Happy New Year 2011

Comic ....31DEC10

Happy Holiday!

MYEG ... Dec10

My E.G. Services Bhd (MyEG) is spending RM40 million on a pilot project, involving an online service tax system, that will kick off March 2011. The pilot project will involve 2,500 business outlets in the Klang Valley and will be on for a period of one year.

The online monitoring tax system will have devices and a mechanism that can monitor and track all transactions made by business outlets. Previously, these business operators had to manually submit their tax declarations, but once this system, which is automated, is in place, the need for manpower and documentation will be reduced.

We will not embark on this if it was not viable and once the device and mechanisms are in place, it will be monitored and, hopefully, the government will apply it nationwide after the pilot project ends in March 2012.

Currently, consumers are paying a five per cent service tax charge at selected businesses which will be raised to six per cent January 2011.

MyEG expected to maintain its growth momentum next year with several more projects in the pipeline.

The company spent about RM6 million in advertising and promotion annually.

For its fiscal year ended June 30, 2010, the company recorded a pre-tax profit of RM21 million on the back of RM62 million in revenue.

Meanwhile My EG Services Bhd (MyEG) may raise funds to finance the expansion of its Online Tax Monitoring System should the company receive the green light to implement the project nationwide.

MyEG is principally engaged in the business of development and implementation of E-Government services and the provision of other related services for the E-Government initiative. Its track record include linking insurance firms with the Road Transport Department for the issuance of electronic cover notes, according to MyEG’s website.

MyEG, whose earnings are derived entirely from Malaysia so far, also offers online renewal of working permit for maids. The company also acts as a link between the police and the public via email notifications of traffic summons.

MyEG’s bottomline had come in weaker due to higher operating and finance expenses. Net profit fell 37.4% to RM2.8 million in the first quarter ended Sept 30 from a year earlier although revenue rose 13.8% to RM15.47 million.

The company has cash of RM11.32 million versus debt obligations of RM5.02 million, hence, a net cash position of RM6.3 million or one sen a share.

JOBST ... Dec10

After having seen successes in the Philippines, Singapore and Indonesia, JobStreet Corp Bhd is now eyeing the Vietnam market.

It has operations in several Southeast Asian countries and is currently the market leader in the Philippines, and the No 2 online job recruitment company in Singapore and Indonesia. It also has a sizeable indirect presence in Taiwan. It has not all been smooth sailing for JobStreet in its overseas forays.

It went into India several years ago but has virtually exited the market. In Taiwan, JobStreet has expanded its presence in 2010. The company had raised its stake in Taiwan-listed 104 Corp to 6.76 million shares, or a 20% stake, via the open market. This translates into a total cost of RM64.39 million for investing in the Taiwanese online recruitment services provider. 104 Corp had a market capitalisation of TW$4.1 billion (RM427.7 million) (mid Dec 2010)..

JobStreet saw its net profit for the third quarter (3Q) ended Sept 30 rise 26.6% to RM9.65 million from RM7.62 million a year ago, mainly due to greater economies of scale and a share of profits in associates as well as a jointly-controlled entity, amounting to RM1.4 million.

However, net profit for the quarter increased at a slower rate compared with the 42.3% surge in profit before tax of RM14.87 million from RM10.45 million a year ago because of the higher tax expenses of a subsidiary and the withholding tax expense on dividends received from 104 Corp.

The higher earnings generated was part of the reason the company changed its dividend policy from one third to 50% of its net profit.

The company paid a total dividend of four sen for the nine-month period ended Sept 30, versus 1.5 sen for the same period a year earlier.

It is worth noting that JobStreet’s balance sheet remains very strong due to its high free-cash-flow business. As at Sept 30, the company had RM56.2 million in cash and another RM100.8 million in short-term and long-term investments.

JobStreet’s net assets per share stood at 48 sen as at Sept 30, which is higher than the 40 sen as at Dec 31, 2009.

Faber ... Dec10

Warisan Harta Sabah Sdn Bhd, the wholly owned investment arm of the Sabah state government, has submitted a bid for hospital support services (HSS) in Sabah.

It has submitted a bid which is “competitive” and “at par” with Main Market-listed Faber Group Bhd’s bid for the concession.

With the strong backing of the state government, Warisan Harta hopes the federal government will give the proposal serious consideration,

Warisan Harta has the necessary experience and expertise to offer HSS in Sabah, given that it already has business ventures in the healthcare sector in the state.

Warisan Harta currently has related businesses in healthcare services, one of which is its associate-owned Tawau Medical Centre Sdn Bhd and two other medical centres in Sabah.

Warisan Harta currently had good indirect relations with Khazanah Nasional and is confident that the submission of bids for HSS which pits Warisan Harta against Faber (34.29% owned by Khazanah Nasional) will not in any way hinder its business cooperation of the new medical centre in Kota Kinabalu.

At the moment, the 15-year concession to maintain hospitals in Sabah and Sarawak and some parts of Peninsular Malaysia are held by Faber which is seeking to renew its contract with the Ministry of Health. If Faber secures the contract, it would give the company guaranteed recurring income and steady cash flow until 2026.

The company reported its nine-month net profit of RM75.87 million till Sept 30 — an impressive 89.15% increase from RM40.11 million while revenue rose to RM684.9 million from RM509.22 million.

Earnings per share for the nine months period was at 20.9 sen while net assets at RM1.22 per share.

Faber is set to lose a sizeable chunk of its future earnings stream if it does not clinch the HSS contract in Sabah and Sarawak.

Optimists however, say in view of its track record and expertise, denying Faber the renewal will run counter to the government's recent economic reforms.

Although the piece of news (another bidder) will continue to dampen sentiment in the Faber stock, the negative sentiment has been partly priced into the current share price (21 Dec 2010), as it had been on a downtrend since news first emerged in early October 2010.

The HSS concession under Faber expires in November in 2011.

JTINTER ... Dec10

S & P Highlights
- The operating environment for the tobacco industry in Malaysia remains challenging with the government having introduced a series of measures aimed at curbing smoking activities, and a thriving illicit cigarette market.

- The recent higher-than-expected 3 sen per stick (+16%) increase in excise duty and the subsequent 70 sen per 20-stick pack increase in selling prices are expected to result in a contraction in industry volumes.

- In addition, with the widening gap between the prices of duty-paid and illicit cigarettes, competition from illicit trade is intense. Based on a study from the Confederation of Malaysian Tobacco Manufacturers,
illicit cigarettes accounted for 39.7% of the market during the March to May 2010 period.

- JTI has fared relatively well in a difficult environment with sales volume having risen by 6.6% YoY (based on distributor-to-trade data) in 9M10 vs. the industry’s 1.3% volume growth. JTI’s market share for
the nine-month period rose to 22.4% (+1.1 %-points YoY). JTI gained market share at the expense of British American Tobacco (Malaysia) (ROTH MK, MYR44.98, Not Ranked). JTI may have benefited from
some downtrading from premium to value brand cigarettes.

- JTI’s top selling brands are Winston, with a 13.2% market share in 9M10, followed by Mild Seven, with a 4.2% market share.


Recommendation & Investment Risks
- We re-initiate coverage on JTI with a Hold recommendation and a 12-month target price of MYR6.50. Although the operating environment is difficult, JTI has done well to gain market share. We expect its share
price to be supported by decent dividend yields of 4.9%.

- Our target price is based on dividend discount model (DDM) valuation. Key assumptions in our DDM model include 7%-8% cost of equity and 1% terminal growth.

-  Risks to our recommendation and target price include sharp hikes in tobacco taxes, greater competition from low-priced cigarettes and illicit cigarettes, and price wars.

ScomiMR / POS ... Dec10

Scomi Marine Bhd is going to be a cash-rich shell after a series of corporate exercises.

The company will have RM543.81 million cash after it disposes its four marine logistics companies to PT Rig Tender Indonesia Tbk (PTRT) for RM538.3 million.

AS at Sept 30 3.20, Scomi Marine already has RM5.51 million cash in hand, which would amount to RM543.81 million after the disposal.

Earlier 2010, Scomi Marine disposed its 29.07% stake in CH Offshore Ltd to Falcon Energy Group for S$143.5 million (RM331.3 million), registering a gain of RM59.13 million. Scomi Marine then used the proceeds to pare down its debts from RM525.7 million to RM184.8 million.

With that sum of cash in the coffers, it is said that Scomi Marine would reward its shareholders with a dividend payout and bid for Khazanah’s 32.2% stake in Pos Malaysia.

It was reported that Scomi Marine was one of the bidders for Khazanah’s stake in Pos Malaysia.

In mid Dec 2010, Scomi Marine plans to dispose its entire equity interest in CH Logistics Pte Ltd, CH Ship Management Pte Ltd, Grundtvig Marine Pte Ltd and Goldship Private Ltd to 80.95%-owned subsidiary PTRT. PTRT would undertake a renounceable rights issue to partly fund the disposal consideration.

With that move, Scomi Marine Services would be void of any core business and would be classified as a cash company under the PN16 and PN17 of the listing requirements.

Scomi did not give any indication of its next move but merely stated that it would “endeavour to search for the right business to address its classification as a cash company and/or a PN17 company”.

Given Scomi Marine’s said interest in Pos Malaysia, it would make sense for it to sell and divest its stake in the four companies in order to build up the cash needed to purchase the 32.2% stake, potentially valued at RM700 million.

It is not clear what value Scomi Marine would bring to Pos Malaysia’s other shareholders, including the Employees Provident Fund (9.59%), Permodalan Nasional Bhd (8.45%) and Skim Amanah Saham Bumiputera (8.18%).

Comic ....26DEC10

Comic ....25DEC10

Merry Christmas

To all my readers, Merry Christmas and happy Holiday.

DRBHcom ... Dec10

DRB-Hicom has been off the radar screens of investors due to its rather expansive business interests in the automotive, insurance, banking, property and services sectors.

There is also the fact that it is owned by Syed Mokhtar, whose past corporate moves were said to have not endeared him to minority shareholders.

Its auto division was expected to grow further with the signing of a memorandum of understanding (MoU) between DRB-Hicom and Volkswagen.

DRB-Hicom is a key distributor for Proton, Honda, Mitsubishi and Audi cars locally. HwangDBS added that sales of Volkswagen vehicles could grow exponentially as DRB-Hicom had already sold 4,943 completely built up (CBU) units for the first 10 months of this year, up 92.9% from a year earlier.

In addition to its commercial vehicle business, DRB-Hicom also supplies military vehicles to the government via DRB-Hicom Defence Technologies (Deftech).

Meanwhile DRB-HICOM has inked a MOU on the possibility of manufacturing Kamaz trucks in Malaysia for the local market as well as in Asean It is seeking to strike a firm deal with one of Europe's largest truck makers to assemble and distribute its heavy-duty trucks in Malaysia.

The group sealed a memorandum of understanding (MOU) with Russia's Kamaz INC for the purpose. If materialises, DRB-HICOM will have the rights to also distribute Kamaz's right-hand trucks to the Asean region. The MOU will pave the way for a feasibility study as well as detail costing studies in respect of setting up the facilities in Malaysia.

The initial assembly of the Kamaz trucks at its Pekan, Pahang, plant could begin in 12 months. The MOU was valid for four months. Kamaz, 11 per cent owned by Germany's Daimler, has over 50 per cent share of the Russian market .

A key catalyst is the conversion of the letter of intent from the Ministry of Defence for 257 AV 8x8 armoured vehicles worth an estimated RM8 billion.

Apart from DRB-Hicom’s automotive division, its service division comprises Bank Muamalat, KL Airport Services and cash-generating concessions Rangkai Positif and Alam Flora.

Alam Flora would benefit from further privatisation of the domestic-waste industry, while Rangkai Positif should gain from more operations and maintenance works with the eventual expansion of the Tanjung Bin (power station) by another 1,000MW.

DRB-Hicom could gain some RM600 million from its sale of a 30% stake in Bank Muamalat to the Al Baraka Group of Bahrain, which was seeking to expand regionally.

DRB-Hicom said it had no knowledge of any privatisation proposal.

For the six months to Sept 30, DRB-Hicom’s net profit more than doubled to RM289.97 million or 15 sen per share, from RM109.41 million a year earlier. Its revenue rose 1.58% to RM3.2 billion from RM3.15 billion.

The automotive arm contributed RM1.84 billion or 57.4% to group revenue, while its services business contributed RM1.31 billion or 40.9%, followed by its property business with RM53.8 million or 1.7%.

Timecom ... Dec10

News

- Astro and Time DotCom (TDC) have entered into a principal terms of collaboration for the provision of IPTV and Broadband services.

- Astro will deploy its HD/VOD/B.yond pay-TV service, branded "Astro" and "Powered by TIME Fibre Broadband", on TDC's fibre Broadband Infrastructure.

- The service will be immediately available to 11,400 homes and be extended to 167,000 homes in over 1,500 buildings across the Klang Valley and Penang by end December 2011.

- Astro and TDC agree to enter into the collaboration agreement for a period of 10 years by 31 January 2010.

Financial impact

- Should the collaboration agreement take place in 2011, Astro would be able to offer IPTV bundled with TDC’s fiber broadband and telephony services.

- TDC is expected to benefit from higher earnings due to the increased utilisation of its existing fiber network.

Pros / Cons

- The news reinforces our views for TDC’s growth prospects and its ability to leverage on increasing the utilization of its fiber network.

Risks

- Irrational wholesale pricing and competition, new fiber rollouts, government regulations and a contraction in demand for wholesale bandwidth

Rating BUY (TP: RM0.89 )

- Positives – The company is entering into a multi-year growth cycle with a high degree of operating leverage. By tapping into new growth areas such as global bandwidth and node

fiberisation as well as proposing a series of synergistic acquisitions, the company is poised to become a regional growth telco.

Valuation

- At the current price, Time DotCom is trading at an estimated P/E of 23.6x and 18.1x for FY11 and FY12 respectively. HLE maintain our target price of RM0.89 based on SOP, pending

the outcome of the recent proposed acquisitions and pending details on the collaboration with Astro..

Mudajaya ... Dec10

Recently the company has been actively buying back its shares. The most recent buyback was on Dec 15, 2010 when it acquired 20000 shares at RM3.09 for a total purchase consideration of RM78569. To date, cumulative outstanding treasury shares number just over three million.

Mudajaya has been buying back its shares since May 2010. The usual rationale when it comes to share buybacks – which can be seen as a show of confidence – is that companies do it to stabilise their share price, or because they feel their shares are undervalued.

It has cash and bank balances of RM186 million and no debt.

However its third quarterly earnings show a slowdown in growth, with net profit declining q-to-q to RM46.5 million form RM54.2 million. Top line numbers also fell q-to-.

Despite concerns in India, Mudajaya appers to be ploughing ahead with its plans to expand regionally.

So ultimately, while there is still growth on the horizon for Mudajaya, buying into the company at this point of time (Dec 2010) would mean belief in its long term prospects. Although a stronger 4Q2010 would definitely add some support for Mudajaya;s counter, it is unlikely to mimic the performance seen in the first half of 2010.

Certainly its progress in India will be closely watched. To recap, RK Powergen Pvt Ltd – in which Mudajaya holds 26% stake – signed an agreement with the government of Chhattisgarch for 1 1440 MV coal fired power plant.

Mudajaya was subsequently awarded the EP contract for Phase 1 and of the power plant, which is due to be completed in 2012. The company had intended to use its experience in Chhattisgarch as a springboard to bid for the various ultra mega power plants planned by the Indian government.

However, the ultra mega power plants have since bee delayed, which puts a question mark over Mudajaya’s near term outlook in India.

MSport ... Dec10

MULTI SPORTS 3QE SEP 2010 NET PROFIT JUMPS 50.2% YOY

MULTI SPORTS HOLDINGS' Net Profit jumped 50.2% to RM16.4m for 3QE Sep 2010 from RM10.9m same quarter a year ago. The Company's EXCHANGE filing Nov 23, 2010 said that Revenue rose 17% to RM70.2m from RM60.0m. EPS was 4.41 sen compared with 3.48 sen.

QoQ REVENUE DIPPED 1.9%
Compared to 2QE Jun 2010, Revenue As compared to 2Q, Revenue for 3QE Sep 2010 dipped by 1.9%. The Gross Profit Margin improved by 0.1% to 32.5% as compared to 32.4% YoY.

9ME SEP 2010 REVENUE HIGHER
For 9ME Sep 2010, MULTI-SPORTS recorded revenue of RM203.4m and PAT of RM49.2m. The growth in Revenue by 40.7% compared to same period a year ago was due mainly to the increased demand of EVA MD products from its customers.

" .... Gross profit margin for 9ME Sep 2010 decreased to 32.3% from 33.6% for last year same period as this was mainly due to the higher production cost arising from wages increment in Jan 2010. The Group decided to revise the workers' wages upward in view of increasing orders being received by the Group ...." it said.

Tecnic/SKPRes ... Dec10

Datuk Gan Kim Huat, the executive chairman of Tecnic Group Bhd, increased his

indirect stake in the company to 38.71% after buying 4.035 million shares, or 9.98% equity interest, for RM8.99 million.

The four million shares were purchased from Unfold Riches Sdn Bhd, via his private vehicle Graceful Assessment Sdn Bhd. Following the purchase, Gan now holds a 19.88% indirect stake in Tecnic via Graceful Assessment Sdn Bhd, and another 18.82% indirect stake via Zenith Highlight Sdn Bhd. Combined with his 31.55% direct stake, Gan now has a total of 70.25% equity interest in Tecnic.

According to a source close to the matter, there is no intention to take the company private. It is believed that Gan has chose to increase his stake because he felt the company was undervalued and saw upside in the stock price.

What’s interesting is that following the purchase, Gan’s direct and indirect stake in Tecnic crosses the 33% threshold, which triggers a mandatory general offer. So far there has been no announcement whether a mandatory general offer will be coming or if Gan will not be required to do one.

Gan is also the substantial shareholder in SKP Resources Bhd, where he holds a 70.99% stake, consisting of 8.99% direct equity interest and a 62% indirect stake held via four private vehicles including Graceful Assessment and Zenith Highlight. The other two private vehicles are Renown Million Sdn Bhd and Beyond Imagination Sdn Bhd.

In the past few months, there has been speculation that Gan would take Tecnic and SKP Resources private as he had slowly been building up his stake in both companies in the past few months.

Tecnic is involved in plastic moulding design and fabrication, plastic injection and blow moulding and provision of assembly services for the manufacturing of plastic products. SKP manufactures plastic parts and components for the electronic and electrical sector.

For the nine months ended Sept 30, Tecnic’s net profit rose 23.8% to RM12.18 million or 30.15 sen per share, on the back of RM125.83 million in revenue. Net assets per share as at Sept 30 was RM1.89 compared with RM1.75 as at Dec 31, 2009. It is also sitting on a net cash position of RM10.87 million with no bank borrowings.

In comparison, SKP has also seen its net profit rise 56.3% to RM10.62 million, or 1.77 sen per share, on the back of RM109.2 million in revenue for the six months ended Sept 31. SKP is also sitting on a RM45.64 million cash pile with no bank borrowings.

Shell ... Dec10

SHELL - LOSSES FOR 3QE SEP 2010 NARROW TO RM19.5M
SHELL REFINING CO. reported that 3QE Sep 2010 Net Losses narrowed to RM19.5m, from a Net Loss of RM35.4m same quarter a year ago, mainly due to "....low refining margins and stockholding losses.....".
Revenue for 3QE Sep 2010 increased to RM2.65 bil, from the RM2.35bil Revenue same quarter a year ago, while LPS dropped to 6.49 sen from the previous 11.78 sen.

NET LOSS FOR 9ME SEP 2010
For 9ME Sep 2010, the Company recorded a Net Loss of RM7.6m, compared to the RM298.3m Net Profit for 9ME Sep 2009.
Revenue for 9ME Sep 2010 increased 20.8% to RM7.8m, from RM6.5m same nine months a year ago.

POOR PROSPECTS FOR THE YEAR AHEAD WITH LOW GLOBAL DEMAND
In 3QE Sep 2010, its refinery processed 9.4m tons of crude oil, and sold 10.0m barrels of product. It is on schedule to "....build a new 6,000 tonees per day diesel processing unit to vary its feedstock options, increase diesel production and improve refining margins....", Chairman ANUAR TAIB was quoted as stating in EXCHANGE filings.

However, the Company foresees its margins remaning poor for the remainder for the year, with the low global demand.

CASH & BANK BALANCES INCREASE, BORROWINGS UP
The Company's Cash & Bank Balances as at Sep 30, 2010 increased to RM424.0m from its Jan 1, 2010 balances of RM272.0m.
Trade & Other Payables as at Sep 30, 2010 dropped to RM38.1m from RM70.9m on Jan 1, 2010.

Genting ... Dec10

A joint venture formed by Genting group and local fund manager VinaCapital has obtained approval from the central government for a US$4 billion casino resort project in Hio An city.

It is not known which companies in the Genting group will undertake the Vietnamese project.

That aside, the Genting group is also said to be exploring the setting up of a casino in Sri Lanka, as the island nation’s parliament recently passed the Gambling Bill to legalize gaming.

The government plans to join others in the region in luring tourist dollars with a casino.

Earlier 2010, Genting group invested in the Union Bank of Colombo. Genting Bhd holds a 20% stake. Considering that the Genting group has a toehold in Sri Lanka, there is a possibility of a more meaningful investment in that country.

Although Sri Lanka has been legalized gaming, there is no shortage of casinos or betting centers in the country. There are nine casinos in Sri Lanka.

IPO ... Benalec Holdings

Benalec Holdings Bhd, Malaysia’s second largest marine construction firm by market share, is set to take on bigger deals upon its listing on the Main Market in the first quarter of 2011.

It intends to use the proceeds for working capital. It will use it [the proceeds] to take on bigger jobs for which they are bidding now (Dec 2010).

Established in 1978, Benalec now (Dec 20101) has a total order book amounting to some RM855 million, of which RM664 million is unbilled and will last until 2016.

Among the projects the company delivered previously are the turnkey designing-and-building of the jetty, helipad and associated works at Pulau Perak, Kedah; construction of the marina at Puteri Harbour, Nusajaya Johor; and land reclamation and soil improvement works for Glenmarie Cove, Port Klang.

Notably, Benalec’s affiliated company, Oceanlec Pte Ltd, secured a contract in 2008 from the Singapore government worth S$250 million (RM598.8 million) for the supply of construction material from Vietnam and Cambodia for the Tuas View reclamation project in Singapore.

Its future growth lies in these areas of opportunity, in supporting the building of infrastructure required for Malaysia to become a high-income economy. Benalec was well-positioned to capitalise on these jobs due to its cost advantage.

Benalec’s cost advantage and strength in its niche business were evident in the company’s high margins, which were in sharp contrast to the thin margins earned by other players in the industry.

Benalec’s net profit margin hovered between 14.31% and 50.13% for FY2008 to FY2010. Its earnings per share grew at a compounded annual rate of 63% over the last three financial years.

The company’s current customer base included Malaysia’s federal and state governments, the Singapore government and private companies that were mainly from the power, property, construction, travel and leisure as well as logistics sectors, he added.

Besides marine construction, the company is also involved in the vessel-chartering and marine-transportation businesses. In terms of revenue breakdown for FY2010, marine construction contributed 88.6% while the vessel chartering and marine transportation segments made up the balance.

Benalec currently owned 91 vessels, which were mainly used to support its marine construction activities. The vessels were also deployed for chartering services to third-party clients such as dredging and reclamation contractors, and for the oil and gas, offshore construction, general cargo, and bulk cargo industries, he added.
Benalec has no direct peer listed in Malaysia. The only indirect peer would be Sarawak-based Hock Seng Lee Bhd. Even so, Hock Seng Lee is also not directly comparable to Benalec, as the former is also involved in civil engineering works and property development, apart from marine construction.

LionInd ... Dec10

Shareholders can now expect higher dividend payment under the company debts restructuring scheme, dating back to 2003, has finally been lifted.

As at Sept 2010, Lion Corp had a direct stake of 25.16% whole Cheng, who controls the Lion Group, had a direct stake of 14.21%.

The fact that debt laden Lion Corp – which needs money for debt repayment – and Cheng are direct shareholders may motivate Lion Industries to raise dividend payments.

In mid Dec 2010, Lion Industries announced that it had made full and final redemption of its ringgit denominated bonds and US dollar denominated consolidated and rescheduled debts. The announcement also said the restriction on dividend payment under the company’s restructuring scheme has been lifted.

To recap, under the covenants governing the debt restructuring scheme proposed in 2003, the company was prohibited from paying any cash dividends exceeding 1% par value of its share, until it had discharged its obligations under the scheme.

In a nutshell, proceeds from Lion Industries’ assets disposals and the bulk of its operating cash flow – generated mainly from its steel division – had gone to bonds and debt redemption over the past seven years, rather than for dividends.

The gradual redemption of Lion Industries’ bonds and USD debts had strengthened its balance sheet. From a net debt of RM2.18 billion or 1.16 times gearing as at FY2003, Lion Industries balance sheet as at Sept 2010, showed consolidated cash reserves of RM644 million versus rm337 million long term borrowings. It short term borrowings amounted to RM359 million – mainly trade financing for the steel operations. Meanwhile, the outstanding bonds and USD debts had shrunk to RM50 million as at Sept 30, 2010.

Its balance sheet has improved with shareholders’ equity increased to RM3.4 billion now.

The company within the Lion Group that needs capital contribution is its parent Lion Corp Bhd, whose core business is hot rolled coil mfg. Lion Corp still carried a relatively high net gearing of RM2.79 billion as at Sept 30, 2010 versus shareholders’ funds of RM534 million.

Comic ....19DEC10

Comic ....18DEC10

Axiata ... Dec10

All of Axiata's operating companies are free cash flow positive already, and all of them are expected only to strengthen next year (2011).

Axiata Group Bhd, a regional mobile operator group, is confident of a continuous revenue growth next year (2011), mainly driven by good growth from all its operating companies (opcos).

It also expects its Bangladesh unit Robi to register the highest growth among its opcos. Its high growth will especially comes from Bangladesh, and the rest, good growth.

As for dividend, the group has enough cash to pay shareholders.

So, bottom line is, they (investors and shareholders) can expect good growth, and hence, capital appreciation, and at the same time, good dividend. It will not be significant dividend, because we are still growing. But, it will be reasonably good dividend.

Axiata, in its recently-announced third quarter financial results, posted revenue growth of 21 per cent to RM11.6 billion for the nine-month ended September 30. Group net profit almost doubled to RM2.14 billion, partly due to disposal of XL shares, its Indonesian mobile unit.

Expecting Robi to be one of the biggest growth drivers for Axiata next year (2011), as the industry as the whole is growing at a fast rate. Bangladesh is growing at the rate of high teens as an industry next yea (2011).

For the nine-month period, Robi's revenue rose by 38 per cent to 19.1 billion taka.

Margins are expected to remain stable in all of its opcos, with the exception of Robi, due to its aggressive growth plans. It needs to invest in opex (operating expenditure) and capex (capital expenditure) for growth in that country (Bangladesh), because the industry is growing and expecting some margin squeeze there over the short-term.

Even though its investment in Idea, a mobile operator in India, is expected to see significant investments next year (2011) due to the expansion of its 3G coverage, The good news is that it sees an improvement in the telecommunications landscape, where the price war has somewhat subsided.

As for its two biggest opcos, Celcom and XL, the two companies should enjoy stable margins next year. However, mobile data will be big in both countries.

YGL ... Dec10

KENANGA RESEARCH

-  9MFY10 net profit of RM706,000 was higher than our loss expectations of RM1.9m as YGL rolled out their proprietary software solution packages which is gaining traction among its clients. The proprietary software has higher margins which aided the recovery to profits as gross margins are back above 30% which is the historical norm.

- YoY, 9M10 net profit grew from a net loss of RM1.05m to RM706,000 with improved operating margin as fixed cost is high given it is largely staff cost.

- QoQ, 3Q10 net profit of RM291,487 was 34% higher despite 14% lower revenue. This typifies the services industry where improvement in earnings and margin above the fixed cost would fall straight to the bottom line.

- Going forward, Asia Pacific region will turn positive in the next quarter as they have narrowed their operating loss to RM3,390 only while Malaysia is improving sharply given that corporations are increasing IT spend after the last two years of drought in spending.

- We are revising upwards the FY10 and FY11 net profit forecast to RM0.829m and RM1.064m from a net loss of RM1.9m and RM0.7m respectively. Given the 3 successive quarters of net profit, we are heartened by the improved profitability and margins.

- Maintain our HOLD with Target Price of 22 sen based on P/BV of 2x on FY11 BV of 11.1sen which we see as fair at this juncture. Although we are heartened that YGL managed to turn-around its net profit for 3 consecutive quarters growing high on each quarter, we believe it is still too early to turn bullish on the stock. Their healthy balance sheet

YTLC / Gpacket ... Dec10

When a new player enters a market, the ground moves. More so when the new entrant is a deep-pocketed giant like YTL Corp Bhd, backed by one of Malaysia’s richest tycoons, Tan Sri Francis Yeoh.

It comes as little surprise then that the recent entry of YTL Communications Bhd into the WiMAX market has affected investor confidence in Green Packet Bhd, the parent company of the country’s first WiMAX operator, P1.

But will the landscape change although the David in this case — Green Packet — had a first mover advantage?

Fears of YTL’s entry adversely affecting Green Packet has sent the latter’s shares slumping.

YTL Comms operates on the same platform as P1 and, thus, is naturally viewed as a close competitor. And it is a formidable one at that with its deep pockets.

Case in point, although late to the market, YTL Comms has been impressive with the pace of its network rollout, achieving 65% population coverage right off the bat with some 1,500 base station sites installed over the course of the year. The company claims to have spent RM2.5 billion in total capital expenditure to-date and plans to add another 1,000 sites to bring coverage up to 80% by end-2011.

By comparison, P1 has paced its rollout in lockstep with the growth of its subscriber base. As at end-September 2010— two years and three months after its commercial launch — the company had 815 sites after spending a total of RM534 million since its launch. It is targeting to hit 1,050 sites by the end of 2010. That would bring its coverage to just about 45% of the population. Meanwhile P1 intends to spend another RM500 million in capital expenditure on an additional 1,500 sites, which will expand its coverage to 65% by 2012.

Having said that, YTL Comms’ pricing strategy suggests that it is targeting a different market segment than P1.

Yes is offering a flat rate of nine sen for either a minute of voice call, an SMS or 3Mb of data. This pay-as-you-use pricing model is ideal for casual surfers and, in particular, the mobile broadband market segment where the average data consumption is estimated at roughly 2Gb to 3Gb per month.

P1’s primary target market, on the other hand, is the fixed-broadband segment — currently accounting for an estimated 90% of its subscriber base — where users are much more data intensive.

The average data consumption is estimated at more than 10Gb per month. YTL Comms may not be a cost-effective competitor in the fixed-broadband market, now (Dec 2010) dominated by Telekom Malaysia’s Streamyx and P1. For instance, based on YTL Comms’ rates, 10Gb of data will cost some RM210 compared with P1’s RM99 per month package that comes with 20Gb of fair usage, albeit at a much slower connection speed.

Yes a strong mobile broadband competitor. The mobile broadband segment is a rapidly growing market. To achieve true mobility, wide coverage is required. As such, the main players at present are the cellular operators, who have their GPRS/EDGE networks to fall back on outside of 3G coverage areas.

Celcom, Maxis and DiGi collectively added some 672,000 new mobile broadband subscribers in the first nine months of 2010, compared with less than 260,000 new subscribers for fixed broadband over the same period. Currently, there are roughly 1.6 million mobile broadband subscribers in the country.

Growth in this market segment is expected to continue at a rapid clip for the foreseeable future, driven by rising affordability and ownership of laptops and netbooks, coupled with the need for connectivity on the go. Most recently, the success of Apple’s iPad has further reinvigorated consumer demand for the tablets market segment.

Like the cellular operators, YTL Comms offers the Yes Go USB dongle for users to connect to its network. In addition, it also sells the Yes Huddle, a Mi-Fi wireless router that connects up to five devices. Its pay-as-you-use pricing is attractive for data usage of up to roughly 3Gb, which is the average mobile broadband data consumption.

Plus, YTL Comms’ WiMAX network boasts three to five times the speed of 3G networks operated by all the cellular players. Anecdotal evidence in the early days supports this claim, although it remains to be seen if the high speeds can be maintained as the number of users on its network grows.

P1 too has set its sights on the mobile broadband market. But with comparatively low network coverage, it has yet to make a major push in this direction — although this would certainly happen over the next year or two. The company has the launch of a Mi-Fi device slated in 1Q2011 and is at present (Dec 2010), bundling its portable W1GGY modem with its home broadband packages.

Elsewhere, although YTL Comms is offering very attractive voice and SMS rates complete with a 018-prefix, take-up rates may not be high in the near to medium term due to the lack of WiMAX handsets.

For a start, it will be selling the Yes Buzz handset, manufactured by Samsung, later Dec 2010 and plans to introduce a smartphone sometime next year (2011). But the lack of choice will certainly be a hindrance. User migration for voice services has also been very sticky, even with the introduction of mobile number portability.

P1 sticking to 280,000 subscribers target by end-2010. Despite the entry of Yes into the market, P1 remains confident, with just one more month to go, that it will hit the target subscriber base of 280,000 by the end of the year (2010).

New sign-ups in 4Q2010 have been boosted by its new marketing campaign, which was launched in late October 2010. Indeed, anecdotal evidence shows that subscriber acquisitions, which had dropped in the run-up to the Yes launch, picked up pace again in early Dec 2010.

At this pace, Green Packet has said it believes it is on track to achieve operating break-even by 1Q2011. The company has been registering lower earnings before interest, tax, depreciation and amortisation (Ebitda) losses for the past three consecutive quarters on the back of a growing subscriber base and revenue contribution. Average revenue per user is holding steady at about RM80 to RM81 per month.

To be sure, P1 is still grappling with its fair share of problems with network congestion. But market observers are optimistic it will be able to hold its own in the increasingly competitive broadband market. The ability to bundle fixed and mobile broadband services at an attractive cost per megabit is a strong advantage, particularly once the company expands its coverage area to 65% of the population by 2012.

Separately, the company’s software and solutions business has been doing well on the back of rising worldwide sales for its licences and “Customer Premise Equipment” (CPE). The company has sold nearly as many CPE in the first nine months of 2010 — with sales of over 231,000 units — as the whole of 2009. It has orders in hand for over 530,000 units. The company is also upbeat on the progress made in the lucrative US software market, which it hopes will come to fruition in 2011.

Rising contributions from the software and solutions arm will help bolster the company’s bottom line.

EPMB ... Dec10

OSK Research

Toning Down Estimates

Save for its YTD exceptional gain amounting to RM7.70m, EPMB’s earnings continued to disappoint in view of our bullish expectations earlier, accounting for only 56% of our full-year forecast. While we continue to like its earnings prospects in view of the favorable outlook for the automotive sector for 2011-2012, we have
nevertheless decided to trim our earnings for FY10 by 23% and 3%-4% for FY11-FY12. Pegging the stock at a lower PE of 6x (as opposed to 7x earlier), we downgrade our TP to RM0.68 (from RM0.82) although our BUY call is maintained.

Weighed down by higher depreciation. In tandem with the drop in TIV, EPMB’s revenue declined by 6% q-o-q, but due to the low base affect in 2009, the auto parts maker managed to chalk up revenue growth of 35% YTD owing to the higher production at its auto parts and water meter divisions. This boosted core earnings by 99.3% over the corresponding 9MFY10. Save for the exceptional gain of RM7.7m YTD (from the write back of over-provision for intangible assets), EPMB’s core 9MFY10 earnings of RM9.09m fell
short of our estimates, making up only 56% of our full-year forecast even though revenue was in line.

Heavy depreciation cost. We feel the higher-than-expected costs incurred were attributed to higher depreciation and amortization costs for the new Perodua parts assembly line, noting that its 9MFY10 cash flow from operations increased remarkably from RM44m to RM70m YTD. We note that EPMB’s depreciation policy is based on production output. In view of the fact that the bulk will be depreciated over the first year of completion of the assembly line, we expect depreciation to gradually decline moving forward.

Margins continue to improve. EPMB continued to see sequential improvement in margins, which are now at their highest level, thanks to higher economies of scale and narrowing losses from its water meter division and lower interest expenses. EPMB’s YTD core net profit margin currently stands at a high of 3.69% as opposed to last year’s 1.35%.

Shaving off earnings on lower expectations. With the 2010 results remaining sluggish given the slower 4Q and profit shortfall, we trim our earnings estimates for FY10 by 23% and 3-4% for FY11-FY12. This consequently trims our TP to RM0.68 (from RM0.82) premised on its FY11 earnings, which we now peg at a lower PE of 6x (previously 7x based on sector PE) in view of its small market cap of only RM84.6m and high net gearing of 78% (although we note this has fallen from 1x early this year). Given the stock’s attractive
upside of 36%, we continue to maintain our BUY call on the company.

Tenaga ... Dec10

 

Energy, Green Technology and Water Minister Datuk Seri Peter Chin Fah Kui said there would not be a tariff hike for now (Dec 2010). Chin said it would be up to the Economic Council chaired by the Prime Minister, to decide. Earlier, a news report that the Cabinet had agreed in agreed in principle to a revision of electricity tariff but the implementation date has not been decided yet.

Meanwhile Tenaga is confident that it could maintain its profitability for the financial year ending Aug 31 2010 barring higher coal prices continues to climb higher and breach US$110 a tonne.

The demand for electricity was able to mitigate against the increasing coal prices.

At the current coal price (mid Dec 2010), it can hopefully maintain its profitability for the rest of the financial year. However, it might have to seek a review of electricity tariff if the coal prices continue to climb.

Che Khalib said Tenaga would make an appeal for a tariff revision if it could not sustain the rising coal prices.

Its room to manoeuvre itself in the current (Dec 2010) high energy price, especially that of coal, is getting smaller, and it seems likely that it will ask the government to review the electricity tariff.

TNB is still able to absorb the increase in fuel prices but should they continue to rise, the power company's bottom line will definitely be hurt. TNB is planning to hold discussions with the government should the situation become unbearable.

Should there be no electricity tariff hike, TNB must go back to the government to justify its cost of operations.

At present, the price of coal in the global market hovers between US$100 and US$110 (RM314 and RM345) a tonne, well above its benchmark of US$85 (RM267).

Meanwhile Tenaga wants to develop a power plant in Yemen after signing a collaborative agreement with the latter’s National Trading Company (NATCO).

NATCO is the wholly-owned subsidiary of the Hayel Saeed Anan (HSA) Group, and is Yemen’s largest trading and contracting company. It recently won a government tender to build a 90 megawatt power generation plant.
Yemen currently has a shortfall in electric generating capacity and it is estimated that only 40 percent of Yemenis have access to electricity from the national power grid.

TNB’s role in the project had yet to be determined but could include building the plant. The government was looking to build another generating plant at the Port of Aden for industrial use, although details about the plan had yet to be released.
Tenaga, together with NATCO, would be involved in other power generation, distribution and personnel training projects in Yemen.

Tenaga has been actively pursuing projects in the Middle East and is one of the contenders for Saudi Arabia’s US$1.8 billion Qurayyah power plant.

IPO ... SSB

Prominent Sarawakian Datuk Abdul Hamed Sepawi could make another mark on the local bourse with a proposed listing of a radio frequency identification (RFID) group called Smartag Solutions Bhd (SSB) on the ACE market.

Hamed is the largest shareholder of SSB with a 30% direct stake and sits on the board of SSB. He holds a diverse set of businesses in his portfolio, including timber, property development and oil and gas.

These include stakes and directorships in Main Market-listed Ta Ann Holdings Bhd, Sarawak Plantation Bhd, Sarawak Energy Bhd and Naim Holdings Bhd.

Hamed was also listed in Forbes magazine’s “Malaysia’s 40 richest” in May this year, ranking at No 39 with an estimated net worth of US$120 million (RM376.8 million).

SSB has proposed a public issue of 57 million new ordinary shares, or 25.11% of the enlarged and issued share capital. Of this, 50 million shares will be up for private placement, five million shares are allocated for eligible directors and employees, and two million shares for the public.

The initial public offering (IPO) price and timeline are yet to be determined.

Some 50% of the proceeds will be used for project related capital expenditure, 20% on working capital, 19% research and development purposes and the remaining 11% for listing expenses.

For the eight months ended May 31, SSB registered RM12.77 million in revenue, sharply lower than the RM33.21 million posted in the preceding eight-month period.

This was attributed to lower sales value of its RFID solutions. However, profit before tax this year was higher at RM7.47 million compared with RM5.71 million in the corresponding period.

Cash and cash equivalent stood at RM1.3 million with a very low debt of RM354,000. Shareholders’ equity stood at RM25.72 million.

SSB was founded in 2004. Historically, the group’s revenue is derived from RFID projects and sales to its resellers.

The company said it is aiming to generate recurring revenue through further developing its RFID applications at land and port checkpoints. The first commercialisation of land checkpoints will be in Thailand.

The company will also offer RFID as a subscription service, and plans to delve into courier services and record management.

SSB currently owns its own intellectual properties in RFID.

Petra Perdana/SapCrest ... Dec10

Petra Perdana’s share price should have hit bottom (0.74) after consolidating for some two months.

Going forward, the appreciation in its share price would be news-driven.

Petra had successfully completed its three-for-eight rights issue exercise, which had been viewed negatively by some investors.

Also, there is unlikely to be a further downgrade by MARC on its RM800 million dual currency revolving facility in the immediate term since the rating was done just recently.

Finally, the 2QFY10 quarter was possibly the worst for the company when it reported a net loss of RM33 million. It managed to improve its performance in 3QFY10 by narrowing the loss by 28% quarter-on-quarter (q-o-q).

It had awarded hook-up and commissioning job worth RM400 million to its 29.6% associate, Petra Energy, which may be chartering workbarges and workboats from Petra Perdana since most of Petra Energy’s vessels are currently busy servicing its Shell maintenance contract and the award of marginal oilfield contracts such as the Sepat oilfield to its associates’ competitors which may not have enough assets to support those operations giving rise to demand for the company’s workbarges and workboats.

Also the Employees Provident Fund acquired 254,200 shares on Nov 25 2010, and raised its stake in the company to 41.77 million shares representing 9.09% direct and 0.19% interests.

Sources also say SapCrest has hired investment bankers to look into a potential asset

expansion exercise that includes the possibility of acquiring oil and gas companies.

The bakers are working on the job, the possible scenarios they are looking into include acquiring loss making oil and gas players such as Petra Perdana Bhd.

SapCrest is sitting in a net cash position. The company had cash of rm691 million while borrowings stood at rm614 million as at July 30, 2010. That leaves it with rm76.3 million.

On top of its net cash position, SapCrest is also ringing in good profits.

SapCrest substantial shareholders have also been picking up the stock. EPF had increased its stake to 8.22%.

Meanwhile it was reported that deep water development in the sector is expected to take off, with projects in the pipeline. Perhaps with potential jobs coming in from that segment, SapCrest could be looking at acquiring deep water assets.

SapCrest could be looking at expanding its business capacity by acquiring another player.

In July 2010, Petra Perdana placed out 10% of its shares to shipbuilder Nam Cheong Dockyard Sdn Bhd at RM1.32 per share. The company has also undertaken a rights and warrants issue. Assuming Nam Cheong takes up the right and warrants, its cost into Petra Perdana would translate into rm1.12 per share.

The company has a 29.6% stake in Petra Energy Bhd.

DRB-Hicom/POS ... Dec10

Sources say DRB-HICOM Bhd, which has put in a bid for Khazanah Nasional Bhd's 32% stake in Pos Malaysia Bhd, sees potential efficiency gains in the partnership.

The company, which has several concessions such as Alam Flora, Puspakom, Hicom Power and KL Airport Services, was also comfortable and familiar with operating units that had the Government's golden share.

It was reported in October 2010 that the planned divestment by Khazanah was taking longer than expected due to negotiations surrounding the Government's golden share in Pos Malaysia. Golden shares are typically held by the Government, giving it veto power in major decisions of the company.

Speculation Tan Sri Syed Mokhtar Albukhary was rumoured to be the frontrunner in the 32% stake sale, with the deal costing some RM700mil. Khazanah said it did not comment on market speculation. DRB-HICOM owns 70% of Bank Muamalat while the balance is held by Khazanah.

Industry observers say Syed Mokhtar was the potential suitor for Khazanah's divestment in Pos Malaysia, given that he was also a major shareholder of DRB-HICOM (under a private vehicle, Etika Strategi Sdn Bhd).

This would be a strategic fit in turning around Bank Muamalat and expanding the Islamic bank's presence by leveraging on Pos Malaysia's wide network of more than 1,000 post offices nationwide, comprising over 350 mini post offices and 224 independent postal agents.

Bank Muamalat Malaysia Bhd chief executive officer Datuk Mohd Redza Shah Abdul Wahid said it had not considered a strategic partnership with Pos Malaysia.

The strategic partnership could transform Pos Malaysia into a success story and was also in line with Malaysia's objective to transform the country into an Islamic banking hub.

The deal, valued at RM700mil, works out to be RM4.05 per share, representing a 21% premium over its current share price of RM3.35.

Industry observers see it as a lucrative deal for Syed Mokhtar, given the upside potential once the Postal Land Act is revised … Should there be a relaxation in the use of these parcels under the proposed amendments of the Act, which is to be tabled in parliament Dec 2010. If the revision is favourable in terms of land bank usage,

It would be a smart move on Syed Mokthar's part to acquire Khazanah's divestment before the parliament votes on the proposed amendments.

MKland ... Dec10

MK Land Holdings Bhd is not ruling out the possibilities of merging with other property players. However, he said the group had yet to receive any proposals. They would look at the potential value if such an opportunity arose.

Meanwhile, Lau said the group hopes to achieve better results in the current financial year ending June 30, 2011 (FY11) boosted by ongoing projects and new launches.

The group had achieved improved financial results year-on-year since FY08. For the first quarter ended Sept 30, MK Land posted a net profit of more than doubled to RM3.4mil from RM1.2mil a year ago. However, revenue for the period was lower at RM61.7mil against RM80.8mil previously. It posted a net profit of RM11.2mil on revenue of RM323.5mil in FY10.

Its main contributions would come from its projects in the Klang Valley as its other projects was somewhat weaker.

The group has also sold some of its assets and the cash generated was used to pare down its borrowings. It sold 23 acres of its land in Damansara Perdana and five acres of land in Cyberjaya.

The group had managed to pare down its debt to RM398mil as at June 30 from RM550mil in FY08 and intends to trim it further. Its gearing is 0.36 times.

The group had managed to lock-in over RM300mil from the sale of its land and joint venture projects.

The money from selling its land had come in but expects cash inflow from its joint ventures to flow in over a period of time.

The group still has capacity to borrow more.

MK Land has a total landbank of about 5,000 acres worth some RM800mil on its book. Some 4,000 acres of its land were in the northern part of peninsula.

Comic ....12DEC10

Comic ....11DEC10

Redtone ... Dec10

REDtone International Bhd will launch WiMAX services for the corporate market in peninsular Malaysia next year (2011) pending the apparatus assignment (AA) approval of the 2.6GHz band from Malaysian Communications and Multimedia Commission (MCMC).

It is pending MCMC approval and also subject to availability of [network] equipments. It has submitted a detailed business plan to MCMC and has gotten feedback from the commission. It is now in the midst of tweaking the details of the plan and hopes to conclude the exercise by early next year (2011).

REDtone intends to stay out of the consumer market in peninsular Malaysia as it is “highly competitive” and will build upon its expertise in the corporate market. As for network investment, the group did not foresee a significant investment as the core network has been built over the years.

The award of 20MHz on the 2.6 GHz frequency band bodes well for the group that had been running losses in its WiMAX operations being the sole WiMAX operator in East Malaysia.

For the financial year ended 31 May 2010, the group’s net losses narrowed to RM4.99 million from RM6.95 million a year ago. Revenue rose 3.5% year-on-year to RM82.21 million from RM79.42 million.

The losses were attributed to bad debts provision and write-off from associate company Ebtech and the loss-making operation in East Malaysia where the infrastructure cost is three times higher, coupled with a substantially smaller market. Expenses were also incurred for a rights issue to raise RM40.6 million in August and further seeding in the group’s Internet Protocol television (IPTV) business.
Redtone still has a healthy cash balance of RM48.95 million. Its total borrowings and overdrafts stood at RM12.53 million, which puts the group in a net cash position of RM36.42 million.

For long-term growth will be the broadband and data segment together with China operations in prepaid discounted call services. The group has a target to double the topline contribution from broadband and data space to 50% from the current 25% within five years.
Meanwhile, China has seen robust growth by contributing about 16.4% of revenue or RM13.46 million for FY2010 compared with RM7.36 million from the last financial year ended 31 May, 2009. Its call services now have around one million active users in Shanghai. The China operations offer the best profit margin for this financial year.

As for new areas, the group plans to offer niche Malay and Indian contents on its Chinese-centric IPTV that was launched early 2010.