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2009-09-23

Market Focus Report From HwangDBS

Expect lower deficit.
The 2010 Budget will be presented in Parliament on 23 October amidst a challenging economic
environment. The Prime Minister will need to steer the economy towards robust economic growth while keeping the lid on a ballooning fiscal deficit. We expect a lower deficit in 2010 at 6.8% of nominal GDP versus 8.5% this year on lower operating expenses. In our opinion, there is a possibility of incremental corporate tax cut and a timeframe for Goods and Services Tax (GST) implementation in the future.

Higher development expenditure.
In terms of development expenditure, we expect a record allocation of RM55b-RM58b from
RM53.7b in 2009. As pump-priming remains a cornerstone to drive economic growth, there will likely be renewed emphasis on the upcoming mega projects such as the LCCT, LRT extension and Interstate Water Transfer – which should start latest by next yearend. The focus should be on implementation of these key projects and as such, we do not expect many other new mega projects. In our opinion, there is good chance of higher excise duty for cigarette makers. Historically, the government increased sin taxes for the tobacco sector in eight out of the past eleven years.

Positive on banks, construction, property.
Among the heavyweights on the index, the banking sector is trading at relatively low PE
multiples with
  1. Public Bank (TP: RM11.10),
  2. AMMB (TP: RM5.20),
  3. Hong Leong Bank (TP: RM8.00) and
  4. CIMB (TP: RM12.10)
trading at 12-13x forward earnings while the KLCI is at historical average levels of 15x earnings (and 1.7x book).
We also remain optimistic on the construction sector and expect upside for share prices for select
stocks as projects are awarded over the next 12 months. Our picks are
  1. IJM Corp (TP: RM7.00) and
  2. Gamuda (TP: RM4.25).
For property, we expect positive newsflow and potential upside in margins in the sector to lift valuations. We like large cap sector leader
  1. SP Setia (TP: RM5.00) and niche developers
  2. E&O (TP: RM2.10) and
  3. DNP (TP: RM2.60).
We remain contrarians on large cap laggard MISC (Buy; TP: RM9.60).

HwangDBS Large Cap Buys










HwangDBS Small-mid Cap Buys

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