Thursday, October 25, 2012

IGBREIT ... Oct12

It gives investor exposure to Malaysia ’s largest REIT by mar cap and second largest free float. Growth will be underpinned by organic growth in its existing retail assets – Mid Valley Megamall and The Gardens Mall.

Located in the heart of Mid Valley City and on the fringe of the KL central business district, Mid Valley and The Gardens are supported by offices and mature affluent townships within and surrounding Mid Valley City. Footfall for the two malls has been stable at around 34 million per year despite rising competition from new malls. Its attractiveness will be further enhanced by ongoing and future mixed developments in the surrounding areas, which will further grow its catchment area.

IGB REIT is set to benefit from the upcoming MRT Circle Line under the Greater KL/Klang Valley integrated urban transport system via a proposed linkage from Mid Valley City to KL Eco City’s Komuter/LRT/MRT station. Increased accessibility and connectivity will drive shopper traffic further, which will serve as a strong catalyst to IGB REIT’s capital value and bargaining power for positive rental reversions.

IGB REIT has a good combination of mature and young assets. Mid Valley anchors the earnings base while the relatively young Gardens Mall provides significant room to grow average rental.

Some IGB REIT’s rental income is backed by long lease agreements while the portfolio’s tenancy expiry profile is well spread out with 39% of the tenancies due for renewal in 2013 and 31% in 2014.

IGB REIT has quality assets, earnings resilience and liquidity. It’s relatively low 26% debt to asset ratio gives it the capacity to borrow another rm2.3 billion for asset acquisition.

Wednesday, October 24, 2012

IPO ... WestPorts Malaysia

An operator of Malaysia ’s busiest port is looking to raise as much as US$500 million (RM1.5 billion) in an initial public offering (IPO) in the second quarter of 2013.

The funds raised from the IPO will help Westports expand Port Klang, which has reported double-digit growth in container handling over the last five years prior to 2012.

Westports’ major shareholders are Hutchison Port Holdings and Khazanah Nasional Bhd.
Headed by Tan Sri G. Gnanalingam, Malaysia 's 24th-richest man according to Forbes, Westports helped move Port Klang a notch higher to the 13th spot in the world port traffic league last year, according to the Westports website.

The port has been recording 20 per cent growth in TEU (twenty-foot equivalent container units) over the last five year prior to 2012.

Maybank ... Oct12

It is considering options to expand in Thailand including takeovers after raising RM3.66 billion (US$1.2 billion) in early Oct 2012 to boost its presence in Southeast Asia . Its intention is to have a full presence across all the 10 countries in Southeast Asia . Within that context, the idea of raising additional capital is meant to enable Maybank to grow a bit more aggressive in markets like Indonesia , the Philippines and later possibly into Singapore . However its CEO Abdul Wahid reiterated that proceeds from its Oct 8 2012 share sale are not meant for making a bid for Bank of Ayudhya Pcl in Thailand .

Although current (Oct 2012) news of Malayan Banking Bhd's (Maybank) merger and acquisition (M&A) aspirations seem to be focused on Thailand, some industry experts do not rule out that the banking giant may be casting its eye on targets closer to home. And one name that keeps cropping up as a potential merger target is RHB Capital Bhd.

Maybank is 45.77% owned by Permodalan Nasional Bhd (PNB), while the EPF owns 45.34% of RHB Capital. EPF also owns 10.94% of Maybank. PNB's stake in Maybank is valued at RM33.83bil while EPF's stake in RHB Capital is worth RM7.35bil.

The merger could be structured in such a way that will see both parties (PNB and EPF) lowering their stakes in the enlarged merged entity. This would bode well for the institutions as they are committed to lower down their stakes in the banks. The EPF is flush with money to fund the further growth on this strong merged entity. A merger with RHB Capital could potentially create the region's biggest bank, with assets surpassing that of Singapore 's DBS Group Holdings Ltd, South-East Asia 's largest lender.

However some reckon such a deal is unlikely to happen. Datuk Seri Abdul Wahid Omar (Maybank's chief executive officer) was quite firm that Maybank is no longer interested in RHB. Maybank was looking to expand regionally instead of in the domestic market. The banking industry in Malaysia is rather saturated and it's not exciting anymore. Furthermore, a merger between the two would cause many operational duplications, hence it would be hard to see a synergistic benefit from it, he said, adding that the timing of such a deal was also an issue.

There would be very little synergies reaped between both banks, as both are competing head on almost all fronts. A better proposition would be for Maybank to enter into an M&A in a regional market where the population base is bigger.

The idea of a Maybank-RHB merger isn't new. In 2011, Maybank and CIMB Group had won the central bank's approval to have separate merger talks with RHB Capital, triggering one of the hottest battles in the local banking scene when Abu Dhabi Commercial Bank, which held a 25% in RHB Capital, was looking to divest its holdings. Both banks didn't pursue the possible merger.

Meanwhile it plans to boost its presence in the Greater China region, its third most profitable overseas market, but has ruled out making any acquisitions there.  The group currently has three branches in the Greater China region - one each in Hong Kong, Shanghai and Beijing - and plans to eventually add more in other key cities in a bid to support robust trade and investment flows between China and Asean. There's no intention to do mergers and acquisitions in this region but think organic growth is appropriate.

Maybank's closest rival at home, CIMB Group, has a 19.9 per cent stake in Bank of Yingkou, a mid-sized lender based in northeast China, while Affin Holdings Bhd has a 23.5 per cent stake in Hong Kong-based Bank of East Asia.

The Greater China operations are currently (Oct 2012) the third largest overseas contributor to the Maybank group's profit before tax (PBT), after Singapore and Indonesia.

Tuesday, October 23, 2012

Good Company/Result...20121023

Axiata ...Oct12

Do not expect cash calls by Axiata’s associates Idea Cellular Ltd from India ’s proposed imposition of a one time fee for the existing 2G spectra. Expect their cash flows and balance sheets to be sufficient for funding any one time fee and auction for 2G spectrum. Idea should be able to take on more debt as their Ebitda ratios are still comfortable at 2.2 times for Idea.

An empowered group of ministers headed by India’s finance minister has recommended to the India Cabinet that telcos be charged a one time fee for their 2G spectra exceeding 4.4MHz in all circles. Details such as the timeline and pricing have not been ironed out. The Cabinet is scheduled to take up this issue on Oct 16, 2012.

The government, meanwhile has also decided to hold an auction for 1800MHz spectrum on Nov 12, 2012. The reserve price for nationwide coverage has been set at rm8.1 billion with annual 3% revenue sharing component.

Industry observers viewed such fee as a negative for Idea as ti will put pressure on their cash flows with Idea having to pay rm2.24 billion. As for the 2G auction, expect Idea to fork out 19.6 billion rupees and foresee intense bidding fro the seven circles for which it lost its licenses on Feb 12, 2012.

On a bright side, do not expect cash calls by Idea for both the one time fee and 2G auction as they should be able to fund time via internal cashflows.

Monday, October 22, 2012

KSK ... Oct12

Expect a healthy divided distribution following the completed divestment of its primary insurance unit for rm1.63 billion on Sept 26, 2012 to AMG Insurance Bhd.KSK, expected net cash level of rm990 million or 65.98 sen per KSK share following the divestment of Kurnia Insurans and the repayment of group borrowings of rm360 million.

However it is worth nothing that besides the net cash of about rm990 million, the value of KSK’s remaining insurance ventures in Indonesia and Thailand is not reflected in its current market cap of slightly more than rm1 billion as these centers continue to be loss making.

KSK has confirmed its intention to distribute dividends, but there has been no mention of the quantum yet. Any distribution will be made after the group puts aside a sizeable chunk for its ongoing expansion plans.

With the divestment of Kurnia Insurans, KSK retains its Insurance ventures in Indonesia and Thailand via its wholly owned PT Kurnia Insurance Indonesia and a 25% stake in the newly monikered KSK Insurance Thailand. It plans to increase its stake in Thai venture to 75%.

KSK has allocated rm100 million from the sale proceeds of the Kurnia Insurancs sale to growing its businesses in Indonesia and Thailand where it intends to become a significant player. Both ventures have been loss making for several years.

Both insurance markets were very fragmented with a lot of small players, and is going through a consolidation phase. From a merger or acquisition angle, now (Oct 2012) seems to be the perfect time to expand within these markets by acquiring small players as KSK is currently (Oct 2012) cash rich. But the ventures were not likely to be profitable for a number of years.

So market observers expect the group to acquire new businesses outside the insurance industry, a possibility that KSK has not ruled out.

KSK could also be taken private if such opportunities do not arise.

As it stands, the group is currently (Oct 2012) a PN17 company on Bursa Malaysia as it has ceased operations following the disposal of Kurnia Insurans. KSK has a year to submit a regularization plan to SC.

Friday, October 19, 2012

HSL ... Oct12

Sarawak based construction company HSL is expected to benefit from public infra projects in the state as the government ramps ip spending on rural development as planned under Budget 2013.

Widely seen as a proxy for the Sarawak construction sector, HSL, with its expertise in dredging and land reclamation, is expected to secure projects under the government’s rural transformation programme. Under Budget 2013, PM Datuk Seri Najib said the government had earmarked rm4.5 billion to finance various rural infra development projects.

These include the construction of roads as well as water and electricity generation related infra jobs.

HSL’s order book stood at rm1.9 billion of which rm1.1 billion remains outstanding.

It will continue to bid for projects in Sarawak especially within the SCORE where the company expects more infra contracts to be rolled out as foreign investors set up their manufacturing operations there.

Energy intensive industries within SCORE will be the main growth driver for the corridor, where the Samalaju Industrial Park is located.

Debt free HSL had a cash pile of rm195 million as at June 2012 while net assets per share stood at 79 sen.

Its valuation is supported by its net cash per share of 40 sen and revised net asset value of its 890 acre landbank of 65 sen per share.

HSL and KBB Engineering Bhd are leading Sarawak based construction entitles that are expected to benefit from the budget allocation of rm4.5 billion for rural infra development projects.

Both companies have clinched water supply projects in the Samalaju Industrial Park, SCORE and rural enclave.

Thursday, October 18, 2012

HuaYang ... Oct12

Hua Yang Bhd is acquiring 29.20 acres of land in Puchong, Selangor from Mentaru Hari Sdn Bhd for RM158mil and plans to undertake mixed development with an expected gross development value of RM1.52bil.

It had entered into a conditional sale and purchase agreement with Mentari Hari to acquire five vacant plots of leasehold land in the Petaling district. The lease expires in December 2110.

The purchase consideration of RM158mil is expected to be funded via internally-generated funds and bank borrowings..

The group's strategy is to acquire and continue to expand its current land bank which is about 766 acres and are in the Klang Valley, Perak, Seremban and Johor.

Its plan was to undertake affordable priced properties while maintaining modern and city lifestyle concepts to attract the younger generation of the surrounding matured residential areas of Puchong, Shah Alam and Subang due to population growth in these areas.

It proposed mixed development comprising serviced apartments and offices / lifestyle studio office suites together with parking facilities, clubhouse and amenities with an expected gross development value of approximately RM1.52bil and gross development cost of RM1.22bil, amounting to gross development profit of approximately RM300mil.

The proposed development is expected to be launched in the fourth quarter of 2014 with a development tenure of six to eight years.

Wednesday, October 17, 2012

Good Company/Result...20121017

Axiata ... Oct12

Axiata has been vying for a piece of Myanmar 's market and it hopes to play a major role in the Myanmar telecoms market and has no qualms about partnering a Burmese party for that purpose.

Axiata, though, faces competition. Global players like Norwegian firm Telenor (parent of DiGi.Com Bhd), Digicel, the largest mobile operator in the Caribbean, Vietnam's VNPT-Fujitsu, Russian heavyweight VimpelCom and Sweden's TeliaSonera AB, are all jockeying for a chance for the four telecom licences that will be dished out. Telecoms suppliers like China 's Huawei are fast positioning themselves as network suppliers and consultants. The Myanmar government is in the midst of selecting a consultant that will oversee an upcoming tender for the telecom licences.

It is yet unclear when the tenders will be out.

The Myanmar government has said that four telecom operating licences would be granted two for Burmese companies and two for foreign firms with 4G services targeted as early as 2013.

Several Indian cabinet ministers have suggested that telco operators should fork out a one-off fee for those holding spectrum above 4.4MHz for the remaining period of their 20-year licence. If this materialised, Axiata's 19.3% owned Idea Cellular Ltd would have to fork out Rp2,300 crore (about RM1.3bil) to retain its spectrum. Note that this is unrelated to the 122 licences which were issued by the scandal tainted former Telecom Minister, and later cancelled by the Supreme Court in February 2012. Idea Cellular would still need to re-bid for its affected cancelled licences.

Concerns about Axiata Group Bhd's 19.9% Indian affiliate Idea Cellular Ltd possibly needing to spend on fresh wireless licences and additional airwaves would not have a significant impact on the regional telecommunication player.

India's Supreme Court had asked the government to hold an auction for airwaves by Nov 12 2012 for 122 licences, including some held by Idea, cancelled by the court saying several bidders at the 2008 sale had “money power” and the “ability to manipulate the system.” Phone companies in India may need to pay a one-time fee for spectrum they decide to hold in excess of 4.4 Mhz for each region. Idea Cellular could end up paying up to 28 billion rupees (RM1.63bil) on the one-time fee.

The issue in India was not likely to have a significant impact on Axiata Group. The situation in India is fluid, and the regulatory issues can change.

The question for Idea Cellular was how it intended to raise the money for the potential spending. If Idea Cellular does a cash call, Axiata Group might have to contribute up to RM324mil, based on its 19.9% stake.

As at June 30 2012, the Axiata Group had deposits, cash and bank balances amounting to RM6.48bil.

Idea Cellular's revenue contribution to Axiata Group is tiny. Although the news flow from India was seen as negative, “nothing is really confirmed at this juncture.”

Axiata Group's mobile subsidiaries and associates operate under the brand name Celcom in Malaysia , XL in Indonesia , Dialog in Sri Lanka , Robi in Bangladesh , HELLO in Cambodia , Idea in India and M1 in Singapore .

Idea Cellular, which is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) in India , is part of the US$40bil multinational Aditya Birla Group. Idea Cellular is the third largest mobile services operator in India with wireless revenue market share at 15%, and subscriber base of over 117 million.

Idea Cellular was also the fastest growing operator in India , with an annual revenue growth of 25.3% as against industry growth of 16%

The 3G spectrum auction in Bangladesh, based on management's guidance, will only likely take place in late 2013, if not 2014-2015. Note that Robi Axiata Ltd had its 2G licence renewed at a cost of RM276mil, which would be amortised over the 15-year life of the licence.

In Malaysia, from mid-September 2012, U Mobile Sdn Bhd's domestic roaming agreement with Celcom Axiata Bhd had been discontinued, after crafting out a similar agreement with Maxis Bhd. The loss to Celcom will be to the tune of RM40mil per quarter, or a full year impact which is 2.2% of Celcom's financial year ended Dec 31 (FY11) revenue.

The loss of this domestic roaming agreement would also dampen the chances of revenue growth for Celcom in fourth quarter 2012.

Separately, Celcom's home fibre broadband project has been delayed to 2013, as it thrashes out a pricing structure for its product, which according to management will not merely be a pure re-seller.

Meanwhile the management stressed there are no immediate plans in the short term for mergers and acquisitions with regards to the US$1.5bil (RM4.8bil) sukuk facility established by Axiata in July 2012.

While Axiata had used the facility to raise a 1 billion yuan (RM489mil) sukuk on Sept 11 2012, the funds will be used used for Robi's capital expenditure upon conversion to US dollars. The sukuk facility enables Axiata to be prepared for corporate exercises, which may involve market consolidation in its regional markets (such as Sri Lanka and Bangladesh).

Tuesday, October 16, 2012

Perisai ... Oct12

An oil and gas support services provider, is poised to move one notch up the ladder in the supply chain of the industry by going into the lucrative FPSO market. Perisai is looking at acquiring stake in a FPSO vessel from its shareholder Ezra Holdings Ltd and the vessel is to be used for providing services to an offshore O&G field in Malaysia .

A consortium led by Ezra has put in a bid to supply the FPSO vessel to cater to the North Malay Basin oil field located off the coast of Terengganu and Kelantan. While reports said Ezra’s wholly owned subsidiary bagged the job, industry executives said nothing has bee firmed up yet and there is challenge from a consortium led by MISC Bhd.

Perisai is eyeing a stake in the FPSO vessel from Ezra’s 46.5% unit EOC Ltd, which is listed in Oslo , to fulfill the localization needs, should they arise. It is still being mulled over. It depends on how things develop. If localization is required, Perisai may buy the FPSO.

In the oil and gas’s support services industry, the FPSO segment is considered a better area because of the long term charter. A typical charter is for a minimum of three years and will normally continue as long as the field is producing.

The biggest FPSO licensed holder for Petronas is MISC. The other notable FPSO provider is Bumi Armada but its vessels are mainly chartered for overseas offshore fields.

Perisai should not face any difficulties in funding to purchase the FPSO, as the acquisition will be backed by a long term charter contract. The cost of the FPSO could range from US$300 million to US$500 million.

Ezra’s stake in Perisai is held under two of its units – HCM logostics Ltd and Emas Offshore Sdn Bhd. Following the development in the North Malays Basin , it has been speculated that Emas Offshore has been awarded the contract to provide the FPSO by Petronas Carigali and Hess group JV.

In July 2012, Perisai MD Zainol Izzet emerged as a 7.75% stake by exercising an option with HCM Logistics. After the exercise, Ezra’s interest in Perisai is down to 16.1%.

The shareholder structure now (Oct 2012) allows Perisai to acquire O&G assets. This is because Ezra could raise its stake in Perisai without having to trigger a general takeover.

As at end June 2012, Perisai had cash and bank balances of rm15.91 million and rm287 million in long term borrowings and rm178 million in current liabilities.

It was earlier reported that Bumi Armada had teamed up with Emas Offshore in bidding for the North Malay Basin job and MISC, a 62.7% unit of oil major Petronas, had teamed up with LTH controlled Ramunia Holdings Bhd.

Monday, October 15, 2012

Bjcorp ... Oct12

Tan Sri Vincent Tan is quietly building a presence in duty free chain operator Atlan, a move that could lead to a change of control in the company and possible a GO situation.

Tan’s BJCorp, which is already has a 9.3% stake in Atlan, is set to riase its holding to just over 25% with its plan to acquire a strategic stake in the company held by Cipta Sdn Bhd.

On paper, Berjaya’s enlarged shareholding in Atlan does not pose a direct threat to the duty free operator’s dominant shareholder, businessmen Datuk Sei Adam, who holds a 50.17% stake through his privately held vehicle Distinct Continent Sdn Bhd.

Atlan’s tight shareholder structure has run up against Bursa Malaysia’s listing rules, which stipulate that all public listed companies must have a minimum free float of 25%. The company’s free float stands at 16.32% which means that parties linked to the controlling shareholder must undertake a divestment exercise to ensure that enough shares are held by the general public.

It is not BJCorp’s problem and there is no reason for its to reduce its interest. The majority stake held by Adam and Distinct Continent will be diluted if Atlan were to meet the free float requirement.

BJCorp could exacerbate the free float challenge faced by Atlan by raising its stake.

Towards this end, BJCorp does no discount the possibility of raising its stake in Atlan and is prepared to undertake a MGO if it is obliged to.

BJCOrp would consider increasing its stake in Atlan if the opportunity arises in the future. In the event the acquisition of Atlan’s shares results in an obligation to undertake a general offer, BJCorp will comply.

Atlan’s management is exploring how the deal with the free float issue, and is looking at all available options. The company

The company would consider undertaking a placement if it is deemed necessary or at an appropriate time.

BJCorp has a direct interest of 8.12% stake and indirect stake of 16.9%, bringing its deemed interest in Atlan to 25.07%.

BJCorp is also seeking a board seat in Atlan after the completion of the transaction.

Atlan, which operates duty free complexes at all the entry and exit points of Malaysia, is a tightly held counter. Apart from Cipta Nirvana, the other notable shareholders are Seymour Pacific Ltd – a vehicle controlled by Datuk Choo Yeow Ming – with an 8.8% stake, and Datuk Ong Kar Beau with 7.09% stake.

The block that Cipta Nirvana has to deliver to BJcorp will have to come from the two shareholders or Adam Sani himself. There is nobody else with a sizeable block in Atlan.

Cash flow from Atlan is strong, which in turn has helped Atlan declare steady dividends despite its volatile earnings.

Atlan is also involved in property and in the manufacture of automotive parts. It has a building – Menara Atlan – in the KL, which is ripe for redevelopment.

Friday, October 12, 2012

MSM ... Oct12

It will remain resilient to the 20 sen per kg reduction in sugar subsidies as announced in Budget 2013. There has been a corresponding increase since in retail prices to rm2.50 per kg effective 29 Sept 2012. This will likely induce some pressure on domestic consumption but MSM should experience little impact on its earnings.

The magnitude of the decline in MSM’s total volume is not likely to be overly substantial. It is attributed to two factors. First only about 56% to 60% of the company’s volumes are subsidized. Thus the remaining will not be negatively impacted by the cut in subsidies to 34 sen per kg. Secondly, the demand for sugar is fairly inelastic. There are few alternatives for sugar and that rm2.50 is already quite cheap. Even though the higher selling price cover the subsidy cut, it may lead to slower demand growth as consumers and industries may induce the content of sugar in food and beverage products to offset the higher costs.

MSM’s share price is supported by its relatively defensive earnings, dividend yields and potential M&A. MSM has a dividend policy of at least 50% payput in earnings.

Meanwhile while raw sugar prices had fallen 16% year to date, MSM will likely not benefit from this as it has locked in 64% of its raw sugar needs for 2012 under the LTC for 2012 to 2014 which translates to 80% of its domestic volume. On top of that, only 6% to 10% of its total sales volume is exposed to variable cost as large industrial users are no longer entitled to subsidized sugar since Jan 2012. This effectively estimated MSM’s risk to varying raw sugar prices.

The unique condition about the 2012 – 2014 LTC however is that it allows MSM to reduce raw sugar sourced from the contract to just 48% of total volume starting in 2013. This exposes 8% to 12% of MSM’s total volume to a fixed price and varying cost situation again.

Thursday, October 11, 2012

QL ... Oct12

It is a leading resource based agriculture company with three main business segments in marine product manufacturing, palm oil and integrated livestock farming.

The group draws from its background in deep sea fishing and is now the largest producer in Asia of surmi based (fish meal) products, and fish and poultry feed. However the group’s largest source of revenue and profit is now ILF business, which generated almost 60% of revenue and more than half of its profit for FY2012.

Through its poultry operations under the ILF arm, the group supplies roughly 15% of the eggs consumed in Malaysia .

The group has taken a more regional focus, and one of its strengths is its ability to replicate its core businesses regionally.

It is expanding its MPM capacity with a plant in Surabaya , Indonesia , that will see it double its surmi capacity to 10000 tones per year by Sept 2013 and fishmeal to 10000 tones per year by March 2013.

It is also expanding its ILF business in Indonesia .

It has set aside rm200 million annual capex from 2013 to 2014 with 60% borrowed and the rest from internally generated funds. The group’s capex will go towards palm oil activities which contributed 8.5% to operating profit in Fy2012.

Most of the capex on palm oil activities will go into planting 2000ha to 25000ha per year of the group’s total 15000ha of plantation land in Indonesia for next few years from 2012. The group has 3000ha of matured oil palm plantaiton land in Sabah .

Palm oil related assets currently make up slightly over 22% of the group’s total assets.

Wednesday, October 10, 2012

DIGI ... Oct12

It will be moving more aggressively to capture the large screen date segment of the telcos market, which is about providing broadband connectivity to laptops and PCs.

It is almost ready to provide long-term evolution (LTE) speeds on its network and has already upgraded 80% of its sites across Malaysia to cope with the increased bandwidth speeds. Part of its network modernisation was to put in place a network that is actually capable to cope with LTE type of services.

LTE, also known as 4G, which is the next generation after 3G technology, offered higher speeds and would be the next growth driver for, given its appeal to the younger generation. LTE could also boost the customers' adoption of smartphones and tablets as the newer devices would usually require the use of modernised networks to cope with today's technological advances.

The expected high take-up rates would compensate for the anticipated decrease in voice revenues moving forward. Moving forward, especially with LTE, data will be the main growth driver. LTE gives a better opportunity for us to serve larger screens in a more cost-effective way at price points that the customer is willing to pay.

A case in point was the launch of Apple's iPhone 5, which is equipped with the LTE type of technology and will require an upgraded LTE network to make full use of its potential. DiGi was hoping to launch the LTE-ready iPhone 5 by the fourth quarter of 2012. The launch will happen the way it used to happen with the past iPhone launches, with a very coordinated fashion across the Malaysian market with all the main three telcos.

In the past, the telco had prioritized the small to mid screen market, staying away from the large screen segment because it consumed more network resources. However, its three year nationwide network transformation is halfway to completion. The new modernized network, which is LTE equipped, will give the company leverage to seriously pursue the large screen market.

LTE technology, or more widely known as 4G technology, rides on the 2600 MHz spectrum that provides higher speed and capacity compared with 3G.

The MCMC had named nine companies as recipients of the 2.6GHz spectrum band, which the telcos will utilise to provide LTE services. These companies are DiGi, Celcom Axiata Bhd, Maxis Bhd and U Mobile; and four WiMAX players: Asiaspace Sdn Bhd, Packet One Networks Sdn Bhd, REDTone International Bhd and YTL Communications Bhd. In June 2011, the regulator called for a re-submission from the players. A final decision on the award and allocation was supposed to have been announced in August 2011.

The MCMC is due to finalize the allocation of the 2600 MHz spectrum by end of 2012 and DIGI is waiting for the spectrum allocation as it is ready to launch LTE services.

DIGI – a 49% associate of the Norway based Telenor Group – will have the advantage of riding its parent’s LTE experience.

The company had allocated capex of rm700 million to rm750 million for 2012 and estimates capex to hover a similar guidance for 2013.

Meanwhile over the near-term, it is not going into fixed-lined broadband business. It will focus on growing its mobile business and has no immediate plans to go into the fixed-line broadband services.

Currently, there are only a few players offering high-speed fixed-line broadband services in the country and they include Telekom Malaysia Bhd, Maxis Bhd and Packet One Networks Sdn Bhd. Celcom Axiata Bhd, the country's second largest mobile operator, has voiced its interests to offer such services in the near-term.

It is understandable why mobile operators are interested in offering fixed-line broadband services - it can help to boost the operators' revenue stream and retain the customers through the offering of more services in bundled packages.

About half of DiGi's customer base are active data users. (What this means is that the customers use data services at least once a month). On top of that, about 24 per cent of its customers are using a smartphone.

The growth in the smartphone user base, driven mainly by the increasing number of available models as well as lower prices, is critical to DiGi's future revenue growth - as in most cases, smartphone users spend more each month.

Tuesday, October 9, 2012

FGV ... Oct12

It said to date no decision has been made with regard to the award of the contract. It has
not appointed any company to build biogas plants at its mills.

It was reported that Weida (M) Bhd will build a biogas plant under a pilot project for FGVH to treat palm oil mill effluence in Kota Tinggi.

Weida was one of several companies that had been invited to submit proposals by Felda Palm Industries Sdn Bhd, a subsidiary of Felda Holdings Bhd, which is 49 per cent owned by FGV.

Contrary to the report which said that the biogas project will be a pilot plant, FGV already has 12 existing biogas trapping plants installed at palm oil mills in locations such as Besout (Perak), Jengka 8 (Pahang) and Serting Hilir (Negeri Sembilan).
The latter is already hooked to the national grid.

The Felda Global Group is at the forefront of palm oil biomass projects -– generating renewable energy utilising the waste products from its upstream plantation operations.

It plans to have a total of 56 biogas capturing plants besides currently having two power plants, six compost plants, four mini-gasifier plants and one fuel pellet plant.

The first biomass power plant in Sabah, the world’s first Empty Fruit Bunch (EFB)-based clean development mechanism project, has been operating since 2005. A second but the first grid-connected power plant is currently under construction in Jengka, will be ready by year-end (2012).

The joint venture with Tenaga Nasional Bhd will supply 10.0 mega Watts of electricity to the national grid.

The Felda Group has unique capabilities to pursue biomas-based "green" energy projects.

Some 12 million tonnes of EFB, mesocarp, palm shells and old palm trunks are generated every year from its operations. The group expects that by 2015, all EFB produced within the group will be fully consumed for the production of specific value-added products.

FGV is the world’s third largest plantation operator by hectarage.

Monday, October 8, 2012

E&O ... Oct12

The corporate governance issues in relation to the deal continue to simmer.

The transaction was highlighted in CLSA’s CG Watch 2012 report saying the reputation of the SC was hurt due to its handling of the Sime Darby-E&O deal. According to the report, the SC suffered an image issue when it ruled that Sime Darby was not required to make a GO for the remaining 70% stake in E&O.

The report adds that the SC’s reputation was also tarnished because E&O chairman Datuk Azizan Abdul Rahman had raised his personal stake in the developer just before the acquisition.

The SC ruled that it found no evidence Azizan knew about the deal before his purchase and cleared him of any wrongdoing. While this may have been the correct decision, it did hurt the SC’s reputation in the market and raised allegations … about the politically well connected receiving special treatment.

The SC’s ruling on the Sime Darby-E&O transaction is being challenged by a minority shareholder on the property developer.

In late Sept 2012 the Court of Appeal has rejected the SC appeal for the recusal of High Court Judge Abang Iskandar from hearing the case brought by a minority shareholder of E&O against the regulator.

A point of contention in Chow’s case is that the SC task force examining the deal found that Sime Darby was obliged to make a MGO. However, the task force’s finding was later superdeded by SC’s top authority in a major decision.

In the CG report, CLSA opines that Sime Darby may eventually undertake a GO voluntarily to ensure better control and reap synergistic benefits for a merged property decision.

A voluntarily MGO is certainly one way to resolve this whole corporate governance issue. However Sime Darby has not indicated that it plans to do so.

Sime Darby does not need to make an offer price of rm2.30 as the six month period prescribed under the Malaysian Code on Takeovers and Mergers 2010 has elapsed.

Sime Darby could make an offer of rm2.00 which is roughly a 20% premium to the current market price of rm1.70. While this is a fair premium for an MGO, some say it is only fair that they make the same offer of rm2.30.

As the court hearings were going on, it was reported in late Sept 2012 that Tham may exit E&O. But E&O has said that Tham was no plans to retire. After selling a 12% stake to Sime Darby, Tham still holds 5.2% in E&O.

Speculation over Tham exiting is nothing new. In fact, there was heavy speculation before the deal was done that Tham was looking to leave. This was the reason why many bought into E&O as they expected a privatization offer.

Be as it may, some still expect Sime Darby to eventually increase its stake in E&O. The Penang based developer is looking to launch rm2.5 billion worth of properties in Iskandar Malaysia, Penang. Klang Valley and London over the next 18 months from Oct 2012.

An increased stake in E&O will provide Sime Darby with better control. But this may not be in the latter’s plans as yet. Sime Darby has reiterated that it does not intend to increase its stake. It is comfortable with the current (Oct 2012) shareholdings as it wants to learn from E&O with expertise in high end condominiums.

However, there have been no material developments of a JV project between Sime Darby and E&O since the deal was inked in 2011. When asked, Sime Darby told MSWG that they are exploring potential projects.

It was hoping that Sime Darby would have some prime land in KL for E&O to work on. But Sime Darby said that it is not so. This is surprising for a group with such a huge landbank.
It is this disquiet that continues to drive expectations of a GO.

While the CG’s issues remain a thorn in both the SC’s and Sime Darby’s side, no rules were broken. SIme Darby did not cross the 33% threshold and there was evidence of collusion between the shareholders. It remains to be seen how the issue is resolved. At least one positive thing that come out of it is that other companies have not followed suit unit the decision on the case is firmed up.

Friday, October 5, 2012

MSM ... Oct12

It will remain resilient to the 20 sen per kg reduction in sugar subsidies as announced in Budget 2013. There has been a corresponding increase since in retail prices to rm2.50 per kg effective 29 Sept 2012. This will likely induce some pressure on domestic consumption but MSM should experience little impact on its earnings.

The magnitude of the decline in MSM’s total volume is not likely to be overly substantial. It is attributed to two factors. First only about 56% to 60% of the company’s volumes are subsidized. Thus the remaining will not be negatively impacted by the cut in subsidies to 34 sen per kg. Secondly, the demand for sugar is fairly inelastic. There are few alternatives for sugar and that rm2.50 is already quite cheap. Even though the higher selling price cover the subsidy cut, it may lead to slower demand growth as consumers and industries may induce the content of sugar in food and beverage products to offset the higher costs.

MSM’s share price is supported by its relatively defensive earnings, dividend yields and potential M&A. MSM has a dividend policy of at least 50% payput in earnings.

Meanwhile while raw sugar prices had fallen 16% year to date, MSM will likely not benefit from this as it has locked in 64% of its raw sugar needs for 2012 under the LTC for 2012 to 2014 which translates to 80% of its domestic volume. On top of that, only 6% to 10% of its total sales volume is exposed to variable cost as large industrial users are no longer entitled to subsidized sugar since Jan 2012. This effectively estimated MSM’s risk to varying raw sugar prices.

The unique condition about the 2012 – 2014 LTC however is that it allows MSM to reduce raw sugar sourced from the contract to just 48% of total volume starting in 2013. This exposes 8% to 12% of MSM’s total volume to a fixed price and varying cost situation again.

Thursday, October 4, 2012

Dayang ... Oct12

Dayang Enterprise, the single largest shareholder of Perdana Petroleum could be increasing its hold on the latter. Dayang has been accumulating Perdana Petroleum in mid Sept 2012. There are a lot of HUCC jobs coming onstream. With Dayang increasing its stake in Perdana, it will have a better control of its marine spread when bidding for jobs. According to O&G industry observers, HUCC companies such as Dayang could be in for a windfall, with rm8 billion to rm10 billion worth of jobs dubbed the Pan Malaysian cluster, being tendered out.

Dayang already has 14.88% in Perdana Petroleum via acquisitions from the open market and a private placement at the end of 2011. Insiders said Dayang has the mandate to buy as much as 20% of Perdana Petroleum. Now Dayang is taking a firm position in Perdana Petroleum with 20% interest, Dayang will be able to account for equity earnings in Perdana Petroleum. That is one reasons for Dayang mopping up Perdana shares. Other substantial shareholder in Perdana Petroleum are LTH with 9.14R stake and privately held Achiever Development Sdn Bhd with 7.41% stake.

The move could be a precursor to Dayang seeking board representation on Perdana Petroleum.

Dayang recently hived off its Petra Energy to Wah Seong at rm1.68 per share or rm96.94 million. Prior to sale, Dayang was unable to get board representation on Perdana Petroleum as both Dayang and Perdana Petroleum have similar licenses issued by Petronas and the oil major has strict regulations.

With its strength, Dayang is among the front runners to bag a large portion of the jobs.

As at June 2012, Dayang had rm181 million in cash and bank balances and rm35.16 million in other investments with short term borrowings of rm14 million and long term debt of rm69 million.

Wednesday, October 3, 2012

OldTown ... Oct12

The move by its cash flushed to raise over rm60 million through placement of new shares is raising concerns.

The private placement has attracted mixed views. Some are wondering why the company is turning to cap market to raise funds when it has a net cash of rm79 million and gross borrowing of rm14.2 million.

With its strong balance sheet, the company could easily raise much cheaper capital via bank borrowings.

Foreign shareholding in the company has risen to 19.7% stake from Feb 2012 till Sept 2012. In Aug 2012, OldTown's largest shareholder - Old Town Intl Sdn Bhd sold 10 million shares or a 3% stake to a few intl funds including foreign funds for an average price of rm2.06.

Old Town Intl is controlled by group MD Lee Siew Heng, Chin and Tan. In 2012 alone, the company disposed of 29.76 million shares or 9% equity interest, reducing its stake to 50.1% stake post IPO.

The issue of new shares will dilute earnings for existing shareholders. But that the funds raised will be ploughed back into the company for its capex and will increase profitability.

The group stated specially what it plans to do with the funds raised from the private placement. RM42.4 million will be allocated for capex for business expansion and the remaining rm18.17 million will be used for working capital.

However, the funds are likely to be invested in the group's F&B arm, which operates the 189 outlets of its coffeehouse chain OldTown White Coffee.

The group's F&B operations contribute 61% of revenue and 56% of net profit, with the remainder coming from the fast moving consumer goods arm that produces and distributes the group's instant coffee mix and instant milk tea.

The group plans to open 202 outlets by the end of 2012.

One segment that OldTown will aim to break into is the Malay segment, which currently (Sept 2012) makes up about 15% of OldTown's customers. It expects to be fully halal certified by end of 2012. The full halal certification is likely to be followed by an aggressive marketing campaign to attract more Muslim customers.

OldTown is looking to expand into high rental areas that have high footfall volumes by introducing a kiosk model.

Market observers have reservations about the group's F&B expansion overseas. The group has opened three outlets in China, eight in Singapore and four in Indonesia.
The F&B business needs to hit a critical mass before it becomes profitable and this time, especially in a foreign market which remains a risk.

Tuesday, October 2, 2012

Cresbld ... Oct12

It has its eyes set on the rm3.7 billion Langat 2 water treatment plant and is currently (Sept 2012) negotiating with potential partners to submit a bid for the project.

Crest has been known for its high rise construction operations but had made headlines after successfully securing the rm1.04 billion Dang Wangi LRT station redevelopment project and the rm1.33 billion development of the Malaysian Rubber Board's land in Jln Ampang.

The two developments have got investors warming up to Crest Builder as the potential earnings are huge relative to the company's current market cap of rm136 million. The experienced builder is also expected to gain from construction earnings as the two projects will double its current construction order book of rm1.1 billion.

The group has also put in several other bids for smaller water treatment and sewerage plants as part of its plans to venture into infra construction.

The Langat 2 project has been riddled with delays when initial works hit a snag in April 2012 after the Selangor government refused to issue the remaining development orders.

However PPAB hopes to secure the necessary approvals by June 2013. The tender process is slated to close Nov 20, 2012.

The Yong's family owns a 31.9% stake in Crest Builder.

Potential newsflow like awarded of other's rail plus related projects could provide the share price with catalysts as well.

The company is targeting to secure two more property development deals in the Klang Valley soon.

Monday, October 1, 2012

Maybank ... Oct12

It is not the buyer of the 7.6% stake in the Bank of Ayudhya, quelling speculation that Malaysia’s largest financial group, in terms of assets, having made inroads into a Thai Bank. GE Capital’s regional spokeman said it is not sold to one party. It is dong an evaluation on strategic options with regard to the remaining stake.

Market observers said it is unlikely to purchase the 25.3% stake in Thailand 's fifth largest bank, the Bank of Ayudhya pcl, if it were up for sale.

Maybank would be “better off” with an outright purchase of an entire bank. The 25.3% stake currently owned by General Electric Co (GE) may not allow Maybank to assume absolute control of the Thai bank.

It was reported that GE had sold a 7.6% stake in Bank of Ayudhya and may consider selling the rest of its stake, which amounts to 25.3%, to a strategic investor. The 7.6% stake was sold to institutional investors. Maybank together with the New Zealand Banking Group were reported to be among banks that were approached by GE after it wanted to review its 32.9% stake in Bank of Ayudhya, prompting speculation Maybank may be interested in the Thai bank.

Maybank like its banking peers is also conserving capital in order to meet the new capital requirements under Basel III which will be implemented early 2013. Hence, do not foresee it utilising a significant portion of its capital to acquire a non-majority stake in Bank of Ayudhya.

GE's 25.3% stake in the bank is worth some US$1.65bil.

Maybank does hold minority stakes of 20% each in banks in Vietnam and Pakistan . In 2008, it purchased a 15% stake in Pakistan 's MCB Bank Ltd from Nishat Group for RM2.17bil with an option to increase that stake to 20% after a year. It also bought in the same year a 15% stake in Vietnam 's An Binh Commercial Joint Stock Bank for RM430mil and later increased the stake to 20%.

Meanwhile, Maybank has also reiterated (late Sept 2012) its interest for a stronger foothold in the Thai banking market. Currently (Sept 2012), it has a presence in Thailand via Maybank Kim Eng Securities ( Thailand ).

Maybank intends to have a complete banking presence in Asean by 2015, in line with its target to become a regional financial player.