20051003 Hwang DBS Daily Focus

Highlights
>
> Market Strategy - A quiet budget
>
> Overall, the 2006 Budget announcement was mildly contractionary (lower
> deficit target) and market-neutral as expected. Nevertheless, the Budget
> was positive for certain sectors, especially the tobacco sector as the
> effective total duty hike of 13% on cigarettes was much lower than recent
> rumours of 40-50% hikes. Construction companies should also benefit from a
> planned 10% increase in development budget. In addition, the allowance of
> partial group tax relief could benefit selected companies with loss-making
> subsidiaries. No change to our 930-940 year end KLCI target, and our top
> Buys include B Toto, Public Bank and IJM. The biggest "winner" from the
> Budget announcement is BAT, which was recently upgraded to Buy.
>
> 
>
> Comments
>
> IJM Corp - Enters into agreement for KASEH and extends time for Kumpulan
> Europlus acquisition - Maintain Buy
>
> IJM entered into a Definitive Agreement with Antah Holdings, KASEH
> Lebuhraya Sdn Bhd (KASEH) and Lebuhraya Kajang-Seremban Sdn Bhd (LEKAS)
> for the participation in the concession for the 48km new highway linking
> Kajang to Seremban for 33 years. LEKAS is the special purpose vehicle to
> undertake the Kajang-Seremban Highway concession novated by KASEH. IJM
> will lead in the management of the concession, subscribe for RM50m new
> ordinary shares representing 50% stake in the concession and subscribe for
> RM200m 7% Redeemable Unsecured Loan Stocks (RCULS) in LEKAS. The novation
> of the concession by KASEH to LEKAS is subject to Antah Holdings
> shareholders approval at a general meeting. We expect construction work on
> the project to resume from April 2006 onwards.
>
> IJM also announced that the parties involved in IJM's proposed acquisition
> of a 25% stake in Kumpulan Europlus has agreed for a two month extension
> to fulfill the conditions for the purchase. The conditions to be fulfilled
> include finalization of the revised terms for the West Coast Highway (WCH)
> concession. We view this positively as IJM would be able to determine
> whether the WCH concession is value-enhancing before the Kumpulan Europlus
> acquisition. We maintain our Buy recommendation on IJM Corp with a RM5.90
> price target, based on 14x FY06 FD EPS.
>
> Banking - AMMB introduced variable rate HP - Maintain Overweight
>
> AMMB introduced variable rate hire purchase loans offering consumers an
> option to finance their automobile purchases. Current HP facilities are on
> fixed rate basis.
>
> We foresee banks to target effective interest rates when quoting variable
> rate HP, thereby maintaining their interest income and margins.
> Introducing a variable rate at this point is quite timely as we think
> rising interest rate potential would hurt banks' margins for fixed rate
> loans. It also differentiates AMMB's products from the others. As HP would
> be the lead loan growth driver, Malaysian banks would compete harder to
> win market share in a financial system flushed with excess liquidity.
> Meanwhile, consumers would need time to understand and adjust to variable
> rate HP. Car buyers would also compare HP facilities from banks with those
> offered by automobile manufacturers/distributors.
>
> We maintain our Overweight call on the banking sector. Public
> Bank-Foreign, Maybank and RHB Capital are on our Buy list with price
> targets of RM7.80, RM12.60 and RM2.90 respectively.