Thursday, March 31, 2011

MCIL ... Mar11

MCIL’s profit may overtake Star’s by FY11 ending March 31. For 9MFY11, MCIL’s net profit rose 48.6% to RM139 million from RM93.5 million a year earlier.
MCIL is the publisher of local Chinese papers such as Sin Chew Daily, Nanyang Siang Pau, China Press and Guang Ming Daily, as well as Ming Pao in Hong Kong.

MCIL’s earnings are expected to soon overtake that of industry leader Star.

The English market is already saturated. At the same time, MCIL is already a market leader of the local Chinese print media with growing and loyal Chinese readership.

The English print media has been challenged by the proliferation of free alternative news providers on the Internet while local Chinese-based alternative news is scarce.

There are very few Chinese blogs or news portals online compared with English sites. As such, MCIL should see its readership grow or maintain. On the other hand, more people are going online to obtain English news, which leads to declining circulation in the English print medium.

For FY10, MCIL recorded a net profit of RM134.2 million or 7.96 sen a share. It also recently distributed 50% of its profits, or 3.98 sen per share, as dividends to its shareholders. MCIL’s earning also grew 48.7% year-on-year for its 9MFY11 compared with Star’s slower growth of 27.8% for FY10.

MCIL has strong balance sheet with RM272 million cash and no borrowings.

In only two years since MCIL emerged as part of a merger in 2008, its net profit had soared 118% to RM134.2 million in FY2010.

Following the merger of Sin Chew, Nanyang and Ming Pao in 2007, MCIL has become a global Chinese language media group with operations spanning Southeast Asia, Greater China as well as North America.

Based on the results for the nine months of its current financial year, the non-Malaysian operations accounted for 39% of the group’s revenue and 17% of the group’s pre-tax profit.

Ming Pao’s flagship newspaper, Ming Pao Daily News in Hong Kong, has its separate editions published in Toronto and Vancouver. In Hong Kong, Ming Pao is ranked No 3 in terms of circulation (approximately 441,000 a day) and was named the “Most Credible Chinese Newspaper” by the Media Creditability Survey in 2009. The newspaper is well-known for its comprehensive reports on political and economic issues. Newspapers currently command 32% of adex market share in Hong Kong.

Ming Pao Daily News’ Toronto and Vancouver editions have circulations of approximately 160,000 a day, and the newspaper is doing well as it caters to large migrant Chinese communities.

MCIL management remains optimistic that demand for digital content will pick up on the back of rising broadband penetration and the growing population of smart devices.

The group made two notable acquisitions in its push to entrench itself further in the digital-media space and has seen the acquisitions become fruitful.
Management has guided that the total capex spent on expanding its digital media is said to be minimal (approximately HK$3 million (RM1.17 million) to HK$5 million a year) as the group continues to keep a look-out for potential M&A opportunities in order to expand its reach in Hong Kong and China’s digital media market.

Atlan ... Mar11

It expects to gain RM16 million after the sale of two pieces of land along Jalan Batu Ferringhi, Penang for RM33 million cash to Glass Bay Sdn Bhd. The RM16.47 million was arrived at after deducting estimated income tax of RM5.49 million, land cost of RM9.19 million, development cost of RM1.84 million.

It had decided to put off its original plan to build 40 units of ine-storey storey apartments with one-storey basement carpark. The decision to dispose of the land was after taking into consideration the estimated time frame and resources required to develop the land over the next three years given the competition of other developments within the vicinity and long gestation period to reap the full potential and benefits of the land.

The proposed disposal will enable the group to realise disposal proceeds of RM33 million and an estimated after-tax gain of disposal of approximately RM16 million thus unlocking the value of the land immediately upon the completion of the proposed disposal.

The proceeds from the proposed disposal would be used to repay bank borrowings, interest payments and to finance the group’s funding needs.

Wednesday, March 30, 2011

Banelac ... Mar11

Its specialised niche in marine construction has been reaping high profit margins in the generally low-margin construction industry. Now, the company is also shaping up to be a major landowner and developer, as it will receive some 177.3 acres (70.92ha) of land in Melaka in exchange for reclamation works.

It is open to joint ventures with property developers for the prime seafront land it is reclaiming in Melaka, broadening the company’s previous practice of selling plots of reclaimed land outright.

The company is an integrated marine construction firm with business activities spanning marine construction works, vessel chartering, marine transportation, ship maintenance and building, and marine support services.

Although the company’s first priority is to sell its reclaimed land, Benalec is in talks with several property companies on prospective partnerships. The current trend is for developers to share profits with landowners instead of paying cash upfront for land.

For outright disposals, the company could also sell plots of land along with concept plans for development and would take the step of zoning certain plots for mixed development as an added value for buyers.

Benalec’s unit Jayamas Cekap Sdn Bhd had entered into an agreement with Melaka government-owned Yayasan DMDI to undertake reclamation works for the latter on a portion of the coast in the Kota Laksamana area in Bandar Melaka.

The Melaka government had granted Yayasan DMDI a concession to reclaim the land, which will measure about 250 acres upon the completion of reclamation works.

Jayamas Cekap will be entitled to 177.33 acres of the land upon completion of the reclamation works, which will be retained on its balance sheet as “Land held for sale”. The remainder 72.67 acres will be surrendered to the Melaka government and Yayasan DMDI as consideration for the deed of assignment (DoA) from the latter.

Jayamas Cekap will also have to fork out some RM4.58 million for various payments in respect of the DoA.

The reclamation works will be funded by internally generated funds and bank borrowings, the breakdown of which is not currently available.

Sources say the deal is significant for Benalec as the land concession holds immediate development potential for Benalec once reclamation works are complete.

The Kota Laksamana project is expected to draw attention from property developers as it sits on prime seafront land within Melaka’s city centre and can be further developed for mixed residential or commercial purposes. Benalec may be entering into strategic partnerships with reputable developers to monetise the deep embedded value of this land.

Benalec is expected to fetch over RM30 per sq ft from the Kota Laksamana land having received about RM28psf for an adjourning piece of land in 2009.

Benalec stands to reap a net gain of about RM116 million from land disposals alone over a three-year reclamation period.

Funding is not an issue for Benalec since the group raised up to RM100 million from its IPO in January 2011.

Benalec had also secured another contract , from Glenmarie Cove Development Sdn Bhd, to undertake earth and river protection works for RM37 million at a project in Klang. The scope of works includes earthworks, reclamation works, ground treatment and protection works. It is scheduled for completion within 14 months.  

The company is estimated to have clinched new contracts worth RM608 million for the financial year-to-date, compared to RM77 million in 2010. Estimates new order of RM650 million for Benalec for the financial year ending June 30, 2011.

The newly secured RM37 million reclamation contract in Selangor would undoubtedly put Benalec on a stronger footing to clinch more such contracts, both at home as well in the region.

The contract is the second, the group has secured within March 2011, following the Kota Laksamana project in Melaka.

Revenue and profits from reclamation contract works are recognised on a percentage-of-completion method. This is determined on the proportion of actual reclamation contract costs incurred for works performed against the estimated total reclamation costs where the outcome of the project can be estimated reliably.

For land reclamation contracts which are settled in kind, it is able to proportionately recognise the land portion at each stage of completion and the contract sum for such land portion is included as “amounts due from contract customers”.

Benalec’s niche in marine construction and land reclamation gives the company much higher margins than its construction peers.

For its financial year ended June 30 (FY10) , Benalec’s gross profit margin was 48.6% while profit before tax and profit after tax margins were 58.9% and 50.1% respectively.  In its second quarter ended Dec 31, Benalec reported a net profit of RM18.91 million and revenue of RM45.22 million. For the six months, its net profit stood at RM48.87 million while revenue was RM97.43 million.

Going forward, its prospects for growth are based on future projects in the pipeline located in Penang, Melaka, Iskandar Malaysia, Port Klang and the Sarawak Corridor of Renewable Energy.

Kulim ... Mar11

Top officials at Johor Corp Bhd (JCorp) are planning to meet soon to decide on the best plan of action on how to deal with its debt issues. Among the plans are to get an independent view on pending deals, its assets and liabilities and to help it decide on the best way forward.

Meanwhile the Malay Chamber of Commerce Malaysia (DPMM) is keen to acquire the 53% equity in Kulim (Malaysia) Bhd, a subsidiary of Johor Corporation Bhd (JCorp), to ensure control of the company remains in the hands of Bumiputeras.

Its president Syed Ali Alatas said the chamber, through the Johor Malay Chamber of Commerce Foundation, was ready to acquire the stake with the support from other Bumiputera companies to save the Bumiputera business asset, JCorp, which was had RM3.6 billion in borrowings.
They are prepared to acquire the stake in Kulim if JCorp is forced to sell it. However, DPMM is willing to back out if there are other Bumiputera companies interested to buy the stake.

The DPMM offer comes in light of news reports that JCorp was keen to sell its assets, including equity in Kulim, to pare down its mountain of debt.

Former President and Chief Executive of Johor Corp (JCorp) Tan Sri Muhammad Ali Hashim claimed there were rumours that the JCorp management was planning to sell Kulim.

JCorp holds a controlling 53% stake in Kulim, a plantationgroup, which in turn owns 57.5% of QSR, which holds a 50.6% stake in KFC Holdings (Malaysia) Bhd.

Tuesday, March 29, 2011

Success ... Mar11

A manufacturer of low-voltage transformers, commercial and industrial lightings, sees a bright future in the lighting business in 2011, helped by its newly-launched light-emitting diode (LED) products.

The company has begun doing research and development on the LED products as early as three years ago, and started selling its products in the second half of 2010.

Lighting business plays a big role in the company's overall financial performance. In 2010, it contributed about 50 per cent of its revenue, of which less than 5 per cent of its lighting business come from LED products. In 2011, it expects between 10 per cent and 15 per cent of our lighting business to come from LED products.

For a start, the company will sell its LED products to commercial and industrial users, such as petrol kiosks, shopping complexes and hotels. It is also selling its LED products overseas. Later, it plans to penetrate into the mass, household market

BJCORP ... Mar11

BJCorp owns 67% stake in Cosway Corp Ltd and is listed in HK.

Speculating that Cosway is unlikely to be privatized. Rather it could soon commence ground operations in China. The group may start with Guangzhou, which is geographically close to HK where Cosway already has a successful business.

Cosway’s management has been tightlipped in the company’s progress in China with HKSE or communication to shareholders on the status of its plan to set up shop in the mainland. However, the company had mentioned a plan to enter China is in the pipeline.

It is probably in relation to this that busloads of potential Chinese dealers have been visiting Wismas Cosway for introductory courses on the Cosway business model. Meanwhile, the group’s China website has been going all out to woo dealers, or better known as business partners. In the mainland with a list of frequently asked questions and information on Cosway.

In March 2010, Cosway (China) Daily Consumerables Ltd had been successfully registered in Guangzhou. A posting said this entity would allow Cosway to leap from its current web presence to commence ground marketing and selling activities in China within 12 months.

Cosway China is believed to be the vehicle of the Cosway group to commence ground operations in China. Cunrrently, purchases of Cosway products by China residents are made thorough the e-cosway online shopping website in HK/Macau and then shipped to China.

These transactions are booked as part of the revenue derived from HK, Macau and Taiwan, which are categorized as one geographical segment in Cosway’s financial statement. The two special administrative regions and Taiwan contributed 38.8% to Cosway’s revenue in the first six months of FY2011.

There are two other entities registered in Guangzhou – Guangzhou Cosway Comestic Products Mfg Ltd and Guangzhou Cosway Commerical Services Ltd. The former’s principal activity is the manufacture of personal care products while the latter provides support services.

These three entities are, however are not listed subsidiaries of Cosway in its FY2010 annual report.

Market observers may want to get everything ready before making a big bang in the China.

A big push into China may boost Cosway’s stock price, which lacks a China Story to justify its high valuation. Even at 80 sen, Cosway’s total market cap – taking into account the number of new shares to be issued via the conversion of the remaining ICULS – stands at HK$9.6 billion. This 41 times the group’s annualized net profit for FY2011.

To justify such a high valuation and to attract investors, market observers say Cosway needs to grow its earnings at a faster pace. This means coming up with a solid plan to penetrate and expand in China. At thus stage, the group has yet to commence operations China except to sell though the online channel, which is not creating as much growth as physical presence world.

As Cosway prepares to enter new market, especially China, its total expense have escalated 57% from 2010, outpacing the 47% growth in revenue in the first nine months of FY2011.

But it us possible that one the group commences ground operations in China, and with the pre launch expenses tapering off, earnings could grew in tandem with revenue expansion.

Monday, March 28, 2011

YTLPower ... Mar11

Industry observers are concerned with YTL Power’s lower-than-expected second interim single tier dividend per share (DPS) of 1.875 sen.

There is still uncertainty of the level of future dividend payouts.
The management is looking to conserve cash, as YTL Comms plans to spend more to boost coverage.

The risks include: 1) unfavourable forex movements, which will adversely affect the translation of foreign earnings; 2) potential change in competitive landscape under the National Energy Plan; and 3) execution risk and poor subscriber numbers for WiMAX.

Without the management’s assurance regarding future dividends, YTL Power may lose a bit of shine since the key investment thesis for the stock has historically been high dividend yields.


Source say a proposal to merge AMMB and RHB Capital, which first surfaced in 2007 is back on the table. However, whether or not it will successfully cross the finishing line this time round remains to be seen.

The merger has been proposed to the top officials of both banks but is till too early to say and things are still fluid.

The proposed merger will involve a number of things. One is Abu Dhabi Commercial Bank (ADCB), which is in the process of trying to well its 25% stake in RHB Capital. Then, there is ANZ, which is said to be keen to raise its stake in AMMB. A merger between AMMB and RHB Capital could pave the way for both foreign banks to realize their plans. ANZ could acquire ADCB’s stake and eventually end up with a bigger stake in the enlarged banking group. This is subject to BNM approval. The EPF would also hold a substantial stake in a larger banking group.

ADCB will eventually have to sell its stake because the National Bank of Abu Dhabi has received a licence to operate in Malaysia from 2011.

An investor cannot hold substantial stakes in two banks in Malaysia. Both ADCB and NBAD share the same shareholder – Abu Dhabi Investment Bank, which is the Abu Dhabi government’s investment arm.

The rationale for the merger makes sense. There is obvious synergy between the two. AMMB will benefit from the deposit base that RHB Capital will gain from AMMB’s foreign partnership. Both banks will also be able to beef up their investment banking business together. They will benefit from having strong shareholders and a large balance sheet.

Saturday, March 26, 2011












Friday, March 25, 2011

Century ... Mar11

Mercury Security Research Report.

Century Logistics Holdings Berhad was first listed under the "Trading/Services" sector of the Second Board of Bursa Malaysia during June 2001. Subsequently, the company was promoted to the Main Board of Bursa Malaysia.

“Leading provider of supply chain solutions”
Century is based at Bandar Sultan Suleiman, near North Port in Port Klang, Selangor. The group is now a leading provider of supply chain solutions. From humble beginnings as a forwarding agent back in the 1970s, the group has since diversified into third party logistics (3PL), oil and gas logistics as well as procurement logistics services. Meanwhile, the Group is also currently operating abroad in China, India and Thailand.
Century’s unique model of value-added solutions encompass warehousing and distribution services that can be scaled and customized to the needs of customers based on the demands and delivery service requirements for their products.

With the innovative solutions offered, Century has evolved to managing the contract logistics of some clienteles, where the group provides value propositions that improve operational efficiencies for the clienteles and their end customers.

"Total logistics solutions"

The group has the technology and capabilities to offer their clients total logistics solutions. Their wide ranges of services include the following:

• Supply Chain Management
• International Freight Forwarding
• Assembly and Procurement Services
• Fuel Processing & Storage offshore
• Key Account Management
• Road Transportation & Distribution
• Warehouse Management Services
• Shipping, Chartering & Bunker Services
• Project Handling & Manageme
• Tax Exemptions Consultancy
• Oil & Gas logistics

Century’s management is led by its group managing director (MD) Steven Teow Choo Hing. Steven was appointed to Century’s Board of Directors back in July 1997 and is from an engineering background prior to joining the logistics sector. He was then involved in logistics since 1991, when he set-up a bonded warehouse in Port Klang with several partners.

For its “Third Party Logistics” (3PL) business segment, Century provides services such as port and customs clearances, international sea and air freight forwarding, warehousing, container haulage and land transport. Century has a regional presence in Thailand, India and China and is also represented in 72 countries under its International Freight and Logistics Network.

Under its Procurement and Assembly business segment, Century handles international procurement, assembly, quality control, repackaging and distribution. This involves the assembly of high technology products such as LCD and LED television sets for various multi-national electrical and electronics customers.

In Oil and Gas Logistics business segment, Century currently provides floating storage and trans-shipment services for international oil trading companies. Century is a Ministry of Transport approved-operator for ship to ship transfers of fuel oil and crude oil. The group also provides supply chain management and vessel husbandry services and all this is in compliance to international maritime standards.

In line with the positive performance for its FY10, Century declared a final single-tier dividend of 4 sen dividend per share (DPS), pending shareholders’ approval at the next Annual General Meeting (AGM). Century had earlier paid 2 interim single-tier dividends totalling 5 sen, bringing the total single-tier dividend for its FY10 to 9 sen per share.

“Consistent dividend payout”
Given Century’s strong earnings performance and its recent dividend payout track record (20-25% of net profits), we opine that Century could decide to give out an even higher DPS of 10 sen for its FY11.
With a relatively weak adjusted beta of 0.93 to the KLCI, Century has mirrored KLCI’s performance this year (by -4.3% vs. -2.2% year-to-date (YTD)). Market conditions have also been volatile lately, impacted by the recent political uprisings in the Middle East/North Africa and major earthquake in Japan. Nevertheless, as Century is not a particularly large market-cap stock, this may put a dampener on its market visibility and trading volume.

“Undemanding valuations”
Based on our forecast of Century’s FY11 EPS and a conservative estimated P/E of 5 times, we set a FY11-end Target Price (TP) of RM2.44. This TP represents an attractive 36.3% upside from its current market price. Our TP for Century reflects a P/BV of just 1.0 times over its FY11F BV/share. Meanwhile, the local transportation service sector’s average P/E and P/BV is 14.0 times and 1.4 times, respectively.
We like Century due to its diversified business model, growth strategy, undemanding P/E and P/BV valuations, solid dividend yield and strong ROE. With a strong management team, minimal gearing levels, tight cost-control and efficient operational structure, Century is well poised to have a good year ahead.

Perisai ... Mar11

In Feb 2011 Perisai was granted a licence by Petroliam Nasional Bhd (Petronas) for vessel chartering which would allow it to bid for Petronas jobs directly.

The licence would have been meaningless to Perisai if it had been granted earlier as, at the time, Perisai did not have a sizable fleet of support vessels. However, it is a different story now for Perisai, after Ezra Holdings Ltd, a Singapore-listed integrated offshore support and marine services company, took a substantial equity stake in the

In January 2011, Ezra Holdings proposed to acquire 51% equity interest in Intan Offshore Sdn Bhd, which owns a fleet of eight vessels. Under the proposed exercise, Perisai will acquire the controlling stake in Intan Offshore by the issuance of RM45.2 million in new shares. With the acquisition, Perisai will instantly have a fleet of vessels.

The proposed acquisition of the controlling stake in Intan Offshore is expected to enhance its future revenue and earnings base, as all eight vessels owned by Intan Offshore are fully chartered. The acquisition is targeted for completion by 2Q2011.

For FY10 ended Aug 31, Intan Offshore posted a net profit of RM12.4 million on revenue of RM41.7 million.

With a larger fleet of vessels, the company can now take advantage of deep-water projects in the oil and gas industry. Over the next five years, eight more deep-water fields will come onstream in Malaysia. This is expected to open up opportunities for operators with deep-water expertise.

An asset injection by Ezra will give Perisai a fleet of eight vessels and a new revenue stream come 2Q2011. Given Ezra’s large fleet, there could be more injections [into Perisai], especially in relation to deep-water assets.

The group is currently in the midst of consolidating its business and divesting non-core businesses in order to focus on vessel chartering.

After the proposed acquisition of the stake in Intan Offshore, Perisai’s gearing is expected to increase to 1.15 times from 1.04 times as at Dec 31, 2009.

Thursday, March 24, 2011


Smartag Solutions Bhd is aiming to raise RM17.7 million in its initial public offering (IPO) in the Ace Market in the second quarter of 2011.

Approximately RM3.4 million from the IPO proceeds would be channelled into further enhancing the company’s R&D expertise. The pivotal factor for our success is our strong emphasis on research and development, which has not only accorded its first-mover advantage, particularly for container track and trace RFID (radio frequency identification) applications in the region, but also saw Smartag actively involved in the development of RFID-related standards internationally.

Incorporated in 2004, Smartag is a provider of total RFID-based solutions, encompassing the development of RFID software as well as provision and implementation of RFID solutions.

Smartag’s IPO entails the public issue of 57 million new ordinary shares at a price of 31 sen each, of which 50 million shares would be allocated for private placement to eligible identified investors. Five million shares would be for eligible directors, employees and business associates of the group while another two million shares for application by way of balloting to the Malaysian public.

WCT ... Mar11

Bahrain has declared a three-month state of emergency following the unrest that began two months ago (Jan 2011). The king of Bahrain has authorised the army head to guarantee security as a second contingent of GCC troops arrived after two months of anti-government protests.

The protests are not in the vicinity of the soon-to-be-completed BCC project where only interior fit-out works are outstanding. WCT is left with three staff on site who are monitoring the completion of the project.

The outstanding works amount to RM37 million, which will contribute about RM2.5 million to the bottom line. The scope of works also involves testing and commissioning of the entire complex.

Management has pre-planned an evacuation/contingency move should the situation worsen but does not think that it will, at least as far as the impact on its job is concerned. The group has contingency funds for this in the form of the 10% advance payment received at the onset of the project. If there is need to evacuate, it should be swift as the major machinery used during the construction of BCC had been moved elsewhere at end-2009.

In the Gulf region, WCT has three jobs outstanding with the total balance of works being RM1.6 billion, the bulk of which is located in Qatar. The only project outstanding in Bahrain is the BCC interior fit-out works.

Total outstanding jobs in Qatar and Bahrain make up 42% of WCT’s total outstanding order book of RM3.7 billion. Although in terms of exposure, WCT’s Middle East exposure exceeds that of Muhibbah Engineering (M) Bhd, IJM Corp and Gamuda Bhd, management still holds the view that the likelihood of a spillover of the social/political unrest to Qatar and other Gulf countries is remote at this juncture as the political and social circumstances in those countries are different.

In the worst case, it would need to make a provision equivalent to less than 2% of FY11 net profit and less than 1% of realisable net asset value (RNAV) for the Bahrain project.

Bahrain makes up only 1% of WCT’s outstanding order book.

An easing of the tension in the Middle East could spark a share price recovery, along with success in clinching new contracts.

Meanwhile the 2020 marks the first time the FIFA World Cup football tournament is going to the Gulf, and Qatar is already getting ready to go all out to impress.

It is reportedly looking to spend over US$100 billion on construction and infra over the next 11 years.

What’s in sore for Malaysian construction groups with exposure to the Middle East, specifically Qatar?

WCT Bhd is likely to aggressively bid for contracts, given its prior experience and exposure in Qatar.

WCT has large exposure in Qatar than elsewhere in the Middle East, with RM1.53 billion or over 40% of its outstanding order book due from Qatar projects.

WCT is keen to participate in games related projects, such as the construction of new stadium, and urban rail system, road systems and other public infra.

In 2011, WCT expects construction activities in Malaysia and abroad to contribute about 65% to 70% of its total operating profit, with the remaining coming from its property development, retail, hospitality and concession management segments.

Wednesday, March 23, 2011

Axiata ... Mar11

The issue over India's Department of Telecommunications (DoT) cancelling the 2G licence for the Punjab circle will not have an impact on Axiata Group. This was because the licence was never operational.

India's Idea Cellular, in which Axiata Group has a 19.3% equity stake, has 60 days to explain to the DoT as to why the 2G licence for Punjab circle should not be cancelled.
Even Etisalat DB has been asked to defend its licences in Delhi and Mumbai service areas, while Idea will have to defend its licence in the Punjab service area. The reason for the cancellation is over the failure to meet network rollout requirements.

Idea's existing licence for the Punjab circle was not at risk; rather it is the inherited licence belonging to Spice Telecom. After the demerger of Spice and Idea, the overlap in licences did occur. This is in addition to the five other overlapping licences it has for Maharashtra, Delhi, Andra Pradesh, Kartanaka and Haryana. It inherited all the licences following the demerger but Idea is required to surrender them as part of the conditions imposed by DoT.

In November 2010 the Telecom Regulatory Authority of India (TRAI) had proposed the cancellation of 69 of the 127 licences issued since 2006 for failure to meet rollout obligations.

Implicit in TRAI's proposal was DoT's guidelines, which stipulated that a telco holding more than a 10% stake in another telco operating in the same circle must surrender their common licences.

Punjab's circle accounts for some 5% of Idea's subscribers base and 18%-20% of the company's revenue.

MPHB ... Mar11

Investors will now be watching if diversified MPHB acts according to expectations or springs another surprise.

The moves to transform into a pure gaming company may soon result in the divestment of MPHB’s non core assets such as its stockbroking, general insurance and hospitality businesses.

The company plans to raise up to rm1 billion from the disposal of non core assets. The best tack for the company is now to wait for the right time to seek the highest possible for its non core assets.

MPHB has not won over many investors because its non core businesses have had little earnings visibility. But should it embark on a divestment programme, investors would have more confidence in the company and this will lead to a re rating of the stock. This will unlock cash from the businesses, leaving MPHB an NFO counter.

It is worth noting that MPHB Surin also owns a 32.48% indirect state in another listed entity. MWE Holdings Bhd, which is also fairly diversified in nature. MWE has businesses covering garments, electronics, a golf and country club, plantation and properties. Surin’s non independent non executive director and had served as MD of its spinning mills division in 1974.

Three other MWE directors also have served at MPHB or its subsidiaries, namely MWE executive director Lim Kong Yew, independent non executive director Lawrence Lam who is currently Magnum Corp Sdn Bhd’s CEO and Datuk Yogesvaran who also sits on the board of Muli-Purpose Insurans.

Multi Purpose Insurans is one of MWE’s 30 top largest shareholders, with a 3.45% stake equity stake while MPHB itself owns a 1.29% stake.

Industry observers says that MWE may be a convenient place to house MPHB’s property division, as there are no immediately apparent synergies between MPHB’s stockbroking and insurance businesses with MWE’s own divisions.

Tuesday, March 22, 2011

IPO ... Focus Lumber

Sabah-based Focus Lumber Bhd, which aims to be listed on the main market of Bursa Malaysia Securities by the end of next month, expects to raise RM7.32 million from the exercise.

The company is a plywood, veneer and laminated veneer lumber (LVL) manufacturer.

Through the Initial Public Offering (IPO) exercise, Focus Lumber will be making available 6.9 million new shares at 60 sen per share, with 6.0 million offered for public subscription and the remaining 900,000 for application by eligible employees and those who have contributed to the success of the Focus Lumber Group.

Another 5.3 million new shares will be made available via private placement to selected Bumiputera investors, its Managing Director Lin Fong Ming said during the underwriting agreement signing ceremony here, today.

The underwriting agreement is in conjunction with the company's listing on Bursa Malaysia.

The expected total proceeds of RM7.32 million from our IPO has been mainly earmarked for general working capital.

The founders of Focus Lumber are from Taiwan, and started business in Sabah where they set up a plywood manufacturing mill in Keningau district in 1990.

POS ... Mar11

Khazanah Nasional Bhd's divestment of its 32.21% stake in POS Malaysia Bhd seems to be going on track.

Sources say that five companies have submitted their bids for the Pos controlling stake, and that the names include DRB-Hicom Bhd, Scomi Group Bhd and Nationwide Express Courier Services Bhd. Of the two other bidders, one is said to be backed by a government financial institution and the other is a small technology firm.

Nationwide Express Courier Services is controlled by late Tan Sri Basir Ismail’s family.

Another bidder is Tricubes Bhd, controlled by its CEO Khairun Zainal, his wife Zalina Mohd Zaman Khan and his brother Hisham Zainal. Tricubes other shareholders are Commerce Technology Venture Sdn Bhd with 15.63% equity interest; Mayban Venture Capital Co Sdn Bhd has 9.64% stake; Heitech Padu Bhd has 5.93% stake and Tune Group’s Datuk Kamarudin Meranun has 3.08%.

Another bidder is understood to be government linked trustee company Amanah Raya Bhd, which controls Amanah Raya Real Estate Investment Trust.

The sale of the Pos controlling stake, however, is expected to have drawn a larger number of bidders. Names of potential bidders that had been bandied about in the past included the Naza Group, Sapura Holdings, the Berjaya Group, Konsortium Logistik Bhd's CEO Loo Hooi Keat and AirAsia Bhd group's CEO Datuk Seri Tony Fernandes.
Singapore Post Ltd disclosed that it was not bidding for Khazanah's stake in Pos.

SingPost says it has no plans to acquire more GD Express Carrier shares at the moment. Singapore Post Ltd (SingPost) is not bidding for Khazanah Nasional Bhd's 32.2 per cent stake in Pos Malaysia Bhd. SingPost is 26.01 per cent owned by Singapore's state-owned investment arm, Temasek Holdings Pte Ltd. SingPost operates in Australia, Hong Kong, India, Japan, Malaysia, New Zealand, the Philippines, Singapore, Taiwan and Thailand.

All the bidders will be expected to present their plans for what they want to do with Pos by the end of the March 2011. This presentation will be made to an independent evaluation panel. All bidders have had to provide a standby letter of credit to the tune of RM15mil.

The new Postal Bill is expected to be tabled in Parliament soon. The legislation is likely to tackle crucial issues in Pos, including the Government's golden share and rights over some of the real estates owned by Pos.

The potential relaxation of the use of Pos's landbank under the purview of the Postal Bill appeared to be progressing well as the draft Bill would be tabled in Parliament some time March 2011

It has been suggested that successful candidates to buy Khazanah's stake in Pos should not eventually load the postal company with huge debts or influence it to pay unreasonably high dividends.

Ideally, the party looking to buy Khazanah's 32.21% stake, that has a market value of close to RM550mil, should be able to raise that amount of money on its own, without having to rely on Pos' balance sheet.

The new shareholder should in fact, be looking to invest Pos' cashflows into the latter's growth plans. In other words, the buyer has to have a clear long-term, value-creation approach to Pos.

Pos has a healthy balance sheet, being in a net cash position and owning a lot of real estates.

Insiders also say that the divestment of the Pos stake will be completed by April 12 2011, the date of Invest Malaysia 2011.

Monday, March 21, 2011

TAFI ... Mar11

Furniture maker TAFI Industries Bhd is looking at securing up to RM25 million of jobs in 2011 from furnishing educational institutions and corporate customers in the Klang Valley, Iskandar Johor and Singapore.

60% of the company’s revenue is derived from exporting OEM furniture to 50 countries, with another 35% from sales of standard products and 5% from selling furniture directly to corporate customers.

Due to the economic crisis in 2008, local furniture makers saw their profit margins squeezed due to the weakening US dollar and a drop in orders from overseas markets.

While some companies fell into the red during that period, TAFI managed to stay in the black although earnings fell.

For FY09 ended Dec 31, TAFI saw its net profit fall to RM960,876 from RM5.1 million a year earlier. Revenue fell 42.7% to RM35.6 million from RM62.1 million. For FY10, TAFI managed to improve its net profit marginally to RM1.1 million on the back of RM39.78 million in revenue.

Saw owns a 3.89% stake in TAFI. The company’s major shareholders are Terk Yew Tee (25.53%), Saw Han Lim (20.31%) and Lembaga Tabung Haji (15.11%).

It net assets per share stood at 77 sen as at December 2010. The company has cash and equivalents of RM19.06 million comprising RM18.1 million in cash and RM950,000 in bonds, with no borrowings. The cash and equivalents translate into a significant 24.5 sen per share, or 78%, of TAFI’s current share price (10 March 2011).

This implies the company’s other operating assets are being priced by the market at only seven sen per share or RM5.44 million. These include plant, machinery and properties with a total book value of RM31.96 million and RM9.52 million in inventories.

Faber ... Mar11

Faber Group Bhd is positive that its 15-year concession for government hospital support services (HSS), which expires in October 2011, will soon be renewed for another 15 years based on the group’s experience and track record.

Adnan Mohammad, Faber Group managing director, said the company was well-positioned for the concession renewal based on of its financial ability.

They are waiting for a detailed discussion with the authorities. It is just a matter of time. The ball is now in the government’s court.

Adnan declined to disclose the contents of the renewal application but stressed that its proposition was “status quo” in terms of services for government hospitals in six states, including Sabah and Sarawak.

Currently, Faber’s 15-year contract entails the provision of support services to more than 70 government hospitals in Malaysia. The group is a key player in the integrated facilities management (IFM) and property development sectors.

Faber’s financial results in 4Q2010 ended Dec 31, show the group’s net profit dropping 93.2% to RM2.9 million from RM42.56 million in 4Q2009 on the back of a lower revenue of RM203.94 million versus RM303.93 million. The lower 4Q profit was mainly due to additional costs recognised for IFM operations in the United Arab Emirates as well as an adverse non-recurring one-off item amounting to RM10.6 million.
For FY2010, Faber’s net profit dipped 4.7% to RM78.78 million from RM82.68 million in FY2009 while revenue rose 10.4% to RM888.84 million from RM805.28 million. Revenue from its IFM Division rose by RM137.2 million, but revenue from its property division declined by RM53.4 million.

Faber’s 4QFY10 earnings were significantly affected by the contraction of earnings before interest and tax (Ebit) margin of 8.6 percentage points quarter-on-quarter, mainly due to higher provisions for its UAE contracts as management prefers to take a more prudent approach. Due to the provision made in 4QFY10, management mentioned it is possible that Faber would be able to reverse some of the provision in 1HFY11 once the actual costs are finalised.

To recap, there is still RM100 million of work orders, which have been completed but not billed as at December 2010. Following the non-renewal of two of its UAE contracts, Faber will refocus on expanding its foothold in managing hospitals in UAE. Currently, the company manages 12 hospitals and clinics in UAE and is keen to expand to military hospitals there.
Faber, which is spearheading the Energy Performance Management System (EPMS) pilot project, was likely to see revenue contribution from the project beginning 3Q2011. The pilot project seeks to ensure the efficient use of energy in government buildings.

Faber was expected to complete the energy audits of five hospitals by April 2011 and would then present and submit its propositions to the Performance Management and Delivery Unit and the Ministry of Energy, Green Technology and Water.

By May or early June 2011, the project involving the five energy audits should be rolled out. But this is subject to the negotiation and payment mechanism which have to be sorted out. The group must also get the nod from the Ministry of Finance among others.

Although Faber was eyeing more buildings identified by the government for improvement in energy efficiency, its priority was to kick off with the five hospitals under the pilot project and ensure that progress there would be a stepping stone for the group in securing contracts for more buildings.

The government has identified 120 buildings nationwide, including public hospitals and institutions of higher learning, whose utility bills in total amount to RM700 million a year. The EPMS project is expected to reduce their utility bills by 10% a year.

Industry observer said that HSS contract would be renewed and announced in a matter of time based. It is unlikely that the concession would not be renewed given that Faber has poured in substantial investments since the concession took effect, and the fact that the company has the expertise and logged in a track record in providing health support services.

On the EPMS pilot project, the move was is in line with Faber’s strategy to diversify its revenue within the scope of its IIFM segment. Faber had the capability to undertake such a venture as it was related to and complemented its existing business.

With the project still at a preliminary stage, management has declined to give more details with regard to its financial impact. However, assuming a 50:50 savings sharing arrangement, this project will generate some RM35 million to RM70 million per annum to Faber’s topline. Although we expect the earnings contribution for this segment will not be significant to group’s earnings, this could create another revenue stream for the company and reduce earnings dependence from concessions

Faber’s energy audit on five hospitals to be completed in April 2011, if successful, could involve up to 120 buildings identified by the government under the EPMS project. Implementation of the project is subject to finalisation of the company’s business model with the government. However, initial capital expenditure and revenue stream are undisclosed pending further discussion with Pemandu.

On property development, Faber’s management disclosed that via its unit Faber Development Holdings Sdn Bhd, the gross development value (GDV) of its current projects amounted to RM509.7 million while projects in the pipeline was expected to generate RM508.5 million in GDV.

Risks include failure to secure an extension to the concession agreement with the
government; and delays in property launches and approvals, which could affect revenues from the property segment.

Meanwhile Faber has proposed to cancel 75 sen of the existing par value of its RM1 share in a move to reduce its accumulated losses. Based on its paid-up share capital as at Dec 31, 2010 of RM363.0 million, the credit arising from the reduction of the par value would be about RM272.3 million.

The proposed share premium reduction will involve the reduction of the entire balance of about RM116.0 million in the company's share premium account. The credit arising from the said reduction in share premium of the same amount will be used to set-off the accumulated losses of Faber Group.

Its unaudited accumulated losses as at Dec 31, 2010 totalled RM422.1 million, which had declined from the audited losses of RM450.60 million as at Dec 31, 2009.

Sunday, March 20, 2011

Installing Husband!!!

A woman writes to the IT Technical support Guy
Dear Tech Support,

Last year I upgraded from
Boyfriend 5.0 to Husband 1.0 and I noticed a distinct slowdown in the overall system performance, particularly in the flower and jewellery applications, which operated flawlessly under Boyfriend 5.0.

In addition,
Husband 1.0 uninstalled many other valuable programs, such as:
Romance 9.5 and Personal Attention 6.5, and then installed undesirable programs such as  NEWS 5.0,   MONEY 3.0  and CRICKET 4.1.

Conversation 8.0
no longer runs, and Housecleaning 2.6 simply crashes the system.

Please note that I have tried running
Nagging 5.3 to fix these problems, but to no avail.

What can I do?




Dear Madam,

First, keep in mind,
Boyfriend 5.0
is an Entertainment Package, while Husband 1.0 is an operating system.

Please enter command:
ithoughtyoulovedme.Html and try to download Tears 6.2 and do not forget to install the Guilt 3.0 update.
If that application works as designed,
Husband1.0 should then automatically run the applications Jewellery 2.0 and Flowers 3.5.

However, remember, overuse of the above application can cause
Husband 1.0 to default to Silence 2.5 or Beer 6.1.

Please note that
Beer 6.1 is a very bad program that will download the Snoring Loudly Beta.

Whatever you do,
under any circumstances install Mother-In-Law 1.0 (it runs a virus in the background that will eventually seize control of all your system resources.)

In addition, please do not attempt to reinstall the
Boyfriend 5.0 program. These are unsupported applications and will crash Husband 1.0.

In summary,
Husband 1.0 is a great program, but it does have limited memory and cannot learn new applications quickly.
You might consider buying additional software to improve memory and performance.

We recommend:  Cooking 3.0 and  Good Looks 7.7.

Good Luck Madam!

Saturday, March 19, 2011

Malaysian jokes ... 6

Election campaign time - car load of politicians were involved in a car accident.

 A farmer saw and rushed to the scene but all the passengers were dead.
 He buried all the passengers.

 Few days later, the police in charge found the farmer and asked where all
 the politicians were and was told that they had all been buried.

Police: "Did they all die?"

Farmer: "Hmmm, Samy was screaming that he is still alive when I buried  him"

Police: "Then why did you bury him anyway?"

Farmer: "You know,
Samy never tells the truth."

Friday, March 18, 2011

SOP ... Mar11

Inet Research Investment Highlights/Summary

 Sarawak Oil Palms Bhd (SOPB) is a mid-sized Sarawak-based plantation company involved in
the cultivation of oil palm and the operation of palm oil mills for the processing of palm oil and
palm kernel.

 As at end-FY10, it has a total landbank of 72,653 ha of which 58,940 ha are planted with oil palm.

 Due to the favourable age profile of its estates, SOPB has been generating above-industry yield.

 We are maintaining our Buy recommendation on SOPB for its favourable oil palm profile and undemanding P/E valuation. Its current P/E valuation of 8.2x for FY11 is at a discount as compared with plantation sector of 15x. We have arrived at a target price of RM4.30 based on a target P/E of 10x for FY11.

SEGI ... Mar11

SEGI International Bhd (SEGi) group managing director Datuk Clement Hii Chii Kok has emerged as the second largest shareholder of the company after he acquired 30.3 million shares yesterday, raising his stake to 20.61%.

Hii, the founder of SEGI, has since last year been slowly increasing his stake and as at end-December, held 4.6% from 0.81% previously.

In addition, Hii holds 1.64 million warrants in SEGI.

Meanwhile, Rexter Capital Sdn Bhd reduced its stake in SEGi to 13.91% from 24.77% yesterday after it sold 29 million shares. It is not known if Rexter is the vendor of the block bought by Hii. Bumiputera-owned Cerahsar Sdn Bhd remains the largest shareholder in SEGi with 23.01% stake.

Datuk Chee Hong Long is another new substantial shareholder who emerged recently holding a 6.31% equity stake. Chee is a board member of both Priceworth Wood Products Bhd and SYF Resources Bhd.

Before Rexter Capital and Cerahsar bought into the education group, Koperasi Pegawai-Pegawai Melayu Malaysia Bhd (MOCCIS) and EcoFirst, controlled by the Teoh brothers, were substantial shareholders.

Shareholding changes aside, SEGi is doing well financially. In fact, the company’s earnings have been on an upward trend since FY06.

For FY10 ended Dec 31, SEGi’s net profit quadrupled to RM43 million from RM10 million in FY09. Revenue grew to RM217.6 million from RM166.4 million previously. Earnings per share ballooned to 17.4 sen from 4.23 sen.

Thursday, March 17, 2011

Salcon ... Mar11

Inet Research - Investment Highlights/Summary

 Salcon is an engineering specialist offering comprehensive end-to-end services in water and wastewater treatment. Salcon currently owns and operates 7 water concessions and 2 wastewater concessions in China and Malaysia. It also has an effective stake of 36% in Binh An Water Corporation Ltd. which operates under a concession agreement to treat and supply water in Vietnam.

 The Concession segment has been generating steady, recurring profit. We believe its current profit base has yet to reflect the full potential and the design capacity of the Concession segment, as some of its WTPs have yet to commence operations.

 The reduced stake in Salcon Asia will result in earnings dilution in the short term, but the doubling in production capacity will be more than enough to compensate for the earnings dilution.

 The unbilled portion of RM436m will sustain Construction segment profit for the next 1-2 years.

 The stock is currently trading at its NTA of RM0.62/share, which does not reflect the promising long-term prospects of its growing concession-based business in China. Based on our adjusted NTA taking into account the exceptional gain of RM60.1m, its adjusted NTA would increase to RM0.75/share.

LATITUD ... Mar11

Latitude Tree Holdings Bhd is investing US$8 million (RM24.2 million) to expand its production line in Vietnam to cope with increasing orders for its products. … boosting the furniture maker's capacity to US$11 million in sales a month from the current US$9 million.

Latitude Tree manufactures and exports wooden bedroom, living and dining room sets. Its main export market is the US with 90% of products sold there while 10% is exported to Europe and the Middle East.

They are also looking at penetrating the Chinese domestic market in the future due to the growing demand there. But any efforts of expansion would be focused on its Vietnam plants instead of Malaysia.

The US$8 million investment is financed internally as it has a net cash of RM90.12 million with no borrowings.
For the first half (1H) ended Dec 31, 2010, Latitude Tree saw its net profit fall 48% to RM11.78 million from RM22.6 million a year earlier. The decline was due mainly to the weakening US dollar and higher prices of raw materials, despite its revenue increasing 11% to RM291 million from RM262 million.

On the rising Vietnam dong, there was little impact on its operations as the rising costs would be cushioned by the stronger US dollar against the dong.

Wednesday, March 16, 2011

AutoV ... Mar11

Insider Asia by Asia Analytica

Turnaround plans highly successful
Proton Persona replacement to drive growth after Exora
Cash rich, expanding business integration
Low P/E of 6.2x for 2011, minimal downside risks

AutoV Corp Bhd (AVC), formerly known as AV Ventures Corp Bhd, is firmly set on a path to strong recovery after putting its chequered past behind it. The automotive component manufacturer was set up in 1983 to supply components to Proton – and to which its fortunes were ultimately tied. The company was later affected by the 1997-98 financial crisis, Proton’s plunging sales and an Australian venture that caused large losses.

After restructuring itself in the aftermath of the 1997-98 financial crisis by streamlining operations, disposing non-core assets and securing new contracts, the former debt saddled and unprofitable company has now
emerged as a profitable, cash-rich player.

Proton’s slew of new launches, particularly the Proton Exora MPV launched in 2009, has significantly boosted sales and earnings in 2009-10, while the acquisition of two auto component companies in 2008 boosted earnings and product offerings that year. The company has recently proposed to acquire a
metal stamping unit, which will integrate its business further.

As volume sales and capacity utilization improved, so did profit margins, giving the company a bigger bottom-line impact.

Strong 2010 results
AVC recently reported net profit of RM11.4 million for FY Dec 2010, up 67.6% from RM6.8 million in 2009, on the back of an 18.5% growth in revenue to RM102.6 million. The results were a substantial improvement over net profit of RM4 million in 2008 and losses in 2006-07. Operating margins improved from 6.4% in 2006 to 12% in 2009 and 16% in 2010.

We expect net profit to increase by 13.5% to RM12.9 million in 2011, before a pick-up in growth by 21% to RM15.9 million in 2012, when the Proton Persona replacement model is unveiled. We understand AVC is likely to supply a number of parts to the project, which is still under wraps.

Following the sale of properties, AVC’s balance sheet reversed from net debt of RM1.9 million in Dec 2007 to net cash of RM10.6 million in Dec 2008. This has increased further to RM24.2 million in Dec 2010, or 41.4 sen per share.

The cash-rich balance sheet will enable AVC to easily fund future expansion and higher dividends.

In FY09, AVC paid its first dividends in over a decade, when it declared net dividends of 3.5 sen per share. We expect total dividends of 4 sen in 2010-11, which translates into net dividend yield of 2.9%, with a still low payout ratio of 14-16%.

We maintain AVC as a BUY for its attractive valuations and decent yields. At RM1.37, its shares are trading at P/Es of 6.2 and 5.1 times for 2011-2012, respectively.

The company, as a whole, appears attractively priced. With market capitalization of just RM80 million, AVC comes with RM24.2 million net cash and is expected to generate EBITDA of RM18.4 million in 2011. If we exclude net cash from the market capitalization, AVC’s underlying business is implicitly valued at RM55.8 million – or just three times estimated EBITDA.

LionInd ... Mar11

The banding together of three companies from Tan Sri William Cheng’s Lion group to drive a multi-billion ringgit blast furnace is seen as a risky venture for the group although it would add value to its flat steel segment.

The blast furnace would convert 75% of the liquid hot metal into slabs to be exported to Asean, the remaining 25% would be channelled to Lion group’s steel making facilities in Banting, where the plant would be located. ]

While the blast furnace project would add value to Lion Diversified’s flat steel segment, it still posed a high investment risk to not only the individual companies but to the group overall in general.

While there is strong demand for steel coming from countries such as Indonesia, there are a number of risks attached to having a blast furnace.

Indonesia at the moment is a very unique market given that there is a smooth supply of raw materials with a high demand for steel. The demand in Thailand is also high, and there is no question that currently there is a shortage of supply in the slab market.

However, a blast furnace is a massive undertaking, in the sense that once it has been started, production cannot be stopped. To do so would then take about a month and millions of ringgit in order to ramp up the facility again. Ultimately this means that if there were a slowdown in demand, the blast furnace would have to keep producing, which would then lead to high inventory costs.

The industry player also pointed out that there were already other projects in the pipeline that would help to fill the need for slabs, including an integrated flat steel facility from a joint venture between South Korea’s Posco and Indonesian government-owned PT Krakatau Steel.

Given that mainly it is hot strip mills that use iron slabs, the millers are able to react quickly to market changes, halting production when the market goes south. While steel mills can opt to reduce production while keeping the blast and coke furnace warm, this will eventually translate into unreasonably high conversion cost. Also, this would also be done at the expense of a furnace’s lifespan, hence giving rise to maintenance and depreciation expenditure.

Another sticking point would be the fact that blast furnaces require a high amount of coking coal as a fuel source. At the moment, the prices of coking coal have spiked due to flooding in Australia, which had severely curtailed production.

In fact, mining giant BHP Billiton suggested that coking coal prices be revised monthly, a call that had been greeted with an outcry on the part of steel players who said that such short-term changes would make it hard for steel companies to manage costs and forecast earnings.

However it will add value to the former’s sister company Megasteel Sdn Bhd in the production of hot-rolled coils. Ultimately, Megasteel would benefit since it currently has an issue with inconsistent quality as it uses a scrap metal that has impurities as a feed material. Being able to process raw iron ore compared with the more impure scrap means that the companies will be able to command better margins through higher value products.

In addition, Lion Diversified also has a direct reduced iron plant in Banting, which was commissioned in June 2008. Direct reduced iron proves a direct substitute for scrap in the making of high-grade steel.

There should be no short-term financial impact but said that it would likely affect sentiment.

The move by the Lion group to ensure the completion of the blast furnace project is just another sign that the local steel players are steadily moving upstream.

In October 2010, Perwaja Holdings Bhd announced that it was looking to invest RM201.5 million in a new concentration and pelletising plant in Kemaman, Terengganu. The plant is due to be commissioned by the end of FY12 with a starting annual production capacity of 1.2 million tonnes a year. Perwaja and other steel makers in the region import all their iron ore pellets.

Ann Joo is also en route to the full commissioning of phase 1 of its own blast furnace, which was due to take place at end-2010, but there have been additional delays. The cold commissioning of the blast furnace, which was delayed up to two years, started in October 2010.

Tuesday, March 15, 2011

Muhibah ... Mar11

Insider Asia by Asia Analytica

Gearing up for next growth phase
Cost overruns over, loss-making projects completed
Order-book building up again, now at RM3.1b
Attractively priced well below peers

Muhibbah Engineering, a former darling of investors, is set to make a major comeback as it puts its overseas projects’ cost overrun issues behind it and gears up for the next phase of growth.

The company has a diversified earnings base, with earnings from infrastructure construction, cranes, shipyard, as well as concession income from airport and road maintenance.

It will benefit from the ramp up in construction activities for projects such as the Klang Valley’s Mass Rapid Transit (MRT) system, as well a slew of property developments on privatized state-owned land, such as the 3,300 acre Rubber Research Institute (RRI) land in Sungei Buloh.

Meanwhile, the focus on the oil and gas sector will serve it well as the government allocates more spending under the Economic Transformation Programme, and with national oil giant Petronas Nasional planning to spend RM250 billion in capex over the next five years.

Muhibbah was a favourite of investors in 2005-2006, when the then low profile company saw its share price surge as investors, especially foreign funds, warmed up to its growth prospects, attractive fundamentals and low starting valuations. The company had positioned itself as a global construction and infrastructure player, and an Indochina play.

Muhibbah secured a number of large domestic and international contracts, which boosted its order-book from RM810 million in 2005 to a peak of RM4.31 billion in 2008. As a result, net profit rose nine-fold from RM7.8 million in 2004 to RM70.1 million in 2007.

However, the aggressive growth also came at a price.
The sharp rise in building material prices just before the global financial crisis and cost overruns at its Yemen LNG project caused losses in 2008 and 2009 for the core infrastructure and construction division, although the company remained profitable.

Net profit declined from RM70.1 million in 2007 to RM21.8 million in 2008 and RM12.7 million in 2009. Its share price slumped, exacerbated by the global crisis and the exit of foreign shareholders. We understand its foreign shareholding stood at about 40% at its peak, but has since fallen to below 10%.

After spending much of the last two years on a “kitchen sinking” exercise and completing its less lucrative projects, Muhibbah is now well positioned for the next phase of growth and is rebuilding its order-book with better quality projects.

The results were already evident, with net profit for 2010 increasing 2.6-folds to RM33.8 million, driven by a turnaround in the infrastructure construction division, which returned to the black with a pre-tax profit of RM5.17 million, compared with operating losses of RM65.4 million in 2009.

As at 22 February 2011, Muhibbah’s outstanding order book totaled RM3.1 billion, comprising RM2.29 billion from infrastructure construction, RM453 million from cranes and RM360 million from shipyard. About 49% of the total order-book is related to the oil and gas industry.

Meanwhile, a likely resolution of long outstanding issues surrounding the Asia Petroleum Hub (APH) project in Johor, for which Muhibbah has been owed some RM340 million since mid-2009 for works completed but not paid,could also lift sentiment on the stock. The sums owed are listed as receivables, and have not been written down.

We expect Muhibbah’s growth momentum to accelerate in 2011 and 2012 as its loss-making overseas projects give way to more profitable ones, and as order-book replenishment gets underway. We expect net profit to increase 46.3% to RM49.5 million in 2011 and 19.9% to RM59.3 million in 2012, with
EPS of 12.4 sen and 14.9 sen, respectively.

At RM1.56, Muhibbah is trading on attractive P/E valuations of 12.5 times for 2011 and 10.5 times 2012 earnings and a modest 1.2 times its book value of RM1.28 as at Dec 2010. Its valuations are far lower than the major construction players, such Gamuda and IJM Corp, which trade at 20-21 times forward earnings and WCT, which trades at 15 times.

We maintain our BUY recommendation.

Guanchg ... Mar11

Cocoa prices rose to a 32-year high at US$3,706 (RM11,230) a tonne in early March 2011 due to the ongoing political crisis in Ivory Coast, which produces 60% of the world’s output.

Meanwhile, supply fears pushed the price of coffee to a high of US$2.74 (RM8.30) a pound in February 2011, more than double the low of US$1.27 a pound seen in March 2009. Concerns over poor harvests in coffee producing countries like Mexico, Colombia and Kenya have been exerting upward pressure on prices.

While the F&B companies are feeling the bite of high commodity prices, there is a liver lining for some, as Malaysia is a producer of cocoa, though not a major one.

Malaysia produced 18,152 tonnes of cocoa beans in 2009, according to the Malaysia Cocoa Board. Of this amount, 13,213 tonnes came from Peninsular Malaysia, 3,688 tonnes from Sabah and 1,251 tonnes from Sarawak. Production is estimated to have fallen to 15,654 tonnes in 2010.

Malaysia’s cocoa bean production is mostly undertaken by smallholders, rather than large plantation players, and these smallholders will benefit from higher prices.

The country’s cocoa production has declined greatly as low prices in the past prompted farmers to switch to more lucrative crops. In 1990, for instance, the country produced 247,000 tonnes -- a staggering 13.6 times more than 2009’s output.

Guan Chong Bhd, a cocoa-ingredient producer, is riding the rally in cocoa prices. It is sitting on a large inventory of cocoa beans that has appreciated in value due to rising prices. The company’s inventories totalled RM154.92 million as at end-2010

For FY2010 ended Dec 31, Guan Chong’s net profit soared seven-fold to RM100 million as revenue rose 83% to RM1.17 billion.

The company says its financials were also helped by foreign exchange gains due to the strengthening ringgit. The firm also booked gains from commodity futures contracts, and foreign exchange derivatives.
It is also worth watching companies like MBf Holdings Bhd, which operates coffee and cocoa plantations in Papua New Guinea. MBf Holdings’ website indicates that the company has a 1,100ha coffee plantation and 2,100ha of land for tea cultivation in Papua New Guinea. Details about its cocoa operations were however not specified. Agriculture operations in Papua New Guinea accounted for 11% of MBf’s revenue in the financial year ended Dec 31, 2010, its latest quarterly results showed.

Monday, March 14, 2011

DELEUM ... Mar11

Alliance Research ... Light in asset, rich in cash

􀂉 Background. The history of Deleum Group can be traced back to the incorporation of Delcom Services in 1976 and commenced business in 1978. Its initial business activity was the supply of telecommunications equipment. With years of experience in the oil and gas industry, Deleum Group is a provider of supporting specialized products and services to the oil and gas industry. Specifically Deleum is chiefly involved in offering a wide spectrum of supporting specialized products and services to the oil and gas sector, focusing specifically in the exploration and production segment.

􀂉 Investment case. The stage is set for a boom time in EPCIC oil and gas projects in Malaysia underpinned by heightened oil and gas exploration and production (E&P) activities in Malaysia, which is expected to gain momentum over the next few years. Amplifying the growth potential, E&P activities in Malaysia going forward are expected to focus in the deepwater and ultra-deepwater blocks. We believe Deleum is poised to be a beneficiary considering its track record in providing a wide range of specialised supporting products and services for the oil and gas industry.

􀂉 Forecasting FY11 and FY12 net profit of RM28m and RM29m respectively. Taking the cue from the positive outlook in the oil and gas sector locally, we are forecasting Deleum FY11 and FY12 net profit to hit RM28m and RM29m respectively. We derive our target price of RM2.07/share based on 7.4x CY11 EPS of 28 sen or at a 40% discount to comparable peers average of 12.3x PER taking into account of Deleum’s small market capitalisation.

􀂉 Key investment risk. Key earnings risk for Deleum lies from worst-than-expected weather conditions, which hampered offshore activities in carrying out services.

􀂉 Financial review. Full-year FY10 contribution is mainly derived from the specialised equipment and
services segment and oilfield equipment and services segment. YTDFY10 revenue fell 22% to RM399m. However, YTDFY10 Deleum’s Group pre-tax profit declined 18% to RM38m. Full-year FY09 contribution is mainly derived from the specialised equipment and services segment and oilfield equipment and services segment. The Group recorded revenue of RM514m for the financial year 2009, a 21% increase compared to RM425m in the previous year. In line with the increase, the Group achieved a 24% increase in profit before tax of RM46m compared to RM37m in 2008. The profit after tax and minority interest increased by 14% from RM23.3m in 2008 to RM26.5m.

Valuation and earnings outlook
􀂉 Forecasting FY11 and FY12 net profit of RM28m and RM29m respectively. Taking the cue from the positive outlook in the oil and gas sector locally, we are forecasting Deleum FY11 and FY12 net profit to hit RM28m and RM29m respectively.

􀂉 Initiating coverage with a Buy recommendation. We derive our target price of RM2.07/share based on 7.4x CY11 EPS of 28 sen or at a 40% discount to comparable peers average of 12.3x PER taking into account of Deleum’s small market capitalisation. We like Deleum for: 1) being the booming oil and gas sector; 2) boom time ahead for EPCIC deepwater oil and gas projects in Malaysia; and 3) Its asset light and cash rich business model. With values for oil & gas contracts getting higher, re-vitalised domestic spending by Petronas, positive liquidity flow against on the back of the government’s Economic Transformation Programme to create regional oil and gas service provider champions in providing oil field & equipment services underpin our continued excitement in the sector over the short to medium term.

GEFUND ... Mar11

It is making its foray into Indonesia and is planning to undertake a mixed development property project in east of Jakarta. It had signed an MoU with PT Greenworld Development to undertake the project totaling 50.74 acres east of Jakarta.

The proposed involvement in property development was in line with the group’s strategy to diversify its revenue stream.

The site was along Jalan Pengangsaan Dua, Rawa Terate Village and surrounded by established neighbourhoods in the Kelapa Gading sub-district which is mainly a middle to upper middle class area. Kelapa Gading had six shopping malls within a 20-km radius and it was 14km from central Jakarta.

Incorporated as a private limited company in Indonesia, Greenworld has a registered capital of US$2 million (RM6.08 million) and is principally involved in property development and investment.

In September 2009, businessman Datuk Allan Lim Kim Huat was appointed Gefung’s managing director after he bought a 25.19% stake in the group via an off-market transaction from its former managing director and major shareholder Seo Aik Leong.

Lim is also the executive deputy chairman and a substantial shareholder of Sunrise Bhd, which has since been acquired by UEM Land Holdings Bhd.

Lim acquired the 39 million shares in Gefung from Seo at 50 sen each, or RM19.5 million. Seo still has a 3.09% stake, or 4.78 million shares, in Gefung.

The group is one of the top 10 marble and granite importers in China and one of the top three in Shanghai. Its Shanghai plant, located in Chonggu Town, has the capacity to process 900,000 sq m of marble products a year.

Some of its prominent customers include the Shangri-La Hotels Group and Hong-Kong based developers Sun Hung Kai Group and Wharf Group.

For FY10 ended Dec 31, Gefung’s net loss ballooned to RM56.9 million from RM17.8 million a year ago, despite a higher revenue of RM55.6 million versus RM42.5 million previously.  Losses per share amounted to 36.77 sen compared with 11.55 sen the year before.

Gefung will be in a net cash position upon the completion of a rights issue, which is expected to raise rm29 million to finance new business ventures, including property development.
Based on the proceeds of rm29 million and Gefung’s cash of rm7.44 million as at Dec 31, 2010, the company will have a larger cash pile of rm36.47 million against debts of rm28.39 million, comprising rm27.12 million in short term borrowings. This will translates into net cash of rm8.18 million.

Gefung’ announced proposals to rejuvenate its financials, including one to reduce the par value of its shares from rm1 to 20 sen each. The credit of rm123.84 million derived from the reduction will be more than set off against the company’s accumulated losses of rm73.96 million as at Dec 31, 2010, leaving rm49.88 million to be credited to its capital reserve account.

Subsequent to the capital reduction, it intends to carry out a rights issue of up to 193.5 million new shares at 15 sen a piece (another 5 sen will be capitalized from the reserve account) on the basis of five units for four existing shares in the company.

It is estimated that Gefung’s net assets per share will be reduced to 32.8 sen upon completion of the entire exercise, from 53 sen as at Dec 31, 2010.

Based on the indicative issue price of 15 sen apiece, the cash call would raise rm29.03 million for Gefung. Of the amount, rm15 million will be earmarked for new business ventures, while rm10.19 million will be set aside for working capital. The group is also allocating rm3 million to repay its bank loans.

Its new business plans may include acquisition of strategic investments apart from collaborations, JV or alliances.

The proceeds from the proposed rights issue will provide an opportunity for the group to venture into property development, which complements its current marble and granite business, and is expected to provide better growth and enhance its earnings given the current positive outlook for the property market.

Lim, by virtue of being the largest shareholder with a 25.19% stake, will provide an undertaking to fully take the up his direct entitlement of the rights shares, apart from additional units not taken up by other shareholders.

Should he take up the addition units, his stake could increase to 54% and he would seek an exemption from the obligation to make a general offer for the remaining shares in the company.

His entry into Gefung was seen as heralding new era in the loss making marble and granite processor. Armed with a wealth of experience in luxury property development, he is expected to spearhead the creation of real estate related operations as a major income stream for Gefung in the years ahead.

The question is, how soon will Lim revive the fortunes of Gefung, which posted a net loss of rm56.91 million in FY2010 ended Dec 31. The company has no existing landbank to kick start its property development projects. Thus, the acquisition of property companies with attractive landbank and projects could be a viable route.

Such acquisitions may involve an asset injection by either Lim, or a third party who would then emerge as a substantial shareholder of the company.

Lim’s links to Sunrise could be a platform for Gefung to expand its presence in IDR as well.

The market will be watching the makeover of Gefung into property player closely, and how the company rejuvenates its financials under Lim’s leadership.