Friday, August 20, 2010

Genting Singapore : Price Catalyst

Share Price Catalyst

• Sustained earnings.
• M&A – The company has at least S$1.5b reserved for acquisition(s).
On the negative side, any evidence of slowing gaming revenue momentum could cause significant pullback

Thursday, August 19, 2010

Citibank Technical Analysis

Citigroup ST: the upside prevails

Our pivot point stands at 3.7.
Our preference: As long as 3.7 is not broken down, we favour an upmove with 4.4 and then 5.05 as next targets.
Alternative scenario: Only the downside breakout of 3.7 will invalidate our bullish scenario. In this case, a decline should shape towards 3.35 at first, and then 3.12.
Comment: Daily indicators are positive but losing momentum.
Trend: ST limited rise; MT range.
Supports and resistances:
5.45 ***
5.05 ***
4.4 **
3.87 last
3.7 ***
3.35 ***
3.12 ***

Wednesday, August 18, 2010

Macro Picture Recap: A Cautionary Note

1) Fed has run out of policy options
2) Asset reflation failed for housing, worked for stocks, very successful for bonds
3) Inventory restocking fizzling out 2H-10
4) Coincides with fading ARRA: ARRA to subtract from GDP growth in 2011
5) Structural unemployment in US caps consumption recovery
6) Rising trade deficits amidst a weak Euro will depress US growth
7) Sub-par 2-3% trend growth for US over next 10 years
8) Shorter economic cycles (~4 years between recessions): bad for business
9) China tightening, if overshoots to hit Asia badly
10) European austerity good for Germany and France, bad for others in Eurozone
11) Implications for export dependent Malaysia not good: trend GDP slow to 4%
12) Private sector withdraws as government involvement in economy grows
13) Rising taxes, removal/lowering of subsidies diverted to Japan-style stimulus
14)Renewed monetary easing very possible later
15) Decade of low interest rates, high house/land prices, weak Ringgit post crisis
16) Rising household leverage/more taxes/less subsidy amidst slow growth will bite

Tuesday, August 17, 2010

Maybank : Next Asean Tiger(Indonesia) Play!

Why i like Maybank?
Among the Malaysian banks, Maybank has the highest contributions from Indonesia via its 97.5% stake in Bank Internasional Indonesia (BII), the ninth largest bank in Indonesia. Its Indonesian operations account for about 7%+ for the group's net earnings and total loans and this proportion is set to increase to 8-9% in the next two years. BII’s established operations with a wide branch network of more than 100 branches will enable it to benefit from the swift loan growth of 18-20% in Indonesia. Furthermore, BII has a net interest margin of about 6%, way above the circa 2.3% for Maybank's domestic operations. We are projecting a strong FY09-12 CAGR of 57.1% for BII’s net profit. We are also going for 16.4% CAGR for its loan base, almost double our projected loan CAGR of 8.4% for the group. The strong growth of its Indonesian operations underpins Outperform call on Maybank.

Sunday, August 15, 2010

Notion Vtec : Uncertainty is an opportunity?

Quote :
Profile :
Established in 1995, Notion VTec has grown into one of the country's largest suppliers of high precision, complex, ready-to-assemble precision-turned, milled and ground parts to MNCs in the HDD and digital camera industries.

52 Week High : 3.52
52 Week low  : 1.45

Earning Results:
As a result of a downward revision in earnings guidance by 34-36% for FY10, negative guidance on Notion's new 2.5" HDD business for FY11 and uncertainty over its 3 antidiscs programs, analyst FY10 and FY11 EPS have been cut by a drastic 40% and 55.5% respectively. The rather high operating and financial leverage nature of the business compounded the drop in earnings revision.  Notion only posted earnings of RM3m for 3QFY10 and there may be more negative earnings surprises compared to analyst's FY11 forecast going forward.

Risk Analysis :
1.Mainly weighed down by start-up costs.
The 9MFY10 earnings came in 24% below consensus. The variance was mainly due to high operating costs as R&D, depreciation and amortization, materials as well as labor incurred by the company’s new 2.5” HDD business and strengthening RM against USD and Euro. While 3QFY10 revenue was up by 7% q-o-q and 36% y-o-y, the quarter’s earnings plunged 76% q-o-q and 73% y-o-y. There were also quality issues related to one of its HDD components, which gave rise to rectification and compensation costs.

2.Major production problems.
Orders for antidiscs in one program were stopped following a hydrocarbon contamination problem, which led to the customer cutting orders on the affected component, and the final cleaning of the 2 remaining antidiscs models. Notion has had to outsource to a Singapore vendor at higher cost. Management spent substantial resources in relocating and upgrading the final washing facilities in order to comply with the customer’s requirements. The other production issue involved its 2.5” HDD baseplate project, which has not been performing to expectations, resulting in delays to production targets, excessive start-up costs and high rejection at the die casting and machining stage, as well as rejection by a customer vendor based in Dongguan, China. The project incurred >RM80m capex, which will add to production cost in terms of depreciation and finance cost as it is 80% funded by bank borrowings. Factory 3 is being retrofitted and the manufacturing currently distributed between Factory 1 and 2, and a coating supplier in Banting. This gave rise to cost inefficiency and losses. Management needs time to reorganize the manufacturing for this project. Factory 3 will be operational by Sept 2010.

3. Potential slowdown in the HDD sector.

Price Recommendation :-
Pegging a 7x FY11 PER, which is its historical 5-year average PER, fair value is  RM1.45. Currently price is still trading at premium 31% (above its fair value RM1.45).