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.