20051004 Hwang DBS Daily Focus

Highlights
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> Megan Media - Too cheap to ignore - Maintain Trading Buy
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> Megan Media is one of the few world class Malaysian companies that can
> hold its own against the mighty Taiwanese and Chinese in Tech
> manufacturing. Despite cut-throat competition the company is thriving and
> is expected to breach RM1bn in sales this year. Investors have long been
> concerned about its gearing position but we have a different view about
> this. The company will generate annual free cash flows of >RM100m going
> forward and based of the Altman Z-Score, the company is likely to remain
> is reasonable financial health in the near-to-mid term. As such, Megan
> Media's gearing position should not be the main investment consideration
> but its business fundamentals and cheap valuation. Although we have
> downgraded our FY2006-08 EPS forecasts by 10.2%, 10.4% and 6.0% to take
> into account stock clearance and lower ASPs, we maintain our Trading Buy
> call for its cheap PE. Target price lowered to RM1.45 due to the earnings
> revision.
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> Comments
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> MAS - Cost savings from new system - Maintain Fully Valued
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> Malaysia Airlines (MAS) today signed an agreement with Lockheed Martin, to
> replace the existing flight planning system, which will improve flight
> operations. The contract, with a start-up cost of RM11m, calls for an
> integrated suite of technology to be installed at the Flight Operations
> Dispatch Centre (ODC) located at Kuala Lumpur International Airport by
> June 2006. According to The Star, quoting senior flight operations general
> manager Nawawi Awang, the airline expects RM150m p.a. in cost savings
> because of the new system.
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> It remains to be seen whether such significant cost savings can be
> achieved from the new system. Apart from the new system, MAS's earnings
> will also depend on the direction of jet fuel and the Group's hedging
> policy. We maintain our Fully Valued recommendation and RM3.00 price
> target, based on 1.1x FY06 NTA.
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> Ann Joo - Malayawata acquisition will be long term positive - Maintain
> Fully Valued on Ann Joo
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> Ann Joo, a producer of flat steel products in Malaysia has announced
> further details on its bid to make a voluntary general offer (VGO) to
> acquire the remaining 67.9% stake it does not already own in Penang-based
> Malayawata. The latter is a major producer of long products catering
> mainly to the construction sector. The remaining 137m shares will be
> purchased for RM1.50 per share, which is a 17 sen premium (13% premium)
> from Malayawata's last traded price of RM1.33 prior to suspension on
> September 29. The offer of RM1.50 implies a PE of 10.1x and P/NTA of 0.6.
> Our initial price target for Malayawata is RM1.40, based on 10x FY06 PE.
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> Recall that Ann Joo has initially purchased a 30.03% stake in Malayawata
> at RM3.33 per share in year 2001. However, details on the financing of the
> latest acquisition have yet to be firmed up. Assuming the VGO is financed
> via borrowings and there is a 100% acceptance, we think Ann Joo will face
> a slight dilution in earnings for the immediate term based on our
> forecasts for Malayawata. Should Ann Joo finance 50% of this acquisition
> through borrowings, net debt will increase by 69% to RM245.2m (net gearing
> of 50%).
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> We think that the Ann Joo will however be able to reap benefits on a
> longer term basis where a combined production of flats and longs will
> results in synergistic benefits and scale economies for both of the steel
> producers.
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> The offer is conditional upon Ann Joo receiving more than a 50% stake in
> Malayawata. The offer is subject to the approval of Ann Joo shareholders
> at an EGM.
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> Meanwhile, we are maintaining our Fully Valued call on Ann Joo with a
> price target of RM1.50 based on 12x CY06 earnings mainly due to
> sector-wide subdued sentiments. However, the improved tone for the local
> construction sector following the release of the recent budget should help
> stir demand for long products locally. Additionally, the 9MP which should
> materialise in year 2006 should also be positive news for the beleaguered
> sector. For now however, we are maintaining our underweight call on the
> sector pending more concrete developments. Looking at Asian steel prices
> however, we note that y-o-y flats and long prices are still remaining
> quite firm albeit we think prices will dip to lower levels compared to
> 2004's soaring prices.
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