Ekovest: To issue MYR3.6b Islamic bonds. The company has signed an agreement with four local banks

COMPANY RESEARCH Petronas Chemicals | Tragedy strikes SAMUR Mohshin Aziz Cahya Mata Sarawak | Growing positive vibes Li Shin Chai Malaysia Marine & Heavy Engineering | Forms a JV with EPIC Thong Jung Liaw

NEWS Outside Malaysia Other News

COMPANY RESEARCH

Malaysia Results Review Petronas Chemicals (PCHEM MK) by Mohshin Aziz Share Price: MYR6.70 Target Price: MYR6.70 Recommendation: Hold Tragedy strikes SAMUR An ammonia leak at PCHEM's urea factory in Sipitang, Sabah has claimed the lives of two workers and injured three others. This will likely call for a lengthy halt to production as the authorities carry out their investigation. The impact to our 2016 earnings is immaterial at only 1% but 2017 could be larger at 4%. We tactically downgrade PCHEM to HOLD as we remove the 10% premium to peers and peg it to 16.4x 2016 PER. FYE Dec (MYR m) FY14A FY15A FY16E FY17E Revenue 14,597.0 13,536.0 13,143.4 12,420.5 EBITDA 4,650.0 5,036.0 5,962.8 6,158.9 Core net profit 2,790.0 2,754.0 3,273.9 3,350.1 Core EPS (sen) 34.9 34.4 40.9 41.9 Core EPS growth (%) (11.4) (1.3) 18.9 2.3 Net DPS (sen) 16.0 18.0 20.5 20.9 Core P/E (x) 19.2 19.5 16.4 16.0 P/BV (x) 2.4 2.2 2.0 1.9 Net dividend yield (%) 2.4 2.7 3.1 3.1 ROAE (%) 12.6 11.6 12.8 12.2 ROAA (%) 9.9 9.3 10.5 10.4 EV/EBITDA (x) 7.7 10.2 7.7 7.3 Net debt/equity (%) net cash net cash net cash net cash Mohshin Aziz    (603) 2297 8692    mohshin.aziz@maybank-ib.com

Malaysia TP Revision Cahya Mata Sarawak (CMS MK) by Li Shin Chai Share Price: MYR3.98 Target Price: MYR4.20 Recommendation: Buy Growing positive vibes CMS’ 2Q16 net profit is expected to stage a strong recovery, increasing 66-85% QoQ on normalization of its operations. With MYR10b worth of Pan Borneo Sarawak Highway contracts awarded to boost demand for its building material, CMS’ earnings growth would gain momentum from 2017 onwards. OMS’ prospects have improved and could provide upside to our earnings forecasts. Maintain BUY with a higher MYR4.20 TP (+10%). FYE Dec (MYR m) FY14A FY15A FY16E FY17E Revenue 1,673.9 1,788.0 1,543.9 2,022.1 EBITDA 372.5 398.2 345.0 418.4 Core net profit 221.3 248.1 182.4 233.1 Core EPS (sen) 21.3 23.1 17.0 21.7 Core EPS growth (%) 23.9 8.5 (26.5) 27.8 Net DPS (sen) 8.5 4.5 6.8 8.7 Core P/E (x) 18.7 17.2 23.4 18.3 P/BV (x) 2.3 2.1 2.0 1.9 Net dividend yield (%) 2.1 1.1 1.7 2.2 ROAE (%) 12.8 13.0 8.8 10.6 ROAA (%) 8.5 8.2 5.3 6.2 EV/EBITDA (x) 9.8 14.2 13.6 11.4 Net debt/equity (%) net cash net cash 4.9 5.0 Li Shin Chai    (603) 2297 8684    lishin.c@maybank-ib.com

Malaysia Company Update Malaysia Marine & Heavy Engineering (MMHE MK) by Thong Jung Liaw Share Price: MYR1.06 Target Price: MYR0.90 Recommendation: Sell Forms a JV with EPIC The JV with EPIC to set up a marine repair base in Terengganu is positive in extending its operations beyond Pasir Gudang. But, earnings impact will be minimal, in our view (e.MYR3m-5m net profit p.a., based on its 70% stake). Overall business outlook is tough. Order replenishment is a challenge and cash is depleting. MMHE needs a significant order win to warrant a re-rating. Valuations are expensive. An asset impairment exercise is not being discounted. Our TP is based on 1x EV/order backlog. FYE Dec (MYR m) FY14A FY15A FY16E FY17E Revenue 2,700.5 2,459.0 1,298.6 1,003.1 EBITDA 248.2 157.9 88.4 84.0 Core net profit 173.1 93.3 41.8 36.8 Core EPS (sen) 10.8 5.8 2.6 2.3 Core EPS growth (%) (26.8) (46.1) (55.2) (12.1) Net DPS (sen) 0.0 0.0 0.0 0.0 Core P/E (x) 9.8 18.2 40.5 46.1 P/BV (x) 0.6 0.6 0.6 0.6 Net dividend yield (%) 0.0 0.0 0.0 0.0 ROAE (%) 6.6 3.5 1.6 1.3 ROAA (%) 3.6 2.1 1.1 1.0 EV/EBITDA (x) 10.2 4.8 10.1 10.5 Net debt/equity (%) net cash net cash net cash net cash Thong Jung Liaw    (603) 2297 8688    tjliaw@maybank-ib.com

NEWS Outside Malaysia: U.S. Consumer prices unchanged in July as fuel costs ease. The U.S. cost of living was little changed in July, a sign subdued inflationary pressures will give Federal Reserve policy makers reason to keep interest rates low. It was the first time in five months the consumer-price index failed to advance and followed a 0.2% gain in June, Labor Department figures showed. Excluding food and energy, prices rose 0.1%, less than projected. Inflation continues to tread below the Fed’s goal as U.S. companies remain challenged by frugal consumers and competition from cheaper goods made overseas. With price pressures elusive, central bankers will be less willing to raise borrowing costs. (Source: Bloomberg) U.S: Housing starts climbed to a five-month high in July, indicating the housing industry remains an area of support for the economy. Residential starts increased 2.1% to a 1.211 million annualized rate from 1.186 million in June, Commerce Department data showed in Washington. Permits, a proxy for future construction, were little changed. (Source: Bloomberg) Germany: Investor confidence rebounded in August after the initial shock of Britain’s decision to leave the European Union. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months ahead, rose to 0.5 from minus 6.8 in July. (Source: Bloomberg) U.K: Inflation accelerated in July and there were signs the weak pound will fuel further price pressures with import costs jumping the most in more than four years. Consumer-price growth picked up to 0.6% from 0.5% in June, the Office of National Statistics said. Input costs surged an annual 4.3% last month, ending 32 consecutive declines, while import prices jumped the most since 2011. (Source: Bloomberg) Other News: Ekovest: To issue MYR3.6b Islamic bonds. The company has signed an agreement with four local banks for the issuance of what is described as one of the largest ringgit-denominated sukuk wakalah worth MYR3.64b to partly fund the Setiawangsa-Pantai Expressway (SPE) project. The 32.1-km highway, formerly known as the Duta Ulu Klang Expressway phase 3, is estimated to cost MYR5.05b, taking into consideration the debt service covering ratio within the construction. SPE has already secured a 53-year, six-month concession period with the Government. The issuance of the sukuk wakalah for the SPE will be among the largest issuance for a new highway construction project, as well as among the highest-rated AA-sukuk so far in 2016. (Source: The Star) AirAsia: Continues to make a case for lower PSC charges at klia2. The company says the differential in the passenger service charge (PSC) between the Kuala Lumpur International Airport (KLIA) and Kuala Lumpur International Airport 2 (klia2) should be maintained as the lower charges at klia2 will continue to better serve a broad range of travellers. The group’s CEO Tan Sri Tony Fernandes said there are five-star facilities and three-star facilities in the market. Citing an example, he said if every hotel in Malaysia is five-star, there will be very few tourists here. It was reported that the International Air Transport Association (IATA) and the Association of Asia Pacific Airlines have written to the Malaysian Aviation Commission and Malaysia Airports Holdings Bhd (MAHB) to protest the rate difference. (Source: The Edge Financial Daily) MyEG: Diversifying into foreign worker hostel accommodation. The company is diversifying its business activities to provide accommodation for foreign workers, starting by renting 512 accomodation units to the Melaka State Development Corp (PKNM). The company’s recently-incorporated sub subsidiary MY EG Lodging Sdn Bhd (MyEL) preparing to launch the business of operating hostels for foreign workers by signing on Tuesday a three-year tenancy agreement to rent 512 accommodation units. “The signing of the tenancy will enable the company (MyEL) to commence operations and the ccmpany will use these sites as pilot sites for future expansion to set up more sites nationwide,” the e-Government service provider told Bursa Malaysia. (Sources: The Star)