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Malaysia Market Watch 30th July 2012

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KUALA LUMPUR – The FBM KLCI could sustain its gains this week, in line with the improved sentiment at global markets which saw global stock markets rallying on Friday.

Also, with IHH Healthcare Bhd set to be included on the FTSE FBM KLCI with effect from Aug 1, the stock which has had a favourable run since its listing on Wednesday could be a welcome reprieve for the benchmark FBM KLCI.

Global stocks rallied on Friday on expectations the European Central Bank (ECB) will tackle high borrowing costs hitting Spain and Italy, but the euro pared gains on market uncertainty about the specific action to be taken, according to Reuters. The benchmark S&P 500 closed at its highest since early May, climbing further after Bloomberg News said ECB president Mario Draghi will meet with Bundesbank president Jens Weidmann to discuss several measures, including bond purchases, to help the eurozone, it said.

MIDF Research in a strategy note on Friday reiterated its FBM KLCI year-end target of 1,600 points. It said that going forward, barring adverse earnings results performance, it expects the market to regain its momentum which would drive the FBM KLCI even higher.

“Having said that, in the absence of major positive earnings surprises, we reckon the local market upper reach will increasingly be limited by the already premium relative valuation vis-à-vis other regional bourses. Moreover, the ebb and flow of liquidity renders the market vulnerable to short-term cyclicality. Hence we reiterate our FBM KLCI year-high target of 1,670 points and our year-end target of 1,600 points,” it said.

Among the stocks that could be in focus next week are IHH Healthcare; Malaysia Mining Corporation Bhd (MMC Corp); AirAsia Bhd; and Malaysia Airports Holdings Bhd (MAHB).

IHH Healthcare, which made an impressive debut on the main market of Bursa Malaysia on Wednesday, could attract investor and fund manager’s interest given that it would join the FTSE FBM KLCI index on August 1, replacing MMC Corp. MMC Corp could come under some pressure given its impending exit from the FTSE FBM KLCI list on Aug 1.

AirAsia and its Indonesian unit AirAsia Indonesia has acquired Indonesia’s Batavia Air, a move that will boost the no-frills airlines’ presence and network in the republic in a cash deal worth US$80 million (RM253 million). MIDF Research upgraded the low cost carrier to a Buy from Trading Buy and said it did not discount the possibility of upgrading its earnings forecasts for AirAsia should the company’s 2Q12 result exceed expectation.

“We view favourably at its first ever major regional airline acquisition as it provides the necessary platform for further growth in Indonesia, which is slated to be a high growth area. We also upgrade our target price to RM4.46 from RM4.20. The valuation is derived by pegging its FY12-13 EPS to PER of 13.5x, which is +0.5 St.dev above its 2 year average PER,” it said.

Meanwhile, MAHB net profit for the second quarter ended June 30, 2012 rose 10.5% to RM100.69 million from RM91.11 million a year earlier, due mainly to higher passenger and aircraft numbers. The airport operator said on Friday that its revenue for the quarter increased to RM807.82 million from RM662.69 million in 2011.

Earnings per share was 8.32 sen compare to 8.28 sen, while net assets per share was RM3.50. For the six months ended June 30, MAHB’s net profit rose to RM203.42 million from RM187.19 million on the back of revenue RM1.47 billion.