Axiata: Merger plan gets Bangladesh court’s nod, but is the price too high? Axiata and Bharti Airtel Ltd have

FEATURE CALLS Malaysia | 2Q16 Results Roundup Growth to resume in 2017 Chew Hann Wong

COMPANY RESEARCH Cahya Mata Sarawak | Recovery en route Li Shin Chai

NEWS Outside Malaysia Other News

COMPANY RESEARCH

Malaysia Company Update Cahya Mata Sarawak (CMS MK) by Li Shin Chai Share Price: MYR3.79 Target Price: MYR4.20 Recommendation: Buy Recovery en route CMS’ 1H16 core net profit was actually slightly above expectations due to higher forex losses from OMS. We expect 2H16 earnings to be stronger HoH as earnings normalise. Going forward, its core building material supply business would benefit from the Pan Borneo Sarawak Highway construction, which would drive its forward earnings growth. Meanwhile, OMS and Sacofa could provide upside to earnings. Our earnings forecasts are unchanged. Maintain BUY with a SOP-based TP of MYR4.20. 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) 17.8 16.4 22.3 17.5 P/BV (x) 2.2 2.0 1.9 1.8 Net dividend yield (%) 2.2 1.2 1.8 2.3 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 13.1 10.9 Net debt/equity (%) net cash net cash 4.9 5.0 Li Shin Chai    (603) 2297 8684    lishin.c@maybank-ib.com

MACRO RESEARCH MY: 2Q16 Results Roundup Strategy Research by Chew Hann Wong Growth to resume in 2017 Post 2Q16 results reporting season, our 2016F/2017F KLCI core earnings forecasts are lowered by -2.4%/-2.9%, and we now expect negative -1.8% growth this year, +7.1% in 2017. We have also incorporated the new 900/ 1,800 MHz telco spectrum fees into our forecasts. We maintain our end-2016 KLCI target of 1,710, and remain cautious into Sept/early-4Q16 amid uncertainties on the US FFR, and ahead of the US Presidential Election, a risk event. We continue to recommend a defensive equity positioning. Chew Hann Wong    (603) 2297 8686    wchewh@maybank-ib.com

NEWS Outside Malaysia: U.S. Manufacturing hits rough spot in possible warning on growth. The Institute for Supply Management’s index fell by 3.2 points to 49.4 in August, the biggest drop in more than two years and signaling contraction for the first time in six months, the Tempe, Arizona-based group’s report showed. Readings above 50 indicate growth, and 11 of 18 industries surveyed by the purchasing managers’ group indicated weakening. (Source: Bloomberg) E.U: New orders in August at euro-area factories rose at the weakest pace in 18 months as both domestic and export demand faltered amid heightened uncertainty after the U.K. voted to quit the European Union. A Purchasing Managers Index for manufacturing fell to a three-month low of 51.7 in August from 52 in July, IHS Markit said. The decline, which was steeper than initially estimated, was driven by a slowdown in order growth. The measure remained above the 50 level that divides expansion from contraction. (Source: Bloomberg) U.K: Factory activity reached a 10-month high in August as the weaker pound helped manufacturing bounce back from a post-Brexit slump. IHS Markit said it’s Purchasing Managers Index, which dropped below the key 50 level in July, jumped by a record to 53.3. New orders rose, with sterling’s recent drop “by far the main factor” for the improvement in exports, Markit said. (Source: Bloomberg) China: Chinese households, companies and banks held a record CNY 26.3t (USD 3.9t) of wealth-management products as of June 30, underscoring risks to an increasingly leveraged financial system from an explosion in shadow banking. The products’ value rose 11.8% in the first half from the end of last year, according to a statement on the China Banking Wealth Management Registration System’s website. More than 450 banks raised a total of CNY 84t by selling 97,636 WMPs in the first six months, according to the statement. China has been tightening rules on WMPs since late 2014 as a growing number of analysts issue warnings on the build-up of risks in the country’s financial system. (Source: Bloomberg) Indonesia: Inflation slowed to the weakest in almost seven years and fell below the central bank’s target, bolstering the case for further interest-rate cuts. Consumer price gains eased to 2.79% YoY last month. Prices fell 0.02% in August from the previous month, the statistics office said, adding that the annual rate was the lowest since December 2009. (Source: Bloomberg) Other News: Construction: KAJ Development, Powerchina sign MYR30b pact on Melaka Gateway project. Melaka Gateway master developer KAJ Development Sdn Bhd (KAJD) has inked a MYR30b memorandum of agreement (MoA) with Powerchina International Group Ltd for the development of three islands under the Melaka Gateway project, more than two years after its launch in 2014. KAJD will partner Powerchina International for the three islands which have been earmarked for various tourism, commercial, property and maritime developments. (Source: The Sun Daily) Vivocom: Unit bags turnkey project worth MYR600m from Dazamega. Vivocom International Holdings subsidiary has been appointed as the turnkey contractor for a residential condominium project with a GDV of MYR600m in Hulu Kinta, Perak. Vivacom Enterprise Sdn Bhd (VESB) is tasked with designing and constructing the structures featuring six blocks of 22-storey residential condominiums, infrastructure and all associated works on the development within 48 months after the launch. (Source: The Edge Financial Daily) Axiata: Merger plan gets Bangladesh court’s nod, but is the price too high? Axiata and Bharti Airtel Ltd have received the approval of Bangladesh's High Court to merge their operations in the country. However, the merger fee and spectrum charge will come to almost MYR320m in total. The High Court division of Bangladesh’s Supreme Court had fixed the merger fee at 100 crore taka (MYR52m). The merged entity is also required to pay the Bangladesh Telecommunications Regulatory Commission (BTRC) an additional 507 crore taka (MYR264.6m). Axiata had originally targeted to complete the merger transaction in the first half of 2016. In the latest announcement to Bursa Malaysia, it gave the fourth quarter of 2016 as the new deadline. (Source: The Star) SapuraKencana: Announces MYR264m contract wins. The group had secured some USD65.3m (MYR264m) worth of oil and gas support service contracts. The five projects involve engineering and construction work via its 100%-owned SapuraKencana TL Offshore Sdn Bhd. Of the five projects, four are in Malaysia, while one is in Vietnam. The contracts announced herein will have no effect on the issued and paid-up share capital of the company. (Source: The Edge Financial Daily) MRCB: Inks MoU with TM to wire up telecommunication, IoT abilities. MRCB has inked a MoU with Telekom Malaysia (TM) to provide integrated telecommunications- be it traditional broadband or wireless to the property developer’s existing and upcoming projects. The focus will be on commercial premises and transport hubs. The two groups will look into providing Internet of Things (IoT)-enabled services for smart township services and smart building services. (Source: The Edge Financial Daily)