Technical | Fundamental Analysis Discussion Stocks Listed In Bursa

Thursday, April 22, 2010

Axiata, Kossan, MAS, Nestle

DJ Nestle Malaysia Exec: 2Q Net Profit Very Likely Lower Than 1Q

KUALA LUMPUR (Dow Jones)--Nestle (Malaysia) Bhd.'s (4707.KU) second-quarter net profit will "very likely" be lower than the first quarter due to higher advertising and promotion costs, Managing Director Peter Vogt said Thursday.

Some of this year's advertising and promotional expenses have been "bunched up" in the second quarter due to new product launches, while the costs in the first quarter were "unusually low," Vogt told a news conference. He didn't give a numerical guidance.

The food and beverage firm Wednesday reported that its net profit for first quarter ended March 31 grew 38% to MYR138.8 million from MYR100.4 million a year earlier.

Vogt said the results for the first half year will likely still be better than a year earlier due to higher sales. "We hope to improve both our top and bottom lines," Vogt said, adding that "we hope sales growth will be better than (the country's) GDP (forecast growth)." Malaysia's official forecast is for gross domestic product to grow between 4.5% and 5.5% this year.

Nestle Malaysia posted a net profit of MYR351.8 million in 2009 on revenue of MYR3.74 billion. The firm's gross profit margin was 11.8% in 2009 against 11.4% in 2008, while its net profit margin was 9.4% last year against 8.8% in 2008.

Finance director Marc Seiler said capital expenditure this year will likely be between MYR130 million and MYR140 million this year, to be used for expansion and renovations. Capex will be lower than last year's MYR257 million when the company made a major investment in new lines.

DJ MARKET TALK: OSK Keeps MAS At Sell; Target At MYR1.50

0533 GMT [Dow Jones] STOCK CALL: OSK Research keeps Malaysian Airline System (3786.KU) at Sell, target at MYR1.50. Analyst Ng Sem Guan says "not excited" at possibility of commuter unit Firefly taking over MAS's ageing B737-400 planes when the parent's newer B737-800s arrive starting this year. Original plans were to retire the older planes, but company now says considering various options, including transferring them to Firefly. Ng says keeping them in group will raise maintenance costs, appears to contradict group policy in lowering costs by renewing fleet; also, Firefly may lose competitive advantage if forced to use KLIA rather than closer-to-city Subang Airport in Kuala Lumpur when it starts jet flights (vs only turbo-propeller planes now that is allowed at Subang). Stock down 0.9% at MYR2.25.

DJ Kossan Rubber Industries Shares Jump On Bonus Issue; May Rise More

KUALA LUMPUR (Dow Jones)--Shares of Kossan Rubber Industries Bhd (7153.KU) rose as much as 4% to a two-week high Thursday after the world's third largest glovemaker by sales declared a 1-for-1 bonus issue, the most generous share distribution in the company's history.

The plan, announced in a stock exchange filing late Wednesday, makes Kossan Rubber the second Malaysian glovemaker to distribute free shares to shareholders in less than two months.

Supermax Corporation Bhd (7106.KU), the world's second biggest glovemaker, declared a 1-for-4 bonus issue in early March.

Kossan shares hit an intraday high of MYR8.19 before some profit-taking kicked in. At midday, Kossan shares were up 1.6% at MYR8.03, outpacing the benchmark Kuala Lumpur Composite Index which was 0.1% lower.

"Although the bonus issue would not have any impact on valuations, it may help improve the stock's liquidity and help buoy retail sentiment towards the stock," RHB Research analyst David Chong said in a report, reiterating an Outperform recommendation on the stock.

Kossan's bonus issue is also meant to be a reward for shareholders even as Malaysian glove manufacturers enjoy one of the best periods ever for their businesses.

Global glove demand has been expanding at an average rate of 8%-10% over the last decade, with the growth expected to continue in the coming years, underpinned by increasing healthcare spending, particularly in the wake of the U.S. healthcare reform.

Backed by retained earnings of more than three times its share capital, Kossan's latest bonus issue is the most generous payout ratio in the company's history, analysts said.

If the past performance of Kossan's shares after previous bonus issues are anything to do by, the stock may have further room to rise, said Affin Investment Bank.

Citing Kossan's previous 2-for-5 bonus issue in July 2005 as an example, Affin said the stock, which was trading at a price-to-earnings (PE) ratio of 7 times at the time of declaration, went on to establish a steady two-year uptrend in its traded PE ratio, peaking at 17 times in mid-2007.

"Despite the 45% year-to-date gain in Kossan's share price...valuations are still undemanding at 2010 PE of 10 times against a fairly robust 19% year-on-year earnings growth," Affin said, maintaining its Buy rating on the stock, with a target price of MYR10.12.

The bonus issues from Supermax and from Kossan has raised hopes that other glovemakers may follow suit.

Industry leader Top Glove Corporation Bhd (7113.KU), which has a combined share premium and retained profit of more than five times its paid-up capital, may be next, analysts and dealers said.

DJ MARKET TALK: Axiata May Pay Dividends From FY11 - RHB

0231 GMT [Dow Jones] STOCK CALL: Axiata (6888.KU) may start paying dividends from FY11, one year earlier than planned, says RHB Research after meeting with company management; company officials could not be reached for comment. RHB says formal dividend policy likely to be set in few months time; early payment of maiden dividend in view of improving performance of most of its mobile phone services units, expected lower capex requirements. House says management indicated company unlikely to make any further acquisitions in Indonesia since unit XL Axiata already has network coverage of 80-90%. "We continue to like Axiata given its exposure to the recovery in emerging markets, where mobile penetration rates remain low," RHB says; keeps Outperform call with MYR4.05 target. Stock +0.3% at MYR3.74.

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