SPSetia ... Jan11

SP SETIA FYE OCT 2010 NET PROFIT ROSE 47% YOY AS 4QE OCT PROFIT BOOSTED BY SALE OF TESCO HYPERMARKET IN JOHORE

SP SETIA's Net Profit rose 47% to RM251.81m for FYE Oct 2010 from RM171.23m for FYE Oct 2009 due to property development activities carried out in the Klang Valley, Johor Bahru and Penang.

The Company said Dec 9, 2010 that Revenue rose 24% to RM1.745 bil from RM1.408 bil a year ago while EPS was 24.77 sen versus 16.84 sen. " .... The current year PAT was arrived at after expensing approximately RM17m for employee share options granted pursuant to the Company's ESOS which was launched in May 2009.

" .... Selling and marketing expenses include the cost of financial incentives of RM33m borne by the Group pursuant to its successful '5/95', 'Best for the Best and Invest Setiahomes' campaigns ...." said the Company.

REVENUE MAINLY FROM PROPERTY DEVELOPMENT IN KLANG VALLEY, JOHOR BARU & PENANG

Bjtoto ... Jan11

Speculation is rife that BJtoto will be privatized by its holding company … BJLand.

Currently, BJCorp directly and indirectly via BJLand, holds about 51% in BJToto. Privatization exercises among NFOs are not rare because gaming companies are known for their strong cash flow.

The apparent reason for such a move is that BJLand’s rm711 million exchangeable bonds issued in Aug 2006 are due for redemption on Aug 15, 2011. The bonds are pledge to BJtoto shares. This means the property arm of BJCorp is in need of cash.

The bondholders have the option of either converting the debt papers into BJToto shares or receiving cash payment. Whatever the case, it is an issue that BJLand has to face.

If bondholders were to convert the debt paper into BJToto shares, BJLAnd’s shareholding in the NFO would be diluted. This would not augur well for BJLAnd since it has enjoyed good dividend payment from BJTOto.

One of the reasons driving the possibility of BJToto’s privatization is to keep the Berjaya group (Direct & Indirect)’s interest in BJToto, whish is some 51% intact.

BJLand is likely to use the dividends received from BJToto to redeem the exchangeable bonds. However, BJtoto’s operating profit has dwindled recently mainly due to higher taxes.

Hence it makes more sense for BJLand to take the complete control of BJToto’s cash. Privatizing BJtoto would give BJLand more access to the dividends, as BJtoto would be a wholly owned unit of BJLand. Also, BJLand would be able to get some cash to help it redeem the bonds.

If BJCorp were used as a vehicle to privatize BJtoto, however, it would be a cash absorbing exercise for the former, as it holds a very small direct stake in the gaming company. The bulk of about 43.5% stake is held via BJLand.

It ahs been reported that the entry of a strategic investor could be a main driver for the potential privatization of BJtoto. Privatization of BJtoto would also enable BJLand to realize some value on its investment in the NFO if a strategic partner were to take a stake in BJtoto later. The proceeds from the equity sales could be used to redeem its exchangeable bonds.

Industry observer says it is possible that BJtoto’s shareholders will privatize BJToto before bringing in a strategic partner.

Based on BJToto operating cash flow, BJLand wpuld have no problems raising capital for a potential privatization via borrowings.

IPO ... Century Software

Financial software solutions provider Century Software Holdings Bhd plans to raise RM21.40 million from its listing exercise, of which RM6 million would be used for research and development.

It would issue 23 million new shares of 10 sen each at an offer price of 93 sen each. Of the 23 million new shares, 8.55 million shares would be placed out; 5.80 million shares for eligible directors, employees and business associates; and the remaining 8.65 million shares for the Malaysian public.

Of the RM21.40 million, Century Software said RM6 million would be for R&D, while the remaining amount would be for capital expenditure for business expansion, working capital, repayment of bank borrowings, and listing expenses.

As part of the listing exercise, the shareholders would be offering for sale 10.9 million shares.

The flotation exercise aims not only to create a higher profile for the group, but more importantly to take our R&D capability to the next level. To this end, it plans to enlarge our current R&D team and use part of the IPO proceeds together with its internally-generated cash flows to develop new applications and solutions for both its financial software solutions and payment aggregator segments.

Century Software’s recent R&D achievements and commercialisation included the electronic revenue accounting system for the Inland Revenue Department and the eClaims System, a self-service online claims system.

Mulpha ... Jan11

Mulpha International Bhd may see a recovery in dividend income from its Australia associate FKP Property Group in 2011, compared with 2010 and 2009 where dividends from FKP dropped significantly.

Reports said that FKP is planning to distribute a dividend of three cents per unit for its FY2011 ending June 30, which is double the 1.5 cents per unit distribution for FY2010. Based on FKP’s 1,174 million shares issued, the three cents dividend translates into a gross distribution of A$35.22 million (RM110.5 million).

For Mulpha, which owns a 25% stake in FKP, its gross receipt of the dividend could come up to about RM28 million. This could be a vast improvement from the previous year where Mulpha saw its dividend from quoted shares overseas drop severely.

For Mulpha’s FY2009 ended Dec 31, dividend received from overseas quoted shares, mainly from FKP presumably, stood at RM189,000 compared with RM32.3 million in FY2008 and RM21.8 million in 2007.

Industry observers say increase in dividend expected from FKP for FY2011 is reflective of the positive results from the cautionary measures put in place by the company during the global financial crisis. Meanwhile, FKP is also expected to post stronger than expected earnings from the development of residential properties and operation of retirement villages moving forward.

Australian-listed FKP is the largest private owner and operator of retirement villages in Australia and New Zealand.

FKP and Mulpha hogged the news at the end of October spilling over into November 2010 over rumours that FKP’s second-largest shareholder, Stockland, a leading Australian property developer, was seeking to take over FKP. That speculation was discarded by FKP that it might strike a deal with Stockland.

A fortnight ago, Mulpha announced that it sold its Hilton Melbourne Airport Hotel and will use the RM327 million proceeds from the sale to trim down its debt unless new investment opportunities arose.

As at Sept 30 2010, Mulpha group’s net borrowings stood at RM854.5 million, against a shareholders fund of RM2.87 billion. The group has not been paying any dividends over the last ten years.

Given its lack of dividend track record, industry observers point out that Mulpha is likely to use the impending dividends from FKP to repay its borrowings or reinvest it.

For FY2009, Mulpha narrowed its net loss to RM9.7 million compared to a net loss of RM121.7 million a year before. Meanwhile, for the nine months ended Sept 30, the group registered a net profit of RM50.7 million compared with a net loss of RM71.6 million in the previous corresponding period.

Mulpha has also been buying back its own shares. Between August and December 2010, the group has bought back 7.8 million shares.

HUAYANG ... Jan11

At 99 sen, the stock is valued at a considerable discount to its net tangible asset per share of RM1.90 as at Sept 30 2010.

The company is also trading at a single digit PE of 4.8 times annualised earnings for FY11 ending March 31 compared with the other small to mid-sized property developers that are trading at double digits.

Hua Yang’s financial performance seems to be on an uptrend. For its second quarter ended Sept 30, the company registered a net profit of RM4.3 million which is a 59% increase compared with RM2.7 million a year earlier. For its total six-month period, net profit is up 67% year-on-year to RM9.2 million.

Hua Yang’s bottomline has been on a positive trend for the past three years. For FY10 ended March 31, the company saw its net profit rise to RM11.6 million compared with RM8.7 million in FY09 and RM6.6 million in FY08. Earnings per share also rose in tandem to 12.85 sen from 9.71 sen in FY09 and 7.31 sen in FY08.

While its profits have been improving, Hua Yang’s gearing had also picked up. Its gearing ratio rose to 0.29 in FY10 compared with 0.22 in FY09 and 0.07 in FY08.

As at Sept 30 2010, Hua Yang’s borrowings stood at RM75.5 million compared with RM56.4 million as at March 30 2010. Its cash and fixed deposits decreased to RM3.3 million compared with RM4.5 million for the same period. At RM75.5 million borrowings in September 2010, Hua Yang’s gearing stood at 0.36 times.

Hua Yang focuses on the affordable homes segment, catering to the growing mass market. The Perak-based developer has been in the property business for 32 years.

It has ongoing developments in Perak, Klang Valley and Johor. These projects are Bandar University Seri Iskandar in Perak, One South and Symphony Heights in the Klang Valley, Senawang Link in Seremban and Taman Pulai Indah in Johor. On top of these, Hua Yang also has two new projects in the pipeline — Taman Pulai Hijauan and Polo Park Land in Johor.

The company’s current undeveloped land bank of about 630 acres has a potential total gross development value (GDV) of RM1.78 billion.

Hua Yang has lined up RM2 billion launches for the next two years with the focus on the affordable range. These properties are priced between RM90,000 to RM400,000.

The products offered by the group, typically those in Perak and Johor, are generally priced at RM100,000 to RM300,000 per unit.

Opcom ... Jan11

The fiber optic business is making a comeback with the surge in the mobile telephony and internet access markets in recent years …. such as the HSBB project.

With Telekom as one of its major customers, fibre optic cable maker looks set to benefit from the development of the HSBB project.

In 2009, it had secured a two year contract worth rm359 million for the supply of a passive fibre-to-the-home system from Telekom. Since then, it has gradually appreciated, but valuations continue to remain low.

At 82 sen, the stock is trading at a current PER of 7.7 times. This is comparatively lower than its regional peers which command a high PER of 41.67 times.

For six month period ended Sept 30, 2010. It posted a net profit of rm12.6 million on the back of rm65 million revenue. The net profit for the period almost matches that for the entire year ended March 31, 2010.

Opcom attributed the higher profit margin for the first half of the current year to lower overheads, efficiency gains and the sale of higher margin products.

It is virtually debt free, with cash of rm56 million as at Sept 30, 2010. Trade payables, the only liability item besides tax on its balance sheet, dropped to rm30 million as at Sept 30, 2010.

And with the two year FTTH supply contract from Telekom in hand, Opcom’s revenue stream looks secure in the coming quarters. In addition, any positive developments in the HSBB project could mean a potential re rating for the company.

Nevertheless, the stock remains a laggard. The local fibre optic market is not expected to pose a serious threat to Opcom as there are only a few players in Malaysia. The price of imported fibre optic cables is relatively more expensive than local fibre owing to high transport costs.

The elimination of tariffs under the AFTA agreement, however, could intensify competition. Tariffs on almost all products traded by ASEAN nations will be reduced and fibre optic materials are among the 1000 products included in the Common Effective Preferential Scheme.

In addition, the company’s reliance on a single major customer, Telekom, may impose a risk. Nonetheless, its dependency on Telekom for order flows is expected because the telecommunications player is the only major user of fibre optic lines in Malaysia. Opcom is believed to have reduced its reliance with the continuous rollout of new fibre optic products for both the local and overseas markets.

With the proliferation of data heavy devices such as Apple Inc’s iPhone and iPad, there will be a growing strain on cellular networks, particularly on connections between cell towers and land based networks where bottlenecks often form.

It was also reported that Maxis Bhd would be making a significant capex in its high speed fibre to the premise broadband project. All of these developments bode well for Opcom.

As Opcom’s chairman Datuk Mokhzani Mahathir states that its financial year’s performance will continue to improve on the back of accelerated deployment of Telekom’s HSBB project, and capital investment programmes by other telecommunications providers in Malaysia.

But whether the market will re rate Opcom higher when it secures more contracts from the HSBB projects and more importantly is able to develop new export markets going forward, remains to be seen.