Gamuda ... Apr12

Alliance Research ...

It was announced that the MMC-Gamuda JV had been officially awarded the RM8.28bn tunnelling works for the MRT SBK line. Our forecasts have already factored in the job and we leave our earnings unchanged. We believe that this award puts the JV in a stronger position for the tunnelling works of the remaining 2 lines. In our view, the market has under-appreciated Gamuda’s tunnelling job win as its share price has underperformed the FBMKLCI by 4.4% since news of the MRT first broke out in mid-2010. Maintain BUY with unchanged TP of RM4.77.

What’s in the news
 Last Friday, it was announced on Bursa that the MMC-Gamuda JV had been officially awarded the tunnelling works for the MRT SBK line worth RM8.28bn.

 The contract involves the construction of tunnels with a length of 9.5km (Semantan North Portal to Maluri South Portal) and 7 underground stations.

Our comments
 This announcement does not come in as a surprise to us as MRT Corp had last month highlighted that the tunnelling works would be awarded to the JV.

 Our forecasts have already imputed RM8.2bn (RM4.1bn as Gamuda’s 50% share) worth of tunnelling works. To be prudent, we have assumed that works (and profit recognition) for the tunnelling works will only commence in FY13 (July). In terms of margins, we have assumed 18-20% at the gross level. Management had previously guided for PBT margins of 12%.

 With the JV bagging the SBK line tunnelling works, we believe this puts it in a good position to win the tunnelling packages for the Circle Line and North-South Line once it commences. The JV will be purchasing 10 tunnel boring machines (TBMs) costing EUR40-50m each bringing to total cost to RM1.6-2bn. As the TBMs can be used for the subsequent underground lines, this should put the JV in a better position to submit more competitive tenders.

 Aside the remaining 2 lines of the MRT, other potential jobs in the pipeline include the Southern Double Track (Gemas-JB) and Langat 2 water treatment plant. We expect to see some development on these jobs in 2H of the year.

Valuation and recommendation
 We make no changes to our estimates as the project has already been imputed. We feel that the market has under-appreciated the JV’s win of the tunnelling works. Since news on the MRT first broke out in mid-2010, Gamuda’s share price has surprisingly underperformed the KLCI by -4.4%.

 Gamuda’s currently trades at FY12-13 P/E of 13.8x and 12.8x respectively. This represents a steep discount to its long term 1-year forward P/E mean of 23.9x. We feel that too much “election risk” has been (irrationally) priced in.

 Maintain BUY with unchanged RM4.77 TP based on sum of parts valuation. Our TP implies FY12-13 P/E of 18.5x and 17.1x respectively.

MAS/Airasia ... Apr12

Sources say the controversial share swap between Khazanah and Tune Air Sdn Bhd in respect of their partial shareholding in MAS and Airasia Bhd respectively is off. The move is seen as Putrajaya giving in to the pressure piled on by the unions at MAS.

But sources say the comprehensive collaboration framework that spells out the areas which the airlines would work together for their common benefit remains intact.

It is unclear how Khazanah and Tune Air plan to unwind their positions, especially when there is a possibility that a MGO offer could be triggered if the shares are distributed back to their original owners.

Another matter that is likely to be deliberated at MAS next board meeting is a proposal to issue rm3 billion worth of Islamic perpetual binds that will help bridge the gap for its rm6 billion capex requirement in 2012.

The question remains as to whether the collaboration between MAS and Airasia will be less meaningful if there is no share swap.

On the subject of MAS issuing a rm3 billion Islamic perpetual bond, sources say KWAP is poised to take up most of the paper. Although there are no details on the coupon rate.

This mans that MAS would have to fork out a substantial amount for the interest repayment annually. But it should not be an issue as long as the airline gets better returns from investing the proceeds.

If Genting Singapore’s issuance is taken as a guide, the perpetual bonds will not have a maturity date and can be redeemed in whole, but at a date stipulated by the company.

As part debt, part equity, the holders of the perpetual bonds rank higher than the shareholders of the airline. If the perpetual bonds are convertible, the exercise will be dilutive to shareholders. The downside of the perpetual bonds is that they would be dilutive for existing shareholders and would impact MAS’s ability to pay dividends. But the airline has not been profitable, so the issue of shareholders losing out on dividends does not arise.

It will take a while for MAS’ largest shareholders, including Khazanah and the EPF, to enjoy any dividends from the airline.

Tune Air meanwhile will no longer be a shareholder with the unwinding of the share swap.

What is certain is that the rm3 billion fundraising will ease pressure on MAS’ cash pile of rm960 million as at Dec 31, 2011. It will also dismiss the possibility of a rights issue.

While MAS’ current cash pile of just less than the rm1 billion is enough to sustain it for four quarters, it is due to take delivery of 23 aircraft in 2012-2013.

Based on a catalogue price of rm640 million, this means MAS will have to come up with at least US$40 million for each A380 or about rm640 million for five A380s due for delivery in 2012.

In addition, MAS may have to fork out another rm415 million in cash to take up its RCPS due at end Oct 2012.

Market observers are concerned about MAS’ high gearing, with some estimating that the airline’s debt to equity ratio may even hit four times by 2013. If Genting SP’s issuance of perpetual bonds is taken as guidance, MAS’ geraing may be less than estimated.

In the case of Genting SP the perpetual bonds were structured to put less pressure on the company’s debt ratios. Even though the bonds are part debt in nature, from an accounting point of view, they can be treaded as 100% equity in Genting SP’s books.

Such an accounting treatment may work to the advantage of MAS, but it remains to be seen. MAS’ debt stood at rm5.67 billion as at Dec 31, 2011 of which close to RM3 billion is attributed to long term financing issue.

Although the rm3 billion perpetual bonds will give MAS some breathing space, all its not well at the ailing airline facing a hiccup in its BTP.

Furthermore, if there is a revamp of the MAS board following the unraveling of the share swap, it raises questions about the continuation of the airline’s business plan.

There are reasons why the CCF and the share swap were crafted in the first place; it was to stop the local airlines from fighting each other and to prepare them for the onslaught of competition when Asean implements the open-skies policy by 2015.

The carriers are getting prepared and are ahead of us by four or five steps while we are struggling. By unbundling the share swap we will be taking five steps backward.

The regional carriers were moving faster to position themselves ahead of 2015. Singapore Airlines (SIA) has both premium and low-cost airlines within its group to allow it to serve the low to high-end market. Thai Airways has done the same and Garuda is also getting there.

With the share swap, MAS could be the premium carrier and AirAsia, the low cost airline. Together they could have been a force to reckon with in the highly competitive environment. There are areas they could work together and compete at the same time.

The share swap and CCF were inked in August 2011.

Even if the share swap is called off, MAS and AirAsia will still need to work together as that is a global trend for airlines. Both may get into a memorandum of understanding (MoU) or a joint venture (JV) to work on areas that were identified in the CCF such as engineering, ground support, aircraft purchasing, cargo services and training. May be an MoU or JV is a better model given the objections to the share swap.

However, another source pointed out that “it would never be the same, as without a share swap there will be no economic alignment and the cooperation between the airlines will be limited”.

Any decision to unwind the share swap is not going to go down well for Malaysia Inc.

An unwinding of the share swap would mean AirAsia's Fernandes and Datuk Kamarudin Meranun may have to step down from the MAS board and also give up their 20% equity stake in the airline.

The AirAsia founding members were just trying to help to turn MAS around. AirAsia by itself is doing very well, so they could have done without a share swap.

An industry expert feels that MAS would continue to report losses if drastic steps are not taken to change the way things are done at the airline. MAS has to invest in short-term losses but it is for the long term gains. Cutting its workforce and network will not work as these are seen as quick shortcuts which will not resolve the problems the airline is facing.

For MAS to turn around, and for it to be able to compete with the likes of SIA, Cathay Pacific and Emirates, it has to get into the same frequency battle like other premium carriers. It needs to have the network breadth, its product has to be ahead of the curve and this includes having next-generation aircraft and all the latest fittings including real flat beds. It also needs to have a customer relationship management system so that it is able to serve its customers better.

Ingress ... Apr12

Sources say the UK ’s Balfour Beatty plc is in talks with Ingress Corp Bhd to buy over the latter’s equity in Balfour Beatty Rail Sdn Bhd (BBRail). BBRail, which is involved in rail electrification business, is 70 per cent owned by Balfour Beatty - an infrastructure giant, and 30 per cent by Ingress, an auto parts supplier and engineering services provider.

Global Rail Sdn Bhd, a private railway engineering firm controlled by Fan Boon Heng, is also in talks with Ingress to buy over its stake in BBRail. Fan is the former managing director of BBRail. His company, Global Rail, has strong ties with Invensys Rail, Bombardier and Siemens. In March 2012, Global Rail won a RM120 million contract with IJM Corp Bhd to build for KTMB a six-car set electric multiple unit depot.

 

It is learnt that Ingress had so far declined both the offers as BBRail is anticipated to win a RM950 million systems contract for the Ampang light rail transit (LRT) line extension project.

It was reported that Malaysia is expected to award the job for systems work for the Ampang LRT line extension to a consortium led by the UK ’s Invensys plc, a global engineering group. BBRail and Ingress are part of the consortium.

 

The contract is likely to be awarded in the current quarter (2QFY2012) and will help boost bilateral trade ties between Kuala Lumpur and London . The two UK groups are fighting hard for the LRT systems contract with the help of their government.

It is understood that there is concern in the shareholding structure of the consortium as it lacks local involvement. If the contract is awarded to a consortium led by foreign companies, there must be proper transfer of technology and localisation programmes in the contract. Currently, there is also a fight for the 30 per cent stake held by Ingress and the matter must be resolved soon.

Ingress had won several contracts since September 2011 from Tenaga Nasional Bhd and Perusahaan Otomobil Nasional Bhd to the tune of RM245 million.

Eight companies had bid for the LRT job with prices ranging between RM950 million and RM1.45 billion. The Invensys-led consortium was the lowest bidder. The other bidders were Posco-Sojitz-Thales, Colas-CMC Engineering-Thales, George Kent-China Railway-Thales, Samsung-LG-Thales, SNC Lavalin-WW Engineering-Bombardier, Siemens-Scomi Engineering and Ansaldo-Emrail-Leighton.

It was reported in December 2011 that Syarikat Prasarana Negara Bhd favoured Posco-Sojitz as it submitted the second lowest bid at about RM1.1 billion and offered to use the communication-based train control signalling system supplied by Thales.

OldTown ... Apr12

It has added 21 outlets to its café chain in 2011, bringing the total to 196, including those in Singapore , Indonesia and China .

 

For 2012, the company plants to add 20 to 30 new outlets locally, about half of which will be opened under its franchise scheme.

 

It is in the process of applying for halal certification for all 183 cafes in Malaysia , hopefully before end of 2012. It has secured certification for some 25 outlets to date (April 2012). The food processing centres and beverage manufacturing are already certified. If successful, this will significantly expand its target market, which at the moment is predominantly Chinese.

 

For overseas expansion, two or three new outlets are planned for Singapore and five to eight in Indonesia . A second outloet in Guangzhou , China opened in March 2012.

 

OldTown signed up a master franchisee for the Guanzhou and Macau provinces in 2011 A new food processing centre in Guanzhou, in which OldTown has a 19% stake is planned by end 2012. In addition, the company is exploring of appointing licensees for other provinces in China to further expand its footprint.

 

The café chain accounted for roughly 62% of Oldtown’s total revenue in 2011, with the balance coming from the beverage manufacturing arm. The later is also expected to grow in tandem for the foreseeable future.

 

While it will likely continue fare well, the higher growth potential should come from exports, which currently account for half of the company’s beverage manufacturing revenue.

 

OldTown has pushed into the mainland Chinese market, where the potential demand is much larger.

 

It has also set its sights on two other coffee drinking countries in the region, South Korea and Vietnam .

 

Its cash pile stood at rm73 million as at end 2011.

AEON ... Apr12

There is little upside catalyst at this stage and low dividend yield as support.

There is room for expansion into the east coast and East Malaysia. Currently, all stores and shopping centres under the group are located in the west coast of Peninsular Malaysia. The markets in Sabah and Sarawak are not entirely underserved, with the dominant players and first movers being Parkson, Giant and The Store.

AEON's foray into these two East Malaysian states will put it in direct competition with existing and upcoming shopping centres, given the first-mover advantage by its competitors. Parkson Holdings already has a presence in the biggest mall in both Kota Kinabalu and Kuching.

Nevertheless, AEON has the advantage of the strong branding of its Jusco stores as well as proven management capabilities. Although the group has not yet set any specific timeline for expansion, market evaluation and feasibility studies have been carried out.

The company is in the midst of acquiring land in Sungai Petani (Kedah), Bukit Mertajam (Penang) and Kulai (Johor). With construction taking typically 1.5 to two years to complete, these stores may open only in 2014 to 2015.

For 2013, two stores will be opened but the respective locations have yet to be identified.

The group should able to fund new store expansions without raising additional funds. It has zero debt, net cash of RM341mil (as at end-Dec 2011), and annual operating cashflow of more than RM300mil.

If it expands into East Malaysia, the strategy would be to buy land and construct its own malls rather than rent space in existing ones.

Affin ... Apr12

While the focus has been on firming up its foundation on local shores through a bank-wide transformation the last seven years, Affin Bank has not let slip expansion opportunities across the seas too.

One such is through its partnership with Hong Kong-based Bank of East Asia Ltd (BEA) which Affin is banking on as the route into China’s unexplored Islamic banking landscape.

However, talks about venturing into China is still in its preliminary stage and Affin believes that it should go through the process of engaging the Chinese authorities before further commenting on the matter.

That said, the potential for spreading its wings abroad is there. With a connection with BEA, Affin can join forces to leverage on its global reach and experience.

BEA first surfaced as a substantial shareholder in Affin in June 2007. The bank started actively picking up shares in Affin in the middle of 2009 and is now the second largest stakeholder with a 23.52% block.

In August 2010, Affin Bank’s parent company Affin Holdings Bhd (AHB) signed a memorandum of understanding with BEA establishing a strategic partnership to jointly develop their business potential in mainland China, Hong Kong, Malaysia and other key markets where they both operate.

Affin’s interest in introducing Islamic banking to the China market has been on the table since and BEA has been playing a role in expediting talks with the China Banking Regulatory Commission.

Affin has a mind to market Islamic banking products in the Muslim-majority population areas in north-western China where BEA has a branch in Urumqi.

The strategic alliance will place both Affin and BEA in a better position in many important Asian markets. The areas where both banking group could explore include treasury, Islamic banking, investment banking and asset management.

Alliance Research banking analyst Cheah King Yoong says the partnership will be beneficial to both parties. The strategic partnership could be fruitful for both sides is Affin leveraging on BEA’s extensive network and expertise in the region to launch its Islamic products.

While he says there is not much information available at the moment, BEA has been interested to increase its stake in Affin. Therefore, the potential for BEA to increase its stake in AHB is imminent, in view of further liberalisation in the domestic banking sector by Bank Negara in December 2011 with the unveiling of the Financial Sector Blue Print.

Around South-East Asia, Affin has also expressed keen interest in Indonesian bank PT Bank Ina Perdana, which if acquired, Affin intends as a full-fledged Islamic bank. The group is now (April 2012) waiting for the Indonesian central bank, Bank Sentral Republik Indonesia’s formal agreement to allow Affin to hold at least a 51% stake in the small bank. Affin would not be interested in acquiring should it end up holding less than 50% stake.

Other than Indonesia, Affin also hopes to establish banking operations in recently democratised Myanmar but such ambitions depend on the Government’s relations with Myanmar.

BEA, incorporated in Hong Kong in 1918, provides comprehensive commercial and retail banking services. It is listed on the Hong Kong Stock Exchange and is one of the constituent stocks of the Hang Seng Index. As the largest independent local bank in Hong Kong, it has total consolidated assets amounting to HK$611.4bil (RM241.44bil) as at Dec 31, 2011. The bank also operates one of the largest banking networks in Hong Kong, with more than 150 branches and financial centres throughout the city.

BEA entered the mainland China market in 1920 when it first opened a branch in Shanghai. It is the largest foreign bank in China with more than 100 outlets in major urban centres the country over.

In other parts of the world, BEA has presence in North America, the UK, Singapore and Malaysia. It has branches in Los Angeles and New York as well as a New York-based subsidiary, Bank of East Asia (US) and North America.

As a gauge of the banking group’s size, BEA operates more than 220 outlets and employs over 12,000 people worldwide.

In 2007, it was one of the first foreign banks to receive approval from the China Banking Regulatory Commission to establish a locally-incorporated bank in mainland China, the Bank of East Asia (China) Ltd, which offers a full range of banking and financial services.

BEA is 15.09%-owned by Tan Sri Quek Leng Chan through Guoco Group Ltd.

JCY ... Apr12

Net profit rose by more than twentyfold to RM162 million in first quarter from RM7 million previously. JCY International Bhd's second-quarter earnings could be as strong as its first-quarter figures.

Southeast Asia's largest technology company is expected to release its second-quarter earnings by the middle of May 2012.

The company has been doing well in the current quarter (second quarter), subject to external factors such as fluctuations in the currency markets.

In the first quarter ended December 31 2011, JCY's net profit surged more than twentyfold to RM162 million from RM7 million in the same period a year ago.

The huge surge was attributed to the flash floods in Thailand which had caused havoc to hard disk-drive (HDD) component manufacturers based in the kingdom.

The situation had benefited JCY which operations were spared by the October floods, thus allowing the company to take up additional orders from HDD makers, such as Western Digital Corp and Seagate Technology.

Western Digital, one of the largest computer HDD manufacturers in the world, has been a long-term client of JCY. The Thai floods, meanwhile, has helped open up doors for JCY at Seagate, the world's top manufacturer of HDD and storage solutions.

As at the end of 2011, JCY had about RM68.74 million cash. The company had paid shareholders RM40 million in dividends in the first quater.

In the coming quarter (2Q & Beyond), the company is hoping to declare more dividends and expects to be able to stick to a dividend of two sen (RM40 million).

JCY is about 75 per cent controlled by YKY Investments Ltd, while the rest of the company is owned by the public. Among its minority shareholders are Commerce Technology Ventures Sdn Bhd, Goldman Sachs and Morgan Stanley.

The company currently controls between 25 and 30 per cent of the mechanical component market for global HDDs. It is one of the world's largest precision engineering manufacturers of HDD components, which makes us a strategic global company, with intrinsic values.

The company has earmarked as much as RM300 million over the next two years (2013-2014) for its business expansion. It employs over 18,000 people, of which 15,000 are based in Malaysia.

JCY has 18 factories located mainly in Malaysia, China (Suzhou and Foshan) and Thailand.

Meanwhile, its CEO did not discount the possibility of buying rival companies if the opportunity arrives, but noted that JCY's long-term plan is to work on ways to reduce costs.

IPO ... Pestech

Pestech International Bhd, an electric power technology company, says it has received approval from the Securities Commission for a listing on Bursa Malaysia's Main Market.

Bank Islam Malaysia Bhd has been hired as the principal adviser for Pestech's listing.

The group also said it had won and delivered multi-million projects involving electrical power transmission and distribution.

This covers high voltage and extra high voltage sub-stations, transmission lines and underground cable works.

Tenaga Nasional Bhd (TNB) has been Pestech's main client since 2000, contributing 36 per cent to its revenue in its financial year ended December 31 2010, Pestech said in a statement yesterday.

Pestech chief executive officer Paul Lim said the company is strategically positioned in the industry as utility companies and industrial users rely and engage its services.

Pestech is one of the few local companies with the knowledge and capability to design and manufacture its own communication, protection and control products for use in its projects as well as to be sold as finished products.

Established in 1991, Pestech ventured overseas in 2007 and won its first contract for the supply of products in Brunei.

Since then, Pestech had successfully penetrated Ghana, Papua New Guinea, Cambodia, Sri Lanka and Tanzania.

Its foreign revenue contribution has a steady growth in the last five years with some 51.4 per cent of its revenue originating from overseas operations.

Pestech current key project is the design, building, testing and commissioning of sub-stations in north Phnom Penh and Kampong Cham in Cambodia, and the 110km and 230kV transmission link between these two areas.

Integrax ... Apr12

Amin Halim Rasip has upped his stake in Integrax Bhd to 22.52% through off-market transaction, reflecting his effort to have better influence on the direction of the Lumut-based port operating company going forward.

Amin acquired a total of 11.89 million Integrax shares via Rakewood Enterprise Ltd and Shafston Group Ltd. Amin also indirectly owns 17.12% stake in Integrax via Golden Initiative Sdn Bhd and Jurukapal Marine Services Sdn Bhd.

Amin is currently the non-executive chairman of Integrax and also the chief operating officer of Lumut Maritime Terminal Sdn Bhd (LMT). LMT is the joint venture that operates Lumut Maritime Terminal and Lekir Bulk Terminal.

Integrax owns a 50% stake in LMT and 80% in Lekir Bulk Terminal while Perak Corp Bhd has 50% plus one share in LMT.

Lumut Maritime Terminal is a critical maritime gateway for the supply of coal to Tenaga Nasional Bhd's (TNB) Manjung coal-fired power plant, which in turn holds 22.12% stake in Integrax.

There have been some issues highlighted over Brazilian mining giant Vale's RM4.3bil iron ore distribution hub project in Teluk Rubiah, Manjung where certain NGOs and residents had expressed their concern on the project environmental impact as well as some political issues that had cropped up.

It was reported that Integrax was still interested in the prospects of providing terminal service to Vale although the transhipment services agreement between Integrax and Vale had lapsed and the Perak government had since given the latter the green light to construct its own jetty to serve the iron ore project.

In February 2012, Amin had expressed his views that Integrax shareholder disagreements should be a thing of the past after the company saw a reshuffling of director appointments. It is learnt that these issues were also mired with personality clashes over the way and direction Integrax should take in the bigger picture.

Amin was quoted as saying Integrax aimed to eventually secure an agreement with Vale to help the Brazilian ore mining company to process some of its products before exporting them out again to its biggest customer China.

Amin also said the Lumut port was envisioned to process and value add other commodities such as palm oil.

Bjtoto ... Apr12

Sources say as part of its efforts to diversify away from the mature local gaming market, it is looking to expand its operations in the Philippines by potentially acquiring a stake in the Philippine Charity Sweep stakes Office (PCSO).

It is currently suppliers and maintains a computerized online lottery system and provides software support for PCSO, a Philippine government owned agency. In return it gets a cut from PCSO’s ticket sales.

The company is interested in acquiring a stake in PCSO due to the potential growth in the gaming market there. There is possible if PCSO is privatized by the Philippine government.

Meanwhile in view of the its growing cash pile, there is a possibility of higher dividend payment payputs to shareholders. The company does not nee to spend much of capex with the limited scope for expansion in Malaysia.

Its cash pile grew to rm449 million at end April 201. As at Jan 2012, its cash and bank balances were lower at rm442 million. It has no borrowings.

Wijaya ... Apr12

Sarawak tycoon Tan Sri Ling Chiong Ho is planning a major move into Wijaya Baru Global Bhd. It is understood that the self-made businessman is attempting to lock up Wijaya’s landbank in Indonesia. Wijaya’s Indonesian asset is 80,000 hectares of virgin jungle land suitable for planting palm oil.

It had bought the assets in 2011 for US$80 million (RM245 million). At east one of the public-listed companies controlled by Ling had sent in proposals to help lock up the Indonesian assets.

The offer comes just after Wijaya’s dominant stakeholder, Major (Ret) Anuar Adam was preparing for a corporate coup that will benefit all Wijaya stakeholders. In 2011, Anuar bought a 32 per cent stake in Wijaya from Datuk Tiong King Sing at 95 sen a share.

It is understood that Miri-based Shin Yang group, one of Sarawak’s fastest growing conglomerates, is proposing a venture with Wijaya, whereby it will bear the entire cost of felling the virgin jungle as well as setting up an integrated timber complex.

Wijaya currently has a felling licence from the Indonesian government to cut down trees in the concession area before converting the area into an oil palm plantation.

Under the proposal, Wijaya will have a substantial stake in the integrated timber complex.

As for the trees felled, Shin Yang is proposing to pay just under US$13 (RM40) for every 30 cubic meters.

Ling controls 55.03 per cent of the public-listed Shin Yang Shipping Corp via the privately-held Shin Yang Holdings Sdn Bhd. Shin Yang owns a fleet of 285 vessels, which helped ship some 1.36 million cubic meters of timber products. Shin Yang group, meanwhile, owns four plywood mills in Miri, and is regarded as one of Asia’s leading exporters of wood products.

Ling’s Sarawak Oil Palms Bhd, meanwhile, is proposing a joint venture to help plant the felled jungle with palm trees, a venture that could eventually cost some US$100 million (RM306 million).

He controls Sarawak Oil Palms via Shin Yang Plantation Sdn Bhd, which has a 29.15 per cent stake in the public-listed company. Additionally, Ling also has a 7.16 per cent direct stake in the company.

***********************

A corporate exercise is in the making and if all goes as planned, Wijaya Baru Global Bhd may have more land as two parties with land bank are in talks to buy out majority shareholder Datuk Anuar Adam.

Anuar holds 32% equity stake in Wijaya Baru.

It was reported that both have just finished the first round of negotiations. But all this is subject to the board's approval as they have to ensure the interest of all parties including that of the minority shareholders is taken into consideration.

It is learnt that one party is from the Middle East and the other is a listed company from Sarawak.

Anuar bought his block of Wijaya shares from Datuk Tiong King Sing at 95 sen a share in 2011.

Those in the know claim that the corporate exercise also involves a joint venture (JV) to set up an integrated timber complex in Indonesia.

With the JV, Wijaya's land base will increase from 80,000ha now located in Papua New Guinea and Indonesia to 270,000ha because both the Middle Eastern and Sarawak parties have 150,000ha and 40,000ha respectively near Wijaya's land bank in Indonesia.

How the deal will be structured to include a JV is not clear at this juncture.

It was reported that Wijaya had bought two companies Wealth Gate Pte Ltd and Suffolk Pte Ltd for about US$80mil. The two companies have a combined 80,000ha that have been approved for oil palm plantations and related activities.

Wijaya also has a felling licence from the Indonesian government to cut down trees in the concession area and will first extract timber from the forested land, before converting the area into oil palm plantation.

Ingress ... Apr12

Sources say the UK’s Balfour Beatty plc is in talks with Ingress Corp Bhd to buy over the latter’s equity in Balfour Beatty Rail Sdn Bhd (BBRail). BBRail, which is involved in rail electrification business, is 70 per cent owned by Balfour Beatty - an infrastructure giant, and 30 per cent by Ingress, an auto parts supplier and engineering services provider.

Global Rail Sdn Bhd, a private railway engineering firm controlled by Fan Boon Heng, is also in talks with Ingress to buy over its stake in BBRail. Fan is the former managing director of BBRail. His company, Global Rail, has strong ties with Invensys Rail, Bombardier and Siemens. In March 2012, Global Rail won a RM120 million contract with IJM Corp Bhd to build for KTMB a six-car set electric multiple unit depot.

It is learnt that Ingress had so far declined both the offers as BBRail is anticipated to win a RM950 million systems contract for the Ampang light rail transit (LRT) line extension project.

It was reported that Malaysia is expected to award the job for systems work for the Ampang LRT line extension to a consortium led by the UK’s Invensys plc, a global engineering group. BBRail and Ingress are part of the consortium.

The contract is likely to be awarded in the current quarter (2QFY2012) and will help boost bilateral trade ties between Kuala Lumpur and London. The two UK groups are fighting hard for the LRT systems contract with the help of their government.

It is understood that there is concern in the shareholding structure of the consortium as it lacks local involvement. If the contract is awarded to a consortium led by foreign companies, there must be proper transfer of technology and localisation programmes in the contract. Currently, there is also a fight for the 30 per cent stake held by Ingress and the matter must be resolved soon.

Ingress had won several contracts since September 2011 from Tenaga Nasional Bhd and Perusahaan Otomobil Nasional Bhd to the tune of RM245 million.

Eight companies had bid for the LRT job with prices ranging between RM950 million and RM1.45 billion. The Invensys-led consortium was the lowest bidder. The other bidders were Posco-Sojitz-Thales, Colas-CMC Engineering-Thales, George Kent-China Railway-Thales, Samsung-LG-Thales, SNC Lavalin-WW Engineering-Bombardier, Siemens-Scomi Engineering and Ansaldo-Emrail-Leighton.
It was reported in December 2011 that Syarikat Prasarana Negara Bhd favoured Posco-Sojitz as it submitted the second lowest bid at about RM1.1 billion and offered to use the communication-based train control signalling system supplied by Thales.

为何中国能人也造假？

去年除夕，我在上海一间酒吧等待观看一年一度的壮观景象 ——海量的爆竹和烟花齐齐燃放，就在那一刻，我想吸一支雪茄。

我问侍者酒吧里是否卖雪茄。他说，外面马路上有人卖。我走出了酒吧。果不其然，有个看上去是外来工模样的中年人身旁停着一辆自行车，车的一侧挂着一捆雪茄，全是古巴来的。

帕特加斯四号（Partagas 4）每支50元人民币，大约是香港价格的一半。如此便宜的价格带给我的激动没能持续太久。

不一会儿，我开始意识到真相：有人在上海的人行道上销售古巴雪茄可能不大对劲。这雪茄绝不是古巴雪茄的味道。

上个月，我在逛北京一家高档购物中心时，发现一家非常大的雪茄商店。我走进去，看到每一面货架上的古巴雪茄都高高堆到了屋顶。加湿器朝暗色的木货架呼呼地喷着白雾。

在那里可以找到任何一种古巴雪茄，而且存货充沛。这个景象看起来令人震撼。可我接着发现了一件怪事：所有的雪茄看起来颜色完全相同，而且没有香味，就好像是我在上海人行道上买到的那支。

几天后，我试着去一家五星级酒店买一支雪茄，以前我在那里买过好多回。

精品店卖假货

那家酒店已把雪茄搬到了大堂里的一间精品店。一开始，我真不愿相信，连这家店也在卖和我先前遇到的一样的没有香味的假古巴雪茄，所以闻了又闻。

这家酒店的名声很好，但它销售的雪茄和我在上海人行道上买到的是同样货色。原来这家精品店被外包了，包给了一个精明的家伙。

这是中国新富阶层遇上的另一件令人不爽的事。在中国，你可能很有钱。但当你要享受美好生活时，你喝下去的是假拉菲（Lafite），吸进去的是假古巴雪茄，心里还要祈祷，它们千万别是有毒的。

包下一家开在五星级酒店里的精品店，没有几个非常能干的人是做不来的。在价格极其高昂的餐厅里出售古董级的1982年拉菲酒，也是如此。

新富阶层缺乏品味

这样聪明的人，却参与到了造假的生意中。他们甚至打入了最有名的酒店。由于这种生意规模如此庞大，体系如此成熟，中国最优秀、最聪明的人当中，肯定有很大一群参与了进去。

为何这么多有才能的人会做这种事？这样的人难道不能通过合法生意取得成功？这个现象，可以从中国的经济结构中获得解释。

中国有部电视剧中出现过一个场面：一个闪电致富的人和他的梦中情人在一家豪华餐厅约会。

女孩问他，为何要转动酒杯？“不要在外人面前问我不懂的事，”他等侍者刚一离开就朝女孩吼道。“我不知道。电影里的人都这么做。这肯定是一件高品位的事。”

假冒奢侈品生意背后最大的推动力，就是来自新富阶层的缺乏品味的需求。他们都是头一次开始努力享受美好生活。这类消费者比较容易蒙骗。

在中国，人们喝拉菲就像喝张裕一样，一饮而尽。喝酒的人很难搞清喝的到底是什么。

经济结构限制机会

正因如此，有些假拉菲是用非常便宜的原材料仿制的。曾经在一个边远小镇，有几个人告诉我，他们经常喝2008年产的拉菲，味道很糟糕（因为有人印刷了太多的2008年拉菲商标）。

就在那时，当地产的红葡萄酒上市了，价格卖到几乎和拉菲一样高。为何不呢，因为它的味道比那“拉菲”还要好。

可问题是，所谓的当地红酒，有可能是贴上了当地商标的大批进口智利葡萄酒，而所谓的拉菲，可能则是用当地的原料仿造的。

有的时候，是仿造外国酒赚钱；有的时候，则是把外国酒标上当地的牌子赚钱。你根本就弄不清楚。

如果天真的消费者喝到的总是假拉菲，他们就会觉得真拉菲味道怪异。古巴雪茄是如此新鲜，大多数人都不知道它到底应该是什么味道。

盼望技术致富

于是，赶制出来的赝品会被当成真货。而当人们习惯了假的雪茄，就会觉得真雪茄的味道很古怪。也许，未来的古巴雪茄也永远会是“中国制造”。

中国的经济结构意味着，它提供不了许多机会。政府痴迷于投资，结果到处造成产能过剩。大多数中国商人，在其宣称进行的商业活动中都赚不到钱。

投机、与政府官员勾结以及造假，才是赚钱的主要途径。这一推动因素不应被低估。当一个人的生意已是供大于求、债务缠身时，造假是一条颇有吸引力的出路。

中国人投入到造假活动中的这些精力和创意，未来有没有可能被用到更能持久的活动中去？中国的企业难道不能通过创建品牌和开发特有技术来致富？

在我看来，那一天终会到来。当中国的资金分配是由市场驱动时，正常经营的企业就会赚钱，有才能的企业人士就能从合法生意中获利。到那时，仿冒拉菲就可能成为历史。

CIMB ... Apr12

Alliance Research ...


A sound acquisition
We came out from the analyst briefing organised by CIMB Group, feeling optimistic about the potential synergistic benefits yielding from its upcoming acquisition of Royal Bank of Scotland (RBS)’s selective cash equities and associated investment banking businesses in the Asia Pacific region. We have tilted our expected sustainable ROE for the group to 16.8%. As such, we have raised our target price for CIMB Group to RM8.80 and our recommendation to BUY.

Acquisition of RBS’s selective equities businesses
 We came out from the analyst briefing organised by CIMB Group, feeling optimistic about the potential synergistic benefits yielding from its upcoming acquisition of RBS’s selective cash equities and associated investment banking businesses in the Asia Pacific region.

 The upcoming acquisition deal will see CIMB Group paying RBS a gross purchase consideration GBP88.4m (RM431.8m) coupled with further new capital injection of GBP85.5m (RM417.6 m).

 Although the total cash outlay amounted to GBP173.9m (RM849.4m), we observe that the net acquisition cost will effectively be low at around GBP47.0m (RM229.6m) only, since this acquisition comes with cash and receivables (consist mainly of cash and cash equivalents) from selective RBS business of about GBP113.1m (RM552.4m) and reimbursement from RBS of GBP13.8m (RM67.4m). The investment cost of this acquisition is detailed in Figure 5.

 We view this acquisition to be a sound bargain, since the total cash outlay of GBP173.9m (RM849.4m) will be equivalent to an effective Price to NTA (P/NTA) of 1.1x, where we understand that majority of the NTA consists of cash and cash equivalent. Given that RBS will pay CIMB a sum of about GBP13.8m (RM67.4m), the effective P/NTA ratio of the transaction will in fact be lowered to about 1.0 times.

 Despite the acquisition covers a broad Asia Pacific region, we gather that CIMB Group will effectively only acquire three legal entities in Australia. In other jurisdictions, the relevant businesses of RBS including selected staff, assets and client mandates, will be migrated to existing or new CIMB subsidiaries.

 Financial details of the selective businesses acquired are scanty, given that CIMB Group cherry picks from selected private entities and management does not wish to divulge too much information given the competitive landscape of the investment banking businesses and the deals will need various regulatory approval. Nonetheless, we understand that the acquisition could be mildly dilutive for its earnings and book value, as disclosed in Figure 6.

 Management is hopeful that the deal will be completed latest by Nov 2012.

A sound acquisition
 We believe that this is a sound acquisition. Other than the low P/NTA attached to this acquisition as highlighted above, we are optimistic that this acquisition strategy is in line with the aspiration of CIMB Group to be a regional champion, as per the objectives outlined in the GLC transformation program.

 We are positive this acquisition is expected to leapfrog CIMB Group from being ‘Asean for you’ to broadening their reach to the Asian region. With this expansion, the Group will:
• Strengthen its foothold in the key Asian markets, i.e. China, India, Australia, Taiwan and South Korea;
• Have seats on nine exchanges and partnerships in three others;

• Its research coverage will be expended to approximately 1,100 Asia Pacific-based companies;
• Expected to enjoy a surge in global institutional investor relationships;

 The potential synergies from this acquisition are highlighted in Figures 7 and 8.
Acquisition risks largely mitigated...

 Although a cross border acquisition does come with high risk factors, we believe that it is well mitigated by the management.

 The major risk being potential staff retention upon acquisition. We understand that management has renewed its offer to 94 key employees and so far 82 of them have accepted the offer, representing a good take up rate of 87.0%. Management expects about 350-400 RBS employees to join them going forward.

 The other risk highlighted is the potential customer attrition rate. Management guided that relationship manager will actively manage clients and process to mitigate such risk. Given that IB business is more people-oriented, we believe that customer attrition risk is not significant in view that key employees have been retained.

 Management also emphasises that although the acquisition is going to strengthen CIMB Group’s franchise in the Asian region, management team will not lose its core focus and will continue to tighten its grip in the Asean region.
Upgrade target price to RM8.80 and recommendation to BUY

 Although management has guided that this deal could be marginal earnings dilutive for FY12, we do not foresee any significant downside risk that warrants an earnings downgrade.

 We have tilted our expected sustainable ROE for the group to 16.8% (from 16.5%), to account for the potential long term earnings enhancement arising from this synergistic merger. Our target price for CIMB Group is subsequently being raised to RM8.80 (from RM7.80) based on Gordon Growth Model (implied 2.4x FY12 P/B, 16.8% ROE).

 We upgrade our recommendation for CIMB Group from trading buy to Buy.

 We believe that the key catalyst for the group remains its stronger earnings outlook and potential dividend upside.

 We wish to reiterate that the disappointing financial results over the past few quarters were mainly due to management deliberation to maintain strong asset quality, and to conserve balance sheet for potential regional acquisition, in view of the rising external uncertainties.

 As such, we view the lower than expected quarterly results in 2011 to be an exception rather than a norm. Therefore, it should not serve as an indication of forward earnings growth.

 We maintain our optimistic stance that 2012 should be a good year for CIMB given that it is one of the prime beneficiaries of rising business loans stemming from the rolling out of Entry Point Projects under the government’s Economic Transformation Programme. Given its strong investment banking foothold, we believe the group is also well positioned to capitalise on the increased deal flows this year.

 Downside risks to our recommendation include (1) persistent selling pressure if market continues to view the group as a well politically connected stock with perceived higher risk premium as general election draws closer, (2) slower than expected cost cutting exercise, (3) unexpected dried up in deal flows due to the volatility of the capital market, and (4) lower than expected topline growth due to a significant slowdown in loan growth.

PohKong ... Apr12

Mercury Securities research ...

Poh Kong’s 2Q/FY12 results (quarter ended 31st January 2012) were generally within our earlier
expectations.

“Q2 results within expectations”
Poh Kong group's 2Q/FY12 revenue of RM202.4 million was higher by 18.7% y-o-y.
The increase in revenue was attributed to the upsurge in price of gold and also the group’s existing retail stores registering higher sales. The demand for gold-based jewellery, gold bars and wafers increased during the festive spending seasons. Group 2Q/FY12 NPAT (net profit after tax) was RM12.4 million, an increase of 30.5% y-o-y. The group's revenue is largely derived from retail segment while the manufacturing segment supplies the finished gold jewellery to the retail segment.

However, comparing q-o-q versus the preceding 1Q/FY12, group 2Q/FY11 revenue and NPAT were lower by 12.2% and 29.9%, respectively.

This was mainly due to the absence of a major festival, namely Hari Raya Aidilfitri during the quarter. While Christmas occurred during the group’s Q2 (Nov-Jan), Hari Raya Aidilifitri and Deepavali festivities occurred during Q1 (Aug- Oct). Historically, peak sales for the group occur during Hari Raya Aidilfitri.

OUTLOOK/CORP. UPDATES
Poh Kong’s management plans to continue its drive to build market share by enhancing and differentiating its product offerings to its targeted market segments. The group actively evaluates various initiatives and opportunities to attract new customers through the introduction of new product lines/designs and enhanced
customer service.

“Sustainable Domestic Demand”
Malaysia had reported an unemployment rate of 3.4% (January 2012) and CPI of 2.2% (February 2012). Bank Negara Malaysia (BNM) has still maintained its overnight policy rate (OPR) at 3.0%. Meanwhile, Malaysia recorded a solid 4Q/2011 GDP growth of 5.2%, amidst weak economic growth in the developed regions (US, EU and Japan). A steady economic growth would also lead to higher consumer optimism and hence assist to raise domestic consumption, including spending on retail gold or jewellery products.

The spot price for gold traded on the NYMEX (New York Mercantile Exchange) is currently around the US$1660/troy ounce level. This is a significant decline from the peak highs of above the US$1900/troy ounce level. Strong global gold prices could lead to an increase in group revenues. Gold wafers, gold bars and gold-based jewellery are seen as a viable inflation-hedge or long-term investment option.

Large jewellers like Poh Kong do have revenues coming from sales of gold bars, though its management has not given any guidance on the quantum. The group’s “Bunga Raya” gold bars, which are 999.9% pure gold, are available in 1g,5g, 10g, 20g, 50g and 100g weight denominations. Gold wafers are typically sold in
the denominations of 25g, 50g and 100g.

In terms of revenue, about 80% of Poh Kong’s revenue is derived from gold, with the remainder 20% from gem stones (e.g. diamonds). From the gold-revenue segment, about 75% is derived from yellow-gold sales
while 25% is from white-gold sales. The ‘Malay and Indian’ market clientele traditionally prefers yellow-gold based ornamental products.

“Update on financing”
Poh Kong had proposed an Islamic Commercial Papers/Islamic Medium Term Notes (ICP/IMTN) Programme (up to RM150 million in nominal value), guaranteed by Danajamin Nasional Bhd. In November 2011, the group had issued an initial RM50 million in nominal value of IMTN under its ICP/IMTN
Programme. The IMTN with a tenure of 7 years, matures in November 2018. The proceeds from
the issuance of the IMTN would be utilised by Poh Kong to finance a group-wide restructuring
programme, and to refinance existing borrowings. The group had subsequently issued RM30 million and RM20 million in nominal value of IMTN on 16th January 2012 and 14th February 2012, respectively.

Meanwhile, the group had had made a final RM20 million redemption of its Murabahah Medium Term Notes on 15th February 2012. Thereafter, there was no outstanding amount of the Murabahah Commercial Papers / Murabahah Medium Term Notes and the Programme had thus been cancelled on 20thMarch 2012.

“Group internal reorganisation”
Poh Kong has embarked on a group-wide internal reorganisation exercise that would consolidate the group's existing businesses into 6 core activities, namely Retail, Wholesale & Distribution, Manufacturing, Property Investment, Franchise, and Overseas Investment. Currently, Poh Kong does not have any retail or manufacturing operations overseas.

The internal reorganisation will result in the winding up of the non-key/dormant subsidiaries, and the acquisition of all 99 retail businesses by Poh Kong Jewellers S/B, which will be the sole entity managing all the 99 retail outlets. Concurrently, the group will consolidate all its existing banking facilities amongst the various
financial institutions with the new borrowings structure that comprises primarily of Bankers' Acceptance and the ICP/IMTN Programme.

VALUATION/CONCLUSION
“Dwindling dividend payout ratio”
Poh Kong’s shareholders had approved the first and final dividend per share (DPS) of 1.4 sen single tier for its FY11 ended 31st July 2011. Confirmed shareholders registered with the group’s registrar on 13th February 2012 were subsequently paid on 9th March 2012. Poh Kong’s future dividends would be largely determined by the performance and cash-flow needs of the group. We note that the group’s dividend payout ratios have been dwindling over the past few years due to its constant annual DPS despite of its rising annual earnings. Given its strong price performance in recent months, Poh Kong (+30.2% YTD) has easily outperformed the KLCI (+3.5% YTD) in 2012.

Market conditions have also been volatile during the past year, impacted by the Arab Spring uprisings, Europe sovereign debt issue, US debt ceiling issue and the Tohoku disaster in Japan. As Poh Kong is not a particularly large marketcap stock, this may put a dampener on its market visibility and trading volume.

“Maintain Buy Call”
Based on our forecast of Poh Kong’s FY12 EPS and an estimated P/E of 4.5 times (within its historical range), we set a FY12-end Target Price (TP) of RM0.66. This TP offers a 17.9% upside from its current market price. We are pleased with Poh Kong’s strong 1H/FY12 results. Our TP for Poh Kong reflects a P/BV of 0.68 times over its FY12F BV/share.

We find that Poh Kong’s FY12F P/E and P/BV valuations are undemanding, while it has reasonable levels of net gearing ratio, dividend yield and ROE. Nevertheless, the group also face routine business risks such as any future economic downturn, consumer pessimism, uneven monthly sales (due to festive seasons), fluctuating raw material prices and foreign exchange rates, and strong competition from its peers. Going forward, the group’s upside would be largely dependent on its management’s marketing and growth strategy, and also on the overall economic conditions.

Kencana ... Apr12

Alliance Research ...

Inline, waiting on the merger
Kencana Petroleum has had a strong showing for 1HFY12 results. The group achieved 65% earnings growth on the back of contributions from the KM1 drilling rig as well as new subsidiary, Allied Marine and Engineering. We continue to be positive on the upcoming merger with SapuraCrest and maintain our Strong Buy call on the group.

Above consensus, mildly above house
 Kencana Petroleum’s 1HFY12 earnings were within house expectations making up 52% of our full year estimates. However, earnings beat consensus estimates making up 59% of full year expectations.

 Earnings are coming through strong this year (6MFY12 net profits +65% y-o-y) as the group is recognising contributions from the now 100% owned KM1 tender assisted drilling rig. Besides that, the purchase of Allied Marine and Engineering (AME, subsea services with diving support vessels) is also making maiden contributions this year as the acquisition was only completed last July. Both AME and the KM1 rig now contribute about 31% of group PBT. The remainder of earnings of the group continues to be driven by fabrication projects.

 As for the Berantai Marginal field project, the group reported a small profit of RM0.5m for the quarter. A mild loss of RM6.9m was seen over 1HFY12 and this included cost incurred for the on-going merger exercise. We believe that the Berantai project will see more positive contributions next year when the FPSO is ready and production commences.
Waiting on the merger

 We continue to look forward to the upcoming merger between Kencana Petroleum and SapuraCrest Petroleum. Management continues to assure that the merger is on-going but is being held back due to some administrative issues. That said, the current timeline for completion appears to be by the end of April.

 We reiterate again that we are positive on the prospects of the soon-to-be listed merged entity, Sapura Kencana Bhd (SKB). The company will be the largest Asian integrated offshore services provider with a solid RM13bn orderbook. A stronghold of installation assets, drilling assets and fabrication track record will provide it with steady recurring income as well as growing profits as they take on larger projects. We have prospective TP of RM2.40 for SKB with a 4-year growth CAGR of 23%.
Valuation and recommendation

 Based on our target price of RM2.40 per SKB share (derived from 20x P/E on CY12 earnings) and RM0.49 cash consideration per Kencana share under the merger, the implied 12-month target price for Kencana is RM3.50, suggesting a 11.2% upside potential from current share price. Over a 2-year period, we expect an upside of 34%, justifying our STRONG BUY.

Tenaga ... Apr12

Its prospects will be attributed to a recovery in gas supplies from offshore Terengganu, expectations of an upcoming general election and power purchase agreements (PPA) renegotiations between the Energy Commission and first generation independent power producers (IPP).

This is assuming the first generation IPPs will have to compete with new generation capacity and among themselves to secure an extension to the first generation PPAs, up to 2,500MW of first generation PPAs potentially renegotiated and an indicative 20% reduction in the capacity payments to these renegotiated PPAs effective immediately.

Coal prices, especially Australian coal prices, have been on the retreat since September 2011 due to the improved weather in Australia thus allowing coal to be mined, transported and exported; warmer weather post the Northern Hemisphere winter season; and indications of a general economic slowdown in China. In addition, the increased supply of natural gas in the United States from shale has led to the reduced demand for coal.

These changes in our assumptions have led to a rise in its net profit for FY12 - FY14.

In the shorter term, uncertainties over the election timing may cap TNB’s share price, although the improved q-o-q results in the upcoming 2QFY12 results announcement (mid-April 2012) should also boost sentiment as gas supply normalises somewhat.

SEGI ... Apr12

US-based Navis Capital is now a major shareholder of SEG International Bhd (SEGi) following its acquisition of a 21.53% stake. The Asia-focused private equity firm bought 114.8 million shares from Cerahsar Sdn Bhd, which has ceased to be a shareholder of SEGi.

A total of 209.6 million shares changed hands in the education provider in off-market deals priced at RM1.71 apiece on 30 March 2012..

Speculation that there is some kind of a deal in the offing for SEGi such as a privatisation or a takeover.

A general offer (GO) may be announced for education provider SEG International Bhd by as early as the end of mid April 2012 should issues between interested stakeholders and Navis Capital Partners Ltd, which recently became the second largest shareholder, be ironed out.

A GO was a very real possibility but it would depend on a number of factors. The bottomline is that if the parties cannot agree on certain areas of concern, then the GO will be deferred by a few months. These issues include board-level representation, the level of management control Navis wants and key performance indices.

Sources also did not rule out Navis bringing in SEGi group managing director Datuk Seri Clement Hii, the Employees Provident Fund (EPF) or another government-linked investment company (GLIC) as joint offerors in the GO.

Hii remains SEGi's largest shareholder with a 29.8% stake but if warrants were included, his stake on a fully-diluted basis would be 32.5%. Navis, a private equity firm, acquired a 27.84% stake.

The price of RM1.71 per share was about right but to entice other shareholders, the GO price would have to be higher.

The source said the EPF's or GLIC's participation in the GO had not been firmed up.

Hii dismissed all speculation about him cashing out or acquiring more shares as a defensive move against Navis.

Cresndo ... Apr12

TA Securities

Result Preview
Crescendo will release its 4QFY12 results this Friday and we expect the 4Q net profit to be in between RM16.2mn and RM20.2mn, bringing FY12 net profit to RM63mn- RM67mn. Based on a payout ratio of 40%, we expect the company to propose a final dividend of 6sen/share (4QFY11: 5sen/share), bringing FY12 dividend to 14sen/share.

Our projected FY12 net profit of RM65.1mn represents a 78% growth YoY. We attribute the robust performance to 1) double digit revenue growth across the business segments; and 2) margin expansion due to higher average selling price and better product mix.

Demand for industrial properties remains strong To recap, Crescendo’s new sales in 9MFY12 had hit the
RM200mn mark, surpassing its FY11’s total sales of RM159mn. We understand from the management that it
comprises mainly the sales of industrial units at Nusa Cemerlang Industrial Park (NCIP). We also gather that
manufacturers from Japan are planning to relocate their manufacturing facilities from Thailand to Johor due to 1) the recent flood in Thailand that has disrupted operations; 2) attractive pricing, which is significantly
lower than those in the Klang Valley and Singapore; 3) well-established infrastructures.

Management guided that NCIP should achieve a minimum RM100mn new sales consistently going forward.
However, we view it as a quite conservative projection, as the booming economic activities introduced under the Economic Transformation Program in Johor should continued to attract local and foreign industrialists to
invest in Johor. In addition, we note that industrial property in NCIP has registered a price hike of 37%, from
RM270psf in 2010 to RM370psf in 2012. All in, we estimate project NCIP to contribute new sales of
RM130mn – RM180mn for FY12-14.

Riding along the growth of Iskandar Malaysia As of December 2011, Iskandar Malaysia has achieved
a total investment of RM84.9bn, comprising 60% domestic investments and 40% foreign investments.
We believe foreign investors are now more confident about the business environment in Iskandar Malaysia
as the most of the basic infrastructures and amenities have already been put in place. Moreover, the
collaboration between Khazanah and Temasek to develop a RM3bn project in Iskandar Malaysia should
instill greater confidence among the Singaporean investors. Crescendo’s management also concurred
that it has received more queries about their NCIP industrial units from the Singaporean manufacturers
and investors. This is also evidenced by the buyer profile of the NCIP project, where Singaporean are the
main purchasers, representing 56% of the total value.

Currently, Crescendo has 3,016 acres of undeveloped landbank in Johor, with 1,696 acres of the landbank
located within the prime Iskandar Malaysia region – see Table 1 and Figure 1. Going forward, on top of
the sustainable sales derived from its industrial properties, we expect Crescendo’s prospects to remain intact, given it offers a wide range of products ranging from residential, commercial, and leisure properties, such as Bandar Cemerlang, CLSB and Ambok Resort to serve as future earnings growth driver.

1) Bandar Cemerlang
The group will kick start the first phase of its Bandar Cemerlang in Sep-12. Bandar Cemerlang is an
integrated township development measuring 1,390 acres located near Ulu Tiram. The first phase of the
project consist 303 units of double storey and cluster semi-detached houses worth total GDV of RM90mn.
We expect the affordable homes which are priced at RM250k-RM300k/unit should garner strong interest
among the first home buyers.

2) CLSB Land
Spanning across an area of 221.58 acres, this land will be developed into a water front development. It
is strategically located within Iskandar Malaysia and is only 18km away from Johor Bahru. Construction
work of main access to the development i.e the interchange connected to the Johor Bahru-Pasir
Gudang highway has completed. Reclaiming works have commenced and are expected to be completed
by the Jan-14. With a total estimated GDV of RM465mn, Crescendo targeted to launch the project in FY15.

3) Ambok Resort
This 794-acre of land has been zoned for a mixed development project. Located close to Pengerang,
Crescendo plans to start developing the land in 6 years’ time. Note that, Petronas will invest RM60bn in an
integrated downstream oil and gas complex in Pengerang, Johor which is targeted for completion by 2015. These new oil and gas industry facilities in Pengerang are expected to boost the population in the surrounding township from a current 20,000 to 40,000. As such, we expect Ambok Resort development to benefit from the rising population in the region.

An under-appreciated stock
Since we released Crescendo’s 3QFY12 result update report in Dec, its share price has advanced by 25%. However, we still see hefty potential upside as the stock is currently trading at 4.7x CY12 EPS and 0.6x NTA. We view the steep discount is unjustifiable against its earnings CAGR of 30.6% for FY11-14.
Crescendo has adopted a dividend policy to distribute at least 30% of its net profit as dividends. More importantly, it has been distributing more than 45% for the last 2 financial years. Based on yesterday closing price of RM1.84. Our projected DPS of 14sen would translate into a decent dividend yield of 7.6%, offering the highest dividend yield among the small-cap property stocks under our coverage

Forecast
No change to our FY12 earnings projection. However, we tweak our FY13-14 earnings estimates higher by 6-8% to factor in 1) the revised sales mix within Bandar Cemerlang development which is targeted for launch in Sep-12; and 2) increasing average selling price and faster take-up rate for its NCIP industrial properties. We now project Crescendo to secure new sales of RM303mn (from RM280mn previously) for FY13 and RM328mn (from RM305mn previously) for FY14.

Valuation and recommendation
We arrive at a new target price of RM2.67/share based on a CY12 target PER of 7x for the small cap
property stocks. We continue to like Crescendo due to 1) exposure to the resilient affordable housing
development; 2) strong opportunities to tap on the growth of Iskandar Malaysia; and 3) attractive
dividend yield of 7.6%. Given a total return of 45%, we maintain our Buy recommendation for Crescendo.

NextNat ... Apr12

TA Securities

- Nextnation Communication Berhad (NNCB) posted a strong 9MFY12 results which exceeded our
expectations by 12%. The variance was mainly due to 1) higher-than-anticipated revenue from domestic
sales and 2)better margins.

- Turnaround in bottom line is expected. Despite a 14.2% drop in revenue, NNCB’s 9MFY12 core net
profit grew>100%% to RM1.7mn, signaling a fast recovery as efforts to streamline operations bear
fruit.

- Overall net margin improved +2.5ppt YoY as the groupis now able to partially pass on the additional
input costs to customers by increasing the pricing of the products and services.

Impact
- We tweak our FY12 earnings higher by 24% after factoring in better revenues and margins from
the Malaysian operation. FY13-14 earnings are revised upwards by 3% each year, corresponding
with higher estimated FY12 performance.

Earnings outlook
- According to management, the strong 3Q was the result of recognizing unbilled revenues of those services rendered in the 1H due to late submission of traffic reports by its customers. In spite of a robust 3Q, we are expecting a normalized 4Q net profit of RM0.5mn - RM0.7mn, based on the average quarterly earnings achieved over the last 3 quarters.

- We continue to believe NNCB’s earnings outlook over the next three years appears to be buoyant,
given that it has secured an outsourcing agreement from Inovisi which could provide a minimum revenue guarantee of USD22.5mn (RM67.6mn) over a 3-year period.


- We also expect NNCB’s existing business to stage better performance going forward as the group
continued to step up efforts for further market penetration into Malaysia and Indonesia through
development of new technologies, products and services.

- To recap, NNCB has proposed to undertake a fund raising exercise which comprises an issue of free
warrants and private placement on Wednesday. We learned from management yesterday that the
proposed fund raising exercise can be concluded by 3Q12. Assuming a placement price of 11.3sen/share
(5-day VWAP), the proposed exercise would dilute our FY13-14 EPS by estimated 25-33%.

Valuation
- We now imputing the earnings dilution effect from the share placement and bonus warrants into our
earnings model. As the proceeds from share placement and exercise of the warrants are expected
to be earnings-generating as the funds will be utilized to fund its future expansion plan, we revise our
valuation to RM0.13/share from RM0.16/share previously, based on a revised PE of 12x CY13EPS.
Given the potential upside of 18%, we reiterate our Buy recommendation on Nextnation.

Niam ... Apr12

The management is expecting to replenish its order book with at least RM450mil worth

of new contracts in FY12 and also targeting at least RM300mil in property sales.

The company is also actively studying the feasibility and potential of its existing landbank in Kuching, Bintulu and Miri for property investment ventures.

Naim has already developed quarters for industrial workers and is looking to develop another 800 acres (out of the 5,000 acres) of land for property investment ventures.

Naim is currently partnering with Cahaya Mata Sarawak and Bintulu Development Authority with the share of 39:51:10 equities on the second home programme for Korean and Japanese expatriates.

Its order book stands at around RM800mil, which could last till the next two years (excluding the Kuching Flood project of RM1.2bil). Management expects to replenish the order book by at least another RM450mil in FY12.

Naim, via its joint-venture (JV) partner has just submitted the tender for Klang Valley Mass Rapid Transit elevated project. The JV will enable both parties to leverage on their expertise, giving it a higher chance to win the contract.

Muhibah ... Apr12

Switzerland based Mercuria Energy Group Ltd is said to be partnering CIMB Group to revive the APH bunkering island project off Tanjung Bin in Johor.

It is learnt that Mercuria will establish a joint venture with a well connected local firm to invest in the APH project, which has stalked for the past one year. What APH lacks is a firm partner that can drive operations and be the off taker. Mercuria will fit the role.

Mercuria is presnet in various energy markets.

There have been other suitors for the APH project, including PTT Thailand which was prepared to be the off taker and to lease the facilities on a long term basis. But nothing has materialized so far. PTT Thailand was keen when KIC approached it previously. But things may have changed which resulted in the entry of Mercuria.

The main shareholder in APH is KIC Oil and Gas Sdn Bhd with a 90% stake. Another 10% is held by Trek Sdn Bhd, a company linked to UMNO. KIC Oil and Gas appointed appointed ZAQ as the managing contractor. Muhibbah along with several other subcontractors, dealt with AHP through ZAQ.

A firm off taker agreement would help enhance the financial feasibility of the project.

To recap, CIMB in Dec 2011 sought a court order to appoint receivers and managers to restructure APH. This followed an increase in the construction cost. The bank had provided a rm1.4 billion facility via a three year bridging loan for the project, of which rm840 million has been drawn down. The amount was used to complete some 60% of the work.

Funding for the project stopped in late 2010. It is learnt that APH is seeking another

rm1 billion to complete the job, something that CIMB is reluctant to provide, leading the appointment of receivers and managers.

Cost overruns led to a delay in payments due to one of the major subcontractors, Muhibbah Engineering. Muhibbag was roped in at the start with an rm820 million contract to build a storage hub for oil with bunkering facilities on the island.

Muhibbah announced in late Feb 2012 that it had filed a cuit against the promoter APH, and ZAQ for rm381 million in overdue claims.

CIMB and Muhibbah are said to be looking to convert the amounts owed to them into equity. This would allow subcontractors like Muhibbah to assume a bigger role in the project. However, it is believed that the other creditors of APH are not keen on a debt to equity swap. ZAQ is said to be not in favor of the move as its stake would be too small and not meaningful.

In order for the restructuring to take place, CIMB needs 75% support from APH’s direct creditors.

One option is for a new shareholder to come in and inject fresh funds.

Meanwhile in Muhibbah’s books is an amount of rm381 million due from APH. Muhibbah is keen on debt to equity swap as it would allow the company to play a bigger role in APH. This would give Muhibbah cheap exposure as an oil and gas storage terminal operator. Other players have had to invest much more to be able to achieve something similar.

Muhibbah will joint the rank of Dialog and other oil and gas service players if it manages to get a stake in APH.

Beyond the bunkering project, Muhibbah said it had secured an order book of rm3.05 billion with jobs lined up to 2014.

Takaful ... Apr12

It stands to gain from a new ruling in Indonesia that will see pure takaful players grabbing a bigger share of the insurance market.

The Indonesia’s regulator is in the midst of removing Islamic Windows or the sale of takaful products by insurers that are not licensed as takaful operators. This will effectively benefit standalone takaful companies, of which there are not more than four in Indonesia and one of which is Takaful Malaysia.

Although Takaful Malaysia has been the largest standalone takaful company in Indoensia, this is set to change with the new ruling, which is being implemented.

At the moment, Indonesia contributes less than 5% to Takaful Malaysia’s revenue and the company hopes to grow this to 50% in four years.

Aside from the new ruling, Indonesia’s rapid growth represents a strong upside for its takaful sector. Demand for Islamic products is set to rise along with the country’s standard of living and purchasing power, as large inflows of foreign direct investment will create more employment opportunities.