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.

Wednesday, January 2, 2013

NAIM ... Jan13

In its bids to quash the negative outlook of its rm500 million Islamic medium term notes by RAM, the group said its good financial performance in 2012 is expected to continue into 2013 due to more construction contracts and property launches.

It is enjoying strong results from its property development division, as well as improving margins on its construction side.

RAM has maintained a negative outlook on NAIM’s long term rating of NAIM’s IMTN programme, as the group’s current (Dec2012) businesses, largely in Sarawak, expose it to geographical concentration risk, and it remains a relatively smaller player among its similarly rated peers.

RAM said while the company’s recovery is expected to gain momentum, its metrics for the FY2012 particularly its fund from operations debt coverage, are expected to remain weak at below 0.2 times.

On the construction side, the current (Dec 2012) outlook for the construction industry in Malaysia and particularly Sarawak remains positive, substantially due to government spending on infra and the development of SCORE.

NAIM has also ventured into the Peninsular Malaysia’s construction industry with the group securing two MRT packages awarded by MRT Sdn Bhd. It has awarded the contract to construct elevated stations and associated works between Taman Industri Sungai Buloh, PJU 5 and Fataran Sunway worth rm205 million in Oct 2012.

In FY2012, the group has secured a total of rm700 million worth of construction contracts which brings its outstanding order book to around rm1.1 billion as at Sept 2012.

Naim also plans to venture into large scale mixed developments, and to fund the expansion of its investment portfolio and land acquisitions via means of other than borrowings. Some of the financing measures include JV, equity and etc …

As for capital expenditure on land acquisitions, taking into consideration NAIM’s track record of prudent cash flow and balance sheet management, these acquisitions will be properly managed.