Bumiputra-Commerce Holdings Bhd (RM10.90 as at Aug 30)BCHB delivered a commendable set of results. On an annualised basis, its second quarter results were 9% and 3% above house (ECM Libra) and consensus estimates respectively.

Comment by ECM Libra avenue: Major income areas showed significant improvement: net interest income, +34% yoy, +14% qoq; non-interest income, +170% yoy, +21% qoq and; Islamic banking, +1933% yoy, +27% qoq.

The strong first quarter (Q1) boosted the first half earnings to RM1.28bil (+88.4% yoy), driven by investment banking and treasury activities.

The disappointing part of Q1 results was a higher loan loss provision (LLP) of RM367.8mil (+139% yoy, +29% qoq) following the write-off of two single corporate loans.

Nevertheless, overall asset quality improved with net non-performing loan (NPL) falling further to 5.2% (Q1: 5.6%).

Net NPLs totalled RM8.1bil with 73% classified as bad debts, 20% substandard and 7% doubtful. Even though the bulk of the NPLs are on working capital (40%), residential property (25%), and hire purchase (HP) loans (8%), their levels have dropped. Probably a concern is on non-residential property (9% of total N PL) where total NPL rose 26.6% to RM740mil from end-2006.

Although loans growth slipped 1.3% in the first half year of 2007 (1H07), the group targets home loan book to grow by more than 10% this year through various loan products and campaign. The current retail loan base is about RM25bil.

Loans growth were seen in preferred products. In the first half of the year, gross loans on mortgages, credit cards and CIMB Express grew 5.3%, 2% and 31.2%, respectively. Business loans declined (-3.0%) because of portfolio balancing. Going forward, CIMB Bank is targeting RM6bil in retail loans this year, of which 75% will come from home loans.

Consumer turnaround is evident from the upturn in sales and asset quality. New credit card sale of 20,000 in March was a record month. As part of the group's new dividend policy, 25 sen will be declared every year (excluding special dividend). A special dividend payment of 25 sen has been declared, which would raise total dividend per share (DPS) for the full year to 50 sen (yield: 4.8%).

The higher payout is to reflect its strengthened capital position as the group recognises RM620mil gain from disposal of its insurance business.

Recommendation: We have upgraded our net earnings estimate for financial year 2007 (FY07) by 12% but adjusted downwards our estimate for FY08 by 6.8%. Maintain BUY call and target price of RM14.70.

Puncak Niaga Holdings Bhd (RM4.02 as at Aug 30)WATER treatment plant operator Puncak Niaga Holdings Bhd (PNHB) reported a cumulative second quarter 2007 (2Q07) net profit of RM52.8mil, representing only 36% of consensus forecast.

Comment by ECM Libra: For the current financial quarter, the group registered a higher revenue of RM342.2mil compared with RM317.8mil reported in the preceding year's corresponding quarter, representing a 7.7% growth attributed to higher water revenue.

The higher pre-tax profit of RM35.1mil for the current quarter compared with the preceding year's corresponding quarter was in tandem with the increase in water revenue. It was however 14% lower than the immediate preceding quarter's RM40.8mil.

In recent months, the company has announced a memorandum of understanding (MoU) with Patel Engineering Ltd to participate in the international competitive bidding Mumbai Water Supply Project and a joint venture to undertake and complete a project for the supply of water treating equipment in Sarawak.

We view these moves positively as the company seeks to broaden its earnings base and diversify its income stream.

Recommendation: While the reported earnings have come in below market expectations, we are nonetheless maintaining our BUY call and target price of RM5.40.

We believe in its intrinsic value and it being a big beneficiary in the rationalisation of the water industry in the state.