Selamat Hari Raya to all my muslim ready and happy holiday to others. Drive safely who are on travel long distance.
Monday, August 29, 2011
Selamat Hari Raya and Happy Holiday
Selamat Hari Raya to all my muslim ready and happy holiday to others. Drive safely who are on travel long distance.
Tomei ... Aug11
Mercury Securities Sdn Bhd Research
PERFORMANCE – 2Q/FY11
Tomei’s 1H/FY11 revenue (first half ended 30th June 2011) was above our earlier expectations, while NPATMI (net profit after tax and minority interest) was within.
“1H revenue above expectations, NPATMI within”
The group’s revenue for 2Q/FY11 was RM117.7 million, an increase of 49.0% y-o-y from 2Q/FY10. This increase was mainly due to the improved consumers spending especially on gold investment products and also due to the higher retail gold prices. The acquisition of the brand “Goldheart” with 4 additional retail outlets also contributed positively to group revenue. Group NPATMI for 2Q/FY11 of RM6.4 million was an increase of 51.8% y-o-y.
Group revenue for 1H/FY11 was RM233.0 million, an increase of 39.8% versus 1H/FY10. Meanwhile, group NPATMI for 1H/FY11 was RM14.6 million, 29.1% higher versus 1H/FY10.
The group’s 2Q/FY11 revenue had increased slightly by 2.2% q-o-q versus 1Q/FY11. However, due to as increase in operational expenses brought about by additional new retail outlets, the group’s NPATMI had decreased by 22.6% q-o-q.
OUTLOOK/CORP. UPDATES
Tomei’s group revenues have been on the uptrend during the past few years. The domestic economy has been growing at a reasonable rate during the past year and we expect the group’s revenues to grow at a comfortable rate as well.
“Steady domestic growth”
Malaysia had reported a CPI of 3.4% (July 2011). In early July 2011, Bank Negara Malaysia (BNM) had maintained its overnight policy rate (OPR) at 3.0% but raised the statutory reserve requirement (SRR) for banks from 3% to 4% in order to rein-in inflationary pressures. According to BNM, Malaysia’s 2Q/2011 GDP rose by 4%, following a revised 4.9% GDP growth in 1Q/2011. At the moment, BNM is still expecting a full-year GDP growth of around 5.0% for Malaysia.
“Gold prices above US$1700/ounce”
Amidst economic weakness in the US and Europe, gold spot prices have gone above the US$1700/troy ounce level. The spot rate for gold traded on the NYMEX (New York Mercantile Exchange) is currently around US$1763/troy ounce. If global gold prices keep going higher, this could lead to a slight increase in Tomei’s revenues, given that the group sells gold bars and gold wafers (in denominations between 5g and 1kg). Gold bars, which are 999.9% pure gold, are commonly available between the 5g to 100g weight denominations.
Gold wafers, gold bars and gold-based jewellery are seen by some as a viable inflation-hedge or long-term investment option (e.g. as an alternative to term-deposits and government-issued bonds). Consumers nowadays have the option of investing in gold via commercial banks (via “gold investment accounts”) or even via MLM (multilevel-marketing) companies that may offer gold-based investment products (e.g. gold coins and gold bars). In some countries, gold-related investments could also be done via gold ETFs (exchange traded funds), gold certificates and gold-based derivatives. Nevertheless, gold jewellery are bought largely for ornamental usage e.g. for wedding dowry, ceremonial/formal functions and as gifts to spouses or close family members.
“Integrated Jeweller”
Tomei is an integrated designer, manufacturer, exporter and retailer in gold and jewellery. The group has a balanced focus on both gold and jewellery product segments. The group typically launches around 400 new designs per year and plans to spend around RM4 million for A&P campaigns during 2011. In July 2011, Tomei was given the Malaysian Brand Award by SIRIM and SME Corp.
Tomei plans to make inroads into increasingly affluent suburban locations, including in East Malaysia. Excitingly, the group had ventured into China and Vietnam, and may be exploring other regional markets as well. According to a press statement in May 2011, the group is aiming to expand further by opening more retail outlets this year, comprising 4 in Malaysia, 2 in Vietnam and 4 in China. For the expansion, the group plans to use RM25 million.
Currently, the group has around 64 retail outlets nationwide, 7 kiosks in China and 7 in Vietnam. In China, Tomei had expanded its retail kiosks beyond Shanghai into cities such as Shaoxin, Changsu, Wuxi and Guangzhou. In Vietnam, Tomei has set up a factory in Dong Nai (to manufacture jewellery for the local market as well as export market) while its retail kiosks are mainly centred Ho Chi Minh City and Hanoi.
“Online loyalty programme”
In May 2011, Tomei unveiled a cardless online jewellery loyalty programme named “Jewel Club”, which is reputedly the first of its kind in Malaysia. Membership is open to all Malaysians and working expatriates aged 18 and above. It serves to give customers more benefits and shopping privileges. The loyalty programme enables more savings when making purchases and provides information on promotions offered by all the group’s brands. The group has 5 major umbrella brands namely Tomei, My Diamond, TH Jewelry, Le Lumiere and Goldheart.
“Took over Goldheart’s Malaysian ops”
In March 2011, the group via its wholly-owned Tomei Gold & Jewellery Holdings (M) S/B had entered into a S&P Agreement with Goldheart Jewelry S/B to acquire Goldheart’s retail operations in Malaysia for a total cash consideration of RM5.6 million. Goldheart is a renowned brand for retail jewellery in Malaysia. From our market survey, we note that Goldheart is a popular retail destination for couples seeking wedding or engagement rings.
Goldheart has 4 retail outlets located in major shopping malls in Malaysia. The acquisition is part of Tomei’s business plan and expansion strategy to improve its market share in the retail jewellery industry. We believe that the group is still on the lookout for synergistic M&A opportunities within the industry. In May 2011, the group’s wholly-owned Tomei Retail S/B had acquired 100 shares of RM1 each representing 100%- equity interest in Goldheart (M) S/B and Goldheart Jewelry (M) S/B, for a total cash consideration of RM100 each.
VALUATION/CONCLUSION
Tomei had paid out its FY10 first and final single tier dividend of 3.3 sen per share (amounting to RM4.6 million) to shareholders in June 2011. In recent years, Tomei has managed to pay out dividends of at least 20% of its net earnings, and we foresee that Tomei would follow this trend of having a dividend payout ratio of around 20%.
“Steady dividend payout”
With an adjusted beta (correlation factor) of 0.88 to the KLCI, Tomei (-2.8%) has slightly outperformed the KLCI (-4.5%) this year. Market conditions have also been volatile in recent months, impacted by the Arab Spring uprisings in the Middle East/North Africa, sovereign debt issue in Europe, debt ceiling issue in the US and the Tohoku disaster in Japan. As Tomei is not a particularly large market-cap stock, this may put a dampener on its market visibility and trading volume.
“Maintain Buy Call”
Based on our forecast of Tomei’s FY11 EPS and estimated P/E of 4.5 times, we set a FY11-end Target Price (TP) of RM0.96. This TP represents a 39.3% upside from its current market price. Our TP for Tomei reflects a P/BV of 0.77 times over its FY11F BV/share. The domestic “Clothing & Accessories” sector’s average P/E and P/BV is 9.9 times and 0.78 times, respectively. Tomei’s P/E and P/BV valuations are very undemanding indeed.
“Undemanding Valuations”
We like Tomei due to its diversified business model (in terms of segment and location), reputable brand name, wide product range, strong design expertise, large retail network, calculated expansion strategy, reasonable dividend yield and solid ROE. In terms of business risks, Tomei does face routine risks from any economic downturn, consumer pessimism, uneven monthly sales (due to festive seasons), stiff peer competition, rapidly fluctuating gold prices and FX rates.
PERFORMANCE – 2Q/FY11
Tomei’s 1H/FY11 revenue (first half ended 30th June 2011) was above our earlier expectations, while NPATMI (net profit after tax and minority interest) was within.
“1H revenue above expectations, NPATMI within”
The group’s revenue for 2Q/FY11 was RM117.7 million, an increase of 49.0% y-o-y from 2Q/FY10. This increase was mainly due to the improved consumers spending especially on gold investment products and also due to the higher retail gold prices. The acquisition of the brand “Goldheart” with 4 additional retail outlets also contributed positively to group revenue. Group NPATMI for 2Q/FY11 of RM6.4 million was an increase of 51.8% y-o-y.
Group revenue for 1H/FY11 was RM233.0 million, an increase of 39.8% versus 1H/FY10. Meanwhile, group NPATMI for 1H/FY11 was RM14.6 million, 29.1% higher versus 1H/FY10.
The group’s 2Q/FY11 revenue had increased slightly by 2.2% q-o-q versus 1Q/FY11. However, due to as increase in operational expenses brought about by additional new retail outlets, the group’s NPATMI had decreased by 22.6% q-o-q.
OUTLOOK/CORP. UPDATES
Tomei’s group revenues have been on the uptrend during the past few years. The domestic economy has been growing at a reasonable rate during the past year and we expect the group’s revenues to grow at a comfortable rate as well.
“Steady domestic growth”
Malaysia had reported a CPI of 3.4% (July 2011). In early July 2011, Bank Negara Malaysia (BNM) had maintained its overnight policy rate (OPR) at 3.0% but raised the statutory reserve requirement (SRR) for banks from 3% to 4% in order to rein-in inflationary pressures. According to BNM, Malaysia’s 2Q/2011 GDP rose by 4%, following a revised 4.9% GDP growth in 1Q/2011. At the moment, BNM is still expecting a full-year GDP growth of around 5.0% for Malaysia.
“Gold prices above US$1700/ounce”
Amidst economic weakness in the US and Europe, gold spot prices have gone above the US$1700/troy ounce level. The spot rate for gold traded on the NYMEX (New York Mercantile Exchange) is currently around US$1763/troy ounce. If global gold prices keep going higher, this could lead to a slight increase in Tomei’s revenues, given that the group sells gold bars and gold wafers (in denominations between 5g and 1kg). Gold bars, which are 999.9% pure gold, are commonly available between the 5g to 100g weight denominations.
Gold wafers, gold bars and gold-based jewellery are seen by some as a viable inflation-hedge or long-term investment option (e.g. as an alternative to term-deposits and government-issued bonds). Consumers nowadays have the option of investing in gold via commercial banks (via “gold investment accounts”) or even via MLM (multilevel-marketing) companies that may offer gold-based investment products (e.g. gold coins and gold bars). In some countries, gold-related investments could also be done via gold ETFs (exchange traded funds), gold certificates and gold-based derivatives. Nevertheless, gold jewellery are bought largely for ornamental usage e.g. for wedding dowry, ceremonial/formal functions and as gifts to spouses or close family members.
“Integrated Jeweller”
Tomei is an integrated designer, manufacturer, exporter and retailer in gold and jewellery. The group has a balanced focus on both gold and jewellery product segments. The group typically launches around 400 new designs per year and plans to spend around RM4 million for A&P campaigns during 2011. In July 2011, Tomei was given the Malaysian Brand Award by SIRIM and SME Corp.
Tomei plans to make inroads into increasingly affluent suburban locations, including in East Malaysia. Excitingly, the group had ventured into China and Vietnam, and may be exploring other regional markets as well. According to a press statement in May 2011, the group is aiming to expand further by opening more retail outlets this year, comprising 4 in Malaysia, 2 in Vietnam and 4 in China. For the expansion, the group plans to use RM25 million.
Currently, the group has around 64 retail outlets nationwide, 7 kiosks in China and 7 in Vietnam. In China, Tomei had expanded its retail kiosks beyond Shanghai into cities such as Shaoxin, Changsu, Wuxi and Guangzhou. In Vietnam, Tomei has set up a factory in Dong Nai (to manufacture jewellery for the local market as well as export market) while its retail kiosks are mainly centred Ho Chi Minh City and Hanoi.
“Online loyalty programme”
In May 2011, Tomei unveiled a cardless online jewellery loyalty programme named “Jewel Club”, which is reputedly the first of its kind in Malaysia. Membership is open to all Malaysians and working expatriates aged 18 and above. It serves to give customers more benefits and shopping privileges. The loyalty programme enables more savings when making purchases and provides information on promotions offered by all the group’s brands. The group has 5 major umbrella brands namely Tomei, My Diamond, TH Jewelry, Le Lumiere and Goldheart.
“Took over Goldheart’s Malaysian ops”
In March 2011, the group via its wholly-owned Tomei Gold & Jewellery Holdings (M) S/B had entered into a S&P Agreement with Goldheart Jewelry S/B to acquire Goldheart’s retail operations in Malaysia for a total cash consideration of RM5.6 million. Goldheart is a renowned brand for retail jewellery in Malaysia. From our market survey, we note that Goldheart is a popular retail destination for couples seeking wedding or engagement rings.
Goldheart has 4 retail outlets located in major shopping malls in Malaysia. The acquisition is part of Tomei’s business plan and expansion strategy to improve its market share in the retail jewellery industry. We believe that the group is still on the lookout for synergistic M&A opportunities within the industry. In May 2011, the group’s wholly-owned Tomei Retail S/B had acquired 100 shares of RM1 each representing 100%- equity interest in Goldheart (M) S/B and Goldheart Jewelry (M) S/B, for a total cash consideration of RM100 each.
VALUATION/CONCLUSION
Tomei had paid out its FY10 first and final single tier dividend of 3.3 sen per share (amounting to RM4.6 million) to shareholders in June 2011. In recent years, Tomei has managed to pay out dividends of at least 20% of its net earnings, and we foresee that Tomei would follow this trend of having a dividend payout ratio of around 20%.
“Steady dividend payout”
With an adjusted beta (correlation factor) of 0.88 to the KLCI, Tomei (-2.8%) has slightly outperformed the KLCI (-4.5%) this year. Market conditions have also been volatile in recent months, impacted by the Arab Spring uprisings in the Middle East/North Africa, sovereign debt issue in Europe, debt ceiling issue in the US and the Tohoku disaster in Japan. As Tomei is not a particularly large market-cap stock, this may put a dampener on its market visibility and trading volume.
“Maintain Buy Call”
Based on our forecast of Tomei’s FY11 EPS and estimated P/E of 4.5 times, we set a FY11-end Target Price (TP) of RM0.96. This TP represents a 39.3% upside from its current market price. Our TP for Tomei reflects a P/BV of 0.77 times over its FY11F BV/share. The domestic “Clothing & Accessories” sector’s average P/E and P/BV is 9.9 times and 0.78 times, respectively. Tomei’s P/E and P/BV valuations are very undemanding indeed.
“Undemanding Valuations”
We like Tomei due to its diversified business model (in terms of segment and location), reputable brand name, wide product range, strong design expertise, large retail network, calculated expansion strategy, reasonable dividend yield and solid ROE. In terms of business risks, Tomei does face routine risks from any economic downturn, consumer pessimism, uneven monthly sales (due to festive seasons), stiff peer competition, rapidly fluctuating gold prices and FX rates.
Friday, August 26, 2011
Nishin ... Aug11
WILSON & YORK Research
RESULTS REPORT
YTD 1H FY11 revenue rose 2.7% vs 1H FY10. The convex mirror segment grew more than 18% over the same period, continuing its good performance. Though operating margins are still slightly negative YTD
1H FY11, losses are getting smaller, and we may see a small profit for the full year. In light of the significant slowdown in the Japanese economy over 1H 2011, these results are reasonably good. NHR is looking to Europe for new distributors and customers, and is currently making fairly large promotional and marketing investments. These investments may take two to three quarters to bear fruit.
INVESTMENT RISKS
Risks to our recommendation and target price include: i) increases in the MYR exchange rate, ii) rising promotional costs, iii) a sharp slowdown in the general level of economic activity in the economies of the company’s trading partners, e.g. Japan, Taiwan, Singapore and South Korea, and iv) continued rises in stainless steel prices would be an additional concern.
RECOMMENDATION
Ni Hsin Resources Bhd is facing a number of challenges, however the current share price has discounted many of the headwinds. In addition, management has put in place a number of initiatives that are likely to
result in improved sales and higher factory utilisation. We rate the shares a BUY with a fair value of MYR 0.23.
The company’s up to date manufacturing assets alone are worth some MYR 0.15 per share. Thus there is not a great deal of downside for the shares at current levels. The balance sheet is very clean, and management
has been able to operate the company at minimal losses given the severe damage to the Japanese economy. Moreover, should stainless steel prices come off, or capacity utilisation increase in the quarters ahead,
net margins would likely double or triple from their current levels.
COMPANY PROFILE
Ni Hsin Resources Bhd (“NHR”) is one of the leading cookware manufacturers listed in Malaysia. The company has its roots in Taiwan, and was incorporated in Malaysia in 1989 and listed in 2005. About 20% of total revenue is realised in Malaysia, with Japan, Taiwan, Singapore, and South Korea accounting for the lion’s share of the company’s substantial export revenue. Revenue this quarter comprised 53% cookware products, 20% convex mirror and 27% clad metals.
RESULTS REPORT
YTD 1H FY11 revenue rose 2.7% vs 1H FY10. The convex mirror segment grew more than 18% over the same period, continuing its good performance. Though operating margins are still slightly negative YTD
1H FY11, losses are getting smaller, and we may see a small profit for the full year. In light of the significant slowdown in the Japanese economy over 1H 2011, these results are reasonably good. NHR is looking to Europe for new distributors and customers, and is currently making fairly large promotional and marketing investments. These investments may take two to three quarters to bear fruit.
INVESTMENT RISKS
Risks to our recommendation and target price include: i) increases in the MYR exchange rate, ii) rising promotional costs, iii) a sharp slowdown in the general level of economic activity in the economies of the company’s trading partners, e.g. Japan, Taiwan, Singapore and South Korea, and iv) continued rises in stainless steel prices would be an additional concern.
RECOMMENDATION
Ni Hsin Resources Bhd is facing a number of challenges, however the current share price has discounted many of the headwinds. In addition, management has put in place a number of initiatives that are likely to
result in improved sales and higher factory utilisation. We rate the shares a BUY with a fair value of MYR 0.23.
The company’s up to date manufacturing assets alone are worth some MYR 0.15 per share. Thus there is not a great deal of downside for the shares at current levels. The balance sheet is very clean, and management
has been able to operate the company at minimal losses given the severe damage to the Japanese economy. Moreover, should stainless steel prices come off, or capacity utilisation increase in the quarters ahead,
net margins would likely double or triple from their current levels.
COMPANY PROFILE
Ni Hsin Resources Bhd (“NHR”) is one of the leading cookware manufacturers listed in Malaysia. The company has its roots in Taiwan, and was incorporated in Malaysia in 1989 and listed in 2005. About 20% of total revenue is realised in Malaysia, with Japan, Taiwan, Singapore, and South Korea accounting for the lion’s share of the company’s substantial export revenue. Revenue this quarter comprised 53% cookware products, 20% convex mirror and 27% clad metals.
Pmetal ... Aug11
Come 2012, Press Metal Bhd will be the largest aluminium smelter in terms of capacity in Southeast Asia.
Its first aluminium smelting plant in Mukah is already operational and its second facility in Samalaju Industrial Park, Similajau — both in Sarawak — is slated for commissioning by end-2012. The new plant in Samalaju will triple Press Metal’s smelting capacity to 360,000 tonnes from the current 120,000 tonnes produced at its Mukah plant.
This will put the group in a strong position to benefit from a re-acceleration of aluminium demand within Southeast Asia and contribute to the group’s earnings.
Malaysia could become the regional hub for the production of aluminium products. China, the biggest producer of aluminium products at present, is opposed to exporting and is selling its aluminium products domestically. Furthermore, the power cost in China is expensive; around US$75 [RM223.50] to US$85 per MWh, which is not competitive for smelting companies to set up their plants there. Even the [Chinese] government is not encouraging the industry to grow.
In April 2011, Press Metal was one of four companies which signed power purchase agreement (PPA) term sheets with the state utility Sarawak Energy Bhd (SEB) for the delivery of 1,300MW of power. With the Bakun dam, which commenced electricity production of 300MW in Aug 2011, smelters can enjoy relatively lower power cost in Sarawak than in China or anywhere else.
Press Metal enjoys an “early bird” advantage with its PPA with SEB. It is believed the company’s starting rates for its power supply are about 50% cheaper than that the average power cost of Chinese smelters; at between 11 sen to 12 sen per kWh with an annual escalation of 1.5%.
Most importantly, the PPA paves the way for Press Metal to lock in its long-term power requirements at an attractive rate — and undoubtedly elevate its competitive positioning as an integrated aluminium producer.
Press Metal has an advantage, having made the first move over its rivals as the first smelter operating within Sarawak. Other notable aluminium smelter proposals in the state include Smelter Asia Sdn Bhd’s 700,000 tonne per year smelter and Sarawak Aluminium Co Sdn Bhd’s 1.5 million tonne smelter, both in Similajau.
Apart from Press Metal, there has only been some tangible news flow on an MoU between Gulf International Investment Group Holdings Sdn Bhd (GIIG) and Aluminium Corp of China (Chalco) — which have proposed to set up a US$1.5 billion aluminium smelter in Samalaju which is slated to have an initial capacity of 370,000 tonnes per annum. This project is generally referred to as the Smelter Asia project.
Any new aluminium plant set up to rival Press Metal would probably only be ready in two to three years’ time. Plus, Press Metal would have enjoyed a cost advantage via the long-term electricity supply accord signed with SEB as mentioned earlier. Its first aluminium smelting plant in Mukah is already operational and its second facility in Samalaju Industrial Park, Similajau — both in Sarawak — is slated for commissioning by end-2012. The new plant in Samalaju will triple Press Metal’s smelting capacity to 360,000 tonnes from the current 120,000 tonnes produced at its Mukah plant.
This will put the group in a strong position to benefit from a re-acceleration of aluminium demand within Southeast Asia and contribute to the group’s earnings.
Malaysia could become the regional hub for the production of aluminium products. China, the biggest producer of aluminium products at present, is opposed to exporting and is selling its aluminium products domestically. Furthermore, the power cost in China is expensive; around US$75 [RM223.50] to US$85 per MWh, which is not competitive for smelting companies to set up their plants there. Even the [Chinese] government is not encouraging the industry to grow.
In April 2011, Press Metal was one of four companies which signed power purchase agreement (PPA) term sheets with the state utility Sarawak Energy Bhd (SEB) for the delivery of 1,300MW of power. With the Bakun dam, which commenced electricity production of 300MW in Aug 2011, smelters can enjoy relatively lower power cost in Sarawak than in China or anywhere else.
Press Metal enjoys an “early bird” advantage with its PPA with SEB. It is believed the company’s starting rates for its power supply are about 50% cheaper than that the average power cost of Chinese smelters; at between 11 sen to 12 sen per kWh with an annual escalation of 1.5%.
Most importantly, the PPA paves the way for Press Metal to lock in its long-term power requirements at an attractive rate — and undoubtedly elevate its competitive positioning as an integrated aluminium producer.
Press Metal has an advantage, having made the first move over its rivals as the first smelter operating within Sarawak. Other notable aluminium smelter proposals in the state include Smelter Asia Sdn Bhd’s 700,000 tonne per year smelter and Sarawak Aluminium Co Sdn Bhd’s 1.5 million tonne smelter, both in Similajau.
Apart from Press Metal, there has only been some tangible news flow on an MoU between Gulf International Investment Group Holdings Sdn Bhd (GIIG) and Aluminium Corp of China (Chalco) — which have proposed to set up a US$1.5 billion aluminium smelter in Samalaju which is slated to have an initial capacity of 370,000 tonnes per annum. This project is generally referred to as the Smelter Asia project.
For 1QFY11 ended March, Press Metal posted a net profit of RM21.49 million on the back of RM471.59 million in revenue. The company’s earnings per share for the three months in review was 4.98 sen. In contrast to a year ago, Press Metals net profit for 1Q slipped by a third despite revenue gaining about 20%.
Thursday, August 25, 2011
Century ... Aug11
Mercury Securities Sdn Bhd Research
Century’s 1H/FY11 results (6-month period ended 30th June 2011) were roughly within our earlier expectations.
“1H results within expectations”
Century recorded revenue of RM74.2 million for its 2Q/FY11, a slight decrease of 1.4% y-o-y. This was mainly due to the lower export shipments from the procurement logistics business segment. Nevertheless, group NPATMI (net profit after tax and minority interest) had increased by 15.8% y-o-y. This was mainly due to the increased business activities from a few new contract logistics corporate customers (e.g. Celcom Axiata, F&N Diaries and Midea Scott & English).
“Contract logistics expanding”
Looking at 1H/FY11 figures, Century recorded revenue of RM141.0 million, an increase of 4.4% from 1H/FY10. Group NPATMI for 1H/FY11 was RM15.1 million, an increase of 7.2% from 1H/FY10.
OUTLOOK/CORP. UPDATES
We remain optimistic on Century’s overall group performance during its FY11 ending 31st December 2011 in spite of the global economic situation. Furthermore, the group’s promising Procurement Logistics, Third Party Logistics (3PL) and Oil & Gas Logistics business segments are expected to perform favourably during the year.
“Concern - external environment”
According to the IMF’s (International Monetary Fund) June 2011 World Economic Outlook (WEO), economic activity is slowing down temporarily, downside risks have increased again and global expansion remains unbalanced. Growth in many advanced economies is still weak, considering the depth of the recent recession. In addition, the mild slowdown observed in the second quarter of 2011 is not reassuring. Growth in most emerging and developing economies continues to be strong. Overall, the global economy expanded at an annualized rate of 4.3% in the first quarter, and forecasts for 2011–12 are broadly unchanged.
However, IMF views that greater-than-anticipated weakness in U.S. activity and renewed financial volatility from concerns about the depth of fiscal challenges in the Euro area pose greater downside risks. Risks also draw from persistent fiscal and financial sector imbalances in many advanced economies, while signs of overheating are becoming increasingly apparent in many emerging and developing economies.
The latest available Malaysian economic data (June 2011) seemed to reveal a weakening in external demand. These data include: IPI (+1.0% y-o-y), Manufacturing Sales (+12.9% y-o-y), Exports (+8.6% y-o-y) and Imports (+6.3% y-o-y). Malaysia had reported stable 1Q/2011 unemployment rate of 3.1% and a CPI of 3.5% (June 2011). In early July 2011, Bank Negara Malaysia (BNM) had maintained its overnight policy rate (OPR) at 3.0% but raised the statutory reserve requirement (SRR) of 3% to 4% in order to rein-in inflationary pressures.
Century’s management continues to take the necessary measures to remain resilient, including focusing on providing value-added logistics solutions as well as maintaining cost efficiencies. The continued expansion of the group’s customer base for its supply chain solutions is encouraging. Century’s solid financial position and low gearing enables the group to maintain strong results as well as embarking on strategic acquisitions to enhance its earnings growth.
The group plans to expand its supply chain solutions offering, and are also focusing on increasing its participation in the oil and gas logistics activities, including diversification upstream and downstream of the sector. In oil and gas logistics, Century currently provides floating storage and trans-shipment services for international oil trading companies. Century also provides procurement logistics services to various multi-national electrical and electronics customers.
VALUATION/CONCLUSION
Century’s BOD (board of directors) had just declared a single tier interim dividend of 5 sen per share for its FY11 ending 31st December 2011. The 4 sen single tier final dividend for Century’s FY10 was paid on 10th June 2011.
“Consistent dividend payout”
Given Century’s strong earnings performance, we expect Century to maintain its recent dividend payout track record of at least 20% of its annual net profits.
With an adjusted beta (correlation factor) of 0.28 to the KLCI, Century (-8.6%) has outperformed the KLCI (-1.1%) this year. Market conditions have also been volatile in recent months, impacted by the Arab Spring uprisings in the Middle East/North Africa, the major Tohoku natural disaster in Japan, debt-ceiling issue in the US and sovereign debt issue in Europe. As Century is not an especially large market-cap stock at the moment, this may put a dampener on its market visibility and trading volume.
“Seriously Undervalued”
Based on our forecast of Century’s FY11 EPS and an estimated P/E of 6 times (within its historical range), we set a FY11-end Target Price (TP) of RM2.60. This TP represents an attractive 52.3% upside from its current market price. Our TP for Century reflects a P/BV of just 1.07 times over its FY11F BV/share. Meanwhile, the local Transportation Service sector’s average P/E and P/BV is 24.6 times and 1.37 times, respectively.
We like Century due to its rather diversified business model, calculated growth strategy, undemanding P/E and P/BV valuations, solid dividend yield and ROE. With a strong management team, dwindling gearing levels, tight cost-control and an efficient operational structure, Century is well poised to have a positive year ahead.
Nevertheless, there are possible routine risks to the logistics sector such as slowing global economic growth rates. The Arab Spring uprisings in the Middle East/North Africa and the Tohoku natural disaster in Japan could also impact international trade to a certain extent. Factors such as foreign exchange fluctuations, lowly sovereign debt ratings in certain European countries and the sustained high unemployment levels in the US could also dampen sentiment, demand and hence international trade levels.
Century’s 1H/FY11 results (6-month period ended 30th June 2011) were roughly within our earlier expectations.
“1H results within expectations”
Century recorded revenue of RM74.2 million for its 2Q/FY11, a slight decrease of 1.4% y-o-y. This was mainly due to the lower export shipments from the procurement logistics business segment. Nevertheless, group NPATMI (net profit after tax and minority interest) had increased by 15.8% y-o-y. This was mainly due to the increased business activities from a few new contract logistics corporate customers (e.g. Celcom Axiata, F&N Diaries and Midea Scott & English).
“Contract logistics expanding”
Looking at 1H/FY11 figures, Century recorded revenue of RM141.0 million, an increase of 4.4% from 1H/FY10. Group NPATMI for 1H/FY11 was RM15.1 million, an increase of 7.2% from 1H/FY10.
OUTLOOK/CORP. UPDATES
We remain optimistic on Century’s overall group performance during its FY11 ending 31st December 2011 in spite of the global economic situation. Furthermore, the group’s promising Procurement Logistics, Third Party Logistics (3PL) and Oil & Gas Logistics business segments are expected to perform favourably during the year.
“Concern - external environment”
According to the IMF’s (International Monetary Fund) June 2011 World Economic Outlook (WEO), economic activity is slowing down temporarily, downside risks have increased again and global expansion remains unbalanced. Growth in many advanced economies is still weak, considering the depth of the recent recession. In addition, the mild slowdown observed in the second quarter of 2011 is not reassuring. Growth in most emerging and developing economies continues to be strong. Overall, the global economy expanded at an annualized rate of 4.3% in the first quarter, and forecasts for 2011–12 are broadly unchanged.
However, IMF views that greater-than-anticipated weakness in U.S. activity and renewed financial volatility from concerns about the depth of fiscal challenges in the Euro area pose greater downside risks. Risks also draw from persistent fiscal and financial sector imbalances in many advanced economies, while signs of overheating are becoming increasingly apparent in many emerging and developing economies.
The latest available Malaysian economic data (June 2011) seemed to reveal a weakening in external demand. These data include: IPI (+1.0% y-o-y), Manufacturing Sales (+12.9% y-o-y), Exports (+8.6% y-o-y) and Imports (+6.3% y-o-y). Malaysia had reported stable 1Q/2011 unemployment rate of 3.1% and a CPI of 3.5% (June 2011). In early July 2011, Bank Negara Malaysia (BNM) had maintained its overnight policy rate (OPR) at 3.0% but raised the statutory reserve requirement (SRR) of 3% to 4% in order to rein-in inflationary pressures.
Century’s management continues to take the necessary measures to remain resilient, including focusing on providing value-added logistics solutions as well as maintaining cost efficiencies. The continued expansion of the group’s customer base for its supply chain solutions is encouraging. Century’s solid financial position and low gearing enables the group to maintain strong results as well as embarking on strategic acquisitions to enhance its earnings growth.
The group plans to expand its supply chain solutions offering, and are also focusing on increasing its participation in the oil and gas logistics activities, including diversification upstream and downstream of the sector. In oil and gas logistics, Century currently provides floating storage and trans-shipment services for international oil trading companies. Century also provides procurement logistics services to various multi-national electrical and electronics customers.
VALUATION/CONCLUSION
Century’s BOD (board of directors) had just declared a single tier interim dividend of 5 sen per share for its FY11 ending 31st December 2011. The 4 sen single tier final dividend for Century’s FY10 was paid on 10th June 2011.
“Consistent dividend payout”
Given Century’s strong earnings performance, we expect Century to maintain its recent dividend payout track record of at least 20% of its annual net profits.
With an adjusted beta (correlation factor) of 0.28 to the KLCI, Century (-8.6%) has outperformed the KLCI (-1.1%) this year. Market conditions have also been volatile in recent months, impacted by the Arab Spring uprisings in the Middle East/North Africa, the major Tohoku natural disaster in Japan, debt-ceiling issue in the US and sovereign debt issue in Europe. As Century is not an especially large market-cap stock at the moment, this may put a dampener on its market visibility and trading volume.
“Seriously Undervalued”
Based on our forecast of Century’s FY11 EPS and an estimated P/E of 6 times (within its historical range), we set a FY11-end Target Price (TP) of RM2.60. This TP represents an attractive 52.3% upside from its current market price. Our TP for Century reflects a P/BV of just 1.07 times over its FY11F BV/share. Meanwhile, the local Transportation Service sector’s average P/E and P/BV is 24.6 times and 1.37 times, respectively.
We like Century due to its rather diversified business model, calculated growth strategy, undemanding P/E and P/BV valuations, solid dividend yield and ROE. With a strong management team, dwindling gearing levels, tight cost-control and an efficient operational structure, Century is well poised to have a positive year ahead.
Nevertheless, there are possible routine risks to the logistics sector such as slowing global economic growth rates. The Arab Spring uprisings in the Middle East/North Africa and the Tohoku natural disaster in Japan could also impact international trade to a certain extent. Factors such as foreign exchange fluctuations, lowly sovereign debt ratings in certain European countries and the sustained high unemployment levels in the US could also dampen sentiment, demand and hence international trade levels.
Gpacket ... Aug11
It is confident of growing its subscriber base to 450,000 in 2011 for its 4G network and hopes to achieve positive Ebitda by year-end (2011).
In 2011 it will focused on growing its 4G penetration and coverage in Malaysia. They are targeting to have 1,600 sites by year-end (2011), 55% coverage in Peninsular Malaysia. They are also looking at an average revenue per user (Arpu) of RM61 in 2011.
Packet One Networks (M) Sdn Bhd (P1) had managed to achieve RM71 Arpu for 2QFY11 ended June 30 2011, which exceeded its target. P1 has also managed to grow its total subscribers to 338,000 from 274,000 at end 2010.
It posted net loss of RM15.24 million in the second uarter ended June 30, 2011 compared with losses of RM18.68 million a year ago, due to higher depreciation of plant and equipment.
In 2011 it will focused on growing its 4G penetration and coverage in Malaysia. They are targeting to have 1,600 sites by year-end (2011), 55% coverage in Peninsular Malaysia. They are also looking at an average revenue per user (Arpu) of RM61 in 2011.
Packet One Networks (M) Sdn Bhd (P1) had managed to achieve RM71 Arpu for 2QFY11 ended June 30 2011, which exceeded its target. P1 has also managed to grow its total subscribers to 338,000 from 274,000 at end 2010.
It posted net loss of RM15.24 million in the second uarter ended June 30, 2011 compared with losses of RM18.68 million a year ago, due to higher depreciation of plant and equipment.
Revenue rose 42% to RM127.80 million from RM90.01 million while loss per share was 2,3 sen versus 2,8 sen a year ago.
The 2Q11 loss after tax was higher than 2Q10 mainly attributed by higher depreciation of plant and equipment in accordance with the planned rollout of the broadband infrastructure even with higher revenue from software and broadband business.
Green Packet said for the first half, the net loss was RM34.24 million, narrowing by 21.3% from RM43.50 million in the previous corresponding period but revenue rose 41.1% to RM249.51 million from RM176.82 million.
Total accumulated losses at June 30 was RM317.35 million compared with RM302.11 million as at March 31.
The stronger financial position was due mainly to stronger sales of its modem devices and higher subscriptions for P1 WiMAX services. Modem sales grew 171% year-on-year to RM40.5 million, with 198,400 devices shipped in that quarter.
It managed to secure some new customers from its competitors in 2Q2011 which include Atheed, Wateen, Witribe, and Liberty.
It also sold 185,000 software licences in 2Q 2011.
P1 broadband revenue grew 31% year-on-year to RM68.6 million for 2Q on the back of 33,000 new subscribers with an Arpu of RM75.
For the cumulative six months ended June 30, Green Packet’s net loss shrank to RM34.25 million from RM43.5 million a year earlier. Revenue grew 41% to RM249.5 million from RM176.82 million.
It managed to add 64,000 subscribers in the first half-year (2011), which means that they are on track to hit 450,000 subscribers by year-end (2011). They currently have 338,000 subscribers.
The group has incurred RM679 million in capital expenditure (capex) so far 2011 and has allocated RM250 million for the next 12 months in order to grow the group’s businesses. The group had enough capital for this purpose as it had RM93 million in cash, and another RM232 milllion in bank and vendor financing facilities as at June 30 2011.
It also sold 185,000 software licences in 2Q 2011.
P1 broadband revenue grew 31% year-on-year to RM68.6 million for 2Q on the back of 33,000 new subscribers with an Arpu of RM75.
For the cumulative six months ended June 30, Green Packet’s net loss shrank to RM34.25 million from RM43.5 million a year earlier. Revenue grew 41% to RM249.5 million from RM176.82 million.
It managed to add 64,000 subscribers in the first half-year (2011), which means that they are on track to hit 450,000 subscribers by year-end (2011). They currently have 338,000 subscribers.
The group has incurred RM679 million in capital expenditure (capex) so far 2011 and has allocated RM250 million for the next 12 months in order to grow the group’s businesses. The group had enough capital for this purpose as it had RM93 million in cash, and another RM232 milllion in bank and vendor financing facilities as at June 30 2011.
Going Forward …
Although Green Packet reported a net loss of RM15.2 million for 2Q, the loss was lower than the previous corresponding period, when it reported a net loss of RM18.7 million. It was a similar story in 1QFY11, when Green Packet also saw its losses narrow to RM19 million from RM24.8 million.
It is the performance of its broadband segment, Packet One Networks (M) Sdn Bhd, which has been dragging down the company’s earnings. However, this is inevitable in any start-up company, especially in the fast-moving technology sector.
Break-even for P1 has been a moving target. Green Packet has previously indicated tentative deadlines as to when it expects P1 to be profitable. However, those times have come and gone. Currently, consensus is expecting Green Packet to see an earnings turnaround during the second half of FY11.
However, although the company has seen subscriber numbers increase as a result of an aggressive marketing campaign, infrastructure restraints have capped growth.
According to the notes accompanying 2QFY11, broadband services reported a net loss of RM73.6 million, an improvement on the RM82.9 million loss chalked up in the previous year’s corresponding quarter.
One of Green Packet’s core issues has always been bandwidth, it needs more bandwidth to offer better services... in terms of more complex offerings.
Currently, the telco sector is undergoing an evolution that sees an increase in the number of partnerships between the players. However, the most immediate development in the sector is the award of the new 2.6 Ghz spectrum. The award of the spectrum by the Malaysian Communications and Multimedia Commission is still pending. The players have already submitted their business plans to the MCMC and are now awaiting the award. The company is confident it will gain a portion of the spectrum.
It is the performance of its broadband segment, Packet One Networks (M) Sdn Bhd, which has been dragging down the company’s earnings. However, this is inevitable in any start-up company, especially in the fast-moving technology sector.
Break-even for P1 has been a moving target. Green Packet has previously indicated tentative deadlines as to when it expects P1 to be profitable. However, those times have come and gone. Currently, consensus is expecting Green Packet to see an earnings turnaround during the second half of FY11.
However, although the company has seen subscriber numbers increase as a result of an aggressive marketing campaign, infrastructure restraints have capped growth.
According to the notes accompanying 2QFY11, broadband services reported a net loss of RM73.6 million, an improvement on the RM82.9 million loss chalked up in the previous year’s corresponding quarter.
One of Green Packet’s core issues has always been bandwidth, it needs more bandwidth to offer better services... in terms of more complex offerings.
Currently, the telco sector is undergoing an evolution that sees an increase in the number of partnerships between the players. However, the most immediate development in the sector is the award of the new 2.6 Ghz spectrum. The award of the spectrum by the Malaysian Communications and Multimedia Commission is still pending. The players have already submitted their business plans to the MCMC and are now awaiting the award. The company is confident it will gain a portion of the spectrum.
Meanwhile, Green Packet is “confident” of getting a portion of the 2.5GHz/2.6GHz spectrum announced by Malaysian Communications and Multimedia Commission.
While the industry waits for the announcement about the 2.6 Ghz spectrum, Green Packet is currently in talks with Telekom Malaysia Bhd (TM) to ride its high-speed broadband backbone. Embarking on this kind of wholesale agreement with TM would offer Green Packet better access to customers. The company hopes to enter into a memorandum of understanding with TM soon.
Another positive sign is Green Packet explaining in the note to its earnings that the losses were the result of its plant and equipment in accordance with the planned rollout of its broadband infrastructure.If the company chooses to front-load the depreciation of its equipment, which is what Digi.Com Bhd has also chosen to do, you will then see an impact on its numbers, even though it is a non-cash item. However, the company can be applauded for taking a more conservative stance.
Even so, there is no question Green Packet will continue to face intense competition as other players step up to the plate. Aside from the three main telcos, YTL Communications Sdn Bhd’s YES service is also gaining a lot of attention.
The fear is that in order to increase its subscribers P1 will have to increase its marketing efforts again, which means higher marketing costs. More subscribers also places P1’s network under strain that affects the network’s performance.
Industry observers said Green Packet is under pressure to deliver, especially considering that its major shareholder, South Korea’s SK Telecom, has invested substantially in the venture.
The fear is that in order to increase its subscribers P1 will have to increase its marketing efforts again, which means higher marketing costs. More subscribers also places P1’s network under strain that affects the network’s performance.
Industry observers said Green Packet is under pressure to deliver, especially considering that its major shareholder, South Korea’s SK Telecom, has invested substantially in the venture.
Wednesday, August 24, 2011
ECS ... Aug11
Mercury Securities Sdn Bhd research.
ECS ICT’s 1H/FY11 results (for 6-month period ended 30th June 2011) were slightly below our earlier expectations.
“Weaker contribution from ICT Distribution segment, but better contribution from Enterprise Systems”
ECS ICT recorded revenue of RM591.1 million in its 1H/FY11, which was slightly lower by 5.6% y-o-y. This was attributed to a weaker contribution by its ICT Distribution segment (particularly for notebook PCs). However, this drop in revenue was partly off-set by a better contribution from its Enterprise Systems segment.
Comparing y-o-y versus 2Q/FY10, group revenue in 2Q/FY11 was higher by 0.3%. However, group net profit after tax (NPAT) in 2Q/FY11 was lower by 28.2% y-o-y. This was attributable to the lower-margin product mix during 2Q/FY11.
OUTLOOK/CORP. UPDATES
According to International Data Corporation's (IDC) projections, the information and communications technology (ICT) industry in Malaysia is expected to grow at a rate of 9% for 2011. With this, as ECS ICT is a market leader in the local ICT distribution segment, we expect the group to perform positively during 2011. Furthermore, the group had secured a few new ICT leading brands for distribution during the year.
Malaysia had reported stable 1Q/2011 unemployment rate of 3.1% and a CPI of 3.5% (June 2011). In early July 2011, Bank Negara Malaysia (BNM) had maintained its overnight policy rate (OPR) at 3.0% but raised the statutory reserve requirement (SRR) of 3% to 4% to rein-in inflationary pressures.
MSC Malaysia is the national ICT initiative to position the country as one of the world's ICT hubs by attracting local and international companies from various ICT disciplines under the care of the government-owned Multimedia Development Corp (MDeC). According to MDeC, under MSC’s Phase Three (2011-2020), Malaysia’s ICT revenues are expected to increase by 37% to RM142 billion and exports by 75% to RM58 billion.
“Expanding range of ICT brands/products”
ECS ICT’s management is selective on the brands and products that the group chooses to distribute. In order to keep its inventory turnover fast and to meet the expectations of major ICT principals, ECS ICT prefers to distribute popular products, especially those belonging to major brands. ECS ICT’s management plans to continue increasing its product range and also to further develop its higher-margin Enterprise System business segment.
In recent months, ECS ICT had managed to secure the distribution rights for a range of products from major ICT suppliers, such as Samsung (notebooks and tablet PCs), YTL Communications (YES 4G devices) and Dell (desktop PCs, notebooks, gaming and enterprise solutions).
“Targeting Exciting Tablet PC market”
ECS ICT is aiming to be the market leader in the distribution of tablet PCs in Malaysia, targeting to achieve a market share of around 30-40%. Currently, ECS ICT is the distributor of tablet PCs for Samsung, Apple, ASUS and Lenovo. The tablet PC is a relatively new PC segment and is currently the most exciting and fastest growing PC segment globally.
ECS ICT is anticipating a rise in Apple iPad sales once larger shipments arrive during 2H/2011. Meanwhile, the 7-inch Samsung Galaxy Tabs have been selling well sine 1Q/2011. Better sales are expected when Samsung launches the new 10-inch Galaxy Tab 2 during August 2011.
Additionally, ECS ICT had reported strong sales for the ASUS EEE Pad Transformer. In June 2011, ECS ICT’s 100%-owned ECS Astar Sdn Bhd signed an agreement with Lenovo to distribute laptops, desktops and workstations in Malaysia. ECS is the exclusive distributor for Lenovo IdeaPad tablet PCs in Malaysia. The first IdeaPad shipment is expected to arrive in August 2011. Higher sales are expected upon the launch of the new IdeaPad K1 in the Malaysian market.
VALUATION/CONCLUSION
ECS ICT had paid out a single tier final dividend of 4 sen per share, totaling RM4.8 million (for its FY10 ended 31st December 2010) on 14th June 2011. The group’s total net dividend payout for FY10 amounted to 8 sen per share, which constituted more than 30% of group NPAT in FY10. For FY11, we expect that ECS ICT would pay out at least the same level of dividends as in its FY10.
With a relatively close adjusted beta of 0.94 to the KLCI, ECS (+3.8 YTD) has managed to outperform the KLCI (+1.8% YTD) slightly this year. In recent months, global equity markets have been impacted by events such as the sovereign debt situation in Europe, the Tohoku disaster in Japan, the “debt ceiling” issue in the US and also the “Arab Spring” upheavals in the Middle East/ North Africa. As ECS is not an especially large market-cap stock, this may put a dampener on its market visibility and trading volume.
“Maintain Buy Call”
Based on our forecast of ECS’s FY11 EPS and estimated P/E of 6 times, we set a FY11-end Target Price (TP) of RM1.59. This TP represents a Buy Call and offers a reasonable 15% upside from its current market price. Our TP for ECS reflects a P/BV of 1.1 times over its FY11F BV/share. Meanwhile, Bloomberg data shows that the “Computer Services” sector’s average P/E and P/BV is 20.3 times and 1.4 times, respectively.
We have been conservative in our estimate for ECS ICT’s FY11 revenue and earnings. Nevertheless, we would revise our forecasts accordingly if ECS ICT obtains a stronger contribution from Enterprise Systems or tablet PCs during its 2H/FY11.
ECS ICT is well poised to grow organically, taking into account its market leadership position, range of ICT products, extensive distribution infrastructure, partnerships with key ICT principals, strong technical support team and effective financial management systems. We find that ECS ICT’s P/E and P/BV valuations are undemanding. Additionally, the group’s dividend yield and ROE are also quite attractive, while it is in a net cash position.
Typical for any ICT business, ECS’ future earnings performance could be affected by – possible fluctuations in economic conditions, business and consumer sentiment, and also factors such as foreign exchange translation, increased peer competition, issues with account receivables, increased inventory turnover days, slim margins and market acceptance of various ICT products.
ECS ICT’s 1H/FY11 results (for 6-month period ended 30th June 2011) were slightly below our earlier expectations.
“Weaker contribution from ICT Distribution segment, but better contribution from Enterprise Systems”
ECS ICT recorded revenue of RM591.1 million in its 1H/FY11, which was slightly lower by 5.6% y-o-y. This was attributed to a weaker contribution by its ICT Distribution segment (particularly for notebook PCs). However, this drop in revenue was partly off-set by a better contribution from its Enterprise Systems segment.
Comparing y-o-y versus 2Q/FY10, group revenue in 2Q/FY11 was higher by 0.3%. However, group net profit after tax (NPAT) in 2Q/FY11 was lower by 28.2% y-o-y. This was attributable to the lower-margin product mix during 2Q/FY11.
OUTLOOK/CORP. UPDATES
According to International Data Corporation's (IDC) projections, the information and communications technology (ICT) industry in Malaysia is expected to grow at a rate of 9% for 2011. With this, as ECS ICT is a market leader in the local ICT distribution segment, we expect the group to perform positively during 2011. Furthermore, the group had secured a few new ICT leading brands for distribution during the year.
Malaysia had reported stable 1Q/2011 unemployment rate of 3.1% and a CPI of 3.5% (June 2011). In early July 2011, Bank Negara Malaysia (BNM) had maintained its overnight policy rate (OPR) at 3.0% but raised the statutory reserve requirement (SRR) of 3% to 4% to rein-in inflationary pressures.
MSC Malaysia is the national ICT initiative to position the country as one of the world's ICT hubs by attracting local and international companies from various ICT disciplines under the care of the government-owned Multimedia Development Corp (MDeC). According to MDeC, under MSC’s Phase Three (2011-2020), Malaysia’s ICT revenues are expected to increase by 37% to RM142 billion and exports by 75% to RM58 billion.
“Expanding range of ICT brands/products”
ECS ICT’s management is selective on the brands and products that the group chooses to distribute. In order to keep its inventory turnover fast and to meet the expectations of major ICT principals, ECS ICT prefers to distribute popular products, especially those belonging to major brands. ECS ICT’s management plans to continue increasing its product range and also to further develop its higher-margin Enterprise System business segment.
In recent months, ECS ICT had managed to secure the distribution rights for a range of products from major ICT suppliers, such as Samsung (notebooks and tablet PCs), YTL Communications (YES 4G devices) and Dell (desktop PCs, notebooks, gaming and enterprise solutions).
“Targeting Exciting Tablet PC market”
ECS ICT is aiming to be the market leader in the distribution of tablet PCs in Malaysia, targeting to achieve a market share of around 30-40%. Currently, ECS ICT is the distributor of tablet PCs for Samsung, Apple, ASUS and Lenovo. The tablet PC is a relatively new PC segment and is currently the most exciting and fastest growing PC segment globally.
ECS ICT is anticipating a rise in Apple iPad sales once larger shipments arrive during 2H/2011. Meanwhile, the 7-inch Samsung Galaxy Tabs have been selling well sine 1Q/2011. Better sales are expected when Samsung launches the new 10-inch Galaxy Tab 2 during August 2011.
Additionally, ECS ICT had reported strong sales for the ASUS EEE Pad Transformer. In June 2011, ECS ICT’s 100%-owned ECS Astar Sdn Bhd signed an agreement with Lenovo to distribute laptops, desktops and workstations in Malaysia. ECS is the exclusive distributor for Lenovo IdeaPad tablet PCs in Malaysia. The first IdeaPad shipment is expected to arrive in August 2011. Higher sales are expected upon the launch of the new IdeaPad K1 in the Malaysian market.
VALUATION/CONCLUSION
ECS ICT had paid out a single tier final dividend of 4 sen per share, totaling RM4.8 million (for its FY10 ended 31st December 2010) on 14th June 2011. The group’s total net dividend payout for FY10 amounted to 8 sen per share, which constituted more than 30% of group NPAT in FY10. For FY11, we expect that ECS ICT would pay out at least the same level of dividends as in its FY10.
With a relatively close adjusted beta of 0.94 to the KLCI, ECS (+3.8 YTD) has managed to outperform the KLCI (+1.8% YTD) slightly this year. In recent months, global equity markets have been impacted by events such as the sovereign debt situation in Europe, the Tohoku disaster in Japan, the “debt ceiling” issue in the US and also the “Arab Spring” upheavals in the Middle East/ North Africa. As ECS is not an especially large market-cap stock, this may put a dampener on its market visibility and trading volume.
“Maintain Buy Call”
Based on our forecast of ECS’s FY11 EPS and estimated P/E of 6 times, we set a FY11-end Target Price (TP) of RM1.59. This TP represents a Buy Call and offers a reasonable 15% upside from its current market price. Our TP for ECS reflects a P/BV of 1.1 times over its FY11F BV/share. Meanwhile, Bloomberg data shows that the “Computer Services” sector’s average P/E and P/BV is 20.3 times and 1.4 times, respectively.
We have been conservative in our estimate for ECS ICT’s FY11 revenue and earnings. Nevertheless, we would revise our forecasts accordingly if ECS ICT obtains a stronger contribution from Enterprise Systems or tablet PCs during its 2H/FY11.
ECS ICT is well poised to grow organically, taking into account its market leadership position, range of ICT products, extensive distribution infrastructure, partnerships with key ICT principals, strong technical support team and effective financial management systems. We find that ECS ICT’s P/E and P/BV valuations are undemanding. Additionally, the group’s dividend yield and ROE are also quite attractive, while it is in a net cash position.
Typical for any ICT business, ECS’ future earnings performance could be affected by – possible fluctuations in economic conditions, business and consumer sentiment, and also factors such as foreign exchange translation, increased peer competition, issues with account receivables, increased inventory turnover days, slim margins and market acceptance of various ICT products.
Naim ... Aug11
Sarawak-based property developer Naim Holdings Bhd (Naim) is pursuing projects worth more than RM1 billion.
The projects Naim is bidding for include the construction of a road near Balingan, the new Mukah Airport as well as a 200-unit residential project at Samalaju.
The company is finalising the details of an integrated development project on 13ha of prime land within the Kuching city centre with an estimated gross development value (GDV) of RM1.5 billion.
Naim is also in the process of submitting designs for an integrated development within the 15ha old Bintulu Airport site with an estimated GDV of RM1.5 billion.
Naim has a 39% stake in a tripartite joint venture tasked with developing an integrated township near the proposed Samalaju Industrial Park — home to the bulk of the energy intensive industries under Score — set to be completed by 2013.
For its 1QFY11ended March 31, its net profit fell 43.8% quarter-on-quarter (q-o-q) and 12.6% year-on-year (y-o-y) to RM12.2 million while revenue fell 38% q-o-q and 2% y-o-y to RM120.9 million.
The decline has been attributed to slower progress billing in its property segment and the decline in margins, as well as the lack of new orders replenishment in the construction arm.
As at March 31, its net assets per share stood at 2.89 sen.
There are downside risks to Naim’s earnings this year due to low levels of unbilled property sales, reduction in its stake of the Sabah Oil and Gas Terminal (SOGT) from 30% to 10% and potentially disappointing job wins.
The projects Naim is bidding for include the construction of a road near Balingan, the new Mukah Airport as well as a 200-unit residential project at Samalaju.
The company is finalising the details of an integrated development project on 13ha of prime land within the Kuching city centre with an estimated gross development value (GDV) of RM1.5 billion.
Naim is also in the process of submitting designs for an integrated development within the 15ha old Bintulu Airport site with an estimated GDV of RM1.5 billion.
Naim has a 39% stake in a tripartite joint venture tasked with developing an integrated township near the proposed Samalaju Industrial Park — home to the bulk of the energy intensive industries under Score — set to be completed by 2013.
For its 1QFY11ended March 31, its net profit fell 43.8% quarter-on-quarter (q-o-q) and 12.6% year-on-year (y-o-y) to RM12.2 million while revenue fell 38% q-o-q and 2% y-o-y to RM120.9 million.
The decline has been attributed to slower progress billing in its property segment and the decline in margins, as well as the lack of new orders replenishment in the construction arm.
As at March 31, its net assets per share stood at 2.89 sen.
There are downside risks to Naim’s earnings this year due to low levels of unbilled property sales, reduction in its stake of the Sabah Oil and Gas Terminal (SOGT) from 30% to 10% and potentially disappointing job wins.
Naim is focusing more on properties and less on construction so it is moving its resources to properties as well as oil and gas.
The company’s order book, which amounts to RM3.2 billion, will sustain the company for the next three to four years.
Naim’s 1,025ha landbank, which will be developed into residential projects, as well as the utilisation of 17ha of land set aside for the Bintulu old airport, should not be overlooked. It also has plans to develop commercial and other properties in Kuching, Bintulu and Miri with a GDV of RM8.3 billion.
Naim’s subsidiary Naim Engineering Sdn Bhd has been shortlisted to bid for jobs under the multi-billion ringgit Prasarana MyRapid Transit project in the Klang Valley.
Naim has a 36% stake in oil and gas player Dayang Enterprise Holdings Bhd which it acquired in 2007.
Dayang Enterprise, through its subsidiaries, provides offshore maintenance services, minor fabrication services, offshore hookups as well as the commissioning and chartering of marine vessels to the oil and gas industry.
Dayang is expected to contribute 30% to 40% of Naim’s bottom line over the next three years.
Tuesday, August 23, 2011
IPO ... GAS Malaysia
GMSB’s principal activity includes selling marketing and distributing natural gas as well as constructing and operating the natural gas distribution system within Peninsular Malaysia. It has a network of natural gas pipelines connecting customers to the Peninsular Gas Utilisation transmission system owned and operated by PGB. As at July 20, 2011, the GMSB group has a network of gas pipelines which spans an accumulated length of approximately 1,800 kilometres across Peninsular Malaysia.
MMC Corp Bhd and the other shareholders of the profitable Gas Malaysia Sdn Bhd is undertaking a listing exercise which would involve an offer for sale of 26% of Gas Malaysia’s existing stake.
MMC-Shahpadu (Holdings) Sdn Bhd owns 55% or 353.108 million shares of Gas Malaysia, Tokyo Gas-Mitsui &Co (Holdings) Sdn Bhd 25% (160.503 million shares) and PetGas 20% (128.388 million shares).
Gas Malaysia posted net profit of RM298.27 million in the financial year ended Dec 31, 2010 compared with RM243.14 million in FY2009 and RM269.32 million in FY2008. Revenue was RM1.807 billion in FY2010, RM1.753 billion in FY2009 and RM1.879 billion in FY2008.
MMC’s cost of investment of its effective equity interest of 41.80% in Gas Malaysia since May 16, 1992 was RM18.88 million.
The listing exercise would involve the subdivision of one existing Gas Malaysia share of RM1,000 each into 2,000 shares of 50 sen each, increasing the paid-up from 642,000 existing ssares to 1.284 billion shares.
Gas Malaysia would issue to Petroliam Nasional Bhd one special rights redeemable preference share at an issue price of 50 sen. The shareholders comprising of MMC-Shapadu, Tokyo Gas-Mitsui and Petronas Gas would then offer for sale of 333.84 million Gas Malaysia shares or 26% of the paid-up. There would not be any issue of new Gas Malaysia shares.
147.678 million shares or 11.5% would be offered to Bumiputera institutional and selected investors and 155.820 million shares or 12.14% to Malaysian institutional and selected investors.
The institutional price to be paid by the institutional investors pursuant to the institutional offering is to be determined on the price determination date by way of a bookbuilding exercise.
Under the retail offering, the vendors proposed to offer 30.342 million shares (2.36% of the issued and paid-up share capital) of which 25.68 million shares (2%) would be offered to Malaysian citizens, companies, co-operatives, societies and institutions.
On the number of Gas Malaysia shares to be retained by MMC-Shapadu upon completion of the proposed IPO scheme, its interest would be diluted from 41.80% to 30.93%.
MMC Group stands to record a gain on disposal pursuant to the proposed offer for sale after the completion of the proposed IPO scheme but the quantum of gain can only be ascertained once the institutional price and the retail price have been determined.
The proceeds attributable to MMC by way of dividend payout by MMC-Shapadu will be 76.0% of the proceeds to be received by MMC-Shapadu after taking into account the listing expenses to be incurred in respect of the proposed offer for sale and the related portion of the cost of investment. The proceeds received by MMC are proposed to be utilised for repayment of financial commitments and working capital purposes.
The listing would accelerate the growth of the gas supply and distribution business of the GMSB group.
By creating a separate listed entity, it will provide GMSB with greater capital management flexibility and enable GMSB to optimise its capital structure and cost of capital by accessing the equity capital markets.
The listing would also enable it to pare down existing borrowings to further improve its capital structure.
The proceeds raised from the sale will accrue entirely to the offerors in proportion to the number of shares offered.
Tomei vs PohKong... Aug11
Tomei’s balance sheet shows that its inventory rose to rm270 million as at March 31, 2011 from rm196 million as at Dec 31, 2008. Its market cap however, is only about rm90 million (at 64.5 sen), barely one third the value of its gold inventory. Logically, its share price should trend in tandem with the price of gold as its inventory is mostly held in gold.
Poh Kong’s inventory was rm420 million as at April 30, 2011 compared with rm399 million as at April 30, 2008. At market cap of 41.5 sen, its market cap stood at 170 million.
The appreciation of the ringgit against the US dollar should be taken into account when accessing the price of gold locally. When the ringgit strengthens the price of gold actually drops in ringgit terms. However, currently the price of gold has increased at a much faster rate than the ringgit’s appreciation against the US dollar and thus is still much higher in ringgit terms.
Tomei’s net profit rose to rm21.3 million or 15.62 sen per share. Revenue surged to a record rm356 million.
The rather high borrowings of jewelers is one factor why their share prices do not climb as fast as the price of gold.
The stronger gold prices and higher value of inventories could come in handy in getting loans to expand.
Tomei’s gearing stood at 0.76 times as at March 31, 2011 based on short and long term borrowings of rm120 million and shareholders; equity of rm158 million. It had cash balance of rm5.9 million. After offsetting its debt obligation of rm120 million, Tomei’s inventory value (net of debt) is worth about rm150 million, this translates into rm1.08 per share.
As for Poh Kong, its gearing as at April 30, is 0.45 times based on long term and short term loans of rm150 million and total equity of rm335 million. Cash reserves amounted to rm26.1 million. Taking into account the rm150 million on its balance sheet, Poh Kong’s inventory, net of debt is about rm297 million which is equivalent to 72.5 sen per share.
Monday, August 22, 2011
IPO ... AirasiaX
Investment bank Morgan Stanley is expected to finalise the proposed valuation of the 10% stake in AirAsia X to be purchased by Khazanah Nasional Bhd and present it to the long-haul budget carrier's board by September 2011.
While it was too premature to put a price tag on the proposed purchase, Morgan Stanley had been appointed the deal adviser and was currently working on the deal valuation.
Khazanah will be issued new shares in AirAsia X and is expected to come in as a pre-initial public offering (IPO) investor of AirAsia X, ahead of the airline's plans to list in 2012.
In 2008, AirAsia X executed an agreement to place a 20% stake to Bahrain-based Manara Consortium and Japan's Orix Corp for US$75mil (or RM250mil). When the placement was done, it was one year after the long-haul low-cost carrier established operations. The valuation placed on AirAsia X's shares would be higher now (Aug 2011) given the growth and expansion in business experienced by the airline since.
In 2010, AirAsia X achieved a revenue of RM1.3bil with a net profit of RM80mil from carrying some 1.92 million passengers. The airline targets to touch RM2bil in revenue this year, owing to better ancillary income and higher yields, and carry some 2.7 million passengers.
AirAsia X now has a fleet of nine Airbus A330 and two Airbus A340 with a route network to 15 destinations globally.
Everything hinges on the valuation before Khazanah will look to accept the share purchase.
Khazanah's potential participation would signal the entry of a strong institutional investor into the company and would be used as a benchmark for the subsequent IPO price.
Current shareholders of AirAsia X include Aero Ventures Sdn Bhd (52%), AirAsia Bhd (16%), Corvina Holdings (10%), Orix Corp (11%) and Manara Consortium (11%) Malaysia Airlines (MAS), AirAsia and AirAsia X signed a collaboration agreement, whereby the outcome of the agreement will see MAS focus on being a full-service premium carrier, AirAsia on being a regional low-cost carrier (LCC) and AirAsia X, a medium-to-long-haul LCC.
MISC ... Aug11
Speculating that national carrier MISC Bhd may put in a bid for a fleet of eight liquefied natural gas (LNG) ships owned by shipping giant AP Moller Maersk.
The bids are understood to be due by end-August 2011, with initial estimates valuing the fleet at US$1.3 billion (RM3.9 billion) to US$1.7 billion. AP Moller is understood to have roped in Deutsche Bank to assist with the sale.
Four to seven offers have already been made for Maersk’s fleet of LNG ships, but details were kept “strictly under wraps”. The bidding is likely to be a competitive affair with many large companies looking to partake in the sale.
Sources say MISC has roped in Japanese giant Mitsui & Co for a possible joint bid.
MISC has a fleet of some 180 ships, with about 60 vessels chartered from other owners. Out of this fleet MISC has 29 LNG carriers, which are all owned by the national carrier.
Considering MISC is 62.7% owned by state controlled oil major Petroliam Nasional Bhd (Petronas), and the national carrier is the shipping arm of the oil giant, the acquisition makes sense.
Petronas is in the process of setting up an import or re-gasification terminal for LNG at Sungai Udang Melaka at a cost of RM3 billion. This initiative to import LNG could require more vessels on MISC’s part.
The bids are understood to be due by end-August 2011, with initial estimates valuing the fleet at US$1.3 billion (RM3.9 billion) to US$1.7 billion. AP Moller is understood to have roped in Deutsche Bank to assist with the sale.
Four to seven offers have already been made for Maersk’s fleet of LNG ships, but details were kept “strictly under wraps”. The bidding is likely to be a competitive affair with many large companies looking to partake in the sale.
Sources say MISC has roped in Japanese giant Mitsui & Co for a possible joint bid.
MISC has a fleet of some 180 ships, with about 60 vessels chartered from other owners. Out of this fleet MISC has 29 LNG carriers, which are all owned by the national carrier.
Considering MISC is 62.7% owned by state controlled oil major Petroliam Nasional Bhd (Petronas), and the national carrier is the shipping arm of the oil giant, the acquisition makes sense.
Petronas is in the process of setting up an import or re-gasification terminal for LNG at Sungai Udang Melaka at a cost of RM3 billion. This initiative to import LNG could require more vessels on MISC’s part.
Another shipping giant Mitsui OSK Lines (commonly known as MOL) is also said to have expressed interest in Maersk’s fleet of LNG carriers. Despite the similarity in name, Mitsui & Co and MOL do not any ties in terms of having similar shareholders.
Another Japanese outfit, Marubeni, is understood to be partnering Canadian shipping outfit Teekay Corp and seems likely to join in the race. Both companies have expressed an interest to grow their LNG-shipping assets.
Three other names that have cropped up include Russian giants Sovcomflot, GasLog of Greece and tycoon John Fredriksen’s Golar LNG. GasLog’s current CEO Jeppe Jensen was formerly head of Maersk LNG, and ordered the ships that are now being sold.
In 2009, Fredriksen was ranked the 132nd richest individual in the world and is said to be worth more than US$4 billion. Sovcomflot is Russia’s largest shipping company and is wholly owned by the state.
About 20 companies are understood to have shown interest, but those keen on buying the ships, taking the tender documents, have had to sign several confidentiality agreements.
However, there could be hurdles for the buyers of three of the eight vessels, as oil major Total has to approve the charters on these ships currently servicing Yemen’s LNG project, financed under a French tax lease.
Another Japanese outfit, Marubeni, is understood to be partnering Canadian shipping outfit Teekay Corp and seems likely to join in the race. Both companies have expressed an interest to grow their LNG-shipping assets.
Three other names that have cropped up include Russian giants Sovcomflot, GasLog of Greece and tycoon John Fredriksen’s Golar LNG. GasLog’s current CEO Jeppe Jensen was formerly head of Maersk LNG, and ordered the ships that are now being sold.
In 2009, Fredriksen was ranked the 132nd richest individual in the world and is said to be worth more than US$4 billion. Sovcomflot is Russia’s largest shipping company and is wholly owned by the state.
About 20 companies are understood to have shown interest, but those keen on buying the ships, taking the tender documents, have had to sign several confidentiality agreements.
However, there could be hurdles for the buyers of three of the eight vessels, as oil major Total has to approve the charters on these ships currently servicing Yemen’s LNG project, financed under a French tax lease.
Its earnings fell to RM121.07 million in the quarter ended June 30, 2011 from RM427.98 million a year ago as it was affected by losses in the petroleum business as freight rates fell.
Revenue declined to RM3 billion from RM3.27 billion. Earnings per share shrank to 2.70 sen from 9.6 sen.
The decline in its profit was mainly due to losses in the petroleum business due to the weakening freight rates and higher losses in the liner business.
As for the lower revenue, this was due to a decline in revenue from the heavy engineering and liner businesses. However, higher revenue from the chemicals and offshore businesses helped to cushion the impact.
The group’s liner losses are expected to widen as demand from China eases on monetary tightening.
Of late, demand has also shifted from sea to air, an indication that most container shipping companies have just missed the Christmas shipping season owing to the earlier global supply chain distribution following Japan’s earthquake.
MISC’s FY11 earnings outlook remained unexciting in anticipation of flat earnings from liquefied natural gas shipping while petroleum and chemical shipping is expected to face low charter rates and oversupply of vessels.
The potential de-rating catalysts being these poor results, weak near-term prospects for petroleum and chemical tanker freight rates, and swelling liner losses.
Expect tanker shipping rates to remain depressed owing to prevailing overcapacity and that the problem might be exacerbated by the weakening global economy. However, MISC’s chemical and offshore business to moderate the downside from its shipping.
As at end March 2011, the shipping company had RM3.35 billion in cash, while on the other side of the balance sheet, the company’s long-term debts amounted to RM10 billion and its short-term commitments stood at RM1.25 billion. The company’s shareholders’ funds as at end-March were RM23.07 billion.
Sunday, August 21, 2011
What should I do to marry a rich guy?
A young and pretty lady posted this on a popular forum: Title: What should I do to marry a rich guy?
I'm going to be honest of what I'm going to say here. I'm 25 this year. I'm very pretty, have style and good taste. I wish to marry a guy with $500k annual salary or above. You might say that I'm greedy, but an annual salary of $1M is considered only as middle class in New York. My requirement is not high. Is there anyone in this forum who has an income of $500k annual salary? Are you all married? I wanted to ask: what should I do to marry rich persons like you? Among those I've dated, the richest is $250k annual income, and it seems that this is my upper limit. If someone is going to move into high cost residential area on the west of New York City Garden(?), $250k annual income is not enough. I'm here humbly to ask a few questions:
1) Where do most rich bachelors hang out? (Please list down the names and addresses of bars, restaurant, gym)
2) Which age group should I target?
3) Why most wives of the riches are only average-looking? I've met a few girls who don't have looks and are not interesting, but they are able to marry rich guys.
4) How do you decide who can be your wife, and who can only be your girlfriend? (my target now is to get married)
Ms. Pretty
A philosophical reply from CEO of J.P. Morgan:
Dear Ms. Pretty, I have read your post with great interest. Guess there are lots of girls out there who have similar questions like yours. Please allow me to analyse your situation as a professional investor. My annual income is more than $500k, which meets your requirement, so I hope everyone believes that I'm not wasting time here.
From the standpoint of a business person, it is a bad decision to marry you. The answer is very simple, so let me explain. Put the details aside, what you're trying to do is an exchange of "beauty" and "money" : Person A provides beauty, and Person B pays for it, fair and square. However, there's a deadly problem here, your beauty will fade, but my money will not be gone without any good reason. The fact is, my income might increase from year to year, but you can't be prettier year after year.
Hence from the viewpoint of economics, I am an appreciation asset, and you are a depreciation asset. It's not just normal depreciation, but exponential depreciation. If that is your only asset, your value will be much worse 10 years later. By the terms we use in Wall Street, every trading has a position, dating with you is also a "trading position". If the trade value dropped we will sell it and it is not a good idea to keep it for long term - same goes with the marriage that you wanted.
It might be cruel to say this, but in order to make a wiser decision any assets with great depreciation value will be sold or "leased". Anyone with over $500k annual income is not a fool; we would only date you, but will not marry you. I would advice that you forget looking for any clues to marry a rich guy. And by the way, you could make yourself to become a rich person with $500k annual income.This has better chance than finding a rich fool. Hope this reply helps. If you are interested in "leasing" services, do contact me.
signed, J.P. Morgan CEO
Saturday, August 20, 2011
Bank Joint Account in Malaysia
"Just to share with you one recent article I read and shocked me a lot.
It happened in west Malaysia , about a husband and wife and one son.
The husband passed away due to accident.
The husband had a RM50,000 joint saving account
with wife in a local bank.
with wife in a local bank.
What happened is the wife ,like most people think, when husband passes away, she will get the money automatically since it is a joint account.
But to her surprise, She could not withdraw even a single cent from the bank.
Joint saving account is meant for convenience when spouse needs it the most.
But most people always assume once the other holder dies, another half will get the money automatically which is very wrong.
I would like to share my opinion with all of you, you may take it as educational thoughts or for you to be aware.
I would like to share my opinion with all of you, you may take it as educational thoughts or for you to be aware.
When one person dies, the other joint holder of the saving account will get the money automatically only if that particular bank practise 'JOINT TENANCY'.
This terms means one party die, the other joint party gets money automatically.
But unfortunately, not all banks practise JOINT TENANCY, some foreign banks practise and most local banks don't practise.
But unfortunately, not all banks practise JOINT TENANCY, some foreign banks practise and most local banks don't practise.
If you want to be sure, just ask your bank whether your joint saving account based on JOINT TENANCY.
If it is yes, get the black and white.
Can you all imagine, when husband passes away, the wife already suffers emotional loss. Now she will have to suffer the problem of having 'NO MONEY', although it is in joint account.
Can you all imagine, when husband passes away, the wife already suffers emotional loss. Now she will have to suffer the problem of having 'NO MONEY', although it is in joint account.
Because of husband's ignorance, now the wife and the son have to pay for it.
Hope the above can help for you.
Hope the above can help for you.
Just take note.