Wednesday, April 24, 2013

MYEG ... Apr13

There is indication of positive progress in its new work permit renewal service. MYEG had secured its first major contract from a plantation government linked company. Furthermore, the online vehicle voluntary transfer system (VVYS) service is gaining popularity with motorcycle dealers.

Higher than expected revenue growth from new services should catalyse the stock.

The take up rate for the new foreign workers work permit renewal service for 20000 of tis foreign workers is gaining traction, particularly with SME. However response from the bigger companies has been slow.

There are currently (April 2013) around 3.5 million to 4 million foreign workers in Malaysia. The potential market size for this business is around rm175 million to rm200 million annually.

The VVTS is gaining popularity with used car dealers as well as motorcycle dealers. VVTS motorcycle market is growing faster than the car market as most motocycle transfers are done by the dealers and not by the banks. Among the commercial banks, Maybank’s branches had started to use MyEG’s VVTS service nationwide and expect the other commercial banks to follow suit over the next few months from April 2013.

In March 2013, MYEG and DIGI launched a promotion in which DIGI subscribers get DIGI talk time rebates if they renew their car road tax and insurance with MYEG.

Tuesday, April 23, 2013

MEGB ... Apr13

A potential cash bumper dividend of 36.6 sen could be on the cards for MEGB should it consider divesting some of its fixed assets.

Rumours have been rife that Datuk Seri Edmund was looking to cash out on his 23.8% stake in Masterskill. Given that nothing concrete has developed thus far and with the appointment of Siva Kumar as the new executive director, it is believed that the group would instead look to unlock the value of some of its fixed assets.

The anticipated the 36.6 sen bumper dividend based on the assumption that the fixed assets would be sold at the current book value after settling all its outstanding debts.

Masterskill's Santhara has resigned as chief executive officer and would be succeeded by Siva Kumar Jeyapalan, who is also a major shareholder in the company. It had been reported that Santhara might decide to venture into politics and that he would be designated as a board director.

Market was positive on Siva Kumar's appointment, as he could bring in new financial and cultural perspectives and potentially turn around the company and steer it back into the black based on his past experience. The move could potentially help the group move forward with its ongoing transformation plans.

It made a loss of RM28.3mil in FY12 compared to a profit of RM45.3mil a year ago due to lower student enrolment.

Monday, April 22, 2013

OldTown ... Apr13

Its aggressive store rollout strategy and expansion into China may be impressive, but not its same store sales growth. However now that it has 100% halal certification for all its outlets, the group expects SSS growth to enter double digit territory.

While new outlets will help grow revenue, the question is can they sustain sales without cannibalizing the old outlets?

The thing is there is not much SSS growth at the moment. However with its soon to be launched halal campaign, it is expecting at least double digit growth.

Halal certification will provide the group with access to a much wider market. This will boost its organic growth significantly considering its current customer base its mainly non Malay.

In the past couple of months, OldTown has also been focusing on its China efforts. In fact two new deals will soon position the group for expansion in China’s F&B and fast moving consumer goods sectors. This capex will funded by rm64 million that the group had raised via a private placement.

Expect to see a small shift in its earnings – moving towards FMVG – with its new factory in Ipoh and its China operations.

Its prospects are bright with two key drivers: the strong growth of its FMCG segment, which is expected to get a boost from its growing regional mark shares, including an untapped markets like China, South Korea and Vietnam and the opening of more outlets in Malaysia, Singaporem Indonesia and China.

Whether not OldTown’s halal certification helps maintain sales in its local F&B business, its expanding FMCG segment and prospects in China will certainly speed up its pace of growth.

Friday, April 19, 2013

Tenaga ... Apr13

It is expected to benefit substantially from the sliding yen, given its sizeable exposure to the currency.

It was not unusual for TNB to be among the top beneficiaries, given its sizeable foreign debt. Likewise, TNB would see its interest and principal repayments increase in a firmer yen scenario.

As at Nov 30, 2012, TNB had RM4.71bil yen-denominated loans, accounting for about 21% of its total outstanding loans of RM22.4bil. Its US dollar-denominated loans during the period stood at RM2.76bil. Its total ringgit equivalent of foreign currency borrowings is RM7.47bil.

A 10% decline in the yen vis-vis the ringgit over an extended one-year period would bring about an incremental RM470mil of forex translation gain or 12% against estimated net profit forecast of RM3.78bil for financial year ending Aug 31, 2012.

TNB is expected to announce its financial results on April 19 2013.

However critics say that the weaker yen might only mean a paper gain for TNB unless the company had actually made payments for its yen-denominated loans.

Its share price (April 2013) has charted new highs lately on expectations of an improved financial performance and lower coal prices.

TNB is currently (April 2013) bidding for two new coal-fired power plants of 1,000MW (Project 3A) and 2x1,000MW (Project 3B).

As TNB continues to rally, TNB is already earning higher-than-usual return on invested capital at present (April 2013), in part due to Government aid (subsidised gas, and oil and distillates compensation). Any industry reforms are unlikely to materially boost TNB's profitability. In fact, do not rule out the possibility of TNB's profitability being squeezed.

Thursday, April 18, 2013

IOICorp ... Apr13

It was reported that IOI Corp was planning an initial public offering (IPO) of its property arm in the fourth quarter of 2013, speculating the total value of the listing to be in the region of RM10bil.

This would be a huge improvement in size, considering that it was only in 2009 that IOI Corp had bought back its then-listed property arm IOI Properties Bhd for a mere RM310mil in cash and shares, valuing the unit at about RM1.3bil.

It would be positive if the group lists its property arm, as it would allow it to unlock value and for investors to better appreciate its property division.

At the moment (April 2013), the property division was “hidden” and that there wasn't much visibility in terms of its value, future plans and launches in the pipeline. If it were to be listed on its own, then IOI Property would eventually be able to find its own value.

Back in 2009, IOI Corp had taken IOI Properties private as the company was undervalued, trading at 8.4 times versus IOI Corp, which was trading at 15 times back then.

As at IOI Corp's financial year ended June 30, 2012, the total asset value of the property development and investment segments stood at RM7.7bil, contributing a pre-tax profit of RM538mil or 20% of IOI Corp's total pre-tax profit.

This raises the issue of whether IOI Corp's property division's IPO could be priced at more attractive valuations than IOI Corp. IOI Corp was currently (15 April 2013) trading at a forward price earnings of 20.7 times on 2013 earnings.

Market observers opine that IOI Property was currently (15 April 2013) 100% owned by IOI Corp, there was room for value creation. If it were to go for a separate listing, this would mean that the parent company sells down its stake and gets back some value from its assets. It could use that money to expand its business or give it back to shareholders.

A separate property listing would also reduce the risk for the plantations side. This was because at present (April2013), funds from IOI Corp were being used to buy and develop land for its property segment.

Meanwhile the Lee family of IOI Corp has been buying back shares on the open market ahead of a corporate exercise reportedly to relist the group’s property arm.

Under this option, shares in the property arm will be distributed to IOI Corp’s shareholders, which will result in the unit separating from the group.

The family, led by IOI Corp MD and CEO Tan Sri Lee Shin Cheng had increased its stake in the company from 43.33% to 45.78% as at April 2013.

If it is distribution in specie, IOI Property will no longer be a subsidiary of IOI Corp but both companies will have common shareholders and be independently listed.

Both listed entities will then be valued purely on their aggressive plantation and property business.

IOI Corp could trade at a better PER if it became a pure plantation company following the demerger of its property business.

As for the property arm, the relisting exercise could value the property arm at up to rm10 million.

As earnings from its overseas property ventures start to come in IOI Corp may look again at the option of relisting its property arm, which will enable investors to channel their investments in a more focused manner.

In the last three financial years revenue from the property division has been an average of rm950 million.

The company will also offer investors more exposure to the Singapore real estate market instead of being a mainly Malaysia play.

Wednesday, April 17, 2013

IGBREIT ... Apr13

IGB has stepped up its share buyback activity. IGB Had 5.66% in its share base in treasury as at April 2013.

Its net assets per share stood at rm2.78.

At current level (15 April 2013), investors are valuing IGB’s assets at rm900 million if one were to exclude its 51% stake in IGB REIT. The book value of IGB’s top five investment properties – hotels and offices – is already rm900 million in its 2011 annual report.

It was reported that IGB’s north and south office tower blocks at The Gardens alone worth rm763 million instead of rm280 million they are carried at in their books.

IGB’s investment in the owner and operator of Renaissance KL Hotel is rm303 million. The hotel was valued at rm710 million.

IGB’s other hotel assets include a 60% stake in Cititel Mid Valley which was carried at rm284 million as at end 2011. IGB also owns 100% of the 390 room Boulevard Hotel in Mid Valley City, the 627 room Gardens & Residences and Micasa Hotel in Jln Tun Razak, KL.
The group’s other hotels include Cititel Penang, Pangkor Island Beach Resort, Cititel Express Kota Kinabalu and Micasa Hotel Apartments in Myanmar.

Internationally, the group manages associate hotel chain St Giles that has over 1808 keys in cities. IGB’s assets also include an office building in Australia.

However one concern about the company is the possibility of it needing cash from shareholders to fund its expansion locally and abroad.

For now (April 2013), market observers prefer IGB REIT over IGB. IGB lacks clear catalyst as it transitions to its next growth phase in the longer term. Execution of overseas projects also a key downside risk for IGB.

One nearer term potential catalyst for IGB is a firm news of its hotels and offices being spurn off into another REIT.

Tuesday, April 16, 2013

Cocolnd ... Apr13

A change in the major shareholding of Cocoaland could on the cards as its substantial shareholder Leverage Success Sdn Bhd is believed to be in talks with HK listed Swire Pacific Ltd to sell its 38.04% stake in the company.

The price tag for the block of Cocoaland shares sought by the vendor could be as much as rm250 million or rm3.82 a share. Swire Paccific is the largest shareholder of Cathay Pacific, HK’s largest airline.

It is learnt that both parties have been in discussion for a couple of months but have yet to agree on the price. The asking price of rm3.82 represents a PER of 31 times based on its FY2012 earnings.

At current (April 2013) of 17 times, Cocoaland is already richly valued although they are positive on the company’s prospects.

It has inked a merchandise licence agreement, granting the company the use of the Angry Birds trademark for two years. The group is also in the midst of securing another franchise agreement.

While Cocoaland is richly valued, the company has a clean and strong balance sheet and a powerful strategic partner in F&N Bhd.

F&N upped its stake in Cocoaland to 27.19%.

Its cash flow from operations stood at rm10.3 million in FY2012.

Monday, April 15, 2013

RHBCAP ... Apr13

Representatives of the EPF and Middle East based Aabar Investmnets are scheduled to meet in the next two weeks from 15 April 2013 matters relating to RHB Cap. These include a potential restructuring exercise that may bring about a privatization.

Pricing and valuation are key and is likely to be one of the topics discussed when they meet.

Should there be a decision to privatize the banking group, Aabar’s buy in is crucial given its large stake in the group.

Meanwhile OSK Holdings Bhd is open to the corporate restructuring plan.

Aabar currently (April 2013) has a 22% stake in RHB Cap. Its stake was diluted from 25% following the acquisition of OSK Investments Bank Bhd which was paid for with 245 million new RHB Cap shares worth rm7.36 each and em147.5 million cash. The EPF is the single largest shareholder of RHB Cap with a 41% stake while OSK has 9.8%.

It is believed Aabar’s high entry price – at more than rm10 per share – could pose a stumbling block to a restructuring of RHB Cap that could involve a privatization. However market observers opine that any privatization offer of RHB Cap now (April 2013) would likely not cross the rm10 mark.

For example, Should RHB Cap be privatized at rm9.00 per share, that would translate into a valuation of 1.48 times price to book. The book value of RHB Cap stood at rm6.06 as at Dec 2012.

To recap, Aabar paid rm10.80 per share in June 2011 for ADCB’s 25% in RHB cap. The rm10.80 per share deterred Maybank and CIMB from launching a takeover of the RHB group. ADCB’s intention to hive off its stake in 2011 was perceived to be one of the catalysts for a merger of RHB Cap with other banking group.

Earlier it was reported that a proposal to restructure RHB Cap in an exercise that will lead to its privatization in an effort to create better value and improve tax efficiency. The extensive proposal included the option for RHB Bank to be relisted later. The banking group could also be enlarged with the subsequent injection of MBSB.

The timing of the restructuring and whether ther major shareholders of the group – which includes the EPF – are agreeable to the proposal, remain unknown.

Thursday, April 11, 2013

HaiO ... Apr13

Although third quarter 2013 net profit of RM11mil is still far from its hey day of RM15mil to RM20mil in financial year 2009 to 2010, it is worth noting that the company's new strategy of focusing on higher margin products (eg foundation garments) developing new operating structure for its multi-level-marketing (MLM) division is bearing fruit.

Hai-O's nine-month financial year (ending April 2013 net profit had rebounded commendably by 31% year-on-year to RM32.2mil. This is attributed to the strong recovery from its MLM division, underpinned by the healthy membership growth and higher volume sales recorded in its bigger ticket items such as foundation garments, water filter and food purifier.

To recap, Hai-O's MLM division had experienced poor sales and membership growth (financial year 2011: +2.3%; financial year 2012: +5.3% vs financial year 2010's +30%) over financial year 2011 to 2012 owing to the imposition of more stringent rules on new membership recruitment under the new Direct Sales Act by the authorities in fourth quarter 2010. Consequently, the company's net profit plunged 60% year-on-year in financial year 2011 to RM28mil.

The management has since developed a successful operating strategy for its MLM division, and is currently experiencing strong rebound in membership growth.

With a sizeable membership of 140,000 currently (April 2013), Hai-O is confident of achieving a 15% to 18% growth in membership in financial year 2013 to 2015. The group opened seven new retail outlets in financial year 2012, bringing to a total of 72 outlets nationwide (four owned, 68 leased).

The group will continue to expand its footprint, targeting to open another three to five outlets in strategic locations by financial year 2014. Capital expenditure is estimated at RM20,000 to RM30,000 per outlet. Besides, the company will also refurbish and consolidate the unprofitable outlets.

Wednesday, April 10, 2013

LBS ... Apr13

There was institutional buying of LBS shares on 03-05 April 2013.  To recap, in Jan 2013 its MD Datuk Lim is in the final stage of negotiations for a cash equity deal that wil lturn the group into a substantial shareholder of HK listed Jiuzhu Development Co Ltd (JDCL), a state owned company that runs ferry services and a hotel chain in China.

In entered into a MOU with Jiuzhu Technology in April 2012 ... both sides have agreed to extend the negotiations until April 2013. Under the MOU negotiate exclusively with each other and finalise the scope and terms of a S&P agreement for LBS's wholly unit Dragon Hill Corp Ltd.

Should this deal materialise, LBS may reap up to rm652 million based on an indicative price of about HK$1.65 billion.

The MOU was an expression of Jiuzhou Technology's intention to acquire up to 100% but not less than 60% equity interest in Dragon Hill, which owns 60% of a 36 hole golf course and 197 acrees of developable land.

Tuesday, April 9, 2013

KPS ... Apr13

It will be cash rich company – provided the water restructuring exercise proposed by the Pakatan Rakyat state government goes through.

KPS will receive about rm154 million cash from KDEB for its equity stake in SPLASH and 90.83% stake in Titisan Modal Sdn Bhd which in turn owns 100% of Konsortium ABASS Sdn Bhd.

KDEB will also pay rm251 million cash for SPLASH’s equity and rm86.2 million cash for Titisan Modal’s equity, and at the same time assume SPLASH’s water assets and liabilities at a consideration of rm1.58 billion and those of Titisan Modal at rm906 million.

Besides the offer to sell its water assets, KPS is also set to receive rm194 million cash from KDEB for disposing of its 56.57% stake in KHSB. The deal is part of the state government’s effort to streaming the activities of its development agencies.

Market observers say if BN manages to win back Selangor, the water deal put together by the incumbent state government will be in limbo. If the status quo remains, the water deal is likely to go through.

KPS has net total borrowings of rm1.18 billion as at Dec 31 2013 of which rm914 million are long term. Most of its borrowings are debts associated with the water assets, especially those at ABASS which will be assumed by KDEB if the deal materializes.

In total, KPS will receive cash of rm347 million if the sale of its water assets and KHSB goes through. With the disposals, its total cash and bank balances will likely increase to about rm420 million considering its cash holdings of some rm73 million as at Dec 31 2012. The company could receive more cash when federal government unit PAAB decides on the payment of surplus book value of assets over liabilities to applicable concessionaires.

KPS’ current (early 2013) price does not fully reflect the cash amount from the disposal of the water assets.

Regardless of the outcome of the water deal, KPS will still have the rm194 million cash from the disposal of its stake in KHSB to KDEB. Part of the cash will be utilized to buy out the members of Perangsang Templer Glof Club.

It plans to redevelop the 78.9ha golf course in Gombak into a mixed development project with a GDV of rm1.25 billion.

The cash could come in handy for KPS to fund its new ventures.

In June 2012, its unit acquired a 30% stake in Ceres Telecom Sdn Bhd for rm24.24 million as part of its expansion into the mobile telcos industry.

In 2012 it also acquired a 40% stake in NGC Energy Sdn Bhd for rm40 million cash. NGC Energy acquired Shell’s LPG distribution business from Shell Malaysia Trading Sdn Bhd for an undisclosed amount. KPS acts as a NGC’s bumiputera partners to undertake the business in peninsular Malaysia.

KPs may also benefit from Pakatan Rakyat’s pledge to take over toll concessionaires if it comes into power at the federal level. The company owns a 20% stake Sistem Penyurian Trafik KL Barat Holdings Sdn Bhd, the concessionaire of the SPRINT highway in the Klang Valley.

Whatever the outcome of the 13GE, it almost certain that KPS will venture into new areas such as telecommunications and LPG distribution It remains to be seen if these will prove successful.

Monday, April 8, 2013

PARAMON ... Apr13

It is looking at a fresh round of fundraising in the third quarter 2013 despite having just inked a rm550 million debt cum equity plan in Feb 2013, comprising a rm350 million sukuk programme and a rm200 million perpetual bond.

The group will deploy the capital to acquire morel and as well as invest further in its education business under the KDU and Sri KDU brand.

It will be both debt and equity funding. The ideal debt to equity ratio for Paramount is 0.5 times.

It is controlled by one branch of the See Hoy Chan Group’s Teo family. It will still looking for additional funding over the medium term to raise more equity and debt

It will have to continue increasing its landbank and presence in education.

The group is in a position to churn out more projects higher revenue, as it already owns landbbank that could generate some rm7 billion in outstanding GDV. With rm4.2 billion slated for development within the next five years from 2013.

It will also redevelop certain sites that are currently (March 2013) used for campus of its education ventures.

Some of the group’s biggest projects in the Klang Valley is the 33.1 acre Klang Town land with rm1.91 billion in GDV, 11.8 acres in Glenmarie (rm945 million), 5.2 acres in Section 13, PJ (rm700 million) and 9.4 acres in Lots 7&9 in Kota Damansara (rm600 million).

Its parcels in Section 13, Damansara Jaya and Lots 7&9 are turning out to be prime land but the good thing is that it was acquired many years ago with low holding costs to the group.

On its future landbank, Paramount wants to spread its wings to the northern region especially the greater Penang area.

The group is looking to grow the size of its investment properties to about 20% of its total assets within five years from 2013. It will do so by keeping some of the retail lots for rental income.

It is not planning to make a private placements to institutional investors.

Teo Chiang Quan’s family owns about 27.63% stake in Paramount, followed by Banting Hock Hin Estate Co Sdn Bhd with a 16.3% stake.

Tuesday, March 26, 2013

Scomi ... Mar13

Tan Sri Abu Sahid Mohamed said he could increase his stake in Scomi Group Bhd as he believes that the company is undervalued.

Abu Sahid, who owns 6.8 per cent stake in Scomi, however, looks to be staying for the long run. The tycoon last bought Scomi shares on March 19 2013 when he acquired some 1.19 million shares.

Shah Hakim is also a key shareholder of Scomi Group.

To recap, Abu Sahid had disputed IJM Corp Bhd's emergence as a shareholder in Scomi, citing that it will dilute the stake of current shareholders.

IJM's entry into Scomi is said to have the backing of Shah Hakim. Under the deal, Scomi would issue RM110 million worth of convertible debt to IJM, which, upon conversion, would see the construction company owning 24.3 per cent of Scomi.

The convertible debt proposal went ahead after gaining shareholders' approval.

He is quitting as Avalon Minerals Ltd chairman. Abu Sahid had bought into Avalon, a company listed on the Australian Stock Exchange, in 2008 and controls about 11 per cent of its shares. However, he has no plans to hive off his stake in the Australian company as he is betting that the mineral exploration company will deliver in the long run.

Monday, March 18, 2013

KSENG ... Mar13

There is speculation of a corporate exercise cum special dividend at keck Seng Bhd.

It is a Singaporean run and low profile property and oil palm estate owner

Market observers opine that its asset are worth rm8.60 per share.

Its assets include 1850 acres of land surrounding JB that were valued 30 years ago. It is primed for a major re rating … and a share bumper dividend by virtue of its section 108 (Tax Credit) balance that expires in Dec 2013.

It was also speculated that its assets can spun off into a REIT.

Its businesses range from oil palm estates and property development to share investment and running hotels and resorts, is only one part of the wider Keck Seng group, the other vehicles of which include HK listed Keck Seng Investments Ltd and Keck Seng Pte Ltd.

The group’s assets include residential properties in Singapore, KL, Johor and Macau. It also owns Riverview Hotel and the Keck Seng Tower office block in Singgapore, the Sheraton Saigon Hotel & Towers and Caravelle Hotel in Vietnam, Holiday Inn Riverside Wuhan, Sheraton Ottawa Hotel and W San Francisco.

Of these assets, the Doubletree Alan Waikiki Hotel in Hawaii. Doubletree Toronto Airpot Hotel and Tanjung Puteri Golf Resort in Johor are housed under Keck Seng Malaysia.

At this juncture, what is certain is that a lot more can be done to unlock the value of Keck Seng Malaysia whose cash pile doubled in FY2010 after it acquired a takeover offer for its Parkway Holdings Ltd shares. Keck Seng made a bonus issue in 2010 bit has paid out less than rm30 million in dividends a year.

Cash and short term investments stood at rm761 million or rm2.11 per share as at Dec 31 2012. Including investment securities, Keck Seng’s liquidity assets made up of rm3.47 per share.

This means investors pay only rm593 million (rm1.63 per sharea) for the rest of Keck Seng’s assets, which include plantation, the hotel in Hawaii and Toronto and a mall in Johor. Most of these assets are virtually free given that the Menera Keck Seng office block in Jalan Bukit Bintang is carried in its books at a 1996 valuation of only rm56 million or rm212 psf floor area.

Market observers value Keck Seng’s plantations at rm383 million or rm1.06 per share. The company has 3411ha of mature estates in Johor with palm trees averahing 16 years plus 246ha of immature estates.

Its biggest earnings generators were property development, share investments. Plantations and hotels.

Keck Seng is only about 30% owned by the Singapore based Ho family led by its executive chairman Ho Kian Guan and his brother and MD Datuk Ho Kian Hock. 66% of the Keck Seng is in the hands of 30 shareholders.

Saturday, March 16, 2013

RHB Cap ... Mar13

In an effort to create better value and improve tax efficiency, there is a proposal to restructure RHB Cap Bhd in an exercise that will lead to its privatization. The extensive proposal suggests that RHB Bank be re-listed later and the banking group be enlarged with the subsequent injection of MBSB at a later stage.

The rationale for the proposals is to prepare the group to meet changes in the upcoming new FSA as well as to create a more efficient platform for dividend payments and further strengthen the capital base.

The timing of the restructuring and whether the major shareholders of the group – which include the EPF – are agreeable to the proposal remain unknown.

The EPF holds 41% equity interests in the group, had yet to respond to such speculation. The two other major shareholders of RHB Cap are Middle East based Aabar Investments, with a 22% stake, and OSK holdings with 9.8% stake.

At rm8.30, the stock is still trading at a cheap valuation of 1.2 times.

With the OSK acquisition completed, RHB Cap has another target on the table – Indonesia’s Bank Mestika – and thus, it is not surprising that its major shareholders are exploring avenues to ensure its capital base remains strong.

Banking observers are expecting the group to make a rights issue soon. The company maintained it was likely to contemplate a rights issue but hinted that the size of the issue would likely be only slightly larger than the cost of rm651 million to acquire Bank Mestika. This is less than its initial assumption of rm1 billion.

Speculation over a merger and acquisition exercise between RHB Cap and MBSB has always been there because the EPF is the largest shareholder in both financial groups.

The EPF currently (March 2013) has two good financial assets in its table – MBSB and RHB Cap.

Friday, January 11, 2013

OCK ... Jan13

Being the largest first-tier telecommunication network service provider in Malaysia, OCK Group Bhd is expected to benefit from the spillover effect of the 2.6 GHz spectrum band allocation as telcos firm up their plans in the first and second quarter 2013.

Among the eight telco service providers who were granted the spectrum allocation by the Malaysian Communication and Multimedia Commission (MCMC), all are OCK's existing clients except REDTone Marketing Sdn Bhd and newcomer Puncak Semangat Sdn Bhd. DiGi.Com Bhd has awarded the testing and rollout work of its pilot sites to OCK.

Some telco players have not come out with solid plans and we will know more clearly what their plans are in the first and second quarter of 2013. OCK was working with their vendors like Huawei for more job opportunities.
There are two scopes of opportunities for OCK which are service and equipment.

The Network Facility Provider (NFP) licence OCK obtained from MCMC allows it to build and lease telecommunication facilities to telcos. It built 40 telecommunication sites last year and plans to build another 150 in 2013. A budget of RM50mil has been set aside for the expansion, which will funded through financing.

Its gearing as at Sept 30, 2012 is 0.75 times but the number went up due to its acquisition of a factory in Hicom Glenmarie Industrial Park for RM14.3mil in December 2012.

Estimated the NFP leasing business to contribute 5% to 10% to the group's total revenue going forward.

Thursday, January 10, 2013

Digi ... Jan13

Norwegian Telenor ASA is not opposed to further increasing its stake in DiGi.Com Bhd but will decide on the exact percentage once the Malaysian Government issues more details on the plan to further liberalise the local telecoms sector to allow foreign equity ownership to go up to 70%.

The current (Jan 2013) ceiling for foreign equity ownership is 49% and that is how much Telenor has in DiGi.

Speculation was that the Malaysian Government might make a decision on foreign ownership for the telecoms sector.

During Budget 2013's presentation and at the Economic Transformation Programme (ETP) briefing on Nov 16 2012, the Government would permit up to 70% foreign equity/ownership of the Network Facilities Provider and Network Services Provider class and individual licences. However, no details have come out since as to how the foreign parties can take advantage of buying or increasing stakes in the telecoms sector.

Telenor has been a long-term investor in DiGi.

The local shareholders in DiGi include the Employees Provident Fund (EPF) which holds a 16.09% equity stake, Skim Amanah Saham Malaysia (3.56%), Time dotCom (1.77%) and several local and foreign funds that hold less than 2% equity stake. The remainder is held by retail investors.

Telenor has several ventures in Asia but the DiGi investment is often referred to as the star investment and it has been a star performer for the group when it comes to investments in Asia. Telenor is also active in India, Thailand, Bangladesh and Pakistan.

Globally, it has mobile operations in 11 markets, and more if its stake in Russia's VimpelCom Ltd is counted.

DiGi has been an impressive performer for the Telenor group for many years and investors in the Telenor group see DiGi as a strong company and strong contributor to group performance.

For its third quarter, it reported a revenue of RM715mil and an after tax profit of RM315mil.

The company has 5.6 million subscribers and has pledged to invest about RM700mil in capital expenditure to grow its business.

DiGi was awarded the 4G long-term evolution (LTE) 2.6G spectrum to enable it to offer more applications that can run faster on the 4G platform. It intends to deploy 4G-enabled services within 2013.

Its rating is premised on DiGi's continued growth story and strong capital management initiatives.

As at the third quarter (Q3) of 2012, DiGi's revenue market share expanded to 28%, up from 27.5% from end 2011 (27% as at end 2010).Growth has largely been driven by its above peer average net adds over the past two years (2010-2011) which was also accompanied by a fairly stable, if not, higher average revenue per user (ARPU).

Its growth month-on-month momentum will persist as it consolidates its market share in the youth and Malay ethnic group segments, two key growth areas. DiGi's market share in the Malay ethnic market segment remains below average and has recently only hit double digit market share. On the one hand, while this is extremely low, especially for an established telco player, this also leaves significant scope for growth in the near future. Improving its 3G footprint would be key to driving this growth.

Management targets to accomplish more than 70% population coverage by end of 2013 (it is about 63% currently (Jan 2013)) and thus enabling DiGi to offer their services across new markets, and particularly in new areas of coverage.

The roll out of 3G coverage also enhances DiGi's postpaid proposition, which should further aid ARPU enhancement.

Key investment risk includes irrational competition which could potentially lead to higher handset subsidies and lower tariffs. This could be sparked off by the Dec 2012 round of lower interconnect rates, although the incumbents are likely to remain rationale.

The awarded LTE spectrum would also raise the number of players in the market, although being a niche high end product, impact from the smaller players are likely to be less meaningful.

Wednesday, January 9, 2013

FGV ... Jan13

It may sell its 20 per cent stake in Tradewinds (M) Bhd, worth an estimated RM551.5 million, to fund future land expansion. FGV president and chief executive officer Datuk Sabri Ahmad said if the company decides to sell the stake, the proceeds will be used in its upstream sector, which is to buy more plantation land.

It makes sense for FGV to sell the stake rather than keep it because at 20 per cent, FGV does not have management control over Tradewinds. With proceeds of over RM550 million, it is better for FGV to buy controlling stakes in many other companies.

It is expected to reap a hefty ROI estimated at RM390.2mil or 188% from its strategic acquisition of a 20% stake in Tradewinds (M) Bhd in just over a two-year period. From January 2010 to Dec 2012, FGVH has also received net dividends amounting to RM46.3mil from its equity stake in Tradewinds. Back in January 2010, FGVH bought Tradewinds' 20% stake or equivalent to 59.3 million shares from Grenfell Holdings Sdn Bhd, a company linked to the PPB Group, at RM3.50 per share, totalling RM207.5mil in cash.

Given the latest conditional takeover offer by Tan Sri Syed Mokhtar Al-Bukhary's private companies Perspective Lane Sdn Bhd, Kelana Ventures Sdn Bhd, Seaport Terminal (Johor) Sdn Bhd and Acara Kreatif Sdn Bhd to acquire all the shares they do not already own in Tradewinds for RM9.30 a share. FGVH will be making a gain of RM5.80 per share for its stake in Tradewinds vis-a-vis its previous purchase of RM3.50 per share.

It was also reported from January 2010 to date (Dec 2012), FGV has received net dividends amounting to RM46.3 million from its 20 per cent equity in Tradewinds.

The group bought the stake from Grenfell Holdings Sdn Bhd, which is linked to the Robert Kuok-controlled PPB Group Bhd, at RM3.50 a share, totaling RM207.5 million cash.

It is possibly the world's largest plantation company, owning over 850,000ha land in Malaysia , 500,000ha of which it leases and manages for the country's 112,635 smallholders

Tuesday, January 8, 2013

Sentoria ... Jan13

Sentoria Harta Sdn Bhd, a wholly owned subsidiary of Sentoria Group Bhd, is set to develop a RM1.5bil theme park in Morib, Selangor in a joint venture with a government-linked fund. The theme park, called Morib Beach Resort City , will be developed over the next eight to 10 years from Jan 2013. With work set to begin in the first half of 2013, the first phase of the Morib development will be the water theme park and accommodation, followed by the safari park.

The entire development will comprise serviced apartments, resort villas and MICE (meetings, incentives, conferences and exhibitions) facilities.
The land is sited close to the Kuala Lumpur and Putrajaya vicinities.

Sentoria had two options for repayment of the land. It could either pay off the land upon completion of 50% of the development, or it could pay off upon obtaining all the relevant approvals and consent in respect of the project.

Monday, January 7, 2013

IJM/Scomi ... Jan13

The proposed RM110 million bond issuance to IJM Corp will have to be approved by the shareholders of Scomi Group first before it can be issued to the construction group.

The proposed bond issuance is part of the corporate restructuring exercise undertaken by Scomi Group, which will see IJM Corp emerging as the single largest shareholder in Scomi, with 25 per cent stake.

IJM Corp currently has nine per cent of Scomi's outstanding shares after it subscribed to a private placement for RM33 million.

IJM Corp, one of the country's biggest construction companies has a 9.06 per cent stake in Scomi. The company wants to increase its stake in the company via a RM110 million renewable convertible bonds issue.

The script issue has the blessing of the Securities Commission but will need a majority vote by the Scomi shareholders before it can be realised.

The exercise, if approved, will make IJM the single largest shareholder in Scomi but IJM being an interested party in the deal cannot vote in the extraordinary general meeting.

Meanwhile Scomi Group Bhd chief executive officer Shah Hakim @ Shahzanim Zain is said to have consolidated his position in the company ahead of a decisive special shareholders' meeting that could decide the direction of the company.

It is learnt that the emergence of Singapore-based TAEL One Partners Ltd as a 9.87 per cent shareholder in the company in Dec 2012 is seen as a move by Shah Hakim to beef up his position in the company. He is attempting to fend off a possible takeover by Tan Sri Abu Sahid Mohamed and parties aligned to him.

TAEI’s 9.87% stake in Scomi group is a result of the conversion of loan stocks it has held for some time now (Jan 2013) … could form the bulk of the firepower chief executive Shah Hakim needs to push ahead with his debt restructuring plan for the group and pave the way for IJM Corp to raise its holding to roughly 25% from 7.75% now (Jan 2013).

TAEI also holds 8.39% stake in Scomi Marine is supportive of the entry of IJM Corp. Scomi Marine is a 42% subsidiary of Scomi Group.

Abu Sahid’s stake in Scomi Group has shrank to 6.78% stake following the conversion of the ICULS.

Abu Sahid, who is the chairman of Perwaja Holdings Bhd and Kinsteel Bhd, controls slightly more than eight per cent of the company. He is said to have the backing of Shah Hakim's long-time partner Datuk Kamaluddin Abdullah in Scomi.

Shah Hakim seems to be firming up his grip in the company while his potential rivals, which were initially seen as having the upper hand, have softend their hold on the company.

Abu Sahid's long-time ally Datuk Siew Mun Chuang, who is also a major shareholder in Kinsteel, announced a day before Christmas that he was no longer a substantial shareholder of the company.

Siew's stake was diluted as some of the Scomi board members had increased their stake in the company by converting their Irredeemable Convertible Secured Loan Stocks into mother shares. Among those who had done so are Tan Sri Mohamed Azman Yahya and Tan Sri Asmat Kamaludin.

Shah Hakim had also bought some 39 million of Scomi warrants in November 2012, which had expired on December 17 2012. He currently (Jan 2013) has a direct and indirect stake of about 13 per cent in Scomi, and is seen as a major supporter for the entry of IJM Corp Bhd into the company.

There is also uncertainty about a 11.21% stake held jointly by private entities controlled by Shah Hakim and Kamaluddin Abdullah. Kamaluddin has taken steps to separate the shareholding.

Interestingly, Abu Sahid’s shareholding was diluted even before a proposed bond issue due to the conversion of loan stocks.

Parties aligned with Abu Sahid control just 12% of the group through various entitles and the businessmen that has not ruled out the possibility of his raising his holding in the coming weeks. He said he is a passive investor and see value in the company and certainly do not want to see his interest diluted easily.

But financial executives say Abu Sahid has faced problems in getting the necessary funding to wage a full blown corporate war. Based in the diluted share capital of 1.536 billion, Abu Sahid will have to fork out rm5.68 million for every additional 1% shareholding in Scomi group.

TAEI’s entry has tipped the scale in favor of IJM Corp and Shah Hakim. The private equity concern and several other parties friendly to Shah Hakim have indicated that they will back the plan to give IJM Corp the majority stake.

IJM’s entry into Scomi Group is part of a two pronged corporate plan to restructure of the group’s huge debt burden.

The fresh capital (rm110 million worth of debt paper which can be converted to shares at a conversion price of rm0.365 and raise IJM Corp’s shareholding to 25%) is crucial to Scomi Group.

Scomi Group’s debts amounted to rm1.12 billion as at Sept 30, 2012 of which rm705 million is made up of a short term liabilities. Its cash balance stood at rm234 million.

Scomi group needs to recapitalize before it can take on bigger jobs. The rm110 million may just resolve a portion of the debts.

Friday, January 4, 2013

KKB ... Jan13

In line with robust developments in Sarawak, state's local players like KKB, which has a significant presence on home ground, would benefit by riding on the wave of those developments.

It has been awarded the supply, fabrication, delivery and erection of structural steel works for certain parts of the corridor roof structure for the proposed University College of Technology Sarawak and Technology Park. The sub-contract, estimated to be worth RM10.3 million, will be completed in five months from Dec 2012.

The RM10.3 million contract may not be that significant but still represents a positive trend since structural steel works usually command better margins.

Most of the company's earnings from the existing contracts may spill over to financial year 2013, as a result of which the earnings to be attributed to its 2012 financial year bottomline would be somewhat limited.

Financial year 2013 may be a better year for KKB.

Thursday, January 3, 2013

SkPetro ... Jan13

There are caution over SapuraKencana Petroleum Bhd's US$2.9bil (RM8.09bil) proposed Seadrill Ltd rig acquisition given that the company's gross borrowings could double from the current RM5.9bil.

RAM Ratings has placed the company's proposed acquisition under watch. The rating agency's caution is valid due to the size, gearing and financing of the deal perspective. The acquisition value is almost 60% of SapuraKencana Petroleum's market capitalisation.

SapuraKencana Petroleum is a merger between SapuraCrest Petroleum and Kencana Petroleum, which created Malaysia 's largest oil and gas service provider.

The US$2.9bil purchase included US$1.74bil (RM5.33bil) in the equity value and US$1.16bil (RM3.57bil) in current debt.

SapuraKencana Petroleum is buying the rigs business, including the full tender rig organisation, from Seadrill for an enterprise value of US$2.9bil.

Seadrill will receive a minimum of US$350mil (RM1.07bil) in new shares of SapuraKencana Petroleum that will double Seadrill's stake in the company to 13% from the current 6.4%. The remaining consideration will be funded by SapuraKencana Petroleum through a mix of external borrowings, a seller's note of up to US$187mil (RM874.09mil), internally generated funds and equity.

This exercise instantly transforms SapuraKencana Petroleum into the largest tender-assisted rig operator in the world, by fleet size. This is an earnings accretive deal.

By buying Seadrill's 10 existing tender and semi-tender rigs, three others that are under construction and the remaining 49 per cent stake in the five rigs that are jointly owned by it and Seadrill, SapuraKencana will control 51 per cent of the global tender rig business. This will make it the undisputed leader with its next closest competitor globally having four tender rigs. (Tender rig is a specialised barge that can carry a set of drilling equipment and accommodate personnel. These rigs service the production side of the industry).

Before announcing the Seadrill deal, SapuraKencana already has a RM4 billion capex (capital exexpenditure) in place to build up its might and assets over the next three to five years from 2012. The drilling business, which now (Dec 2012) accounts for 20 per cent to 25 per cent of group profits, will shoot to some 40 per cent with the Seadrill assets. But over time, as other non-drilling activities grow, contribution from the drilling operation will ease to under 40 per cent.

The Seadrill assets come with a lucrative US$1.55 billion orderbook lasting three to five years from 2012.  This will expand SapuraKencana's orderbook by 30 per cent to more than RM19 billion and transform its earnings landscape to a recurring high margin business. The drilling segment could contribute more than 50 per cent to the group's bottomline, up from 22 per cent currently (Dec 2012).

SapuraKencana's significant scale, service range and established global track record make it one of the main beneficiaries of the domestic upstream opportunities, while its longstanding relationship with international heavyweights opens doors to global opportunities.

As at end-October 2012, SapuraKencana's order stood at about RM13.5 billion, which is way bigger than other local heavyweights such as Bumi Armada Bhd (about RM7 billion) and Malaysian Marine and Heavy Engineering Bhd (RM2.8 billion). Even excluding the longer term Petrobras contract worth RM4.3 billion, which will only kickstart by end-2014, SapuraKencana has the largest domestic order backlog.

Year-to-date (Dec 2012), it has locked in RM4.1 billion of wins, a significant sum when compared to other big peers.

Meanwhile the completion of SapuraKencana Petroleum Bhd's impending acquisition of Seadrill Ltd's US$2.9 billion (RM8.87 billion) tender rig business could enhance its 2014 earnings forecast by 22.6 per cent.

If the deal was successful, SapuraKencana Petroleum would, in the long run, inherit an existing orderbook of US$1.6 billion (RM4.9 billion), capitalise on Seadrill's expertise and expand deepwater customer base in East Asia.

The group will be able to further expand its presence in the lucrative Brazil market by virtue of its upcoming partnership with Seadrill.

SapuraKencana's strong orderbook of RM13.5 billion as at the end of October 2012, beefed up with steady replenishments in all its business segments, would provide the group with a healthy stream of revenue.

Catalysts include the impending acquisition and potential rerating if the group were able to bag more jobs in 2013.