MEGB ... May12

It is likely to reward its shareholders with a bumper dividend from the balance of its unutilized funds raised from its IPO in 2010.

The comes as the education group sees a change in strategy following a drop in its student numbers due to intense competition and issues related to the PTPTN.

From its IPO, MEGB raised gross proceeds of rm147.86 million. At the time, a large sum was set aside to build a campus in Kajang, but as at Dec 31, 2011, it had only utilized RM70 million.

As at 4QFY2011 results, tm38.8 million was spent on the purchase of land to build the new campus, while rm20 million was spent on expanding its existing campuses. After stripping out, the listing expenses and working capital, there is about rm73.66 million remaining from the IPO proceeds.

Meanwhile, it is said that the education is not averse to selling the land it acquired to build the campus. After there is no need for a big campus anymore now.

The rm73.66 million coupled with the sale of land – should it happen – could bring in about rm112 million which can then be distributed to shareholders, which is about rm0.27 per share.

MEGB is facing a number of challengers: about 90% of it students rely on loans from PTPTN to finance their studies. The government has also decided to increase the minimum entry requirement for nursing courses and PTPTN became more stringent with its loan approvals because of poor repayments.

There has also been a shift in the industry, with fewer students pursuing diploma courses at private education institutions.

Expect high earnings risk for MEGB as the group tries to attract new students by diversifying into non health related programmes and post diploma courses.

It will work towards establishing a reputable foreign branch campus in Malaysia. It also plans to focus on degree programmes where there is higher demand and revenue orientation, instead of diploma programmes.

MEGB also said that the new PTPTN loan scheme had impacted its environment and earnings.

However, there is a silver lining for the education group. The ministry has been tough on granting licenses for the setting up of colleges. With that, MEGB’s licenses and business has a value.

TMCLife ... May12

Inet Research ...

1. 3Q/9MFY12 Results Highlight
 TMC Life’s (TMC) 3QFY12 results came in within our expectations.

 3QFY12 revenue increased by 4.8% QoQ reflecting stronger fertility contributions from the promotion of “dragon baby” packages. Pretax loss of RM1.2m in 3QFY12 was 60% lower QoQ on improved revenue and lower finance costs post repayment of RM39m worth of borrowings with part of the rights proceeds.

 Although we are not projecting a turnaround at TMC until FY2014F-2015F due largely to high depreciation costs at the new hospital, the worst appears to be over for the group based on the QoQ increase in revenue over the last two quarters, and an improved balance sheet position resulting in lower finance costs in 3QFY12.

 We value TMC at RM0.37 per share, based on an RNAV method in the absence of meaningful profits. In arriving at our RNAV estimate, we assumed a 15x PER on the profitable fertility operations (at a discount to local and regional healthcare providers), added our estimated book value for the hospital and deducted the group’s estimated net debt position. Share price downside appears limited at current levels. Upgrade to BUY.

2. Key Investment Risks
Key investment risks for the stock include:
a) Economic uncertainties due to inflationary pressures and global economic shocks, which would affect
existing and potential patients’ spending power on the group’s fertility treatment services and private
healthcare services;
b) Migration of key specialist doctors and medical support staff;
c) Rising cost of training and retaining key medical support staff;
d) Intense competition from other local and regional healthcare providers.

3. Recent Developments
On 18 Sep 2008, TMC entered into an MOU with Berjaya Corporation Berhad and Viet Ha Corporation to establish a formal relationship in order to jointly carry out activities relating to the design, construction,
furnishing, equipping and operating of a hospital in or near Hanoi, Vietnam. On 19 Sep 2011 the parties to the MOU mutually agreed to extend the duration of the MOU for a further period of 12 months from 17 Sep 2011 until 17 Sep 2012.

On 22 Dec 2011, TMC completed the following:
a) renounceable rights issue of 200.6m new ordinary shares of RM0.10 each in TMC together with 401.2m
free new detachable warrants at an issue price of RM0.30 per rights share on the basis of one rights share
together with two free warrants for every three existing ordinary shares of RM0.10 each; and

b) increase in authorised share capital from RM100m comprising 1tn shares to RM200m comprising 2tn
shares. Of the total rights proceeds of RM60.2m, RM39m has been utilised for repayment of borrowings, RM10m has been earmarked for capital expenditure, another RM10m for working capital and the remaining funds for related expenses.

On 16 Jan 2012, TMC announced the resignation of CEO, Mr Francis Lim Poon Thoo. On the same date, TMC announced the appointment of Singaporean, Dr Wong Chiang Yin as Group CEO in addition to his role as Executive Director.

4. Earnings Outlook
With new major shareholders and top management in place since 2H 2010, TMC is expected to turn around over the next few years, after two consecutive years of losses on the back of spiralling operating expenses.
The new management team has so far been successful in cleaning up the group’s balance sheet with substantial write-offs and provisions (taken in 4Q10), and putting in place stricter cost controls.
Apart from cutting operating expenses, the group has also been putting in place measures to boost the group’s revenue base via the addition of specialist doctors, new hospital beds and stepping up marketing efforts both locally and around the region, tapping into the Indonesian, Cambodian, Indian, and Indo-China markets.

The recent promotion of “dragon baby” packages at local fertility clinics was successful in generating higher
QoQ revenue for 3QFY12. The repayment of RM39m worth of borrowings using part of the recent rights issue proceeds has also significantly reduced finance costs for the group.

With the successful fertility operations intact, management has been stepping up efforts to grow the nonfertility businesses in areas such as its heart centre, renal work, orthopaedic, ENT and general surgery.
However, given relatively high depreciation and financing charges, our projections assume continued start-up
losses at the hospital services division for at least the first five years of operations which according to
management, is not uncommon for new hospital start-ups. We would however be monitoring the group’s
performance closely should the new hospital perform better than expected.

5. Valuation & Recommendation
Although we are not projecting a turnaround at TMC until FY2014F-2015F due largely to high depreciation
costs at the new hospital, the worst appears to be over for the group based on the QoQ increase in revenue over the last two quarters, and an improved balance sheet position resulting in lower finance costs in 3QFY12.

We value TMC at RM0.37 per share, based on an RNAV method in the absence of meaningful profits at this point. In arriving at our RNAV estimate, we assumed a 15x PER on the profitable fertility operations (at a discount to local and regional healthcare providers), added our estimated book value for the hospital and
deducted the group’s estimated net debt position. Share price downside appears limited at current levels.
Upgrade to BUY.

Tenaga ... May12

ZJ Research ...

2QFY12 Results Review
• After three consecutive of net losses, Tenaga Nasional Bhd (TNB) swung back into profitability
with a net profit of RM2.81 bln for 2QFY12, that includes a gas shortage compensation of
RM2.02 bln (or RM1.5 bln net of tax) and foreign translation gain of RM628.4 mln. Excluding
these, 2QFY12 core net profit was RM682.4 mln, taking 1HFY12 core net profit to RM876.8 mln.
The results were broadly within our expectations for a RM2.2 bln core net profit in FY12 as we
continue to anticipate a stronger 1HFY12 performance.

• Stripping off the compensation and the foreign translation gain, the Group’s 2QFY12 core net
profit came in at RM628.4 mln vs. RM194.4 mln in 1QFY12. The improved performance during
the quarter under review was due to lower operating cost as a result of reduced usage of
alternative fuels, as well as strengthening of RM against USD (+5.7% q-o-q) and Yen (+8.6% qo-
q). Total costs for alternative fuels (oil and distillate) declined 67% q-o-q in 2QFY12 to
RM329.4 mln from RM1,00 bln in the preceding quarter. This pushed 2QFY12 EBITDA margin
up to 25.6% from 15.1% in 1QFY12 (ex-fuel cost compensation).

• Cumulatively, 1HFY12 revenue rose 14.7% y-o-y to RM17.32 bln on 4.1% y-o-y growth in
electricity units sold in Peninsular Malaysia as well as the effect from the tariff hike in June 2011.
The 78.5% y-o-y rise in PBT profit was again largely attributed to the gas compensation, without
which, the PBT would have declined 28.7% y-o-y to RM1.35 bln. The 20.5% y-o-y surge in
1HFY12 opex was chiefly from higher generation costs. To recap, TNB’s performance over the
past several quarters was severely affected by shortage in gas supply which resulted in the
Group using the more expensive alternative fuels (i.e. oil and distillate).

• Looking ahead, TNB’s prospects are certainly improving. The gas curtailment issue appears to
have been subsided with the increase in supply in the horizon. In fact, gas supply has gradually
risen to the present 1,050-1,100 mmscfd level from the low of 900 mmscfd in 3QFY11.
Management indicated that the average gas supply in 2HFY12 should be higher than 1HFY12,
though still below the required level of 1,250 mmscfd.

• Furthermore, TNB expects to recognize another RM250 mln in compensation for the gas
shortage between September 2011 and February 2012. Note that the RM2 bln compensation
was for the period of January 2010 and October 2011. We also understand that the
Government would now continue to reimburse approximately two-thirds of the additional
alternative fuel cost incurred up to September 2012. This would greatly help cushions the
Group’s fuel cost burden till the LNG re-gasification plant in Malacca commences operations
sometime in end 2012.

• Meanwhile, we also anticipate demand for electricity to pick up in 2HFY12 based on historical
trend and as the pace accelerates for the implementation of certain major infrastructure projects
such as the MRT line. We expect TNB’s 2HFY12 results to be robust, with electricity demand
pushing topline growth while reduction in opex would boost profitability. Earnings-wise, we
raised our FY12 earnings estimates to RM3.60 bln after making some adjustments that include
the gas compensation from the Government.

• TNB has declared an interim gross dividend of 5.09 sen, comprising 0.38 sen less 25% tax and
4.71 sen single-tier dividend.

Recommendation
With electricity demand expected to rise and the Government’s gas compensation scheme easing the
burden of TNB’s fuel, we now turn positive on TNB and are upgrading our recommendation to Buy
from hold, with a higher DCF-fair value of RM7.20 following our earnings revision. Moderating factors
include unexpected drop in gas supply, prolonged search for its CEO and CFO replacement which
may affect corporate strategy and uncertainty in tariff review given the impending general election.

PJB ... May12

A low-key construction company invests much of its earnings back into the stock market by employing fund management companies to do the job. It has so far appointed fund managers Pheim Asset Management Sdn Bhd, Singular Asset Management Sdn Bhd, Kumpulan Sentiasa Cemerlang Sdn Bhd to manage the cash that it has accumulated so far.

The appointment of the investment manager forms part of the PJB group's effort to generate maximum returns from its cash reserves and will ensure that the funds would be managed by professional fund managers.

According to PJB's latest financial statements issued for the second quarter ended Dec 31, 2011, the company had parked 87% or RM61.57mil of its cash reserves to be invested in the equity markets through the three fund management companies mentioned earlier.

As much as the management aspires to maximise the returns by investing the proceeds of their business, PJB is, however, by virtue of being invested into the equity markets through these fund managers also directly exposed to the risks presented with the equity markets which is higher than putting your earned money in the bank.

PJB is therefore a direct proxy to the equity markets and its business performance will in part have a direct correlation with the equity markets.

Cash and cash equivalents are mainly used for the business and working capital purposes, since it is a construction company it can estimate its cashflow needs as and when the need arises.

The company had only once disclosed the details of these investments back in July 2004.

PJB had first started this practice of investing its cash with investment managers back in August 2003.

Its second quarter showed that PJB had spent RM18.22mil to buy more of these investments with these fund managers which it terms as “marketable securities” while it had sold RM23.40mil in these invsetments for the period until Dec 31, 2011.

Total cash and cash equivalents until Dec 31, 2011 amounted to RM70.64mil and about RM9mil from this amount is parked in a bank. It is also noteworthy that PJB had also duly informed investors via statements to the stock exchange of the effects of their adopted style to manage its funds and the correlation that it will have on its bottomline.

The financial effects on the PJB group for the financial year arising from the above transaction will depend on the performance of the investment manager through investment decisions made on a discretionary basis.

This is quite an unconventional way of managing its funds, although investment into equity markets could see good returns when markets do well.

It is to be noted that companies such as Google, which is listed on the US' Nasdaq, parks much of their cash on very liquid US government bonds which provides it with higher yields compared with the the low interest rates provided by banks.

PJB, which is a construction company, had this calendar year secured its first contract of RM34.38mil when its wholly-owned subsidiary, Pintaras Geotechnics Sdn Bhd was awarded a project to undertake earthworks, piling and substructure works for a condominium project in Kuala Lumpur over a 24-month period which is expected to positively contribute to its earnings.

Observers noted that the constructor could likely attract a broader range of investors should it provide more disclosure about its investments to the stock exchange, since the outcome of these discretionary investment decisions by these fund managers would have a direct impact on its bottomline.

XianLeng ... May12

Datuk Idris Abdullah surfaced as a shareholder in late April 2012 with a 5.38% stake.

Idris was formerly the chairman of KFM and executive chairman of Magnus Energy Group, in which Datuk Mohd Wira Dani Abdul Daim is a substantial shareholder with a 16.5% stake. Wira Dani is the son of former finance minister Tun Daim.

Considering the large block that was divested, there may be more shareholding changes in the pipeline.

Xian Leng’s former MD Ng and his wife Lim disclosed that they had disposed 23.88% stake and this leaves them with a 22.74% stake. It is not clear who acquired the shares from them. The shares were sold in three blocks on April 19 and 20 2012.

This development will have a bearing on an existing shareholder who is seeking two board seats in Xian Leng. Datuk Seri Chin the second largest shareholder seeking appointment of two seats on Xian Leng’s board. Chin holds 5.37% stake in the company.

Chin is the MD of KBB Resources Bhd, a company that made its name as a manufacturer and supplier of vermicelli. He has also involved in the construction and property development business in the 2000s. He is also involved in furniture manufacturing, the telcos business, corrugated cartoons and sheet boards.

He surfaced in Xian Leng in end Feb 2012 accumulating 3.65 million or 5.05%stake on the open market.

Xian Leng hogged the limelight in April 2012 when an audit revealed that rm86 million set aside to build ponds could not be accounted for.

Xian Leng has been recording losses for the past four years.

In the next few weeks, Chin will know if he is successful in his bid to appoint two nominees to the board.

Happy Holiday ... Happy Labour Day