The research report is a summary of RHB Research’s views of the Bursa Malaysia stocks they cover. It’s quite an extensive list and I’m sure you’ll find some of your favorite Bursa stocks in there.

This time there is a special focus on the Malaysian banking sector. There is a good analysis on the Corporate and SME Loan exposure for Malaysian banks. Typically those with higher exposure to such clients will fate better with improving economic conditions and not fare as well in downturns.

Click table to enlarge

Notably RHBCAP has the highest corproate loan exposure among the banks.

Generally RHB Research is still bullish on the banking sector in Malaysia. Earnings growth continues to gain momentum while valuation remains decent relative to the market and historic levels. Foreign shareholdings remain relatively low. RHB Research has an Outperform for Affin, Alliance, AMMB, CIMB, Maybank and Public Bank.

Seeing that it is going ex-dividend in early August, I decided to buy a few more shares. Much of Petronas Dagangan business is captive business. I believe it has a strong defensive “moat”, the type that Warren Buffett would be pleased with.

In recent times, EPF has been dumping PETDAG shares (perhaps to create more liquidity as part of Bursa Malaysia plan to attract more foreign investment), but the stock is still pretty strong at around RM9.60. And there is a 45 sen dividend coming up soon.  So here are some other reasons I bought the stock

• Track record of consistent & increasing dividends .
• It is a classic “Stalwart” type of stock in the definition of Peter Lynch. At current PE levels, it is relatively cheap compared to other Stalwarts on Bursa Malaysia.
• Intrinsic Value of more than RM13.50 as at Jul-10 (using 10% EPS growth, 60% Dividend Payout ratio, 10% discount rate and 12x Terminal PER).
• Its share price has not really kept up with earnings growth over the years.

Petronas Dagangan is one of those cash cows that doesn’t hoard its cash. Dividend payout has been decent, with 45sen dividend for FY ended 2008 and 2009. For FY2010, it is 45sen plus 15sen Special Dividend. With PETDAG’s strong cash flow, I suspect the Special Dividend may well continue into the future.

On the earnings side, EBIT has travelled from the RM200-300 million level to RM1 billion level in a span of 7 years with no dilution to shareholders.

There are specific transfer pricing arrangements between Petronas and PETDAG although the formula is not widely known (not to me anyway) but EBIT Margin would usually come in at 4-5%.

But overall PETDAG earnings are quite predictable and I believe Petronas will continue to look after its cash cow for years to come.

Retail Properties
Sunway Pyramid Shopping Mall RM2.3 billion
Sunway Carnival Shopping Mall – RM250 million
SunCity Ipoh Hypermarket – RM50 million

Hospitality
Sunway Resort Hotel & Spa – RM480 million
Pyramid Tower Hotel – RM270 million
Sunway Hotel Seberang Jaya – RM56 million

Office Properties
Menara Sunway – RM138 million
Sunway Tower – RM185 million

SUNREIT is forecast to generate a Net Profit of RM170.3 million for the year ending 30-Jun-2011 or around 6.4 sen per unit. It is planning to distribute 6.7 sen per unit which is a yield of 6.9% on the Retail Subscription Price of RM0.90.

Looking at its Proforma Balance Sheet, the REIT will have borrowings of around RM989 million against total property valuation of RM3.73 billion. Net Borrowings works out to be around 36% of Net Assets.

I think I will only consider buying some units if the price drops to 80 sen or less. Usually property valuations in REITs are around 15-20% overvalued and while I haven’t looked at Sunway REIT offering in detail, I suspect it is probably overvalued. Sure the property quality is great but let’s wait for a great price before going in!

Its cash cow Genting Malaysia Berhad (previously Resorts World) saw almost RM1 billion wiped off its market value today as it announced the proposed acquisition of Genting Singapore PLC’s UK casino businesses for RM340 million. When will all the inter company and related party type transactions ever end?

GENM is currently trading at RM2.58, down 16 sen from perviously close. This is a current PE of 11.2x or EV / EBIT of only 5.7x which is very low for a big cap market leader.

At last count, Genting’s golden goose had net cash of RM5.3 billion, the largest net cash pile for any company on Bursa Malaysia. As at 31/12/09, GENM had Retained Earnings of RM8.4 billion but pays out a paltry RM400 million or so in dividends each year. What it intends to do with all that cash is anyone’s guess.  For now and sadly for the investment community, it looks like inter-company acquisitions is the way to go.

It doesn’t take much imagination to add Shareholder Value in this company. We would recommend upping the annual dividends for a start. But then again, where would the rest of the Genting Group be without this golden goose?

To make the analysis purer, we have just created a table which shows the Malaysian banking stocks by themselves. You can view it here:

http://sharesmyway.com/blog/sector-summary-table/

As you can see, our banks have a total market value of around RM195 billion, equating to around 20 times current earnings which are not that cheap. But the analysis is distorted by heavyweights MAYBANK and CIMB which are on higher earnings. Also bank earnings are on a trajectory currently and the broader sector PE should be around 12-13x forward PE.

Currently the market capitalization of the top Malaysian companies looks something like this:

• Malayan Banking Berhad (MAYBANK) – RM52.6 billion
• CIMB Group Holdings Berhad (CIMB) – RM48.4 billion
• Sime Darby Berhad (SIME) – RM26.9 billion
• Public Bank Berhad (PBBANK) – RM40.8 billion
• Maxis Communications Berhad (MAXIS) – RM39.4 billion

The full list can be viewed here.

Tip: In the list, click on News to see the key financial data and latest news for each company

Bursa Malaysia and BFX are jointly looking at developing commercially with regards to financial products as well as to encourage more Islamic market participants to follow suit to have more collaboration and understanding.

The MoU has the further intention of creating cross-border developments in the Islamic financial world by taking advantage of the technological advancements available on both sides for joint and sustainable future development.

Malaysia was represented by Bursa CEO Datuk Yusli Mohamed Yusof, while Bahrain’s representative was BFX board director Arshad Khan.

Both parties see this agreement as a major benchmark in creating a single, stable platform where Islamic nations can build and grow their financial framework together.

Once consolidation of the Islamic financial sector is achieved, global Islamic risk management practitioners are expected to be able to discuss issues and propose solutions in a more effective, pro-active way to ensure the growth of the Islamic financial future.

Syariah-compliance can also be confirmed and adhered to, and this could also signal good news for the world of Islamic finance.

Bursa Malaysia’s immediate attention lies in re-creating its image to cater for the future of the Malaysian stock market, which means for those below 25 years old (which encompasses 67% of the Malaysian population). Statistics clearly show that if the youth market is to be successfully tapped, the only way of doing it is through the Internet.

The growth of Internet trading has grown exponentially over the last couple of years, and now stands at an impressive 19%.

Considering that most young people are constantly on the internet, Bursa Malaysia has to personalize its marketing strategy so that it would appeal to the youth of today, something that Omnicom Media Group Malaysia managing director Andreas Vogiatzakis agrees on. He insisted that educating youth with the true reality of the stock market is crucial to attract youngsters to invest in the stock market.

President of the Association of Stockbroking Companies Malaysia Ahmad Azman was of the view that dealers and remisiers within the stock market industry should be licensed accordingly based on a tierd system that should be fair and hassle-free.

Stuart Sayers, ETrade Australia’s managing director said that the brokers should be targeted first to generate demand for the stock market, and Bursa Malaysia has to think of ways to make these brokers work more efficiently so that they offer more convenience to potential customers. According to him, keeping it simple is also crucial in addition to understanding what the customer really seeks for.

Rethink Retail is a positive step forward in terms of opinion-exchange and brainstorming discussions, now the challenge is to implement all the facts that were discussed during the forum to attract more young people to invest in the stock market!

The main initiative is by making more shares from government-linked companies (GLCs) available to foreigners. For starters, Khazanah Basional Bhd has announced to divest 32% stake in Pos Malaysia Bhd. In addition to this, Khazanah has sold down stakes in Tenaga Nasional Bhd, Malaysia Airports Holdings Bhd and PLUS Expressways Bhd in the last 9 months.

Other than increasing GLC’s shares, the government is also floating new ones in the local market. For example, two subsidiaries of national oil giant Petroliam Nasional Bhd is slated to be up for listing this year.
Companies like Percetakan Nasional Malaysia Bhd, CTRM Aero Composites Sdn Bhd, and biotech firms Nine Bio Sdn Bhd and Innobio Sdn Bhd, as well as a number of other companies under the Minister of Finance and other agencies, are also being reviewed by the government for privatization.

CTRM, a government owned company, and probably Asia’s largest manufacturer of composite aerospace, declared they were ready for public-listing. The company made an annual turnover of about RM300mil, while net profit for the year was around the region of RM30mil.

With these efforts, the government hopes to boost the percentage of foreign investment in Bursa Malaysia, which currently comprises of 26%, a drastic fall from 42% recorded in 2008, according to official figures.

Prime Minister Datuk Seri Najib Tun Razak said in his speech to launch the New Economic Model in March this year, that 50% of the daily Bursa volume is made up of the trading of Employees Provident Fund (EPF) in local equity and bond markets, a situation which he described as unhealthy for the market and for EPF. The fund size of EPF totals RM360bil, of which a quarter is invested in Bursa Malaysia. Presently, the total market capitalisation of all companies listed on Bursa Malaysia amounts to around RM1.06 trillion.

As such, EPF will invest more assets overseas and diversify its portfolio, thereby creating more investment opportunities for other participants. Also EPF is set to make more direct investments in the real economy of Malaysia as an alternative to market investments, such as in healthcare, commodities, property and other long-term investments.

He stressed that the same standards of governance and disclosures applies to China. This was in response to the negative perception Malaysian investors had on China listings.

This may have been fueled by the failure of several China companies listed on the Singapore Exchange since late 2008. Also three China companies currently listed on Bursa Malaysia are trading below their IPO prices.

However, Yusli advised investors not be so quick to stereotype Chinese companies and to perform their own due diligence on the companies they want to invest in. China companies too should be more pro-active in their investor relations to gain consumer confidence.

Yusli pointed that buying Chinese stocks listed on Bursa Malaysia is advantageous compared to those listed on foreign exchanges, such as Hong Kong or the Singapore Exchange. One could avoid foreign currency exposure risk because investments are in ringgit. Also there would be no brokerage fees to foreign brokers. In addition, China companies listed on Bursa would have gone through rigorous regulatory processes, thereby giving added security to local investors.

In closing, Yusli hopes that Malaysia could gain a good reputation as a listing destination among Chinese-based entrepreneurs.