lubricant, 76 Lubricants and Motor Oils for Peninsular Malaysia.

NHF is headquartered in Klang, Selangor with 4 branches in Gombak (opened in 1977), Sg Besi (1994),
Segambut (2005) and Kota Kinabalu (2007) to service its extensive distribution network of more than
1,000 wholesalers, retailers and vehicle repair shops throughout Malaysia.


NHF’s products are sold to domestic market and exported to over 50 countries in ASEAN, the Middle-
East, Pakistan, Central and South America, Taiwan, China, India, Africa and Russia. Exports accounted
for around 23% of group revenue in FY10.

3. Management and Board:
- Kam Foong Keng, Executive Chairman
>  Appointed as Executive Director in Apr-1998 and was later re-designated as Deputy Managing Director in Oct-2007 and finally as Executive Chairman in May-2008
>  Overseeing strategic direction, overall performance and business development

- Chin Jit Sin, Managing Director
> Appointed as Executive Director in Apr-1998 and was later re-designated as Managing Director in
Oct-2007
> Attached to banking institution prior to joining NHF
> Overseeing strategic planning and operational management

- Kam Foong Sim, Executive Director
> Appointed as Executive Director in May-2001
> Member of the Certified Practising Accountants Australia and the Malaysian Institute of Accountants
> Overseeing finance and accounts

4. Financial Review
Historical Net Profit and Gross Margin Performance


> NHF differs from other domestic auto parts manufacturers as it caters mainly to the replacement market.

> Unlike other auto parts players, NHF’s historical gross margin and net profit base had been relatively
resilient and has been on an increasing trend. NHF’s performance in previous recessions and economic
downturns demonstrates that it is relatively insulated from fluctuations in the economy and new motor
vehicle sales.

> The growing pool of passenger cars on the road is the main turnover growth drivers for the
replacement market. NHF’s niche segment in auto body replacement market provides a steady and
relatively less volatile earnings stream.

> Its historical profit growth was driven by the following reasons:
o Increase in product range of both metal and plastic automotive parts;
o Growing pool of passengers cars;
o Acquisition of Hoeken Industrial Sdn Bhd which elevated its net profit base to RM22.5m in
FY04 from RM15.8m in FY03; and
o Penetration of new export markets

> Since FY08, in compliance with FRS, NHF has impaired its goodwill amounting to RM5.7m (FY08),
RM5.3m (FY09) and RM4.9m (FY10) due to declining economic benefits from the cash generating
unit. This goodwill, which is a non-cash item, is related to the acquisition of Hoeken Industrial Sdn
Bhd. We have assumed another goodwill impairment of RM4m each in our earnings forecast for FY11
and FY12.

5. Recent Developments
- In Mar-2011, wholly-owned PT. NHF Auto Supplies Indonesia was incorporated for the marketing,
distribution and trading of automotive spare parts in Indonesia.

- In Jun-2011, NHF obtained approval from the Ministry of Commerce in China to set up a whollyowned
Ampire Auto Parts (Shanghai) Co. Ltd for importing, exporting and trading of automotive spare
parts and accessories in China.

- On 26-Aug-2011, NHF announced the completion of the disposal of the entire 60% indirect stake in
New Kean Tat Auto Parts Sdn Bhd (NKT) for RM3.6m cash. Impact to NHF’s profit is negligible as
NHF’s share of net profit of NKT only amounted to RM0.6m in FY10.

- In Nov-2011, NHF announced a restructuring exercise involving its wholly-owned manufacturing
subsidiaries whereby the business of NJ Manufacturing Industries Sdn Bhd (NJ) and Jhi Soon
Manufacturing Industries Sdn Bhd (JS) would be transferred to Auto Global Parts Industries Sdn Bhd
(AGP). Upon completion, AGP would become the flagship company to manufacture and market metal
and plastic automotive parts, and both NJ and JS would cease operations.

6. Industry Landscape/Overview
NHF differs from other domestic auto parts manufacturers as it caters mainly to the replacement market. The
local replacement market for auto body parts can be divided into the genuine and alternative parts markets.
While the local and overseas vehicles manufacturers are the main source of genuine parts, alternative
replacement parts are either imported or supplied by local manufacturers. Generally, the alternative parts
pricing is cheaper as compared with genuine parts.

7. Competitive Analysis
NHF possesses some competitive strengths due to the following factors:

- Economies of scale. NHF is capable of providing a wide range of auto body parts with the availability
of tooling and mouldings. This has become a key barrier to new entrants as the building of a range of
tooling, mould and die is capital intensive and time-consuming, and requires a high level of technical
competency. Over the past 5 years, for FY 06 to FY10, NHF invested RM112m in total capex, which
included RM79.7m for the purchase of machineries, tools and dies;

- NHF is equipped with inhouse tooling, mould and die capability, technical competency and
engineering design capability;

- Disparity in product pricing. The domestic auto body replacement market is mainly made up of
genuine parts (supplied by vehicle assemblers), imported parts and alternative replacement parts. NHF
commands pricing advantage as the company’s auto body parts are generally 50% cheaper than
genuine parts at the wholesale prices. At the retail price level, NHFs price differential would be even
larger; and

- Comprehensive distribution network of more than 1,000 wholesalers and distributors throughout
Peninsular Malaysia, Sabah and Sarawak.
There is no direct comparison amongst the listed auto parts players as all of them are pre-dominantly original
equipment (OEM) players. Unlike OEM auto parts manufacturers, whereby turnover growth is tied to new vehicle sales, NHF’s business is fully dependent on the replacement market and exports. In addition, its peers such as Delloyd also has a sizeable plantation business.

8. Earnings Outlook
- NHF’s earnings stream has proven to be resilient given its focus on automotive replacement parts. As
at end-Sep-2011, the total number of registered passenger cars in Malaysia, as compiled by the Road
Transport Department amounted to 9.6m cars, creating a steady demand for its range of products for
the domestic market.

- NHF plans to replicate its entrenched domestic position in the automotive replacement market overseas
to take advantage of the continued liberalisation of the AFTA. Since 2010, all import duties are
eliminated for automotive trades within ASEAN 6 (Brunei, Indonesia, Malaysia, Philippines,
Singapore and Thailand). This allows NHF to tap into a much larger population base of 580m within
the ASEAN. The wholly-owned subsidiary, PT. NHF Auto Supplies Indonesia is established to drive
its expansion into the automotive replacement market in Indonesia.

- NHF plans to expand more aggressively towards export markets. In this context, it will continue to
invest heavily in tooling, mould and die to expand its new product pipelines for overseas markets.

9. Key Investment Risks
- The raw materials used in its manufacturing process are steel sheet and plastic resin. Hence, the rising
prices could adversely affect its profit margin if input cost increase could not be passed-on. As
illustrated in the gross margin chart above, NHF’s gross margin had been relatively steady ranging
from 27-29% despite the fluctuation in commodity prices and economic downturn.

- If economy slows down severely, consumers might delay their spending on repairs.

- Most of the steel sheet and plastic resin are quoted in US$. However, there is some form of natural
hedging as export sales which are quoted in US$, accounted for 23% of its turnover in FY10.

10. Dividend Policy
NHF does not have a dividend policy but it had been consistently paying dividend to reward its shareholders
since its IPO in 1998. In FY10, it declared a total dividend of 13 sen/share, which translates into a net yield of 5.5%.

Despite the continuous investment in new product development, plant and machineries, we believe the dividend payment can be maintained, supported by the projected EBITDA of RM52m for FY11, which is sufficient to cover the capex and dividend payment of about RM30.0m and RM9.8m respectively.

Historical Dividend Payment And Payout Ratio



11. Balance Sheet
Despite the need to maintain high capex of about RM30m to expand its new products pipelines, NHF should
still remain in a strong balance sheet position thanks to its strong EBITDA. NHF turned into net cash position
as at 3QFY11, providing it the financial flexibility to expand its product lines and export markets.

12. Valuation and Recommendation
We initiate coverage on NHF with a Buy recommendation for the following reasons:
- NHF’s niche position in auto body replacement market provides a steady and relatively less volatile
earnings stream. The sizeable local car population of 9.6m cars provides a steady demand for its range
of products for the domestic market.

- The current investments in new products pipeline and plan to expand into overseas markets will
underpin future earnings.

- Excluding goodwill impairment, NHF is currently trading at a P/E of only 6.2x based on our EPS
forecast of 38.5 sen for FY12. We have arrived at a target price of RM3.00, based on a target P/E of
8x for FY12.

- Not only is the stock is trading below its NTA of RM3.30, it also comes with an attractive dividend
yield of 5.5%.