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.

Notion Vtec : Uncertainty is an opportunity?

Quote :
Notion.KL
Sector:
Technology
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).

Boustead : Won 1.3B service support contract

Boustead Heavy Industries Corp won a service-support contract for the two Scorpene submarines of the Royal Malaysian Navy valued at RM1.3 billion, according to a company statement.

Bank of America : Short Activity?

The rise in short activity in Bank of America shares is consistent with the stock's performance over the past month. Bank of America shares have lost 11%, while the other three U.S. banking giants have all seen their stock prices drop by less than 3%.


A significant reason for the negativity around Bank of America appears to be management comments regarding lost revenues from so-called interchange fees--which banks charge to retailers for every debit card transaction. Bank of America said new legislation that caps those fees will cause it to take a $7 to $10 billion goodwill impairment charge in the third quarter and are likely to reduce revenues by $1.8 to $2.3 billion annually.

-- Written by Dan Freed in New York.

Citibank : Buy

Hightlights
-We think average earning assets will continue to shrink as the company reduces its Holdings portfolio and its loan book shrinks. A higher net interest margin should help net interest income rise in 2010, but a flattening yield curve and lower loan balances will likely reduce net interest income in 2011.We expect an improvement in trading and principal investment revenues will more than compensate for lower card and banking fee income due to new regulations, helping revenues climb about 15% in 2010 before declining in 2011.

-We think a moderation in credit losses will allow C to reduce loan loss provisions significantly in 2010, although chargeoffs will likely remain elevated. Expense discipline should allow for significant pretax margin expansion during the year, and operating costs should settle at near 50% of revenues in 2011.

- Acknowledging limited earnings visibility and regulatory uncertainties, we think the company can achieve EPS of $0.46 in 2010 and $0.47 in 2011.

Risk :
-C has restructured its business into Citicorp and Citi Holdings, with Citi Holdings carrying mostly non-core and distressed assets. The plan is ultimately to unwind Citi Holdings, which should lead to a more stable revenue stream. Tangible capital levels now seem adequate to us, but credit losses on loans held will likely remain elevated throughout 2010, in our view. The success of C's loan modifications will likely determine whether chargeoffs escalate from current levels.We think that dilution and asset shrinkage will prevent C from regaining the earnings power it once had. Still, with the shares trading at a discount-to-peers valuation, we see rising long-term value in the franchise.

- Risks to our recommendation and target price include a worse-than-expected downturn in global economic conditions, greaterthan- expected credit losses, and an inability to execute C's business plan.

- Our 12-month target price of $5.50 is equal to roughly 1.0X projected book value, below C's historical average and peers, reflecting market uncertainties.

UOB : 2nd Quarter Result

United Overseas Bank (UOB SP): 2Q results expected. The Co released net income of S$470m a year ago.

Mohammad El-Erian, CEO/CIO of PIMCO

EL-ERIAN: You know, Tom, all this speaks to what Ben Bernanke coined last week as the unusually uncertain outlook. Whether you look at the data, which is pointing in all sorts of directions, whether you look at the earnings, what we’re getting right now is very, very noisy picture. And it points to an uncertain outlook. Now, there’s two ways to think about this. One is, as you mentioned, certain data of backward looking, others are forward looking. The other thing – way to think about it is the reality that during regime shifts, data gets very noisy because you’re shifting from one regime to another and our inclination is the latter. Our inclination is to think of this as natural for a regime shift and we’re moving from a regime of high growth, leveraging, debt and credit entitlement to a more delivered, slower-growing, higher unemployment world.