Brokerages share reasons for their top picks

B U S I N E S S

Saturday March 31, 2007

Brokerages share reasons for their top picks

Asiatic Development Bhd



THIS is one of the laggards among plantation stocks, said OSK Research.

The research house said strong crude palm oil prices would continue to drive the group's earnings.

Besides the anticipated positive earnings growth, the stock might also be on merger and acquisition play. “Genting has refuted market talk on it selling the stake in Asiatic since the subsidiary is generating steady income for the group.

“However, Genting may be tempted to sell when the price is right,” said OSK Research.



Jaya Tiasa



SJ Securities said this was one timber stock that had largely been neglected.

“The valuation of the stock is still attractive. It is trading at a price-to-earnings ratio of 10 times,” it said.

SJ Securities expects Jaya Tiasa to benefit from the high timber price, given the rising demand from India, China and Japan.

Furthermore, the stock is on analysts' and fund managers' radar now that the group has initiated efforts on investor relationship management. “This will help raise the company's profile,” it said.



Dreamgate



This is a stock that is proxy to the casino industry.

Dreamgate, a supplier of slot machines and casino games equipment, is one of the top picks by SJ Securities due to its potential earnings growth amid the liberalisation of the global casino industry.

SJ Securities said the demand for slot machines and games equipment would rise as more casinos were opened.

“The stock valuation is very attractive. It is trading at a single-digit price-to-earnings (P/E) ratio, whereas its industry peers are at the P/E ratio of over 20 times,” it said.

The brokerage said Dreamgate's casino in Cambodia could be its trump card to boost earnings growth.



Transmile Group



Transmile is on JP Morgan's recommendation list.

“We like Transmile as a play on the strong growth in the overnight air cargo business in Asia,” it said.

The attractions with Transmile are its landing rights in Asia and the US, also its niche express delivery service to courier companies, factories and fast forwarders.

Transmile has formed a strategic alliance with DHL to develop intra-Asia and inter-continental services to meet the rising demand for overnight air cargo service.

For the financial year 2006, the group posted a net profit of RM157mil, 110% higher than in 2005.



Kinsteel Bhd



The Ninth Malaysia Plan will be the catalyst for the stock because the rollout of mega projects will spur demand for more steel-related products.

Hwang-DBS Vickers Research said Kinsteel, the country's sole manufacturer of H&I beams, had the extra capacity to develop downstream products that were needed for infrastructure projects like the double-tracking railway and Penang monorail.

“There is tremendous potential for Kinsteel, which took over Perwaja last September, to increase production of its downstream products from its Gurun plant, as utilisation was only at 29% last year,” said Hwang-DBS Vickers.

The research house forecast a compounded annual growth rate of 37% on Kinsteel's net profit in the next three years.



KNM Group Bhd



KNM is the top pick of Hwang-DBS Vickers in the oil & gas sector.

The research house expects the group's venture into oil sand development in Edmonton, Canada, to provide another leg of growth for KNM's earnings.

Oil sands are deposits of bitumen that can be converted into upgraded crude oil before refineries can use it to produce gasoline and diesel fuels.

According to Hwang-DBS Vickers, the development cost of oil sands is US$15 per barrel, which makes economic sense to have it as an alternative for fossil energy.

The research house said KNM's venture into oil sands reaffirmed the group's “steroid growth” prospects.



United U-Li



SJ Securities said United U-Li's earnings would ride on the construction and property projects in the country.

The research house expects earnings growth of 40% for United U-Li this year amid expectation of securing more jobs.

In the last financial year ended Dec 31, United U-Li posted a net profit of RM8.3mil against a loss of RM7.4mil in 2005. Its earnings per share rose to 6.30 sen versus loss per share of 5.62 sen.

SJ Securities said the company was indeed the contractor for the cable casing works in Genting's casino.

“United U-Li stands a high chance of securing some jobs from their Singapore casino project,” it said.



Cheetah



Garment manufacturers have been out of favour for many years due to the fierce competition from low labour cost countries like China and Cambodia.

However, SBB Securities is recommending Cheetah Holdings Bhd, given its steady earnings growth.

“Cheetah has achieved astounding growth rate to even rival that of blue-chip companies,” it said.

The research house said Cheetah recorded compounded annual growth rate (CAGR) of 10.7% in the past seven years and 16.3% in net profit.

It forecasts CAGR of 17.7% for financial years 2006 to 2008.

SBB Securities noted that Cheetah's reserve of RM27mil would enable it to offer bonus issue to meet the RM60mil paid-up capital requirement for main board listing.

“The main board listing will give further credence to its consistent track record,” it said.


ASIATIC : [Stock Watch] [News]
JTIASA : [Stock Watch] [News]
DGATE : [Stock Watch] [News]
TRANMIL : [Stock Watch] [News]
KINSTEL : [Stock Watch] [News]
KNM : [Stock Watch] [News]
ULICORP : [Stock Watch] [News]
CHEETAH : [Stock Watch] [News]

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