Saturday, August 31, 2013

IHH - trading at more than 46 PE

At current level (01 Sept 2013), it is trading at more than 46 times estimated earnings 2013 – a hefty premium given that the second largest healthcare stock Raffles Medical Group is trading at 25.7 times forward earnings. So it was to be expected that the stock would lose some ground following the release of poor headline revenue and earnings numbers on Aug 27 2013.

For the quarter ended June 30, 2013 IHH reported a 38% decline in revenue to rm1.7 billion and a 61% decline in earnings to rm157 million.

However the numbers were distorted because IHH booked substantial revenue and earnings in 2012 from the sale of medical suites at its newly completed medical facility Mount Elizabeth Novena. Excluding the effects of the sale, the company says revenue would have grown 14% and core earnings 60% in the quarter.

In fact, year on year, IHH hhas been admitting more patients due to increase in capacity from new facilities. It has also been generating higher revenue for each patient it admits owing to a number of more complex medical cases as well as some price increases.

Mount Elizabeth Novena began to generate positive Ebitda during the quarter.

As they ramp up future economies of scale would definitely drive margins.

With four hospitals, IHH is the largest private healthcare operator in Singapore. In addition to the new Mount Elizabeth Novena, the company owns Mount Elizabeth Orchard, Gleneagles and Parkway East. It has a sizeable operations in Malaysia and Turkey, as well as operations and investments in China, India, HK, Vietnam, Macedonia and Brunei – making it one of the world’s largest listed private healthcare providers.

The company’s expansion at Mount Elizabeth Novena was eagerly awaited for the extra revenue and earnings it would bring in. It was reported that the facility would achieve breakeven in 2QFY2013 - thus paving the way for IHH to deliver its best year ever.

Market observers were also prediction an Ebitda breakeven for another new hospital in Turkey – Acibadem Bodrum – by 4QFY2013.

IHH’s plans to continue growing the business was viewed positively. The company has 16 projects underway. It is building three new hospitals in Malaysia and expanding three others. To has entered into consultancy agreements to manage two new hospitals in China and Abu Dhabi that should open early 2014. In India, it is in joint venture to build a new hospital that should also be completed in 2014. It is building a hospital in HK and. In Turkey, it is expanding three existing hospitals and building three new ones.

Longer term, market observers are positive about the company’s awarded concession for its 60% onwed Gleneagles HK hospital. When operations begin, charges will be 20% and 25% higher than the Singapore hospitals.

Risk of currency volatility that the group is exposed to due to it operates in multiple geographies. The risks include translation differences, forex gains and losses on unhedged foreign currency borrowings and a decrease in medical travelers to Singapore in the short term as a result of the stronger Singapore dollar.

IHH is not at great risk of seeing a decline in its patient volume at the Singapore dollar appreciates relative to the Indonesian rupiah since only 18% of total patients admitted to the Singapore hospitals come from Indonesia, the net contribution from this group is only about 3% of the group’s earnings.

The revenue from domestic patients has increased sharply, more than half of the cases from Indonesian patients are non elective treatments, and larger contributions from other markets dilute sensitivity to this risk.

The healthcare sector has traditionally been a more resilient sector in time of trouble.

Friday, August 30, 2013

Tropicana Corp - reserve takeover

News that Tan Sri Danny Tan intends to inject his 762 acre track in Iskandar Malaysia into Singapore listed Albedo Ltd in a reverse takeover.

Investors would have expected Tan to have pumped most of his property assets into Tropicana Corp Bhd.

Such a move will enable Tan to gain control of a Singapore listed entity that will develop the track in Iskandar Malaysia. However, Albedo could potentially be a rival to Tropicana which is also developing project in the region.

Tan is expected to be the single largest shareholder of Albedo.

Some observers opine that the RTo is a smart move by Tan to sell properties to Singaporeans who would be more comfortable dealing with local companies. In addition Tan could park offshore the profit made from the developments in Iskandar.

However, the RTO could give rise to a a conflict of interest between Albedo and Tropicana Corp both of which are controlled by Tan and family unless the family decides to form a JV.

A JV between the two, if it happens, would enable Albedo to leverage Tropicana’s expertise in property development and in return help Tropicana draw Singaporeans buyers to its developments in Iskandar as they may have more confidence in a Singapore company.

While come quarters wonder why Tan did not inject the 762 acres into Tropicana, others say the company may not be able to stomach it after a massive asset injection in 2012. Tropicana is asset rich but its cash flow its tight. Hence the company has to dispose of some of its assets.

Its total assets stood at rm4.58 billion.

Meanwhile sources say CapitaMalls Malaysia is looking to acquire Tropicana City Mall and an office block from Tropicana Corp Bhd. The price is expected to be between rm550 million and rm650 million for both the mall and office block.

P&O - largest motorcycle insurance market leader

It holds the largest share of the motorcycle insurance market at 51%.

It intends to concentrate on the business it does best – insuring motorcyclists.

It says motor vehicle ownership is still on the uptrend, which translates into more business for its main source of revenue.

It does not see the impending detariff of the motor insurance industry in 2016 as a chance to reduce prices for the sake of increasing market share.

In May 2013, South African insurer Sanlam acquired a 49% stake in P&O’s subsidiary P&O Insurance Bhd for rm270 million.

The sale provide P&O with rm170 million for its coffers, RM150 million of which has been set aside for future investment and diversification plans.

It has set up a subsidiary in England – P&O Properties Ltd – with its intended principal business listed as investment, development and dealings in property.

Market observers say it is likely that the proceeds from the sale would be pumped into this new subsidiary.

In 2016, the motor vehicle industry will no longer be governed by a tariff set by BNM. And this is a prospect many insurers are looking forward to, as it means a more flexible and risk sensitive pricing model.

A scenario painted by insurance industry observers is that there could be a free for all price war, as providers undercut one another to gain market share.

CEO Chan Thye Seng is also on the board of Ancom, and director and major shareholder of Mah Wing Holdings Sdn Bhd.

Thursday, August 29, 2013

Perdana Petroleum - 2015 watch up year

2015 is the year to watch for Perdana Petroleum Bhd. By then, the offshore supply vessel (OSV) owner and operator will have taken delivery of all its new vessels and see full-year contributions from the six ships that it had secured long-term charters with major shareholder Dayang Enterprise Holdings Bhd worth a combined RM705mil.

From a loss of RM3.7mil for FY2012 market observers are projecting a return to profitability for Perdana Petroleum to RM50mil-RM60mil for FY2013, and thereafter a leap to RM70mil and RM90mil in 2014 and 2015.

This is not an impossible task for the marine vessel charterer, which has been profitable for five quarters now (Aug 2013) and won some RM1.2bil in new jobs since the start of 2013.

Offshore maintenance services concern Dayang, Perdana Petroleum’s single-largest shareholder with a 25% stake, was among the biggest winners of the RM10bil Pan Malaysia hook-up and commissioning (HUC) and topside maintenance umbrella contracts doled out by Murphy, Shell, and Petronas Carigali. Some RM3.3bil to RM4.1bil of those works went to Dayang.

The gap between current oil prices of above US$100 per barrel and the hurdle rate – the breakeven cost for oilfield operators – of US$40 has given fresh impetus for oil firms to hammer out better terms and longer tenures with vessel providers.

For Perdana Petroleum, whose fleet primarily consists of mid-sized anchor-handling tug supply (AHTS) ships, as well as work barges and work boats, this was enough reason for it to expand “aggressively” over the past 12 months from Aug 2013.

Perdana Petroleum has 15 ships at its disposal, with one set to be delivered in the fourth quarter of 2013 and two more in 2014, taking its OSV count to 18.

The vessels it had acquired are mostly for brownfield and maintenance jobs, and that it will its focus moving forward. Perdana Petroleum is eyeing HUC and enhanced oil recovery work.

Industry observers point out that a cyclical recovery in the OSV sector finally took hold in the second quarter of 2013, as can be observed in the earnings scorecards of listed OSV companies such as Perdana Petroleum and Alam Maritim Resources Bhd. Both of them logged better charter and utilization rates for the April to June 2013 period, as well as healthier bottomlines.

IJM Corp - proposed disposal of stakes in its ports

Its proposed disposal of stakes in its ports in Kuantan and Kemaman is part of its plan to unlock the value of its concession assets.

It is a straight listing of its assets or an IPO as a business trust. It may also look at selling stakes to private equity firms or strategic investors without providing a time frame.

IJM’s long term plan to list its profitable assets in Malaysia, which will serve as a catalyst for growth.

IJM sold its 36% stake in the Trichy Tollway in India for a profit of about rm50 million in March 2013 and disposed 40% of its equity stake in Kuantan Port to China ’s Guangxi Beibu Gulf Intl Port Group.

The infra business contributed to about 105 of total revenue in the last financial year ended March 31 2013. It agreed to become the biggest shareholder in oil and gas services provider Scomi Group Bhd adding to its portfolio of plantations and property assets.

About 75% of its debt is in concession assets, which is non recourse. Total debt was at rm2.86 billion.

IJM will see most of its earnings growth coming from property segment in the near term or strong sales and demand. The company may later list the commercial property element of the project as a REIT.

IJM will continue to focus on boosting palm oil production by improving yields.

Assuming the group decides to list its 30% of its highway assets, it will reap between rm660 million and rm1.1 billion in a one off profit.

The company had rm5 billion in short and long term debts as at FY2013, 75% of which were non recourse debts, backed by its concessions.

IJM holds stakes in WCE (20%) and 22% (KEURO), which holds the other 80% stake in Banting-Taiping highway concession. IJM’s effective stake in the project is 39.1%.

Wednesday, August 28, 2013

TRC Synergy ... downgraded

Its prospect was downgraded following an accident involving its light rail transit (LRT) extension project in Subang Jaya, Selangor. The accident, which marked the second mishap involving TRC’s LRT extension project, would serve as a dent to the company’s share price, given the increased perception of execution risk, especially when it occurred so soon after the first mishap.

Possible negative impact from the weekend accident would include delays in the completion of the job; lawsuits for negligence; a loss of reputation, which may hamper its ability to secure new jobs in the future; and in the most extreme case, termination by Syarikat Prasarana Negara Bhd as the contractor.

A stop work order has since been issued to TRC by the Subang Jaya Municipal Council and Prasarana, pending an investigation into the latest incident, which saw a crane arm conducting piling works for the LRT extension project falling and crushing a car.

The first mishap involving TRC’s LRT extension project took place in March 2013 and resulted in a motorist being killed and another being seriously injured.

TRC Synergy could face delays in the completion of the Kelana Jaya LRT extension project, which may negatively impact its earnings for FY2013 ending Dec 31. The incidents may also affect its reputation and it may face legal risks.

As at May 31 2013, it had rm2.12 billion worth of outstanding construction order book, including the Kelana Jaya LRT extension project and the KVMRT Sungai Buloh depot project.

The Property Sector - increasing RPGT

The Ministry of Urban Well-being, Housing and Local Government is studying the possibility of increasing the real property gains tax (RPGT) to stabilize the prices of houses in Malaysia.

On whether the move would be announced at the coming Budget, he said: "I wouldn't say that there will be an increase in RPGT in the coming budget. That will be entirely the prime minister's decision. As far as I'm concerned, we're studying the possibility and if it can cool down the market, it would be on the table."

RPGT was one of the government's policies that had a big and immediate impact. In order to ensure the sustainable housing delivery system, the RPGT was reintroduced in 2011 to curb speculation and prevent the housing market from overheating. It was increased to 15% in 2012 from 10 per cent in 2011 for property sold within two years.

However, the House Price Index by National Property Information Centre showed that in 2011 and 2012 the house price index recorded the highest increase for the last five years especially in Selangor, Kuala Lumpur, Penang, Pahang, Sabah, Perak and Terengganu.

Tuesday, August 27, 2013

KUB/MaSteel - intra-city rail will be scrapped

Sources say the RM1.23 billion intra-city rail line for Iskandar Malaysia in Johor, as proposed by a private party, will be scrapped. This is because the government wants to focus on the high-speed rail system linking Kuala Lumpur and Singapore, which will likely have a stop in Iskandar Malaysia, and the Rapid Transit System from Johor Baru to Woodlands, Singapore.

Metropolitan Commuter Network (MCN), a 60:40 joint venture between Malaysia Steel Works (KL) Bhd (Masteel) and KUB Malaysia Bhd, had proposed to build the intra-city rail project.

Kinsteel - private placement

Kinsteel Bhd hopes to secure the indulgence from the holders of its outstanding debt notes of RM40mil, due on 28 Aug 2013 if there is any delay in the redemption, as it undertakes its proposed private placement exercise to raise RM29mil.

The Murabahah commercial papers/medium term notes programme would expire on 28 Aug 2013 and the outstanding RM40mil Murabahah CPs are due and payable on the same date.

Should there be any failure in the redemption, Kinsteel shall seek indulgence from the Murabahah CPs holder to avoid a declaration of an event of default.

It was exploring options with financial institutions to address the overall financing structure of group. As such, the board believes that the proposed private placement, subject to the consent from other lenders of Kinsteel (if required), is an expeditious method in addressing the company's immediate financial obligation with regards to the repayment of the Murabahah.

Kinsteel's private placement of 10% of its paid-up is expected to raise gross proceeds of RM29.16mil which will be mainly utilized to partially repay the outstanding debt notes.

Monday, August 26, 2013

Scope/Matang (MCA)

While Mating Holdings Bhd’s minority shareholders have been planning to seek the liquidation of its plantation and property assets and have the proceeds distributed back to shareholders, Scope Industries quietly announced it had reached agreement with the new board of Matang to extend the period of the Business Merger Agreement dated Nov 19 2012 for a further nine months.

The determination of Scope to gain control of Matang’s assets is remarkable considering the politics behind the saga. At least one former senior executive is alleging that to continue talks with SCOPE is bad faith especially as the EGM had decided on the matter.

It is inconceivable that Matang BOD is prepared to even consider with SCOPE. The shareholders of Matang have already indicated during the previous EGM that the terms of the proposal from SCOPE are unacceptable.

The current (Aug 2013) BOD is acting in bad faith to go against the resolution passed on May 21 2013 to reject the proposal. The deal must involve the payment of cash for Matang’s assets.

For the record, in Matang’s EGM on May 31 2013, minority shareholders opposed the merger proposal saying SCOPE was offering too low valuation for its assets. Dejected, Matang’s BOD led by chairman and MCA politican Datuk Seri Tan Chai Ho resigned in masse.

Matang is an investment holding company with interests in plantations and property. Its largest shareholder is Hauren Holdings Sdb Bhd, the MCA’s investment vehicle, holding 12.83 million shares or 10.72% as of Oct 1 2012. Lau Chek Min Sdn Bhd is its second largest shareholder with a 1.19% stake. Bee Garden Holdings Sdn Bhd, linked to Country Heights deputy chairman Tan Sri Lee Kim Yew holds 0.65% of Matang.

Matang’s minority shareholders collectively hold over 80% of the company. Most minority shareholders are from Johor, accounting for 81.48% of its shares.

Matang minority shareholders are said to be divided into two camps. One is the Country Heights Lee faction, while the other camp is led by Lau Chek Min Sdn Bhd’s Lau Liang Fook. It is understood that both camps are friendly parties and oppose the disposal if Matang assets to SCOPE. Lee’s faction is said to be led by Datuk Tan Teck Poh, also chairman of the Parit Sulong MCA division in Batu Pahat, Johor. MCA president Datuk Seri Chua Soi Lek is also chairman of the Batu Pahat MCA division.

Observers point out that Chua possibly had a hand in pushing the deal, The deal will not go through without the blessing of Chua who is seen to want to get the business concluded quickly. Before this, several MCA politicians openly voiced opposition to the merge, resulting in Hauren deciding not to exercise its voting rights during the EGM. This time, if Hauren decides to vote, the proposal is as good as a done deal. It is said that parties friendly to Hauren can garner as much as 15% vote, which will see the merger go through.

Having lost faith in Matang’s BOD, its minority shareholders are reportedly seeking to liquidate Matang’s assets for at least rm200 million and have its profits distributed to shareholders.

To recap, on Nov 19 2012, Scope announced that it was considering a business merger proposal between Matang, in a deal worth rm145 million. With the deal, Scope would assume all of Matang’s assets, which would be wholly owned satisfied through the issuance of 680 million Scope shares valued at 25 sen each.

In the same Nov 19 2013 proposal, Scope was proposing to acquire a 100% stake in Benua Mutiara Sdn Bhd for rm31.72 million. Benua Mutiara owns 317.2ha of oil palm plantation land and is controlled by Chew Kong Yoon, who has a 33% stake in it.

The merger with Benua Mutiara went through smoothly, in sharp contrast to the proposed merger between Matang and Scope.

Scope has seen some interesting changes since Matang’s EGM in May 2013. Scope has diverse interests which include electronics manufacturing, trading and oil palm plantations. As a result of the Benua Mutiara merger, Chew has a 10.73% stake in Scope emerging as a substantial shareholder. Later Chew increased his stake to 18.46%.

Chew has emerged as the largest shareholder in Scope. Wah Len Enterprise Sdn Bhd, its second largest shareholder has 13.99% stake while Lim Chiow Hoo, Scope’s MD has 12.28% in the company.

Wah Len is controlled by Datuk Lim Chee Wah, a son of late Tan Sri Lim Goh Tong.

Sunday, August 25, 2013

The NEXT for the market~

The KLCI fell close to pre election levels yesterday (22 Aug 2013) almost wiping out gains made after the 13 GE partly due to the sell down of big cap stocks by foreign investors.

The market may be volatile for a while. However these should be no cause for concern as foreign holders in local shares are 23% to 24% relatively lower than the historical high of about 28% before the Asian Financial Crisis of the late 1990s.

Though some panic sellers may still be looking to reduce their holding out of fear of further foreign selling in emerging market, market observers foresee that a suture sell down of Malaysian equities would be a short term event driven by sentiment.

Do not anticipate more to come as we are relatively not as bad as other emerging markets such as Indonesia and Thailand and India.

GDP is still 4% with the current account still in surplus, compared with Thailand which has entered a technical recession with two consecutive quarters of contraction.

Another contributing factor to the sell down is the rising US dollar that has worried emerging markets as US assets become more attractive.

The Asean sell off is in its second leg, noting that weak balance of balance is prompting a sell off in most Asian currencies. This has prompted a fair amount of foreign fund withdrawals as their portfolios are measured in US dollars.

Weak Asian currencies have led to shrinkage in the value of portfolio even if stock prices stayed flat.

A large part of the Malaysian stock market’s peaks and troughs has been driven by foreign liquidity.

A significant number took the position that the BN would be returned to power and they were amply rewarded with the post election bounce.

The heard response will end when there is greater clarity in the timing and effects of the unwinding of the US Fed’s balance sheet.

Meanwhile the ringgit fell to a fresh three year low against the greenback to 3.31 on the back of concerns overt the FED’s withdrawal of it asset buying programme, a narrowing current account surplus and weakening government finances in Malaysia.

Friday, August 23, 2013

Airasia X - jet fuel priced in USD

It may have to contend with costlier fuel in the third quarter ending Sept 2013 as the US dollar strengthens against the ringgit.

As jet fuel is priced in USD, the long haul budget airline may have to pay more for fuel in ringgit terms.

While Airasia X’s fuel cost declined 5.3% in 2QFY2013 from a year earlier, it is believed that this trend will reverse in the coming quarterly as fuel cost in ringgit terms should rise in tandem with the strengthening USD. It is noted that a 1% appreciation of USD vis a vis ringgit will reduce Airasia X’s earnings by approximately 8% to 13.7% for FY2013 to FY2015.

Investors are advice to be cautious on the impact of a weakening Australian dollar versus the ringgit on Airasia X.

In addition, AUD is also depreciating against the ringgit. Passenger yields in ringgit terms will be affected if AUD continues to weaken going forward. This will adversely impact Airasia X, as the Australia market is its most profitable segment.

Despite being optimistic of Airasia X’s long term potential investors are advice to wait and see in view of the strengthening USD and the delay in the opening of KLIA2 both of which may hamper Airasia X’s near term growth prospects.

Instead Airasia Bhd is preferred for its exposure to the aviation sector. This is given its cheaper valuation versus Airasia X, lower implementation risks and lower sensitivity to USD.

Meanwhile critics say that the airline has strong growth potential arising from its aggressive business expansion backed by Airasia.

Sunway REIT - earnings could see further downside risks

There are a myriad factors that would likely temper interest in REITS at least in the near to medium term.

Key among the issues is expectations of a gradual normalization of global interest rates from historic low levels as the US starts to roll back its aggressive monetary policies. Rising yields on risk free government bonds would render fixed income bonds and high yielding stocks less attractive.

Generally speaking, the latter category should fare comparatively better expectations that corporate earnings growth will translate into higher yields – and yields – over time. IN this respect, REITs could face some challenges.

High property prices make it difficult for REITs to expand via acquisition of quality, yield accretive assets. In the absence of new acquisitions, REITs would be dependent on organic rental increases to drive earnings.

For Sunway REIT, its earnings over the next two years from Aug 2013 will be affected by major asset enhancement initiative, currently (Aug 2013) ongoing for the Sunway Putra Mall. The trust acquired Sunway Medical Centre at end 2012 and income from the property will help partially offset the loss of earnings from Sunway Putra Mall.

Expect distribution per unit to drop in 2014 and 2015.

Occupancy and rental outlook for the office segments is downbeat on the back of forecasts of space over supply over the next few years from 2013. This will translate into limited income growth for many of the office focused trusts.

Office properties in Sunway REIT’s portfolio saw pressure in its last financial year ended June 2013. With a significant portion of leases up for renewal in FY2014 and FY2015, earnings could see further downside risks.

Sunway’s REIT’s hotel assets also fared poorly in FY2013 with revenue down on the back of lower occupancy. The trust is relying on its retail assets to be the primary driver for the growth.

Revenue from its four retail assets, combined was up 1.3% year on year contributing to 71% of Sunway REIT’s total revenue in FY2013.

Sunway REIT’s flagship Sunway Pyramid shopping mall registered 18.1% rental reversion for leases renewed in FY2013 which accounted for about a quarter of total net lettable area. The shopping mall alone contributed to 57% of total turnover for the trust.

With another 52.5% of its leases due in FY2014, Sunway REIT is banking on FY2014 rental, reversion to sustain earnings – partially offsetting the loss of income from Sunway Putra Mall which is close for two years from 2013 for extensive refurbishment. Refurbishment works are likely to affect occupancy at its adjoining hotel and office tower.

The trust has earmarked some rm500 million in capex over the FY2014 to FY2015 for various AEIs. Other than Sunway Putra Mall, it is also undertaking AEI at Sunway Pyramid which will see some 20362 sq ft of additional retail space.

Going forward, new retail space, with a number of sizeable shopping malls coming into the market amid slower consumption, could pressure overall occupancy and future rental increases.

Thursday, August 22, 2013

LBS Bina - increase of foreign shareholders

It expects foreign shareholding in the firm to increase after it declares a five-year tax-exempt special dividend from cash proceeds received via the sale of assets in China.

Foreign shareholders have been increasing their holding in LBS Bina over the past few months prior to Aug 213- from 3.5 per cent as at mid-June 2013 to about eight per cent as at mid-August 2013.

Following the completion of the asset sale, LBS Bina declared a tax exempt special dividend of eight sen per share this year. The dividend will be paid on October 18 2013.

There will be four more special dividend payments of at least six sen from next 2014 to 2017, as the firm receives more cash from the asset sale.

LBS Bina has received HK$500 million (RM206.45 million) in cash, 225.5 million new Zhuhai shares worth HK$300 million (RM123.87 million), and Promissory Notes for the deferred cash payment of HK$850 million (RM350.97 million).

The firm will adopt a policy to propose special dividend with a dividend payout based on six sen per ordinary share or up to 40 per cent of each tranche of receipt, whichever is lower, subject to the receipt of each tranche of the deferred cash payment.

LBS Bina will also adopt a policy to pay a minimum normal dividend based on 30 per cent of its new profit for each financial year, starting 2013.

LBS Bina has undergone a transformation since 2009. It is now building medium to high-end properties instead of focusing on low- and medium-cost houses. It is also venturing into new territories in Johor, Sabah and Pahang.

Digi - next generation LTE network

DIGI: Its 2QFY2013 higher revenue was driven by increasing mobile internet usage. Some 64% of its subscribers are mobile internet users while smartphone penetration stood at 30.4%.

DIGI’s strategy to bundle voice and SMS into its data packages appears to be paying off, offsetting the decline in SMS revenue a subscribers turn, increasingly to messaging apps such as Whats-App. Voice revenue appears to have stabilized.

In tune with the global trend data, data consumption will continue to grow as more users upgrade from feature to smartphones coupled with increasing proliferation of tablet devices. Faster network speed and better consumer experience will further promote data usage. The average data consumption for smartphones is on an upward trajectory.

DIGI is positioned to capture this growth now (July 2013) that it has almost completed its network modernization exercise. The company has expanded its 3G coverage to 72% of the population and it is targeted to reach 75% by end 2013. The joint built fibre, with Celcom too is progressing well with some 1012km completed.

After the same time, the company has also started rollout for the next generation LTE network, beginning with the Klang Valley and it is slated to reach 1500 sites by end 2014.

While DIGI is not expected to excite with a blazing pace of growth, expect the company to report decent earnings expansion going forward. Its strong cash flow would also ensure steady and consistent dividend payments.

At the prevailing price of rm4.63, the stock is trading at lower valuations compared with Maxis and at just a slight premium to M1 and Starhub. Earnings for all telcos are predominantly domestic based whereas Axiata and SIngtel have wider geographical footprints. Overseas expansion offers the potential for stronger growth but also carry higher risks.

Although DIGI’s dividend yield for the current year (FY2013) is comparatively lower, there is a good chance for dividend growth gong forward. Due to the company’s limited reserves (following bumper dividends and capital repayments over the past few years), dividend payments are capped to annual earnings.

Given DIGI’s track record for returning excess cash to shareholders, estimates the company will pay out all of its profits.

Note that should DIGI adopt a business trust structure – a move that is currently (July 2013) – the total dividends payable would likely exceed its existing estimates.

DiGi.Com Bhd is set for higher margins in the second half 2013 with potential for more capital distribution if it adopts a business trust structure.

The ending of additional operations and maintenance expenses relating to network upgrades in second half of 2013 would give a lift to DiGi’s margins. This also sets a higher (margin) base for 2014, and is a catalyst for a re-rating.

At higher levels of payout from DiGi going forward, as its parent Telenor will be making significant investments in Myanmar. There is a high probability that DiGi will take on a business trust structure which will enable it to distribute more capital (as it will benefit Telenor).

Wednesday, August 21, 2013

MK Land - largest landowner near TTDI-Puchong Highway interchange

The group's de-gearing exercise and business streamlining (liquidated ascertained damages issues and disposal of non-core assets) till late 2012 are within market expectations.

The group is toying with the idea of paying dividends again in line with the group's improved profitability and strengthened balance sheet.

MK Land will continue to focus on pushing the remaining units in Rafflesia (semi-Ds) and Metropolitan Sq (condominiums) with a combined RM760mil in gross development value (GDV). The group is exploring more new products such as bungalows and condominiums, possibly in the next one to two years (2013-2014).

Separately, MK Land reassured that the liquidated ascertained damages issues are now (late 2012) behind them, and the priority now is to complete the delayed project.

Estimate MK Land still has about RM90mil outstanding from the previous land sale, which will definitely help the group to reorganise its debt structure to be more efficient.

MK Land's total debt has improved by 10.6% sequentially from RM220.2mil to RM197mil (late 2012), which is in line with the group's plan to reduce debt. Net gearing is 0.11 times now (July 2012), and do not discount the possibility of further land sale which will put the group comfortably in net cash position.

A 25-acre Damansara Perdana and the 55-acre Setiawangsa land sale could add about RM320mil to the war chest, or equivalent to the group's market capitalization now.

MK Land is the largest landowner (about 170 acres net land) near the TTDI-Puchong Highway interchange should benefit from rising land prices and positive catalysts such as potential dividend or land sale could give the much needed sparks to the stock.

It expects its affordable homes project in Bangalore in India to contribute to the group's earnings beginning its financial year 2013.The project, with a gross development value (GDV) of more than RM3 billion, is targeted to take off after the company's current financial year. They are now in the midst of getting relevant approvals from the authorities in India. The 74ha project would take between eight and 10 years to complete.

The project will be carried out by MK Embassy Land Sdn Bhd, a joint venture between MK Land (47.5 per cent), Embassy Group subsidiary Star Dreams Pte Ltd (47.5 per cent) and Emkay Group subsidiary MKN Embassy Development Sdn Bhd (5 per cent). Emkay Group is the private vehicle of Tan Sri Mustapha Kamal Abu Bakar, who is major shareholder of MK Land.

MK Land sees better performance for the group with major contributions from the group's Damansara Perdana, Damansara Damai and Meru Perdana projects. The company's undeveloped land currently stood at 2,000ha located mostly in Damansara Perdana, Damansara Damai and Taiping, Perak.

It is developing a housing project in Meru, Perak, where about 1,500 units are affordable homes. The estimated RM300 million project is expected to be completed in five years from 2012.

Since inception, MK Land has invested RM1.8 billion to build affordable and low-cost houses. The company has a 5,000ha landbank that has not been developed yet.

The company had not looked at any merger and acquisition plan for the time being as at end Dec 2011.

Tuesday, August 20, 2013

Why SellDown In Malaysian Equities Market ...

Asian markets fell sharply while currencies also weakened as foreign funds reduced their shareholdings in emerging economies and headed back to developed markets.

The slide in Malaysian equities was also in line with the current (Aug 2013) regional markets, including Indonesia and Thailand on weakening economic growth. There were rising concerns about a contagion effect from Indonesia.

World shares sank as unease about an expected cut in U.S. stimulus and a related rise in bond yields left markets on edge.

Such concerns are also spooking Malaysian investors with Malaysia's own current account surplus witnessing a narrowing trend over the past few quarters.

Economists predict that Malaysia’s current account surplus will continue to shrink on sluggish exports. Some also did not rule out the possibility of a current account deficit in the second quarter 2013. If that happened, it would be the first since 1997.

Malaysia also is vulnerable to the US Federal Reserve's (Fed) plans to scale back on its loose monetary policy because foreign funds holds a large chunk of its bonds. Foreigners held an estimated 46.8% of domestic debt securities worth RM228.9 billion in June, down from 49.5% in May 2013.

 Foreign funds were also net sellers of Malaysian stocks for the past three weeks. In the last three weeks, a total of RM2.1 billion had left Malaysia equity.

The Fed's meeting on Wednesday as a potential "flashpoint" for the equity market as it may contain "insight" of the the Fed's level of commitment to scale back on its asset purchases come September 2013.

Market turbulence was bound to pick up further as the Fed starts to switch policy direction. People will start to wonder whether there is anything in the fixed income world that is really safe.

Things may only settle down once the Fed’s plans become clear. The base case is that the Fed will announce the start of a modest and gradual tapering at its Sept 2013 meeting. By then, it should be fully prized in, so it seems logical that we would see some degree of stabilization.

If we also get a continued improvement in Chinese economic data, then Asian currencies could find a more solid floor but for now (Aug 2013), having gained so much on the back of Fed from 2009 to 2012, some of that is being given back.

Monday, August 19, 2013

Can-One/Kian Joo - privaization?

Sources say Can-One is revisiting the privatization of Kian Joo Can Factory Bhd (KJCFB) in which it has a 32% stake.

Only this time, Can-One’s advisers are looking enlisting the help of the EPF to take private. EPF currently (Aug 2013) holds 10.03% stake in Kian Joo.

Both Kian Joo and Can-One denied of any takeover plans.

To recap, Can-One financed the acquisition of Kian Joo entirely through borrowings. At that time, the loan taken was reported to have doubled the company’s borrowings to rm467 million and caused its gearing to hit a whopping 2.2 times.

The amount of dividend received from Kian Joo is just enough to cover the interest charges from the loan.

 It is easy to understand why Can-One is keen to take Kian Joo private as the latter is a dominant force in the aluminium can industry with a domestic market share of 70%.

Furthermore, the industry observers says Kain Joo’s factories in Batu Caves are ripe for redevelopment. But with only 32% equity interest currently (Aug 2013), it will be difficult for Can-One to maximize the value from Kian Joo.

Its subsidiary Box Pax Bhd is also big in corrugated cartons. Box Pax has zero gearing while Kian Joo’s gearing is only 20%.

Can-One is also keen to re examine the privatization of Kian Jooo because the latter’s profits have looked good.

Kian Joo’s borrowings as at March 31 2013 totaled rm180 million indicating that net gearing stood at 0.17 times to equity.

Its six properties in Batu Caves are worth Rm87 million in net carrying value. The properties were last re valued in 2009.

Daya Materials - 1st Malaysian companies secure O&G contracts in Norwegian market

It could become one of the first Malaysian companies to secure long term upstream O&G contracts in the Norwegian market.

Sources say it is close to securing both short term and long term contracts in the North Sea for its chartered vessel Siem Daya1 ensuring that the subsea service vessel is deployed for jobs immediately upon its delivery in Sept 2013.

Meanwhile the group is in negotiations to acquire a major stake in a similar vessel in Norway, which could be completed as early as Dec 2013, along with service contracts in the North Sea. It plans to name the second vessel SD2.

It is negotiating several contracts with oil majors and global offshore contractor for both the short term and long term deployment of SD1 in the North Sea. If successful, it will be the first Malaysian company to bag a long term contract in the Norwegian market.

Daya has the option to acquire SD1 from its owner Siem Offshore Inc.

It is also in negotiations to buy a number of these vessels. The value of each vessel will be in excess of US$100 million. It plans to deply these vessels not only Malaysia bit also worldwide.

The securing of contracts for SD1 and potentially SD2 by end of 2013 will mark the group’s most significant foray into the upstream business to date (Aug 2013) and will be a catalyst for a re rating.

It is estimated a 7% boost to Daya Matetails’ FY2013 earnings if a contract can be secured soon.

 Acquiring a vessel however will be a breakaway from Daya Materials’ traditionally asset light model. Currently (Aug 2013), the group only has a gearing of 0.1 times and with the amount of steady cash that its other businesses generate, the group could even be in a net cash position by end 2014 – if it does not make any acquisitions. It is worth noting that Daya Materials does not need to acquire an entire vessel but split the ownership with the shipbuilder.

Each of these vessels cost in excess of US$100 million. Assuming Daya buys half the ownership of a vessel and funds it with 70% borrowings and 30% of its own money, it will only need to fork out upwards of rm50 million from its coffers.

A private placement is its last choice when it comes to raising funds. The directors collectively control the majority of the group and the last thing it wants is to be diluted at this stage.

It will likely pursue a convertible bond issue of about rm50 million to rm70 million to finance acquisitions.

In the downstream sector, Daya Materials has a fleet of 25 cranes ranging from 25 tones to 400 tones as well as almost a dozen auxiliary trucks and forklifts. Its downstream chemicals business includes supplying virtually all the odorant for liquid petroleum gas in Malaysia.

The group is also tapping the upstream business with a small stake in Reach Energy Bhd, a SPAC that will venture into brownfield projects.

Sunday, August 18, 2013

IRIS - reason why FELDA pay high premium

Its strong presence and connections in Africa is one of the main reasons the FELDA is willing to pay a high premiums to acquire a 20% stake in IRIS.

FGVH has been looking to expand into Africa for some time now (Aug 2013). For instance it has been planning to create a palm oil hub with storage facilities in West Africa for over a year now (Aug 2013).

IRIS, which provides trusted ID solutions to at least four countries in Africa could help FELDA make inroads into the continent.

Its MD DAtuk Tan confirms that the African link played a key part in FEDLA’s valuation of the company.

There are also other reasons FELDA bought into IRIS such as IBS, renewable energy and food security.

IRIS has diversified from its traditional core business of trusted ID. This division, which houses the electronic passport business accounted for about 70% of its revenue in FY2013 ended March 31.

These days, IRIS has five other distinct divisions – business (under which it houses its automated fare collection and auto gate businesses), food security (which houses its autopot technology, environment, IBS and sustainable development. Its participation in IBS is through its 51% equity interest in IRIS Kota Sdn Bhd.

It expects its revenue from the sustainable development and IBS divisions to surpass that from the trusted ID division within the next 12 to 18 months from Aug 2013.

To recap FELDA bought 394 million new IRIS share, under a private placement exercise.

IRIS has now (Aug 2013) fresh capital of rm111 million in its coffers. As at March 31 2013, the company’s cash reserve amounted rm59 million compared with total borrowings of rm267 million including short term loans of rm168 million.

Following the deal, FEDLA will be the single largest shareholder in IRISI while Tan will have a combined direct and indirect interest of about 9%.

Its fixed assets were worth of rm505 million consist of three major items namely concession on assets of rm186 million, goodwill on consolidation of rm142 million and property, plant and equipment of rm162 million.

Earnings from the LBS and sustainable development divisions will eventually be boosted by the RK and SK projects that it undertakes for the government and FELDA respectively. Each RK contract is worth about rm24 million while the SK contract is worth rm40 million.

IRIS is also poised to benefit from the government’s plans to provide affordable housing in Malaysia, given that it will involve the use of IBS.

The RK and SK Projects are essentially sustainable development projects, where IRIS uses its IBS and autopot technologies to provide fast, affordable bousing and employment.

RK is about moving people who live in object proverty to proper housing and providing employment. FELDA’s SK Project is similar to the RK’s projects.

Friday, August 16, 2013

E&O - Target price

Target Price: 2.90 (DBS Vickers), 2.60 (RHB Research)

The company is believed to be closing in on a deal that will change its valuation landscape.

 Sime Darby Bhd owns some 31% stake in E&O

E&O has been overshadowed by smaller Penang developers such as Asas Dunia Bhd.

 It is also said to be preparing for a public dialogue on August 24 2013 on its detailed environmental impact assessment (DEIA) study, which it is conducting now (15 Aug 2013).

The dialogue will highlight what the company has in mind for the second phase of its Seri Tanjung Pinang (STP) development. The session also intends to showcase the future of Penang’s coastline, along with related traffic and environmental issues. The timing of the dialogue seems to suggest that the pace has picked up for the STP project’s second phase to take its course.

 Observers expect the DEIA to be concluded in two to three months from the date of the dialogue.

This means that by end Nov 2013, E&O could have all the approvals in place to start reclamation work on STP Phase 2. If so, this would be hugely positive for E&O as estimated the GDV of the project as a massive rm25 billion to rm30 billion.

To recap, E&O is finally making headway with its Seri Tanjung Pinang Phase 2 project following a lull in activity after receiving the approval in principle for reclamation works for 760 acres of land in Tanjong Tokong on the northeast coast of Penang in April 2012.

Its subsidiary Tanjung Pinang Development Sdn Bhd in 1992 received the excusive right from the Penang government to reclaim and develop 980 acres in Tanjong Tokong.

The company has reclaimed about 240 acres under Phase 1 of Seri Tanjung Pinang to date (Aug 2013) and is expecting to launch the remaining land parcels over the next two to three years from 2013.

STP 2 will underpin the long term growth beyond FY2016. The masterplan for STP 2 is expected to be revealed in the third quarter 2013. Tender for reclamation works is likely to take place in the fourth quarter 2013 and the works will begin in early 2014. Land will be reclaimed in phase and for a start, 200 acres have been planned.

The project was to have a GDV of rm12 billion.

In the concession agreement, with the Penang government, E&O is required to make available 10% of the net saleable land to the state.

Sime Dary is currently (Aug 2013) the company’s single largest shareholder holding 32% equity stake in E&O.

Meanwhile E&O is expected to embark on aggressive landbanking in KL, Johor and overseas on top of the STP reclamation project.

These could raise net gearing to as high as 100% from 35% currently (Aug 2013) but can be managed via joint ventures and potential equity fund raising.

CIMB/Maybank - challenges in Indonesia

Indonesia is becoming an increasingly tough market for Malaysia’s regional banking groups. CIMB and Maybank as both face growing challenges in SEAs largest economy.

Bank Indonesia’s move to tighten liquidity in the country, coupled with rising inflation and a slowing economy, has made for a tougher operating environment for banks in Indonesia. Loan growth and interest margin are expected to be dragged down further.

This has already impacted the earnings for the first six months to June 2013 of CIMB’s 98% owned subsidiary Bank CIMB Niaga and Maybank’s BII. The full impact will be felt in the bank’s second half 2013 earnings.

Both Indonesia banks lowered their loan growth projections in late July 2013.

Among CIMB Group’s regional operations, Indonesia is the key concern for the group given its high inflationary environment, coupled with slowing economic activities.

The tough operating environment in Indonesia may deter other banks from Malaysia from venturing into the market for now (Aug 2013).

Thursday, August 15, 2013

TNB - possible tariff increase

A possible tariff increase in January 2014 could serve as a boost for Tenaga Nasional Bhd (TNB).

The hike could incorporate a RM3 per million metric British thermal unit (mmbtu) increase in gas price, an increase in coal price to US$95 per tonne from US$85 per tonne as well as liquefied natural gas (LNG) to RM40 from RM38 per mmbtu. This could equate to a 15% increase in electricity tariff.

It was reported that consumers would pay more for electricity if there was an increase in fuel costs once TNB implements the Fuel Cost Past Through (FCPT) mechanism in 2014.

The Government last raised the tariff by 7%, more than two years ago in May 2011, to the current 33.5 sen per kwh. The Government might set up a stabilisation fund to share the burden with end-users.

However, the weakening (Aug 2013) in the ringgit against the dollar and yen could have an impact on TNB’s bottomline due to its foreign debt exposure.

Since June 2013, the ringgit has weakened 5% and 9% against the said currencies, which could translate into TNB recognising non-cash translation losses in its quarterly earnings.

As at May 31, 2013, TNB had RM2.72bil in US-dollar denominated borrowings, as well as RM3.83bil in yen denominated borrowings. TNB’s US-dollar denominated borrowings represented some 12% of its total outstanding loans of RM22.89bil while its yen-denominated loans accounted for about 16.7% of its total borrowings.

Estimated that for every 1% depreciation of the ringgit against the US-dollar and the yen will translate into RM27mil and RM37mil of translation loss to the group’s bottomline.

Every 1% change in the exchange rate would swing its forecasted earnings per share (EPS) for financial years 2014 and 2015 by 0.6% and 1.3% respectively.

Modest movements in coal prices in the next two to three years from Aug 2013 would bode well for TNB while waiting for the implementation of the FCPT mechanism in 2014.

Successful implementation of the mechanism will help to further re-rate TNB closer to our discounted cash flow valuation.

Wednesday, August 14, 2013

Mulpha Interntional - jewel landbank in Iskandar Johor

A revival in the fortunes of Mulpha Land Bhd and Mudajaya Group Bhd is pointing to a re rating of Mulpha Intl, which holds equities in the two companies.

Furthermore, Mulpha Intl’s jewel in the crown – its landbank in Iskandar Malaysia, Johor – is a property development hot spot and is estimated to be worth billions.

A restructuring exercise will see Mulpha inject a two acre prime tract into Mulpha Land for rm47 million. The project in PJ’s Section 13 has an estimated GDV of rm200 million to rm250 million – much bigger than MLand’s market cap of rm111 million (early Aug 2013).

The land for the development of high rise serviced residences, previously housed Mulpha Headquarters, which has been moved to Menara Mudajaya in Mutiara Damansara.

Under the restructuring plan, Mulpha Intl will concentrate on the southern region of Peninsular Malaysia through its Leisure Farm development in Iskandar Malaysia. As part of the deal, MLand will sell two parcels in Johor to Mulpha Intl’s wholly owned unit, Leisure Farm Equestrian Sdn Bhd for rm20 million.

All other developments in the central and northern regions of Malaysia will be parked under MLand.

Apart from stake in MLand, which is appreciating in calue, Mulpha Intl’s landbank could be a wildcard too. It has a rather large landbaning Iskandar Malaysia and old Coast, Australia. Its key project in Iskandar Malaysia is Leisure Farm while in Gold Coast it is Sanctuary Cove.

It was reported that Mulpha Intl is poised to be a beneficiary of rising land values in Iskandar Malaysia. Transaction prices there have ranged between rm12.20 and rm22 psf since Aug 2011. In comparison, Mulpha Intl’s landbank of 1077 acres at its Leisure Farm development carried a net book value of rm366 million as at Dec 2011 of just rm7.80 psf.

Assuming a conservative market price of rm15 psf, this would boost its end Dec 2011 book value by an incremental rm338 million or 14.3 sen per share to rm3.3 billion.

Mulpha Intl could be cheaper entry into Mudajaya, which is tipped to be a big winner of rm20 billion worth of contracts for the construction of four new power plants in the next few years from 2013. Mulpha holds a 22.21% stake in Mudajaya.

Mudajaya has an outstanding order book of rm2.2 billion with projected new job wins of about rm500 million to rm600 million.

With Mulpha Int’s 22.21% stake in Mudajaya, its share of profit would translate into earnings for FY2014 and FY2015.

Mudajaya’s net assets stood at rm2.13 per share as at March 31 2013.

Mulpha Intl’s stake in Mudajaya is worth about rm330 million almost about a third of its market cap. However valuations for Mulpha may be capped by an investment holding discount.

It does not help that Mulpha Intl has no dividend policy as it believes in a share buy back
Be that as it may, Mulpha Intl will need help to return to the black after posting a net loss of rm475 million for FY2012 compared with a net profit of rm179 million in the previous year.

The huge losses were attributed to the losses made by its 26% owned associate FKP Property group, which is listed on ASX.

Salcon - plans to private placement

Langat 2 Water Treatment Plant Project …

On the Langat 2 water treatment plant (rm1.2 billion) in Selangor, PPAB has narrowed down the bidders to two finalists, Gamuda Bhd and a JV consisting of MMC Corp Bhd, Salcon Bhd and AZRB. Management has a 30% stake in the JV. This would bring its estimated portion in the job to rm360 million should the JV win the contract.

Tie Up With SP Setia’s Tan Si Liew …

Salcon Bhd’s tie up with Eco World Developmnet Sdn Bhd, a company linked to SP Setia Bhd’s Tan Sir Liew Kee Sin, will pave the way for the water and waste water engineering company to go big into the Johor property sector.

The company in the immediate term, will develop a rm1.2 billion mixed commercial development in Johor together with Eco World Development.

Eco World Development is an upcoming player in the property world and has Liew’s son as a director. Leong also sits on the board of Eco World Development.

The development, known as IB Festival Mall and Serviced Apartment is majority owned by Salcon.

Apart from the project in Johor Baru, Salcon has another project in Selayang with a smaller GDV of rm150 million.

Property development is expected to a significant contribution to the group’s profit from next year onwards (2014 onwards).

Eco World Development bought four parcels of land worth rm604.65 million in Johor and KL from DRBHicom.

Salcon ventured into the property business to diversify its revenue. It is opened to JV with property firms.

However Salcon has not lost its water engineering business. It has submitted bids for rm1.8 billion worth of water based contracts till June 2013. It has tendered for the Langat 2 contract in Selangor is also eyeing water jobs in Sabah and Johor.

It has an outstanding order book of rm350 million.

Private Placement …

It plans to place out at least 53.92 million new shares representing 10% of its issued base to third party’s investors.

The proceeds from the exercise will be used to finance working capital needed for the group’s real estate operations and repay debts.

The issue price will not be less than the stock’s par value of 50 sen each and expects to complete the exercise by third quarter 2013.

Tuesday, August 13, 2013

MBSB - feel the heat from BNM's tightening measures

There are concerns that the company may not be able to sustain its impressive earnings growth.

The company, in which the EPF holds a 69.87% stake, will face an uphill battle when the effects of BNM’s personal loan policies kick in the next quarter. The new rules, which take effect immediately could potentially curb loan growth and compress net interest margins.

More than 60% of MBSB’s total loan portfolio is made up of personal financing loans. It will definitely feel the heat from BNM’s tightening policies.

Market observers opine that lackluster profits for the NBFI anticipation slower growth in the personal finance segment due to the newly implemented measures.

MBSB’s loan growth had in the past relied on the robust refinancing activity in civil servant personal loans.

The group was partly driven by the flexible in financing whereby 100% of MBSB’s Islamic personal financing book had long tenures of between 10 and 25 years.

MBSB has about rm20 billion of outstanding personal loans constituting 69% of its total loan portfolio as at March 2013. The group has offered personal financing with tenures of up to 25 years. Thus the 10 year cap on personal financing could have an adverse effect on the group’s earnings prospects going forward.

Some do not think the lenders will be significantly impacted by BNM’s new regulations because of the automatic salary deductions scheme for civil servant personal loans. As one of the four approved credit providers to this segment, the loan default risk for MBSB is low.

Back in 2011, personal financing overtook mortgages as the main contributions to its gross loan portfolio.

Meantime, it appears that MBSB is aware of the looming risk given that it is in the midst of rolling out several new strategies such as venturing into the non civil servant market. It is offering floating rate loans for the mortgage and PF-I segments and stepping up efforts to secure more mandates in corporate financing.

Still a slowdown in loan growth is evitable and opines that MBSB’s gradual short to other segments may not be enough to negate the impact of a decline in personal finance growth going forward.

The private sector personal finance market is much larger than that of civil servants and could prove tough for MBSB to break into. Besides that MBSB will be dealing with a very different market segment where defaults and jobless rates as well as lending habits vary from the more conservative civil servant market.

Sunday, August 11, 2013

GPacket - significant increase in its earnings

It saw a significant increase in its earnings before interest, tax, depreciation and amortisation (EBITDA) for the second quarter ended June 30, 2013.

The mobile broadband services provider posted an EBITDA of RM9.4mil, which represents a 116% year-on-year increase for the period under review. Green Packet’s revenue for the second quarter, on the other hand, jumped 9% to RM151mil.

Green Packet’s operator pillar Packet One Networks (M) Sdn Bhd (P1) contributed RM73.8mil to group revenue, while Greenpacket Solutions, which provides connectivity device and solutions to operators globally, contributed RM35.2mil.

P1’s net subscriber addition for the second quarter was 12,000, with a cumulative total of 553,000. Meanwhile, Solutions’ shipped 153,630 units in the quarter, increasing by 48% quarter-on-quarter and 27% from the same period last year.

For the period under review, Green Packet saw its net loss widening to RM19.8mil from RM17.9mil in the previous second quarter. Consequently, its loss per share rose to 2.9 sen from 2.7 sen previously.

Saturday, August 10, 2013

Faber/UEM Group

Faber Group Bhd’s earnings base is expected to get a shot in the arm from the injection of Opus Group Bhd and Projek Penyelenggaraan Lebuhraya Bhd (Propel) into it.

UEM Group Bhd had proposed to dispose 100% equity interest each in Propel and Opus to Faber for RM1.15bil via the issuance of 450.5 million new Faber shares at an issue price of RM2 per share as well as a cash consideration of RM250mil.

Calculations show that Faber’s share base would increase to 813.5 million from the current 363 million upon the completion of the proposal, with UEM Group increasing its effective stake in the company to 70.7% from 34.3% currently.

Financial year 2014 (FY14) earnings per share (EPS) would improve by 46.5% despite the enlarged share base after factored in a potential combined net profit contribution of RM110mil from Propel and Opus. This would more than triple Faber’s previous FY14 earnings base of RM48.2mil.

Nevertheless, should the proposals materialise, Faber would emerge as Malaysia’s largest asset and facility management player with a presence in three core sectors – healthcare, infrastructure and commercial.

Opus is mainly involved in the asset management of transportation, infrastructure and built environment assets and facilities, operating in Malaysia, New Zealand, Australia, the United Kingdom and Canada.

Notable projects include consultancy services for the Kelana Jaya-Ampang LRT extension, highway maintenance and management in New Zealand and road asset management in Australia.

Opus also owns a 60% stake in Opus International Consultants Ltd, which is listed on the New Zealand stock exchange with a market capitalisation of NZ$256mil (RM640mil).

Propel, on the other hand, is the largest highway maintenance company in Malaysia, having been the maintenance provider for the North-South Expressway since 1988.

Thursday, August 8, 2013

Maybulk - sitting on RM276million in cash & investment

Market observers do not believe that a PACC Offshore Services Holdings (POSH Semco) IPO will further re-rate Maybulk.

During the 2003 to 2008 dry bulk super-cycle boom, Maybulk disposed of many of its ships as it treats its ships as tradeable commodities. This earned Maybulk handsome profits, which were then shared with equity investors via the payment of high dividends.

As a result, Maybulk is now (Aug 2013) sitting on RM276mil in cash and investments, against just RM86mil in debt.

Between 2008 and 2010, Maybulk acquired 11 ships, of which six were on long-term leases, because it did not believe that ship prices were yet at the bottom. This turned out to be another smart move.

However, at the moment (Aug 2013), Maybulk is waiting to take delivery of just six dry bulk vessels between 2013 to 2015. Given that second-hand prices are now (Aug 2013) rising, industry observers wonder if Maybulk has waited too long to make more aggressive acquisition moves.

Maybulk has been making losses in its dry bulk division for the past three consecutive quarters, because the charter hire on its six long-term charters is likely higher than the current low spot rates.

Estimate cash losses of some RM21mil over the past three quarters, which could persist as the charter periods are three to 10 years long. This unwanted cash drain erodes the firepower that Maybulk has to acquire ships, and is one of the key issues holding Maybulk back from reporting better earnings.
Based on estimate, the IPO is not likely to value POSH more than the above.

TSH resources

The hard work it has put into plantingan average 3600ha a year since 2006 has paid off. Over the next two to three years from Aug 2013, TSH anticipates sustaining its high double digit growth even if the group were to stop new planting today (Aug 2013). The primarily growth drive is its weighted average age profile of about seven years with 76% of trees in the planted area below seven years old.

It is committed to sustaining its organic growth with targeted new planting of 3000ha to 4000ha each year supported by its 68520ha of unplanted land bank in Indonesia.

The main concern is its high net gearing of one time (March 2013). While manageable, it may impede its aggressive expansion plan amidst a protracted weak year to date CPO average selling price.

To address its gearing, it had raised about rm48 million in cash via a 2.5% share placement. The successful disposal of its 16.2% stake in Pontian United Plantations Bhd to FGV for rm195 million cash will help lower its net gearing to about 0.7 times.

Wednesday, August 7, 2013


Its shares went ex for the 48 sen capital repayment on 02 Aug 2013. This is the first milestone in proving to investors that it is now (Aug 2013) a fully transformed, high dividend-paying, pure gaming company.

Expect a 5%-6% yield with the strong possibility of special dividends.

The key catalyst is fulfilling its minimum 80% dividend payout policy.

The RM696.5mil of proceeds came from the decoupling exercise of Magnum’s non-gaming assets, which were spun off into an initial public offering (IPO) called MPHB Capital.

Investors looking at Magnum from this point onwards (Aug 2013 onwards) can still look forward to a minimum 80% dividend payout.

Market observers do not rule out the possibility of special dividends since the company will be turning net cash in 2013 after being under the debt burden for many years following a leveraged buyout of the gaming business.

Magnum also has up to RM1bil of proposed 20-year medium term notes that it can issue to pay dividends that it has not executed yet.

Investors’ interest in dividends is aligned with that of the major shareholders, especially Asia 4D Holdings, which has 11% of the company. It represents the shares held by the private equity fund CVC Capital Partners, which helped finance the initial leveraged buyout of the gaming business in 2008.

Its prospects are bright due to Magnum is to be fully-transformed to a clean gaming dividend story. The capital repayment is the first step in its new chapter and investors should continue to favour the stock as a high-yield play with the potential for payouts to surprise.

Tuesday, August 6, 2013

New porfolio - ICBC

Today another share join in my portfolio.

Industrial and Commercial Bank of China Ltd. (ICBC).

It is now trading around PE 5.7, which I think is considered dirty cheap.
Lets compare to local bank and US bank, they are currently trading at PE15 and PE10 respectively. So I find no reasons for a bank which used to be a world largest bank and best management China bank trading at this level.

Not mention about its dividend as well. Based on current trading price, around HKD 5.00, it is given around 5 to 6% dividend.

I'm not sure whether it's price will move up in near term or not, but the downside is quiet low and my risk is minimum.

Good luck on your investment.

Airasia X prospects'

Target Price: 1.65 (RHB), 1.47 (CIMB), 1.33 (Alliance), 1.66 (Inter-Pacific)

Its strengths lie in two critical elements: operating the lowest possible cost and churning up high passenger volume.

What AAX lacks however is the scale to emulate the success of sister company, Airasia. Hence the IPO is taking this long haul LCC to its next stage of growth during which it will enlarge its fleet and achieve the scale it needs to propel earnings.

The airline has picked Bangkok as its new hub, in tandem with its vision to be a leading long haul LCC. Together with other carriers in the Airasia group, it is working towards building the world’s first multi hub long haul LCC network.

Meanwhile the near-term share price performance may be affected by seasonally weak 2Q and 3Q results as well as concern over the effect of delay in the opening of KLIA2 on its expansion plan.

Moving forward, the company’s rising economies of scale owing to fleet expansion should further pare down unit costs.

By learning its past mistakes, it had built a solid base in KUL and a business model that can be successfully replicated across several hubs.

Ra rating catalysts are aggressive expansion of its profitable KUL hub and the opening of new hubs in Bali and Bangkok.

It has superior unit costs that help it build new demand with cheap fares and eat into FSC’s market shares, leveraging Airasia Group’s short haul networks.

It is worth nothing that Maybank is the stabilising manager for the initial public offer (IPO) of Airasia X Bhd. The maximum period for the price stabilisation would be the earlier of 30 days from the start of trading of the shares; or when the stabilising manager has bought 118.518 million shares, representing up to about 15.0% of the total number of shares offered under the IPO.

Maybank IB had bought 19.5 million shares at 1.25 ringgit on 10 July 2013. It had also bought 6.014 million shares of AAX from the open market on 16 July 2013. It also bought 750000 shares from the open market at rm1.25 on 15 July 2013.

Maybank purchased 8.5 million shares in Airasia X on 22 July 2013 to stabilize the stock price.

It also bought 10 million AirAsia X shares on 25 July 2013 at RM1.25 each. On 24 July 2013, it bought 5.49 million shares at RM1.25 a share.

Monday, August 5, 2013


Indonesia is becoming an increasingly tough market for Malaysia’s regional banking groups. CIMB and Maybank as both face growing challenges in SEAs largest economy.

Bank Indonesia’s move to tighten liquidity in the country, coupled with rising inflation and a slowing economy, has made for a tougher operating environment for banks in Indonesia. Loan growth and interest margin are expected to be dragged down further.

This has already impacted the earnings for the first six months to June 2013 of CIMB’s 98% owned subsidiary Bank CIMB Niaga and Maybank’s BII. The full impact will be felt in the bank’s second half 2013 earnings.

Both Indonesia banks lowered their loan growth projections in late July 2013.

Among CIMB Group’s regional operations, Indonesia is the key concern for the group given its high inflationary environment, coupled with slowing economic activities.

The tough operating environment in Indonesia may deter other banks from Malaysia from venturing into the market for now (Aug 2013).

BIMB/Bank Islam - likely to take over

Bank Islam Malaysia Bhd is likely to take over the listing status of its parent company, BIMB Holdings Bhd, in an exercise that could improve valuations.

Sources say the move is likely to happen now (Aug 2013) that BIMB is poised to own 100% of the unlisted Bank Islam by end 2013.

LTH controls BIMB with its 51.2% stake while the EPF owns 9.6%. BIMB controls 51% of Bank Islam.

Bank Islam would pay as much as rm2.96 billion for LTH’s 18.5% and DFG 30.5% equity stake. The deal is to be funded by a rights issue and the sale of Islamic bonds will boost its profitability and allow it to implement more coherent wide strategies.

BIMB is targeting to complete the transaction by end of 2013.

Investors buy into BIMB’s stock mainly for exposure to the fast growing Islamic bank’s operations. About 85% of BIMB’s earnings come from Bank Islam, with the rest mainly from its listed Islamic insurance entity STMB. BIMB owns 65.2% stake of STMB.

By having Bank Islam take over the listing status, investors would get direct exposure to the banking operations rather than through the holding company. This will improve the bank’s valuations as there is a tendency to attach a holding company discount to it.

BIMB will raise about rm1.54 billion from the sale of rights issue shares that come with free warrants and as much as rm1.47 billion from the sale of a 10 year Islamic bonds.

Sunday, August 4, 2013

Flonic - changes of shareholders

The granddaughter of the late Tan Sri Tan Yuet Foh, the founder of Tan Chong Motors Holdings Bhd, has emerged as a substantial shareholder in manufacturer of critical and precision cleaning systems Flonic Hi-Tech Bhd, suggesting that some exciting changes may be in store for the firm.

Tan Siew Ching, 43, had previously already held a small stake in the firm. She had on July 15 2013 bought 10 million shares at 10 sen each and another 7 million shares at 10.5 sen each a day later, increasing her stake in the firm to a substantial 6.72%.

Notably, Tan’s husband, Chua Wye Man, is the executive chairman of Flonic. He has a 1.86% stake in the company. Chua, much like Tan, is also linked to the family of a high-profile automotive firm – namely the Cycle & Carriage Bintang group which is a dealer for the Mercedes Benz brand in Malaysia . He was appointed a director of Flonic in June 2012 and re-designated to executive director and executive chairman later 2012.

Currently (July 2013), the largest shareholders are one Ong Say Kiat with a 8.60% stake, followed by Novatige Sdn Bhd, which holds a 7.72% stake. Tan is the third largest shareholder.

Recall in February 2013, Tan emerged as a substantial shareholder in plastics manufacturer IRM Group Bhd. At last look, she has a 13.83% stake in the firm.

Industry observers believe that Flonic could potentially see more high-profile shareholders coming on board with Tan’s stake increase paving the way.

While speculation is still swirling as to who that oil and gas personality is, sources say it is former Perisai Petroleum Bhd major shareholder Nagendran Nadarajah. According to one source, he had been accumulating shares in the firm over the past few days and could potentially hold a substantial stake in it.

In 2010, Nagendran disposed of his 19% stake in Perisai to HCM Logistic Ltd, a subsidiary of Singapore-listed Ezra Holdings Ltd.

Nagendran is known to be a savvy investor and an oil and gas heavyweight. He also reportedly holds a stake in South-East Asia’s first special purpose acquisition company - Hibiscus Petroleum Bhd.

Whether or not he eventually emerges in Flonic, it is no surprise that questions are already being raised as to whether or not Flonic could potentially tap and diversify into the oil and gas industry.

Saturday, August 3, 2013


Nusa Gapurna Development Sdn Bhd has scored a victory over PKNS Holdings Sdn Bhd after the High Court dismissed the latter’s injunction stopping the sale of PJ Sentral to MRCB.

Nusa Gapurna and PKNS are partners in PJ Sentral Development Sdn Bhd (PJSD), which is seen as key for the entry of Nusa Gapurna’s parent into MRCB.

The dismissal with cost comes weeks after PKNS withdrew an injunction it sought against MRCB on the PJ Sentral sale.

Although Nusa Gapurna, which has a 70 per cent stake in PJSD, may have won the battle, the war is hardly over as both parties’ powerful stakeholders are likely to hold their ground.

PKNS is controlled by the Selangor government, while MRCB, which is responsible for the successful development of KL Sentral, is partly owned by the EPF.

Nusa Gapurna is majority-controlled by Datuk Mohamad Salim Fateh Din while EPF is the minority stakeholder.

 In June 2013, MRCB shareholders voted to keep its offer of RM729 million for Nusa Gapurna, including its stake in PJSD. The deal will raise the KL Sentral developer’s landbank for future development, as well as give Nusa Gapurna’s parent, Gapurna Sdn Bhd, a foothold in MRCB.

Sources close to PKNS, owner of the balance 30 per cent PJSD stake, said it will file an application in the Court of Appeal for an injunction on August 6 2013, as the High Court also allowed for a temporary order until the Court of Appeal looks into the matter.

Nusa Gapurna cannot for the time being sell its 70 per cent stake in PJ Sentral to MRCB because of the temporary order, and pending PKNS filing an application in the Court of Appeal for an injunction.

PKNS wants to buy out Nusa Gapurna's interest in the RM3 billion PJ Sentral, the privately-held company's prized asset.

Based on the commercial value of the merger and acquisition deal between Nusa Gapurna and MRCB, any party intending to aquire the PJ Sentral assets will have to pay above market rates.

As it is, MRCB is already paying a premium for PJ Sentral's Lot 12. Past filings to the stock exchange show Lot 12 of the leasehold PJ Sentral spanning 4ha carries a book value of RM617 per sq ft.

Under the merger agreement, MRCB is paying RM662.30 per sq ft, or RM199 million in total.

Responses To Fitch Ratings …

PM Responses To Fitch Ratings …

The PM has hinted the government will take measures to rein its growing budget deficit in the wake of Fitch Ratings issuing a negative outlook on Malaysia’s sovereign credit risk.

Although Najib did not mention details on how the government plans to tackle the concerns raised in the ratings report, he said his administration is looking at various existing policy options as a short term solutions.

The government is committed to strengthening Malaysia’s macro and fiscal position and Malaysia have to put together a fiscal committee to address some of the challenges which will be revealed shortly in the forthcoming budget 2014.

BNM Responses To Fitch Ratings …

There is demand from non residents for the local issuances of Islamic bonds or sukuk as the financial instrument yields favourable returns.

There is nothing for us to overreact to regarding some sell off. We have seen this from time to time. Malaysia represents a highly open market and we experience inflows of funds and sometimes we see reverals.

Malaysia’s bond and sukuk market is developed enough to face any volatility.

Islamic bonds or sukuk that have a longer maturity period will attract strong demand from local and foreign institutional investors such as pension funds and insurers.

Friday, August 2, 2013

Protasco Berhad - a solid defensive stock

It is more of a defensive stock given that the company profits highly from its road maintenance and construction division.

Construction is part of a country’s economy. We need to sustain self consumption to grow the country.

Protasco is maintaining about 14000km of federal and state roads under long term maintenance contracts and concession.

The outstanding value for these road maintenance and construction works stands at rm1.7 billion which would provide earnings visibility to group for the coming three years from 2013.

Also, Protasco owns approximately 100 acres of freehold land in Kajang for a mixed development known as De Centrum City. The land’s GDV alone is worth about 15 times more than the company’s market cap of rm420 million as at 31 July 2013.

IGB REIT - Gardens Mall main growth driver

It does not have an attractive retail asset in the pipeline from its sponsor.

Going forwards, Gardens Mall would remain the revenue growth driver for the company on lower rental base, with stable cash flow supported by contributions from Mid Valley Megamall.

Third party acquisitions would be challenging due to excessive valuations in spite of low gearing of 25%.

The planned construction of Southkey Megamall in Johor is also expected to be a long term play.

However, Gardens Mall will be the growth driver given the lower rental base than Mid Valley Megamall and 53% of its net lettable area expiring in 2013.

IGB REITs current (July 2013) rental rates are estimated to be below rm10 psf, a large discount to average rents at Pavilion KL and Suria KLCC despite its prime location.

Thursday, August 1, 2013

Jim Rogers - Street Smarts

There are excellent sentences show in the book and very interesting: -

1. If you were smart at the start of the 19th century, you made your way to London. If you were smart at the start of the 20th century, you moved to New York. And if you are smart at the start of the 21st century, you will find your way to Asia.

2. We are in a long secular bull market in commodities worldwide. Like all bull markets, it will end in a bubble. But the bull market still has several years to go.

3. It is good to lose money, to go broke at least once, and preferably twice. But if you are going to do it, do it early in your career. Do it early and it is not the end of the world. . . it teaches you how much you do not know.

4. The way you become a successful investor is by investing only in what you yourself have a wealth of knowledge about. Everybody knows a lot about something. Cars, fashion, whatever it is. . . just take a look at your daily life. Concentrate on what you know. . . you will see a major change coming long before anybody on Wall Street will.

5. Most successful investor do nothing most of the time. Do not confuse movement with action. Know when to sit and wait.

6. If I were to tell you that you could only make twenty-five investments in your lifetime, chances are you would be extremely careful about investing. Invest very rarely.

7. If you want to make a lot of money, resist diversification. Brokers promote the motion that everybody should diversity. But that is mainly to protect themselves. The way to get rich is to find what is good, focus on it, and concentrate your resources there.

8. New York is the economic and cultural capital of what is now the largest debtor nation in the world, the largest debtor nation in the history of the world. The world’s largest creditor nations are in Asia. That is where the assets are. That is where the dynamism and energy are.

9. Alan Greenspan’s greatest strengths were those of a politician. The way capitalism is supposed to work is that when people get in trouble, they fail. Smart, competent people come in, take over the assets, reorganize, and start again from a sound base. Greenspan’s way was to prop up failure. He and the politicians were taking money from competent people, giving it to the incompetent people, and telling the incompetent people, “Here, the government is on your side. Now you can compete with the competent people with their money and our support.”

10. I am dying to find a way to invest in both North Korea and Myanmaar. The major changes in these two countries are among the most exciting things I see right now, looking to the future. Another think I am extremely bullish on for the next twenty or thirty years is Chinese tourism. The Chinese have not been able to t ravel for decades, and now they can. Both inside and outside the country, Chinese tourism will explode.

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Please note that all data given are merely blogger's opinion. It is strongly recommended that you do your own analysis and research before investing.