Thursday, September 15, 2011

Stocks to watch 20110915: Lion Industries, Proton, Glomac, Tenaga

KUALA LUMPUR: With the FBM KLCI hitting a 53-week low on Wednesday, Sept 14, there could be some mild bargain hunting for oversold stocks on Thursday, but the extent of the buying would hinge on the volatile external environment.

The 30-stock KLCI closed down 10.39 points to 1,437.61, the lowest since Sept 9, 2010 when the KLCI ended the day at 1,437.78. Indeed, a major disappointment for the KLCI after it hit a historic high of 1,579.08 on July 11. Year-to-date, the KLCI is down 5.35%.

Sime Darby fell 23 sen to RM8.47, dragging the index down by 3.2 points while Genting lost 16 sen to RM9.44, nudging the index down by 1.37 points. Tenaga Nasional shed nine sen to RM5.12, dragging the index down by 1.13 points.

Some positive news could come from Prime Minister Datuk Seri Najib Tun Razak who is expected to announce various government policies over RTM1 on Thursday at 8.30pm, the eve of Malaysia Day.

Other positive factors underpinning the country’s economy are the projects under the Economic Transformation Programme , expansion of the oil and gas sector and also the PLANTATION [] sector. Also supporting sentiment is the Budget 2012 proposals which scheduled to be announced on Oct 7.

Deputy Prime Minister Tan Sri Muhyiddin Yassin said Wednesday he believes there could be several big initial public offerings (IPOs) in the next few years in Malaysia. He was quoted by Bernama as saying the government had introduced more business-friendly procedures to encourage capital inflow into the stock market.

Among the stocks to watch are Lion Industries, PROTON HOLDINGS BHD [], GLOMAC BHD [] and TENAGA NASIONAL BHD [].

RHB Research Institute said in a report on Wednesday that it had downgraded Lion Industries from Trading Buy to Underperform following a potential spillover effect from its subsidiary Megasteel’s financial difficulty. Its indicative fair value was revised to RM1.59 (from RM2.13 previously).

“LionCorp’s subsidiary Megasteel is not in the best of shape owing to internal weaknesses, weak demand in the flat steel market and high raw material costs. Not helping either is its highly-geared balance sheet.

“We think that the prospects of a foreign partner coming into Lion Group are diminishing given that corporations are likely to turn more cautious on acquisitions due to the uncertainty in the global economy. Hence, we are now more neutral about the potential entry of a foreign partner.

“We feel there is an increased risk that LionCorp may be unable to meet the interest and principal payment obligations due to weak operating environment. In the absence of a foreign partner, we believe LionCorp might need to restructure its debt payment again.

“LionCorp holds a 25%-stake in Lion Industries. Thus, any restructuring plan by LionCorp could potentially involve the sale of this equity stake, in our view,” it said.

Meanwhile, Proton Holdings Bhd will hold its AGM on Thursday as investors are expected to raise questions about the sharp fall in the earnings.

Another question is how confident is Proton that its unit Lotus Group International Bhd would be able to break even by 2014.

Proton’s net profit fell 94.6% to RM4.55 million in the first quarter ended June 30, 2011 from RM84.68 million a year ago largely due to the higher expenses incurred by Lotus Group.

In April this year, Lotus Cars Ltd secured £270m million (RM1.33 billion) in loans from six financial institutions over a six-year period in a move to turnaround the loss-making England-based company.

Proton group managing director Datuk Seri Syed Zainal Abidin Syed Mohamed Tahir had on then said he expected Lotus to breakeven by 2014. The loan syndication forms part of the funding required to execute the five-year business plan. With the closing of the syndication exercise, the external portion of the funding is now in place.

In Glomac, its Thai subsidiary is disposing of its stake in Thai company WHA Glomac Alliance Company Ltd for baht 289.91 million (RM30.92 million)

Glomac said on Wednesday, Sept 14, Glomac Thailand Sdn Bhd had agreed to sell its 49% stake in WHA Glomac Alliance to WHA Corporation Co. Ltd.

As for Tenaga, OSK Research had cut its FY11 forecast by 56% and for FY12 by 16%. Its fair value was reduced to RM6.24 from RM7.53 previously.

“More importantly we see BV per share dropping from RM5.32 end 3Q to RM5.25 end 4Q to RM5.18 by end 1Q and flattening there for 2Q before creeping up again starting 3QFY12

“With Tenaga hardly dropping below 1.0 times price to book value over the past 10 years, we believe this should be viewed as a strong support level. So BUY Tenaga given that it is quite close to the projected minimum book value of RM5.18,” it said.

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