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Come May 1st RON95 is RM2.10

Come May 1st RON95 is RM2.10

By Syed Akbar Ali

That's right. The Government is quite firm on "restructuring" the fuel subsidy on May 1st. Here is how it will work. First the price of RON95 will go up to RM2.10 per litre. Those who are eligible for the subsidies will have to swipe their MyKads at the gas stations and they will still get gas at the "old" price of RM1.80 per litre.

Those who are not eligible will have to pay RM2.10 per litre. This is based on todays world prices for oil. If oil goes up or down between now and May 1st, then the prices will be adjusted.

Eligible means cars below 2000 cc while cars above 2000 cc are not eligible. Between now and May 1st, you must register your MyKad and your car (if it is below 2000cc) somewhere. Details to be announced I think. Those with cars above 2000cc need not bother. You dont get the subsidy anyway.

Petrol stations will be equipped with a hand held device which can read your MyKad so that you can get your subsidy and also to read the amount of petrol you have used. The Government plans to allow only 100 litres of subsidised petrol per car owner per month. Only one car will be allowed for the subsidy.

All gas stations will be linked online (by May 1st) so that your usage of petrol will be monitored. The Government has talked to all the oil companies and they have all agreed.

Diesel will still be subsidised and commercial vehicles will not be affected. Only petrol driven privately owned passenger vehicles are eligible or not eligible for the subsidy.

What this means is that owners of cars below 2000cc will not see any reduction in their living expenses. They will still pay RM1.80 per litre for RON95 like they do today - no change there, except they will now have to flash their MyKads everytime they buy petrol, because they will only get say 100 litres of subsidised petrol a month..

Owners of cars above 2000cc will pay 30 sen more per litre - over 16% increase per litre of petrol.

Presently the Government spends about RM2.0 billion per year on fuel subsidies (petrol, diesel, all petroleum fuel). It is envisaged that this "restructuring the fuel subsidy" - which affects only petrol driven privately owned cars - will save the Government RM1.0 to RM1.5 billion.

Here are more numbers. There are about 8.0 million privately owned cars in Malaysia. Of these, 7.8 million are cars below 2000cc. This means this whole restructuring of the fuel subsidies is only going to affect 200,000 cars of 2000cc and above ? ?

And by making these 200,000 cars (of greater than 2000cc) pay an extra 30 sen per litre, the Government will save RM1.5 billion in subsidies a year ? ? I did some quick arithmetic and it works out to about 300 litres per car per month. But the Government is open for suggestions.

My view is while the 'restructuring' is supposed to help the poor, it does not really. They will still pay RM1.80 per litre (which they are paying now). There is no savings for them. Only the rich (those owning cars of 2000cc and above) will end up paying 30 sen more per litre. So while the poor remain status quo, the rich get penalised.

Even if world oil prices go up and pump prices also move up, the poor will still get subsidised petrol but at the higher market price. The rich will pay more.

I feel that prices of things will still go up. Although commercial vehicles and diesel lorries and trucks and tractors will still get subsidised fuel (thereby canceling the urge to raise prices) there will be some impact on the Consumer Price Index. Pasar malam traders use petrol driven generators to do their business at night. There are other equipment that may run on petrol - which may not enjoy the subsidy.

When the Government gave special diesel subsidies for the inshore fishermen (RM1.00 per litre of diesel), it immediately created huge diesel smugling problems. Then the Customs had to spend millions of Ringgit to buy boats to curb the smugling.

I think this split fuel subsidy structure will also create instant "kampong oil traders" especially if the oil prices move up drastically. People who have not used up their 100 litre per month quota will buy fuel and sell it for a small profit to others who may need it.

It would be fairer if the Government gave everyone a flat 100 litres (or 150 litres or 200 litres as may be more scientifically determined) of subsidised petrol. Above that and you pay market prices. And put in place a program to remove the subsidy altogether.

Its only 30 sen per litre (ok at current prices). The Government can reduce 10 sen per year and in three years, there will be no more need for fuel subsidies. The market will settle down to a new level by itself .

The issue of foreign cars can also be handled in a much easier manner. Singapore allows Malaysian cars 14 days free entry into Singapore. After that you have to pay RM75 per day. We could do the same thing. Charge foreign private cars RM10 tax per day - which goes to the Government or something like that.

The idea to deny the fuel subsidy to foreigners living in Malaysia does not seem fair. Foreigners who are resident here also pay road tax, drive cars bought in the country (paying excise duties etc) and may work here or run businesses here. They are actually part of the economy.

Foreign cars coming in from Singapore or Thailand are different.

The public also would like to see a drastic reduction in the prices of cars. Also a reduction in paying tolls. That would be more meaningful.

In conclusion, this restructuring of the fuel subsidies does NOT save any money for the poor (below 2000cc). The rich (above 2000cc) have to pay more. Both have to swipe their MyKads. They are all voters.

Maxis Bhd RM5.33: Hold - Dividends, specials and more dividends

Initiating Coverage
Maxis Bhd RM5.33: Hold
- Dividends, specials and more dividends
Hold for a pleasant surprise. The return of Malaysia’s market-leading celco was warmly welcomed on many fronts and may warm hearts further due to its potential to pay generous dividends. Despite keen competition from revived rivals, we expect Maxis to hold its ground at the very least and reward patient investors. Hold with a DCF-derived RM5.80 TP.

Acquisition/Disposal
Construction: Overweight
- PetroSaudi moves into Malaysian construction … targets Sarawak?
Linked to 1MDB and Sarawak? PetroSaudi’s acquisition of Cahya Mata Sarawak’s (CMS) 37.2% stake in UBG at RM2.50 a piece should trigger a general offer (GO) for the remaining UBG shares. It may also trigger GOs at UBG’s subsidiaries, Loh & Loh and Putrajaya Perdana. PetroSaudi will likely use the UBG group’s construction units to further its high impact energy investments in Malaysia, especially in Sarawak, under its USD2.5b partnership with 1Malaysia Development (1MDB). This is positive for FDI flows, but negative for equity investors who will have fewer options to participate in Sarawak’s development potential.

Technicals
The FBM KLCI gained 20.20-points last week in firm local buying activities. Volume (on a daily basis) surged from 1.13b to 1.86b and price movement was volatile with good buying interest last week. The FBM KLCI closed at 1,292.98. The firmer support areas for the FBM KLCI are located in the 1,271 to 1,297 zone. The key resistance areas of 1,300 and 1,338 may cap any rebound activities. Our weekly stock pick for today is a technical “FIRM BUY” call for APM.

Other Local News
EON Cap: Board may meet on Thursday
Proton: Set to complete consolidation of plants by end-2010
Ramunia: Might take over TH Tech
Auto: Miti imposes new rules on local tyre retreaders
Oil&Gas: Global Offshore tipped to win RM350m Petronas deal
Plantation: Seek review of tax, cess and levy
Economy: China group may set up RM11.8b plant in Johor

Outside Malaysia
U.S: Lost 85,000 jobs in December; November payrolls revision shows a gain
U.S: Consumer credit fell in November by USD 17.5b, most on record
U.S: Inventories at wholesalers increase in November
E.U: Unemployment rate unexpectedly jumps to 10% in November
Germany: Exports rise more than forecast in November
U.K: Producer prices jumps in December
China: Tightens home-loan guidance, reaffirms down payment ratio
China: Trade rebounds strongly in December

Results Review
Top Glove Corporation RM6.50: Buy
– Top Class 3Q results. Maintain Buy.
Not resting on laurels. As expected, 3QFY09 net profit of RM42m (+18% QoQ, +62% YoY) and interim DPS of 7 sen (net) were in line. 9MFY09 net profit of RM112m (+32% YoY) met 74% of our full year forecast of RM151m and surpassed FY08 earnings. We maintain earnings forecast, Buy recommendation and RM7.00 DCF-based TP.

Other Local News
Khazanah: To co-invest RM130m with Boustead on Kidzania
Water: RM2.5bn jobs up for grabs
John Master: Intends to sell entire business
Supermax: Will allocate RM24m in capex
MAS: Expands code-share pact with Sri Lanka
CBS Tech: To purchase Infodata for RM29m
Tan Chong Consolidated: Feuding factions in TCC agree to settle

Outside Malaysia
U.S: Home-price decline in May spurs second straight monthly increase in resales
U.S: Executives still pessimistic about economic outlook, survey shows
E.U: Manufacturing, service industries contracted at slower pace in June
Germany: Recession will probably continue into 2010, Ifo Institute forecasts
U.K: Mortgage approvals increased in May, BBA says
Singapore: Consumer prices fall for second month in May
Crude Oil: USD 69/bbl as the U.S. currency slipped

Results Preview

Top Glove Corporation (RM6.15): Buy
– Earnings beater. Forecasts and target price raised.
Results to surprise. Top Glove’s 3QFY09 results (due on 23 Jun 09) are expected to beat our and streets’ estimates. Interim DPS may also be higher and the group would stay net cash for the 2 nd consecutive quarter. We have raised our estimates by 3-6% for the next three years and the target price by 18% to RM7.00. Buy call is maintained.


Other Local News
Resorts: Sees no hindrance to Macau investment
BIMB: Talks to sell takaful is still on
Mudajaya: Bidding fro RM1.65b worth of projects
Perwaja: Dispute with Petronas
Leader: Update on Leader’s 100MW coal fired power project in Cambodia
Delloyd Ventures: Signing of agreement between PT Asian Auto, Indonesia and Beiqi Foton Motor, China
Health (H1N1): Filipino traveller confirmed as 18th case
Petronas: PSC operator makes 2 offshore discoveries
KNM: To invest RM44m in Aussie firm
AirAsia X: Orders 10 A350s for US$2.2b
Asiatic: To be renamed Genting Plantations

Outside Malaysia
US: Mixed housing data offer cautionary tale about green shoots of recovery
US: Industrial production dropped 1% MoM in May
US: Producer price index (PPI) slipped further in May
Europe: Inflation rate fell to zero in May
Japan: BOJ kept its interest rate at 0.1%
UK: Inflation rate little changed in May as higher sin taxes and weak GBP sustained price pressures
Germany: Investor confidence rose to a three-year high
South Korea: Department-store sales rose for the third month in May
Crude oil: Price fell 15 cents to USD70.47 a barrel yesterday

Technicals
The local bourse tumbled yesterday, as commodities sank and investors questioned the pace of the economic recovery

Sector Update
Banking: Underweight
–NPLs yet to peak. Underweight

Be cautious into 3Q. 1Q09 results of the six banking stocks we cover were generally in line, with combined net profit down 2.1% QoQ and 13.1% YoY. However, the weak 1Q09 GDP suggests growing stress in system loans over the coming months. We remain cautious on banks’ profits, especially from 3Q09. Underweight the sector.

Company Update
Berjaya Sports Toto RM4.80: Buy
–Special draws are good news. Buy

Special draws positive. B Toto has been awarded 12 special draws, two more than expected. While earnings accretion is minimal, we are encouraged that the government has chosen to raise revenues by more special draws rather than raising gaming tax and/or betting duty. Buy.

Comment On News
S P Setia RM4.10: Sell
– Knocking on China’s door

Signs MoU with Chinese party. S P Setia entered into a co-operation agreement with Hangzhou Ju Shen Construction Engineering Ltd (HJS) for a joint mixed real property development on a 25-acre land (initial development: 5 acres) in Hangzhou, China. While LT positive, there is no immediate earnings impact. At pricey valuations, S P Setia is a Sell.

Economics
External Trade, Apr ‘09
– A mixed bag of data…

YoY drop in exports returned to above-20% in Apr 09 after slowing in the preceding two months. It fell 26.3% YoY compared with the slower declines in Feb 09 (-16% YoY) and Mar 09 (-15.7% YoY) after the plunge in Jan 09 (-29% YoY). High base effect last year (Apr 08: +20.9% YoY – one of the three months of over-20% YoY increase in 2008), mostly from sharp gains in commodity prices last year was a factor.

Other Local News

PLUS: To set aside RM800m for dividends

PLUS: Gets this year’s first compensation of RM92m

Celcom: Expects 500,000 AirCash users by year-end

Boustead: Gets letter of intent for navy contract

Sime: Ramunia extend date again

MAHB: MAHB and JSC agree to terminate pact.

Outside Malaysia

US: Jobless claims fell last week by 4,000 to 621,000

US: Same store sales excluding Wal-Mart fell 4.6% YoY in May

Eurozone: Apr’s retail sales up MoM for the first time in seven months

Japan: Companies slashed spending by record in 1Q09 as profits slumped

UK: Bank of England (BoE) left the benchmark interest rate at a record low of 0.5%

UK: House prices unexpectedly rose in May

India: More liberalization measures coming

Russia: The central bank, Bank Rossii, cut the main interest rates for the third time in six weeks

Iceland: The central bank lowered the benchmark interest rate by a percentage point

Crude oil: Price rose to a seven-month high

Technicals

tip 29052009

Genting RM5.45: Sell
– A weak start

Slow start to the year. Genting’s 1Q09 core net profit was marginally below our and market expectations on lower earnings contributions from the plantations and power divisions coupled with forex losses. While we expect earnings to recover towards year-end on seasonally higher gaming revenues, valuations remain expensive. Maintain Sell.

Mah Sing Group RM0.82: Buy
– Resilient earnings and strategy. Maintain Hold

Proven fast turnaround strategy. Mah Sing Group’s (MSGB) 1Q09 results was within expectations. Its earnings are visible over the 1.5 years, backed by unbilled sales of RM574m and robust 2Q sales thus far (e.RM130m; 1Q09: RM170m). Recent price appreciation led us to maintain our Hold call despite a raised TP of RM1.80 (on RNAV).

Lafarge Malayan Cement RM4.84: Buy
– 2010 to be stronger. Upgrade to Buy

Stronger earnings expected in 2010. 2Q09 may still be challenging on sluggish demand but 2H09 should improve as domestic construction works pick up. We now expect an even stronger 2010 as government’s pump-priming efforts step up. We raise our 2010 net profit forecast by 12% (unchanged for 2009). Our PER-based TP is also raised to RM5.60. We upgrade Lafarge to a Buy.

AirAsia RM1.25: Sell
– Profit grew, but expansion slows. Sell into strength

Eye-catching profit, but balance sheet needs fixing. We raise our 2009-11 earnings forecasts substantially on lower fuel cost assumption but highlight the potential balance sheet fixing that needs to happen. Net gearing remains a concern at 3.7x amid negative free cash flow of RM230m in 1Q09. Sell until clearer balance sheet actions are taken.

Tan Chong Motor RM1.59: Sell
– Weaker earnings ahead; maintain Sell

1Q09 in line but outlook is poor. TCM’s 1Q09 net profit of RM41.6m was 34% of our full year forecasts. However we are retaining our forecasts as we expect weaker earnings in the coming quarters. Maintain Sell.

Sunway City RM2.70: Buy
– Still cheap; Buy

Value lies in its solid assets. With unbilled sales of RM781m, property development earnings are visible over the next 1.5 years. SunCity trades at 8.9x forward PER, 0.7x P/BV, and 52% discount to our newly introduced RNAV of RM5.60/sh. SunCity remains attractive despite a slowdown in new launches. TP revised to RM3.70; Still a Buy.

Sino Hua-An Intl RM0.46: Ceasing Coverage
– Losses continue into 1Q09

Hopes for China recovery. Sino Hua-An’s (SHA) operations could remain lackluster over the next few quarters, as demand for metallurgical coke hinges on the resurgence of steel demand in China. It remains to be seen if China’s fiscal stimulus package could lift the prolonged overcapacity amongst steel millers before end-2009, thereby offering SHA a clear path to recovery into 2010. We are ceasing coverage on SHA given lack of interest among institutional investors.

Comment On News
Hock Seng Lee RM0.82: Buy
– New contract lifts order book to RM1.84b

Second major contract for the year. HSL has clinched a RM126m job in Bintulu, Sarawak, lifting its outstanding order book to RM1.84b. This is HSL’s second major job win for the year, totaling RM288m for the year to-date. We expect further job wins, especially for infrastructure works, as the government refocuses on developing the East Malaysia state. HSL is a direct beneficiary of pump-priming in Sarawak. Buy.

Economics
2009 Real GDP
– Official growth forecast revised…

Government revised its 2009 real GDP growth forecast. The Prime Minister (PM) announced yesterday that the official real GDP growth forecast for this year was changed to between -4% and -5% from the +1% to -1% announced by Bank Negara Malaysia (BNM) in Mar 09. This is due to the impact of the global recession on external demand which also weakened domestic demand, especially private investment (1Q09: -26% YoY), including FDI (1Q09: -50% YoY). However, apart from mentioning a 25% drop in exports, no detailed breakdown of the revised forecast was provided.

Other Local News
Econs: Government looking at third stimulus package

TNB: Cut power demand forecast

TNB: Tender for submarine line to be issued by year-end

RHB: Gets US$100m Japan bank loan

MRCB: To develop RM1b office and residential project at KL Sentral

Transmile: Gets lenders' nod for RM568m debt revamp

UEM: Izzaddin named new UEM chief

Outside Malaysia
U.S: Durable-goods orders hovered near lowest level in 13 years in April

U.S: New-home sales climbed 0.3% MoM to 352,000 in April

E.U: May retail sales fall as unemployment rises

E.U: Confidence in May at 6-month high on signs worst over

U.K: Retail sales deteriorated during ‘tough’ May

Japan: Retail sales in April fall for eighth month on job woes

India: Ratings face pressure on widening deficit, Moody’s says

Philippine: Cuts key rate a fifth time to revive slowing growth

Philippine: Economy grows 0.4% YoY in 1Q09

Crude Oil: OPEC holds production quotas steady, predicting demand recovery

Technicals
Special Technical Perspective
– Highs seen on the KLCI, KLPLN Index, CPOF?
A temporary high seen at 1,059.88 for the KLCI

A high point was also seen on the KL Plantation Index at 5,515.37

An obvious rebound CPO peak seen at RM2,799 too

We advise clients to “Take Profits” since our April Buy Call of 917.89