Wednesday, July 31, 2013

LBS - handsome payout dividend

Although LBS Bina Group Bhd has strongly hinted at a higher-than-industry-average dividend rate, its board continue to waver between rewarding shareholders with a more handsome payout and growing its Malaysian business with incoming funds.

Their consideration is to use a mere portion of the deferred cash payment, which will be received in four portions from end-2014 to 2017, to incentivize investors. But even so, it is a decision that weighs heavily on the board.

Its lofty ambition is to double last year’s net profit of RM37.2mil to RM74mil in three years.

To recap, the small-cap property player had inherited three projects in China via the reverse takeover of Instagreen Corp Bhd 11 years ago. A fortnight ago, it sold these assets to Zhuhai Holdings Investment Group Ltd for HK$1.65bil (RM680mil).

As part of the deal, LBS Bina will receive a cash settlement of HK$500mil (RM206.24mil), followed by a proposed settlement of 225.56 million new shares in Hong Kong-listed Zhuhai Holdings at HK$1.33 per share worth HK$300mil (RM123.74mil) and promissory notes for the sum of HK$850mil (RM350.61mil).

The one-off deal contributed a pro forma gain of RM309mil to group revenue, and the fact that the group still owns 264 acres of the Zhuhai International Circuit – the 60% exchange in shares – indicates potential for future business opportunities in the territory.

Meanwhile, the board is keeping mum on the new dividend policy until the first tranche of the cash payment of HK$500mil and the 225.56 million shares come through by the end of August.

In the last two years, LBS Bina had paid out dividends of 2.5 sen.

TAS Offshore - increasing outsourcing

It is increasingly outsourcing its vessel construction to contract shipyards in China to take advantage of their competitive pricing.

The number of vessels currently contracted out to two established shipyards in Guangzhou stood at 12, the highest ever. These are all anchor-handling supply (AHS) vessels for the oil and gas industry.

TAS’ customers are largely from Singapore, the Middle-East and Indonesia. Clients from Singapore contributed RM57.7mil or more than 40% to the group’s revenue of RM138mil for financial year ended May 31, 2013.

This was followed by United Arab Emirates (RM38.4mil), Papua New Guniea (RM14.3mil), Indonesia (RM9.1mil) and Panama (RM519,000). Less than 15% or RM18mil of group revenue came from clients in Malaysia.

TAS currently had some RM380mil worth of shipbuilding contracts on hand, which would contribute positively to its results up to financial year 2015.

TAS, which is also involved in ship repair, intends to build vessels for charter.

In the latest fourth quarter to May 31, TAS posted a group pre-tax profit of RM3.3mil on revenue of RM48.4mil. This brought the full-year pre-tax profit to RM16.7mil on turnover of RM138mil, compared with RM15.5mil and RM101mil respectively in the previous financial year.

Tuesday, July 30, 2013

Pantech - strong growth for 2014

Its manufacturing arm – which caters primarily to the export market – continued to register strong growth for the first quarter of 2014 financial year ending Feb.

It has focused much effort over the last few years on growing its manufacturing arm, expanding local capacity with a brand new stainless steel prices and fittings plant in Johor and acquiring UK based Nautic Steels, which manufactures higher value niche market products. Its strategy pays off.

Its prospects remain bright for the foreseeable future. Domestic demand for the company’s pipes, fittings and flow control products has picked up speed again with he resumption of contracts flow now that that the general election is over.

The oil and gas sector is also Pantech’s single largest customer group, accounting for some three quarters of the company’s total sales.

Pantech is upbeat on Nautic’s prospects and believes it to be one of the key drivers for growth over the next few years from 2013.

With no major capex in the plans – barring any new acquisition – expect gearing to gradually decline over the next three years from July 2013. Gearing stood at 41% at end 1QFY2014.

Coupled with stronger earnings and cash flow, this means Pantech has room to increase dividends.

TDM - after election

Shares in TDM registered significant gains over the past two weeks as investors picked up the stock leading up to the Kuala Besut by election in Terengannu.

Investors snapped up TDM shares in anticipation of the ruling coalition BN victory in Kuala Besut.

The preservation of the status quo allows the state government to proceed with existing investment initiatives.

TDM’s majority shareholder is Terengganu Inc Sdn Bhd, which is the state government’s investment arm. Terengganu Inc whose chairman is MB Datuk Seri Ahmad Said, holds a 47% stake in the plantation and healthcare company.

It is worth nothing that the shares in TDM, which have gone from a share split exercise, have been in the limelight over the past two months over abnormal trading activities.

TDM has a dividend policy of declaring at least 30% of its earnings as dividends.

The group’s interests lie in twp core segments within and outside Terengganu – plantations and healthcare.

TDM, which derives 77% of its income from the plantations segment, owns two palm mills and manages 32000ha of oil palm plantations in Terengganu.

The group also has made inroads into Indonesia with 8000ha of planted oil palm land. About half of its oil palm trees are at peak yield age, between nine and 18 years with the rest being mainly immature trees.

In the healthcare segment, TDM is gaining a foothold as the leading private healthcare provider in the East Coast. It operates four specialist hospitals with another two under construction.

Monday, July 29, 2013

SYF - current position

A company in which SEGi Group founder Tan Sri Clement Hii Chii Kok has a 20 per cent stake, has in total about 270 million mother shares and 30 million warrants.

It plans to issue new stock warrants of up to 50 per cent of the total 270 million mother shares, the source said. This means there will be 135 million new stock warrants. Of those, 10 per cent, or 13.5 million, will be allocated for existing warrant holders.

The current management is building the company slowly and returning it to profit. It is buying properties and plans to launch three projects over the next 15 months from July 2013.

SYF is launching Semenyih Hi-Tech 6 and Kiara Plaza in Semenyih and a residential project in Sungai Long, both in Selangor, worth a combined RM220 million. The company ventured into property development recently with the launch of Semenyih Hi-Tech 5 in Semenyih.

SYF is expected to sustain its profitability for 2013, supported by additional income from its property development activities.

The company posted a net profit of RM50.7 million for the financial year ended July 31 2012, after five consecutive years of losses. For the nine months ended April 30 2013, SYF registered a net profit of RM11.21 million.

Sunday, July 28, 2013

TSH - reduce debt and eyeing more landbank

TSH’s net gearing will reduce from 1.04 times (as at Dec 31 2012) to 0.69 times, below its targeted long-term net gearing ratio of 0.8 times following the private placement and disposal of its 16.2% stake in Pontian (pending acceptance from other major minority shareholders of Pontian).
Given the improving financial standing, management highlighted that it will embark on slightly more aggressive new planting and resumes its plan to construct a palm oil mill in Kalimantan, Indonesia.
In addition, management also highlighted that it is eyeing more landbank. With the land acquisition announced in June 2013, TSH has total landbank of 103,927ha, of which 35,500ha are planted with oil palm. Assuming 60% of the unplanted landbank is plantable and with new planting of 4,000 to 5,000ha per year, the existing plantable reserves will keep TSH busy for the next eight to 10 years.

Saturday, July 27, 2013

U Mobile/BJCorp - too prremature for public listing

U Mobile Sdn Bhd, one of the companies under Berjaya Corp Bhd's stable, is not considering floating its shares now (July 2013). Its chief executive officer Jaffa Sany Ariffin said it is too premature for the telco provider to go public.

The shareholders had decided that perhaps it is wiser (for U Mobile) to remain private at this juncture until it reaches maturity.

Earlier it was reported that Berjaya Corp Bhd and tycoon Tan Sri Vincent Tan are planning to list five firms in 2013 to raise more than RM2 billion. U Mobile is among the five companies.

The controlling shareholder of U Mobile is Tan Sri Vincent Tan Chee Yioun, founder of Berjaya Group. U Mobile is one of three companies privately held by Tan earmarked for listing in 2013 Tan also plans to list the chain of 7-Eleven convenience stores under a company called 7-Eleven Malaysia Bhd and MOL Global Bhd, which has shares in Internet giant Facebook.

Magnum is holding stakes in U-Mobile. It was reported earlier that Magnum plans to hive off its stake in U Mobile Sdn Bhd to focus on its gaming business. Magnum, formerly, Multi-Purpose Holdings Bhd, has a between six and seven per cent stake in U Mobile, a 3G (third generation) mobile operator.

It was also speculating that Tan could be mulling some sort of collaborating and even a backdoor listing for U Mobile via Redtone. Both Redtone and U Mobile have the 2.6GHz 4G long term evolution (LTE) spectrum allocations and active network sharing agreements with Maxis Bhd.

TGOFFs - undertake a major fund-raising exercise

It will undertake a major fund-raising exercise, comprising a bond issue and share placement, to acquire a controlling stake in a foreign O&G firm.

It was reported earlier that Tanjung Offshore was in the final stages of acquiring a controlling stake in a foreign O&G company that owns and manages several offshore oil rigs for close to RM1bil. According to a source, if successful, the new asset would become Tanjung Offshore’s main business.

Tanjung Offshore was formerly an offshore supply vessel (OSV) operator and owner, before selling that business to Ekuiti Nasional Bhd (Ekuinas).

Ths bond issue would raise more than RM500mil. The balance of the acquisition cost would be satisfied via cash and the share placement.

As of March 31, Tanjung Offshore had cash and cash equivalents of RM126.37mil. A large portion of this was from the disposal of its shipping assets in 2012.

For its first quarter to March 31, Tanjung Offshore recorded a net profit of RM2.64mil versus RM5.43mil previously. Revenue increased 35.58% to RM90.02mil. For 2012, the company posted losses of RM11.59mil. Some 77.82% of its 2012 revenue came from engineering equipment services, and the balance from maintenance services.

The company underwent a business rationalisation plan to reduce high operational costs last year while also divesting overseas businesses. It had been making losses for the past two years but returned to the black in the first quarter.

It would be undertaking a private placement of 10% of its shares and was in the process of identifying third-party investors. The private placement would raise a minimum RM17.73mil or a maximum RM22.76mil.

It was also currently (July 2013) identifying suitable business entities or assets, and intended to carry out acquisitions to complement its existing businesses.

In 2012, Tanjung Offshore entered into an agreement with Ekuinas, via Kota Bayu Ekuiti Sdn Bhd, for the disposal of its entire stake in Tanjung Kapal Services Sdn Bhd (TKS) for RM220mil. The deal was completed on July 20, 2012.

Since then the company has been seeking a new core business.

In 2012, too, Ekuinas sold its entire 24% stake, or 70 million Tanjung Offshore shares, generating proceeds of RM62mil, including dividends. The state-funded private equity firm had paid RM99.8mil, or RM1.42 a share, for the stake in Tanjung Offshore in 2010.

Along with the divestment, Ekuinas acquired TKS, later merging it with OMNI Petromaritime Sdn Bhd to create Icon Offshore Bhd, Malaysia’s third largest OSV operator with 30 vessels at present. It was Ekuinas’ largest ever investment at RM484.1mil.

Icon Offshore is slated for a listing for 2014.

Friday, July 26, 2013

Brahim's Holdings

It provides proxy to the proliferation on air travel but without the baggage of ticket price war and jet fuel price fluctuations.

Moreover shareholders effectively have a free cost option to its sugar venture.

It provides airport centric food businesses and other F&B businesses.

It is having a sustainable earnings from long term concession agreements.

Brahim’s in flight catering services contributes 86.9% of the company’s total revenue.

Post acquisition of the remaining 49% stake in Brahim’s Airline Catering Holdings Sdn Bhd early 2013 would result in a significant jump in Brahim’s overall revenue (up to 30%) and operating profit for FY2013, given that the business segment is the major contributor to Brahim’s earnings.

Brahim’s could also receive an earnings catalysts from its venture into sugar refinery business as it had purchased a 60% stake in Admuda Sdn Bhd.

Brahim’s could have several advantages over MSM’s sugar business in terms of margins and efficiency. Brahim’s have a better costs structure as raw sugar will be supplied Thai Roung Ruang *Thailand’s second largest sugar manufacturer and exporter) based on market price of 16.3 sen per pound against long term contract price of 26 sen a pound.

The LTC is three year engagement between Malaysian government, local sugar refiners and foreign raw sugar suppliers to ensure consistent supply of raw sugar at table prices for the market. The LTC is going to expire at the end of 2014.

However, the company earnings is highly dependent on economic conditions and pandemics. Another delay in the opening of KLIAs airport and Brahim’s sugar refinery plant will also bring negatives to Brahim’s.

Furthermore, additional borrowings by the company for any asset injections could increase net gearing significantly.

As at 1QFY2013, Brahim’s net gearing level was heightened from 0.09 times in FY2012 to 0.7 times due to its total borrowings of rm160 million where rm130 million was used for the acquisition of the 49% stake in Brahim’s Airline Catering.

Thursday, July 25, 2013

DIGI future

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 going 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.

Hai-O is back again

Its multi level marketing sales and profitability took a plunge in 2011 financial year, mainly due to slower membership growth after the company tightened its rules and procedures relating to purchasing and other documentation in order to comply with industry regulations introduced in 2010.

Consequently, MLM FY2011 sales and Ebit plummeted rm125.5 million and rm22.3 million respectively, from rm418.1 million and rm75.3 million in FY2010. It has since adopted more proactive measures to attract new members/distributors and improve its performance.

The company also shifted its focus from big ticket items such as water filters, to consumer centric products like beauty and health products, sales of which have been largely consistent and recurring.

As Hai-O has 140000 registered members, of which about 80% are bumi, it is planning to introduce new products that appeal to non bumi users in order to capture the relatively untouched market. The company will soon continue to launch five to right new products each year.

It has been paying out more than 50% of its net profit as dividends over the past five years.

In view of better sales and fatter margins coming from MLM segment, its FY2014 and FY2015 earnings be nudged up.

Wednesday, July 24, 2013

Magnum - is back with huge cash

After more than three decades of restructuring and changes in ownership, it had completed its transformation form a debt ridden conglomerate to a cash generative pure gaming yield play.

It is looking to operate and manage the lottery business in other Asian countries in order to diversify its income stream.

Magnum plans to operate the lottery businesses for those governments and the private sector that have the licences and operating assets but need experts to run them.

Expecting a capital repayment of 48 sen in the next three months from July 2013 following the successful spin off of the non gaming assets into an IPO.

With its key restructuring plans concluded, the catalysts for Magnum shares are industry growth and dividend payouts.

Magnum is sitting on a huge cash pile of RM817.9 million as of March 31 2013, compared with RM631.5 million a year ago. The cash pile means the company, which has low gearing of 0.5 times, has more than enough money to expand and increase its dividends.

Magnum plans to pay dividends quarterly and has declared a dividend policy that pays at least 80 per cent of its net profit from gaming.

Magnum contributed more than 80 per cent to the group’s net profit and revenue.

Magnum is expecting 95 per cent of its net profit and revenue to come from gaming this year, and the rest from quoted investments and its holding in U-Mobile Sdn Bhd, which has a 3G licence.

Magnum, set up in 1975, announced in 2012 it planned to demerge its gaming and non-gaming assets, which includes general insurance, hotel and property.

The gaming business, including quoted investments and its holding in U-Mobile, is parked under MPHB (Magnum) while the non-gaming business is placed under MPHB Capital Bhd.

Tuesday, July 23, 2013

LBS deal with Zhuhai Holdings Investment

It had signed the HK$1.65bil (RM680mil) deal with Zhuhai Holdings Investment

Group Ltd to dispose of the entire equity interest in two of its subsidiaries in a cash and share deal, management has to decide what to do with the incoming funds.

The first part of the payment of HK$500mil (RM206.24mil), which LBS expected to receive next month from July 2013, has to either satisfy loyal shareholders by way of a dividend payout or be streamed back into the business for long-term growth.

This sum was to be followed with a proposed settlement of 225.56 million new shares in Hong Kong-listed Zhuhai Holdings at HK$1.33 per share worth HK$300mil (RM123.74mil) and promissory notes for the sum of HK$850mil (RM350.61mil).

LBS would emerge as a substantial shareholder in Zhuhai Holdings and be entitled to appoint a non-executive director for Zhuhai Holdings and reap a proforma gain on disposal of RM309mil at the end of financial year 2013.

There would be indirect benefits from the Zhuhai development project and via the potential appreciation of the holding company’s share value as well as any future dividend payments.

At present, LBS, which has a total landbank of 831.63ha, has hit RM326mil in sales from its 16 ongoing projects – both fully sold and under construction – in light of its 2013 revenue target of RM1bil and unbilled sales of RM702mil as at May 31.

Four more projects will be launched in the coming months, which hopefully will add to the momentum.

There were no plans to privatize the company and that speculation of incapability on LBS part to complete the China-based project was not an issue.

IJM Corp - unlocking value

Apart from growing its business organically, IJM Corp Bhd has considered unlocking the value of its numerous highway concession assets by bundling them together into one entity.

The diversified company currently has four infrastructure projects locally, namely, the New Pantai Expressway, the Besraya Expressway, Lebuhraya Kajang-Seremban and Kuantan Port. It also has three toll concessions and one under construction in India and one in Argentina.

The Besraya Expressway is currently being extended by another 12km, with another toll plaza expected to be completed in 2014.

Funds are buying into the company for its long-term growth. Its major shareholders are the Employees Provident Fund with a 11.4% stake, Amanahraya Trustees Bhd with 10.4%, Kumpulan Wang Persaraan (Diperbadankan) with 7.4% and Lembaga Tabung Haji with 5.3%. Foreign funds collectively hold about 40% in IJM Corp.

Foreign shareholdings ranging from 32% to 42%.

Shareholders’ concern is its high gearing ratio. Its net debt to shareholders’ funds stood at 58.4% in FY13. Its gearing ratio may seem very high but the bulk of it is non-recourse debt. A total net debt of RM3.27bil, of which 75%, or RM2.48bil, is non-recourse debt. It is borrowing to build its assets. Its debt is in the concession business.

Monday, July 22, 2013


Its chairman Tan Sri Leo Moggie said the review in electricity tariffs “is likely to happen” sooner or later as it is difficult to sustain subsidies at present levels. However, any decision for a review would be decided by the Government and not TNB.

Recent reports quoted Deputy Energy, Green Technology and Water Minister Datuk Seri Mahdzir Khalid as saying that the fuel cost pass-through mechanism would be implemented by the Government through TNB in 2014.

On another matter, reserve margins are expected to eventually drop to 20% by 2015 from 30% presently (July 2013) as electricity demand is expected to grow moving forward.

Sunday, July 21, 2013

Malton/Pavilion REIT - Desmond Lim' web of connections

Malton Bhd
Constructed Pavilion project;
Combination of Khuan Choo Group & Gadek Capital Bhd;
Malton Corp Sdn Bhd – 37.9% controlled by Lim & wife

Pavilion REIT
Qatar Holding LLC – 36.05%
Datin Cindy Tan – 9.38%
Lim – 28.14%
EPF: 5.28%

Qatar Holding LLC
Bought over Kuwait Finance House’s shareholding of 36.05%

Tan Sri Syed Mokhtar
34% in Harrods Hotel KL;
Lim and QIA jointly owns 66% in Harrods Hotel

Datin Cindy Tan
Lim’s wife;
Executive Director Of Pavilion REIT

Tan Sri Robert Tan
Cindy’s Brother

Nan Hai Corp Ltd
HK listed property developer in China, Lim owns 12.85% stake

Malton - bigger role in Pusat Bandar Damansara and Bukit Jalil

Its strategic landbank exposure makes it an attractive takeover target.

Its latest reported book value stood at rm1.43 a share.

Its three big projects in the pipeline worth rm7.9 billion are all at prime locations, namely Bukit Jalil, Batu Kawan and Pengerang. They make up 40% of NAV. Malton could also potentially play a bigger role in Pusat Bandar Damansara.

Malton will build a shopping mall worth rm3.5 billion in Bukit Jalil which is comparable to Pavilion KL in size.

Malton’s other commercial and residential components will be easily sold given the strategic location, 5.3 million population catchment.

For FY2014 its recurring net profit will grow and growth will come from the disposal of its commercial building at V Square in PJ. Apart from this en bloc deal, earnings from FY2014 will also be supported by the pipeline of launches…

Pusat Bandar Damansara Developmnet …

The long drawn out legal battle between a private company belonging to Datuk Desmond Lim and JCorp for the Pusat Bandar Damansara land appears to have moved closer to a settlement.

Malton disclosed that a third supplement agreement was signed between IESB, a private company that is majority owned by Lim and wife and Bukit Damansara Development Sdn Bhd, subsidiary of Damansara Assets Sdn Bhd which is owned by JCorp.

Under the agreement, IESB will pay rm500 million cash and allocate office space totaling 266668 sq ft in the redeveloped PBD land to BDDSB.

The Tan Sri Abdul Ghani Othman is the (ex MB of Johor), is the head of JCorp. While under Ghani, JCorp had taken companies linked to Lim to court over the PBD land. The case has yet to be settled. However, officials close the state said that the latest development suggests that the case may be coming to a close.

According to Malton’s announcement, the allocation of office space to BDDSB will be broken into two segments of 186667 sq ft and 80000 sq ft. BDDSB will assign the office space measuring 186667 sq ft to Khuan Choo Property Management Sdn Bhd, a subsidiary of Malton Bhd, in return for a 20 storey commercial office building known as VSQ located in PJ. The remaining 80000 sq ft of office space is to be delivered to BDDSB within five years from the date IESB acquires the PBD land.

IESB’s preliminary plan is to redevelop the PBD by building five new towers, comprising two office towers and three residential towers, and a suburban retail mall within the office space.

It is a multi billion development which is expected to be completed over seven to eight years.

The PBD land proposals are expected to affect the net assets and gearing of the Malton group. As at June 30 2012, it recorded net assets of rm587.3 million and gearing of 0.27 times. After the assets exchange, the group is expected to have net assets of about rm625.1 million and gearing of 0.25 times.

Bukit Jalil Development …

Ho Hup was in a dispute with Malton Bhd over a development agreement signed earlier by the Lye-led management. The issue was settled in July 2012 when Ho Hup reached a truce with Malton and entered into a new agreement to jointly develop 60 acres of prime land in Bukit Jalil.

Under the new agreement, Ho Hup retains the sole development rights to a 10 acre tract out of 60 acres, with the remaining 50 acres to be jointly developed by Ho Hup and Malton. The former will provide land while the latter will provide capital.

The new agreement also saw Ho Hup, the owner of the 60 acres increasing its entitlement for the GDV of the project to 18%.

Meanwhile Datuk Desmond Lim is planning to build his next big mall in Bukit Jalil.

Property market observers have labeled the new project Pavilion II and say it could be bigger than Mid Valley Megamall.

Pavilion II will be an integral part of a JV development between Lim’s Malton and Ho Hup Construction Co Bhd on 60 acres in Bukit Jalil with a GDV of rm4 billion.

Under the JV agreement, Ho Hup is to develop 4.05ha while Malton gets to develop the remaining 20.33ha with the condition that it shares 18% of the GDV with Ho Hup, which owns the land. This means Ho Hup will own 18% of the mall when it is completed.

After the mall is completed and when its renal income stabilizes, Lim will probably want to inject it into Pavilion REIT.

Lim and his wife Datin Tan control a 37.52% stake in Pavilion REIT.

Saturday, July 20, 2013

New milestone for Magna Prima from million to billion ringgit

Magna Prima Bhd will take possession of a parcel of prime land in Jalan Ampang on which Lai Meng Primary School is located by year-end (2013) and plans to start development in the second quarter of 2014, if things pan out.

The land, which is within a stone’s throw of the iconic Petronas Twin Towers, is viewed as the jewel in the company’s crown.

It has been almost four years since the company announced its proposal to acquire the 2.6 acres. The value of the land has appreciated to over RM300 million.

The developer announced in March 2009 that it had managed to seal an agreement with the Lai Meng Girls’ School Association (LMGSA) to acquire the land. The deal was conditional upon the transfer of a 5.5-acre parcel in Bukit Jalil to LMGSA to relocate the school, at no cost, on top of paying RM148.1 million cash to the association.

As for the Ampang land, the niche developer plans to build two 60-storey towers on it. One tower will consist of serviced apartments while the other will comprise a hotel and office lots.

The development, which will have a gross development value (GDV) of RM1.8 billion, will be Magna Prima’s largest by far. It will be its flagship project and will boost its earnings significantly.

While the project could provide the main impetus for earnings growth, there are concerns over whether the company has the financial muscle to take on a development of such magnitude. Its balance sheet as at Sept 30, 2012, showed a cash balance of RM4.73 million plus cash held under a housing development account of RM4.93 million. Bank borrowings amounted to RM97.7 million, some RM85 million of which was long term. This translates into a gearing of 0.66 times.

Magna Prima intends to undertake the development on its own and has put in place plans to raise the necessary funds. It will use internally generated funds and bank borrowings to finance the project. Also, it will definitely be selling one of the towers. A few potential buyers have already expressed their interest.

2013 will be a new milestone for Magna Prima Bhd as it moves over from million to billion ringgit developments.

It had acquired a rm60 million acquisition in Sunway Mentari PJ, and will focus on current (May 2013) projects development.
Magna Prime has several projects in the pipeline for 2013, including the launch of Phases 2 and 3 of Boulevard Business Park in Jalan Kuching, comprising serviced apartments and retail outlets.

The developer also plans to launch a commercial development in Petaling Jaya and a mixed-use development in Section 15, Shah Alam.

Magna Prima also has development in Melbourne, Australia.

The four year Magna Ecocity development in Shah Alam, with a GDV of rm1.4 billion will commence in the third quarter of 2013.

Focused on the Klang Valley, Magna Prima is a niche developer of integrated lifestyle themed projects that attract robust take up rates.

The company is also casting its eyes outside the Klang Valley in looking at other states like Penang.

Friday, July 19, 2013

MYEG more services to come~

It is looking at commissioning a multi million ringgit deal to roll out the customs service tax monitoring system as early as 2014. The company is also in the process of commissioning its services for the registration of new cars and a bidding system for new car number plates.

Sources said that the government has agreed in principle for the company to undertake both services but the letter of award is not out yet.

The CSTM is targeted to link close to 100000 point of sales terminals from about 20000 restaurants and entertainment outlets throughout Malaysia. The company is presently working with a local bank to launch a mobile payment system called iPayEasy that is compatible with the CSTM system. MyEG has a 40% stake in the consortium of companies that is undertaking the CSTM Project.

The new services are expected to spur growth to its top line due to potentially lucrative market. The company’s services are mainly linked to the RTD currently (July 2013). They include electronic delivery of driver and vehicle registrations, licensing and summons services and utility bill payments.

The total capex for CSTM is rm100 million and the so far the invested rm50 million with the remaining rm50 million to be pumped in before end 2013.

MYEG has some boutique investment funds which include Utilico Emerging Markets Ltd and Creador Malaysia, a fund headed by Brahmal Vasudevan. The chairman of the company is Datuk Dr Norraesah Mohamed, a long time member of the UMNO supreme council. The MD Wong Thean Soon has direct and indirect interest of 40.26%.

Tambun Indah is looking for more township land

It is well known for its flagship Pearl City township development in Seberang Perai, Penang, is in talks with three landowners to acquire more land in Seberang Perai for development and is confident of concluding the deals by the end of 2013.

The group is looking for township land.

prospects remain intact despite the collapse of the Batu Muang interchange under the Second Penang Bridge project. The Penang Second Bridge will nevertheless be completed and opened in six to 12 months in a worst case scenario.

The existing established industrial parks will still create a natural demand for housing, the state government will continue to spearhead the Batu Kawan industrial park and plans for a Premium Outlet and investments by industrial players will remain unchanged.

Apart from Penang mainland, Tambun Indah is also scouting for land on the outskirts of Kuala Lumpur such as Kajang, Banting and Rawang for township projects.

Tambun Indah has no plans to venture into developing properties in Iskandar Malaysia, Johor.

Other developers include Global Oriental Bhd and Wing Tai Malaysia Bhd.

It is currently (April 2013) sitting in a net cash position of about RM100 million, following the completion of a rights issue exercise that raised RM44 million in June 2012. Its net gearing ratio of up to 0.5 times allows room for the group to raise another RM110 million in borrowings.

The group's ongoing (April 2013) projects are worth RM1.5 billion in gross development value (GDV), thus providing earnings visibility.

It plans to spend rm100 million to rm200 million in capex for 2013 to buy more land. It plans to add about 200 acres to 300 acres of land to the current (June 2013) 562 acres of underdeveloped land in Seberang Perai Selatan.

In 2012, Tambun Indah posted a 75% growth in net profit to RM40.81 million from RM23.38 million a year ago, while revenue rose 55% to RM296.95 million from RM191.84 million.

The group adheres to a dividend payout policy of 40%-60% of its net profit each year.

Teh also has no plans to pare down his 46.7% stake in Tambun Indah.


Thursday, July 18, 2013

IHH - recession proof industry but with ove pricing

Demand for healthcare services is widely regarded to be quite a recession proof. Importantly, future demand growth appears to secure and is underpinned by myriad factors. These include the rise in lifestyle related diseases, growing awareness of and improved access to quality care, as well as longer life spans and an ageing population.

The expected growth in demand for healthcare services will exert an increasing burden on the public healthcare system which, in turn, is very likely to drive more demand towards the private sector. In tandem, private healthcare services are increasingly affordable to the general public supported by rising per capita income as well as the increasing awareness and adoption of medical insurance, particularly among the younger generation.

All these factors bode well for private healthcare operators such as IHH, KPJ Healthcare.

IHH has a significantly wider geographical footprint. The company operates the largest private healthcare network in Singapore, is the second largest operator in Malaysia and has a strong presence in Turkey following the acquisition of Acibadem early 2013. It currently (July 2013) operates nearly 5000 licensed beds in these three markets combined.

Additionally, the company has a 11% stake in Apollo Hospitals Enterprise, one of India’s largest private healthcare operators. It also operates the 510 bed tertiary care Apollo Gleneagles Hospital through a 50:50 JV with Apollo.

Its strategy is multi pronged, and it includes the development of Greenfield projects, expansion of existing facilities as well as undertaking consultancy agreements as the first step in penetrating new markets. The latter category includes in Vietnam in 2013 followed by Shanghai, China and Abu Dhabi in 2014.

The company has a string of new hospitals and expansions currently (July 2013) under construction in Turkey by 2015.

In Malaysia, it is expected to expand by 2016 from both existing hospitals and Greenfield projects.

One of IHH’s biggest investments in the pipeline is the 500 bed Gleneagles hk Hospital, targeted for completion by late 2016. The company has a 60% stake in the project estimated to cost rm2.1 billion.

The projects mentioned above and organic growth will underpin continued growth for the company gong forward. Expecting earnings to strengthen over the coming quarters bolstered by better contributions from newly opened hospitals including Mount Elizabeth Novena in Singapore.

IHH shares are currently (16 July 2013) trading at well above market average valuations – at roughly 52.5 and 43.3 times estimated earnings for 2013 and 2014 respectively.

Pavilion REIT ... double digit rental increases

Expect its near-term organic growth to be resilient and the asset pipeline intact. There are mostly fixed-rate debts to shield against rising interest costs.

Sixty-six percent of Pavilion KL’s net lettable area (NLA) will expire in 2013 with 6% to 7% of this to be leased to some of the 200 prospective tenants on its waiting list. Of the other 90% of expiring leases, one-third have been renewed at double digit rental increases.

This should spill over into first quarter of 2014 as the majority of leases expiring are in September 2013 and there would be a fit-out period for new tenants.

Average rental rates are still at substantial 20% to 25% discount to Suria KLCC’s rents, implying upside to prime rents. Do not see risks to rentals due to Pavilion KL’s prime location and long waiting list, and average occupancy costs remain manageable at 15-18%.

The Pavilion KL extension is on track for completion by end-2015 (we assumed acquisition in 2016), and the USJ retail mall (da:men) by early 2015 (not included in forecasts).

Fahrenheit88, which still suffers from low traffic, may be reviewed only in 2014 when its refurbishments (e.g. Parkamaya retail market and some areas on Level 2) mature. There is upside to its earnings if it acquires da:men.

Pavilion REIT now has a blueprint for its asset pipeline - it plans to acquire sponsor-driven greenfield developments after existing assets (completed and under construction) are acquired.

The REIT sees opportunities in Johor city centre and Penang island, although these are early days given the large land area and capital expenditure required (at least 15 acres for 1m to 1.5m sq ft in NLA).

Wednesday, July 17, 2013

Puncak Niaga/KPS ...

Market observers opine that the Selangor Government’s latest offer to consolidate the state’s water sector, PNH may potentially pocket net cash proceeds of about rm1.0 billion.
Selangor’s offer in March 2013 valued PNH’s 100% interest in Puncak Niaga Sdn Bhd and 7-% stake in SYABAS at rm5.6 billion.
However, it has yet to take into account the company’s borrowings to pay off at PNSB and SYABAS level to complete the disposal of its stakes in both firms.
Netting these off, estimate that PNH could potentially pocket net cash proceeds of just below rm1.0 billion, which translates into rm2.42 per share.
The settlement of borrowings related to the water assets and the receivables due from the state government have yet to be sorted out.
Furthermore, PM Datuk Seri Najib has yet to make a public statement on the Federal government’s stance.
With UMNO election coming up in Nov 2013, observers envisage that the current (July 2013) water deadlock crisis in Selangor will likely be resolved later than sooner.
There is also a possibility that the Federal and Selangor governments may instead focus on pushing through the official awarding of Langat 2 water treatment plant in the near term.

Dialog - worst is over?

Its bottom line took a hit from its Singapore operations, as the company is seen as one of the more cautious oil and gas players in Malaysia. But market observers opine that this is just a hiccup and its growth is intact.

It is more stringent in Singapore where it experienced unexpected delays.

It has presence in 14 countries …

It is an integrated technical service provider in the oil and gas mad petrochemical industry posted rm22 million losses in its Singapore operations for two consecutive quarters ended March 31 2013.

These losses were due to cost overruns by its plant maintenance project in Singapore’s dragging down its overall earnings.

The CEO insisted that the worst is behind the company as the project has been completed.

The underlying weakness came from higher costs related to tank terminal operations in Tanjung Langsat and the new Jebel Ali supply base, cost overruns in Singapore operations and startup costs for its Bayan Enhanced Oil Recovery JV.

Critics however said that dialog’s long term visibility underpinned by its catalytic Pengerang project, but there is limited upside from current (July 2013) levels given its stretched valuation of 30 times FY2014. Also there is unlikely to be contribution from its upstream projects … Balai cluster fields and Bayan redevelopment in the near term.

Its FY2014 growth will be led by the Pengerang Deepwater Terminal project in Johor (Phase 1 & 2).

In the upstream sector, Dialog’s 32% owned BC Petroleum Sdn Bhd is progressing well. It has also commenced activities for the redevelopment of the Bayan field.

The company saw a decrease in cash and cash equivalents of rm154 million as its bank borrowings of rm325 million were insufficient to cover investment costs. As a result of the investments its cash and cash equivalents stood at rm424 million as of March 31 2013 versus rm691 million a year ago.

Dialog’s major shareholder include evecutive chairman Ngau Boob Keat holds an indirect stake of 22.2% while the EPF holds 15.46%.

Tuesday, July 16, 2013

Maybank - stabilising manager of Airasia X movement

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.

Scomi Energy (Scomies)/Scomi Bhd

Word has that Standard Chartered Private Equity, which is the second largest shareholder in the company, is looking to dispose of its 11.48% block in Scomies.

Together with the company’s parent – Scomi Group, they collectively control over 77% of Scomi Energy, a provider of services to the oil and gas and marine industries.

Notably, Scomi Energy chief executive officer Shah Hakim @ Shahzanim Zain had also been actively buying up shares in the firm in the May to June period, holding a direct stake of 0.09% at last look.

Scomi Energy, which not too long ago was only focused on marine services, involved specifically in coal transporting in Indonesia, has an extensive portfolio to offer to investors. The enlarged entity now encompasses drilling fluids, drilling waste management, production enhancement; and offshore support and marine logistics vessels.

The merger of all of its oil and gas (O&G) units also puts the company on a stronger financial footing, allowing it to “aggressively” participate in the industry.

Recall, its parent Scomi Group Bhd had in March 2013 completed its restructuring exercise which saw all its units involved in the O&G business consolidate under one entity - Scomi Energy.

Started in February 2012, the exercise saw the disposal of Scomi Oilfield Ltd, Scomi Sosma Sdn Bhd and Scomi KMC Sdn Bhd by Scomi Group to Scomi Energy.

It also involved an internal restructuring of legal entities within the oilfield services for oil field services in the Eastern Hemisphere business to fall under Scomi Energy; and also a capital repayment within Scomi Energy to its shareholders.

Scomi Energy reported a net profit of RM20.1mil on revenue of RM283.2mil for its latest quarter ended March 31.

Based on the latest financials, its net gearing is about 0.3 times.

The Eastern Hemisphere which includes Asia and the Middle East and which is where Scomi Energy is in, is set to see exciting growth in the oil and gas industry. These are the regions where it is active in with the streamlining of its business.

From mid 2012 it had already won several major contracts in Qatar, Indonesia, Turkmenistan, Myanmar as well as locally. It will continue to actively pursue contracts especially in Thailand, Indonesia and India.

Scomi Energy’s current drilling orderbook is at RM5bil.

Over the next couple of years however, it is setting its eyes on contracts worth some RM1bil even as it focuses on the execution of its existing contracts.

In Malaysia, drilling activity will intensify due to enhanced oil recovery, marginal field development and exploration. The Government’s effort in increasing oil and gas production forms a strong foundation for offshore drilling activities.

Scomi Energy will be one of the main beneficiaries given its 50% market share in drillling fluid and drilling waste management business in Malaysia. Addressable drilling waste market size for Scomi Energy is estimated to be US$2.1bil (RM6.7bil) this year.

Margin of its oilfield projects currently (July 2013) contribute the bulk to company revenue at more than 80%.

The restructuring has allowed the company to optimise its operations and to share resources, resulting in a very lean and flat organisation.

In terms of Scomi Energy’s expansion plans, it has continued to grow its facilities with increased storage at its Liquid Mud Plant in Kemaman and also recently over a period of several months, it completed outfitting its Liquid Mud Plant in Indonesia. 

For the marine services, the focus is on offshore support services (OSVs) and looking at a fleet revitalisation plan with new builds and acquisition of vessels. Scomi Energy embarked on a joint-venture with shipping firm Freight Management Holdings Bhd to jointly acquire, own and operate marine vessels.

The company’s plan to buy more OSVs is synergistic to the drilling business as the vessels are required to transport the drilling fluids and conduct other drilling-related services.

Its knowledge and expertise in the marine industry with the drilling fluids and drilling waste management segments is opening up vast opportunities to further” bundle” its services and to explore innovative solutions for its clients.

Currently, it owns 75 tugs and barges and 11 offshore support vessels.

Monday, July 15, 2013

About Tune Insurance

Not all are convinced that it is a golden goose. Critics said that it is highly dependent on one major client – Airasia Bhd. This exposes Tune Ins to indirect risks.

It operates two core businesses, the first being online based – it sells travel insurance to customers of Airasia, Tune Hotels, Airasia Expedia and Cebu Airlines as part of ticket/room booking. The other core business is general insurance.

While it gas only one license in Malaysia to conduct general insurance, its online business model enables its travel insurance to be underwritten by local insurance partners in 15 countries in the Asia Pacific, which reinsure these to Tune Ins’ reinsurance subsidiaries in Labuan.

This online distribution model is low cost and high volume and is profitable.

Airasia’s expansion plans will inevitably boos the take up rates of online insurance, in tandem with increasing flight passengers.

The travel insurance business contributes the bulk of Tune Ins’ bottom line, about 75% due to its high profit margin. However the biggest contributor to the company’s revenue, as high as 70% actually is its general insurance business.

It is getting a good mix – motor, fire, personal accident, marine cargo, oil and gas.

Tune Ins’ catalysts include the swift expansion of its travel insurance business, potential tie-ups with more airlines, the revamp of its general insurance business in Malaysia and the planned earnings per share accretive acquisitions of small to midsized insurers in several countries.

Its major shareholders are Tune Money Sdn Bhd and Airasia Bhd with 55.85% and 16.19% stake respectively. Shareholders of Tune Money Sdn Bhd are Tony and Datuk Kamarudin, Kalimullah Hassan, Lim Kian Onn.

Sunday, July 14, 2013

Integrax may be benefitted from Tenaga's expansion

Port operator finds itself in a sweet spot as it is likely to benefit from Tenaga’s expansion of its coal fired power plant in Manjung, Perak.

Tenaga is tipped to emerge as the winner of the 1000MW coal fired power plant. This new power plant is expected to be act as an extension to Tenaga’s existing facility in Manjung. If that happens, it will be a boon for Integrax as it will see an increase in coal throughput as its nearby deep water terminal – LBT – serving Tenaga’s bigger appetite for coal.

Tenaga’s success in winning the power plant tender will be the icing on the cake for Integrax, which is an associated company of Tenaga.

Integrax sealed a deal with Tenaga in 2012 for the handling of coal and provision of infra for the Manjung 4 power plant, an extension to the latter’s existing power plant located on the man made Lekir island.

With Manjung 4 in the pipeline and the potential win of another 1000MW plant by Tenaga, which could add another three million tones in terms of coal requirement, Integrax could potentially be looking at doubling the coal throughput at LBT.

Integrax had stated that the company is expecting the Lumut Manjung corridor to benefit from the Manjung 4 power plant as well as Vale International SA’s iron ore trans-shipment hub and pelletizing plant in Teluk Rubiah, Lumut.

Integrax is currently (July 2013) in discussions with Vale to determine Integrax’s level of participation in its projects.

News reports that the company is still keen on pursuing a tie up with the Brazilian mining giant for the provision of trnas-shipment services after an unnecessary attempt in 2009.

A successful tie up with Vale could boost Integrax’s earnings potential at its Lumut port, where it has a 50% stake less one share. The port is used for the handling of dry bulk, liquid bulk, containers and conventional cargo and project cargoes.

Tenaga is the single largest shareholder with a 22.12% stake in Integrax.

Integrax has a strong balance sheet with a cash pile of rm130 million. Its total borrowings stood at rm4.5 million as at March 31 2013.

Saturday, July 13, 2013

YSP Southeast Asia Holding

Pharmaceutical products generate 70% of its revenue, while veterinary products bring in 12% and TCH, 15%. Its products are mainly distributed through private clinics and hospitals.

It is in the midst of expanding its foothold in Asean.

It has a strong balance sheet with a net cash of rm24 million as at March 31 2013 and cash balances of rm53.7 million compared with borrowings of rm29.7 million.

It is still in a growth stage that required capital investment but it still sticks to the dividend policy of 50%.

Friday, July 12, 2013


It is in the midst of corporate tussle between the existing board of directors and disgruntled minority shareholders due to differing opinions regarding the company’s future plans and a proposed private placement exercise.

It was reported that Mohd Nazifuddin Najib, who is PM Datuk Seri Najib Razak’s second son, is bidding control over EastLand against a group led by Sabah business magnate Teh Soon Seng. Nazifuddin;s involvement in Eastland may have been due to his link to the Kelantan royal family through his mother Tengku Puteri Zainah Tengku Iskandar.

Eastland is primarily involved in property development in Kelantan. Its flagship project is the Bandar Tasek Raja township development in Pasir Mas, Kelantan with a GDV of rm151 million.

Through its wholly owned subsidiary Eastern Biscuit Factory Sdn Bhd, it owns the Kota Sri Mutiara shopping complex, a 23 storey condominium and the Renaissance Kota Baru.

The company said it is holding several parties to develop a piece of land in Kota Baru which might have controlled to the share price increase.

It also disclosed that it will be entering a joint agreement with Zalam Corp Sdn Bhd to develop a piece of vacant land in the state capital.

It owns a parcel of vacant property development land in Kota Baru with the bigger one measuring 5767 sq m having a net book value of rm5 million.

It had also proposed a private placement exercise.

Wednesday, July 10, 2013

The Banking Industry - New Measures By BNM and Its Implications ...

BNM has announced the implementation of the FSA and IFSA effective July 2013.

1. Permissible Shareholding Level … Despite concern that the new rules will impact the major individual shareholders of PBB, HL Bank and AMMB, interest in financial institutions acquired prior to the now (July 2013) repealed BAFIA 1989 will continue to be grandfathered and therefore exempted from the new rules under the FSA.
Under the new FSA, holding companies that own more than 50% of licensed financial institutions governed by BNM will also be subject to the supervision of the central bank.
Holding companies such as CIMB, RHB cap, AMMB, Affin, Alliance and even DRBHicom (which owns 60% of Bank Muamalat) will now be subject to the supervision of BNM.
2. Overseeing The Shadow Banking Industry (Bank Rakyat and MBSB) A shadow bank is essentially a term used to describe institutions that take on bank-type functions. They are lenders that are not governed by Bank Negara before this but compete with the banks in lending money to the public. But not anymore as the new FSA has allowed the central bank to get the shadow banking industry to comply with its rules on lending.

The curbs will ease the rapid expansion of loans growth seen by the NBFIs. The new lending guidelines will also slow loans given to the household sector by the commercial banks.

3. New Rules To Reduce Household Debt … Property buyers will no longer have the option to take loans for longer than 35 years. Anyone taking a personal loan can now (July 2013) only do so for a period of up to 10 years. Before the new caps, property buyers could take loans for up to 45 years, while personal loans could be paid back over a period of up to 25 years.
Industry players said the measures would have a limited impact on the property market because the older generation of Malaysians had already bought into the property cycle. The latest caps would mainly affect the younger generation.
4. Tightening Of DIBS … BNM could be looking at curtailing real estate financing packages, such as the developer interest bearing scheme (DIBS) could also scorch interest in the property market.

Some says most sales in the property bull cycle could have been supported by DIBS, which allows purchasers to enjoy interest free commitments during the construction of properties. If DIBS is to be tightened, it could significantly dampen new property launches because the speculators would be filtered out.

Under DIBS, buyers need only make a minimum down payment for properties under construction while the developer services the interest payments.

The tightening of DIBS or such schemes may impact the high end lifestyles products in the central region that have seen speculative buying. Buyers relying on such schemes to bet on multiple properties may thing twice because without DIBS, their cash flow will be crimped.

However there will certainly be an impact on property developers but only for the short term as developers and buyers adapt to the changing economic circumstances. It is likely that buyers will hold back their purchases or shift their attention from the primary to the secondary market where prices have lagged.
Much focus has been placed on curbing the rising prices of properties but will it be a cause for concern when it comes to the country’s economic growth? Given the slower-than-expected growth in the country’s economy in the first quarter of 2013, some concerns were raised should the measures become a drag to economic performance, especially when the global economy is shaky and the country’s economy is driven by domestic demand.

Malaysia’s gross domestic product (GDP) growth in the first quarter 2013 was lower at 4.1% compared with 5.1% in the corresponding period last year. The pace of growth was the lowest since the third quarter of 2009.

Measures to curb property prices from accelerating significantly may have some impact on domestic demand and economic growth, but they will not be significant to impact the overall economic growth.

Stronger property prices in the short term could strengthen investment and consumption spending, giving a positive impact on domestic demand. However, in the long term the impact of property prices becomes neutral on domestic demand and economic growth.

Focusing on the property market as a policy tool should be more for short-term macro-economic management. Over-stimulating the property market may not effectively contribute to economic growth.

The potential curbs on the Developer Interest-Bearing Scheme (DIBS) will only moderate property sales. Sales include a large proportion of purchases for investment purposes, they will not dampen private consumption significantly.

Malaysia’s economy growth is mainly driven by investment, hence some measures to curb property prices will not cause some downside risks to the economy. The potential move to curb DIBS could help to reduce speculative activities in the property market so that prices are reflective of market forces.
There would be some correction in property prices, however the impact could be temporary. It helps to re-balance the focus in the economy rather than being over-dependent on a sector and it helps to curb an asset bubble.
Measures such as the incremental real property gains tax (RPGT) hikes seen over the past two years (2011-2012) had resulted in temporary correction before rebounding.
On the proposed property tax on foreign buyers in Johor, industry observers opine that higher property taxes on foreigners would not dampen demand, as Johor properties are much cheaper than those in Singapore.
The measure is good for the long-term sustainability in demand as the influx of foreign buyers could cause sharp spikes in asset inflation, especially when foreign buyers from Singapore have an advantage on foreign exchange, which could lead to a property bubble.
There is a concern that more fiscal tightening measures on the property sector such as higher RPGT could surface in Budget 2014.
The cause of strong price increases in recent years prior to July 2013 is mainly due to supply constraints as opposed to excessive demand. In fact, any move by the authorities to curb speculation may have the unintended effect of slowing down supply growth, which would in turn exacerbate price increases over the longer term.

Tuesday, July 9, 2013

Scomi Energy Services Bhd … dated July 2013

SES provides products and services for the entire DWM process such as solids control, containment handling, treatment and disposal, and water treatment. The main function for DWM services is to reduce the waste generated during drilling activities to acceptable environmental levels.

Its Drilling Waste Management (DWM) division is expected to grow in tandem with drilling activity and increasingly strict global and domestic environmental regulation.

The company’s SCM-PrimaG 4P Linear Motion Shale Shaker (Ref Figure 1) main function is to remove solids from circulated drilling fluids to allow them to be reused. The 3 panels shaker cost around US$40,000 – US$50,000 and normally required total 4 units in a drilling platform.

During the drilling process, huge amounts of drilling wastes are produced including mud and cuttings. Handling drilling waste is one of the most important challenges in the petroleum industry. Old solutions such as simply dumping on or offshore are not acceptable as pollutants are destroying wildlife and contaminating the water supply. Given the dangers, globally, legislation is trending towards zero discharge as adopted in the Caspian and North Seas.

Currently (July 2013), local regulation bans dumping and expects regulation to become more stringent following global trends. Thus, industry observers see a huge potential for DWM business.

The addressable drilling waste market size for SES is estimated to be US$2.1 bn in 2012. This market includes Asia, Russia, the Middle East and West Africa. DWM only contribute to ~5% of SES’s RM5bn orderbook. As the legislation is trending towards zero discharge, expect DWM to grow faster than drilling fluid (DF).

Market observers prefer Scomi Energy Services over the parent – Scomi Group due to i) risk of forex losses and project delays in Scomi Engineering and ii) SEB currently loss making and iii) holding company discount.

Potential catalysts include to secure RM400m worth of contracts on top of its already huge orderbook of RM5bn. Contract win in DWM business given the potential addressable market size of US$2.1bn.

Scomi Energy Services Bhd has returned to the black with a pre-tax profit of RM137.15 million for the 15 months ended March 31, 2013 (FY13) compared with a pre-tax loss of RM87.74 million for the 12 months ended Dec 31, 2011 (FY11). Revenue for the 15-month period amounted to RM1.48 billion against RM1.55 billion in FY11.

Scomi Energy, a subsidiary of Scomi Group Bhd, is the amalgamation of the oil and gas businesses of Scomi comprising the oilfield services and marine services. The merger was successfully completed on March 12, 2013 with the unanimous approval from shareholders.

Monday, July 8, 2013

Engtex … July 2013

The water industry is in for a revival, with the key catalysts being the imminent award of Langat 2 water treatment plant and water reform in Selangor.

Engtex will be a beneficiary because of increasing pipe demand.

Engtex is Malaysia’s biggest pipes/valves/fittings (PVF) wholesaler, backed by its manufacturing arm (wire mesh, mild steel pipe (MS), ductile iron pipe (DI)) for the water/sewerage and construction sectors. It has also been involved in property development since 2008.

Upcoming MYR3.7b Langat 2 water treatment plant, where Engtex could secure the bulk of the required large-diameter MS pipe orders, being one of only two large-diameter MS pipe-makers in the country and its plant in Serendah is close to the Langat 2 site.

PM Najib’s letter to the Selangor government on 29th Jun 2013 implies renewed urgency to restructure the long overdue water supply industry in the state. Upon implementation of the new structure, we expect a strong resumption in pipe spending in Selangor, after having severely under-spent over the past five years. Given that DI pipe is the preferred pipe in Selangor, Engtex stands to benefit the most as it is one of only two DI pipemakers in Malaysia.

Engtex is a vertically integrated trading company in the water/sewerage sector, with operations in the wholesaling of pipes/valves/fittings (PVF) and manufacturing of wire mesh, mild steel pipes and ductile iron pipes.

Since 2008, the Selangor state government has imposed a freeze on Syabas’ (water distributor in Selangor) water tariff hike which has affected its capex programme, which includes the replacement of old pipes, until the state’s water supply industry restructuring is accepted and implemented.

The long overdue water reform in Selangor may be close to reaching an agreement, given that: (i) poor service quality (i.e. water supply interruptions, pipe bursts) in the state has affected the Selangor population; and (ii) Selangor is potentially in for a water crisis with an acutely low water reserve margin of 8%. PM Najib is also reported to have written to the state government on 29 June 2013, saying that he was “open and ready” to discuss the matter.

Upon the implementation of the water restructuring (water assets to be taken-over by federal-owned PAAB), industry observers see a strong resumption of pipe demand in Selangor. Being one of the only two DI pipe-makers in Malaysia, Engtex stands to benefit the most as the usage of DI pipes is preferred in Selangor.

Engtex is also looking to tender for pipe orders in Singapore which is expanding its water infrastructure for NEWater. The Singapore government aims to expand the NEWater capacity to meet 55% of the nation’s demand by 2060 (from 30% now).

Additionally, it has also embarked on property development since 2008 Going forward, property development will remain a continuing business for the group as Engtex will constantly replenish its landbank for fast-turnaround developments. Additionally, the property division also complements its wholesale and manufacturing arms as the required

Engtex is also building three small hotels in the highly-populated areas in Selangor. The three hotels are scheduled to commercialise by 2H15 and will be a new recurring income stream for the group

Engtex is founded by Dato’ Ng Hook (aged 58), who currently holds the positions of Non-Independent Executive Director and Group Managing Director in the company. In addition, Dato’ Ng has two younger brothers sitting on the Board of Directors, namely Ng Chooi Guan (aged 50, Non-Independent Executive Director and Managing Director) and Ng Yik Soon (aged 46, Non-Independent Executive Director). Collectively, the Ng family holds approximately 48% of equity interest in Engtex.

Saturday, July 6, 2013

IPO - Ranhill Energy & Resources Bhd ...

The company and its shareholders are offering 328.72 million shares to institutional investors in an indicative price range of RM1.70 to RM1.85 per share, valuing the company at a forward price-to-earnings ratio of 8.8 times to 9.6. About 78.28 million shares are allocated for the retail portion.

The deal is slated to be priced on July 15, with its debut set for July 31 2013.

Cornerstone investors, which include Corston-Smith Asset Management Sdn Bhd and Eastspring Investment Bhd, took 118.27 million shares, or 12.3 per cent of the company’s enlarged share capital.

Tan Sri Hamdan Mohamad is making a comeback to the corporate world with the impending listing of Ranhill Energy and Resources Bhd.

A big player in the early 2000s, Hamdan was once dubbed Malaysia's water baron and the man behind the Ranhill group of companies, which had interest in power, energy and the utilities sectors, among others.

His main listed vehicle previously was Ranhill Bhd, which was listed in 2001 and later taken private in 2011. Its utilities arm, Ranhill Utilities Bhd, meanwhile, was also formerly listed prior to being taken private in 2008.

The companies within Ranhill Energy were part of the previously listed Ranhil Bhd.

Ranhill Energy is a local energy and water company set up in 2012 to facilitate its listing that would allow it to raise funds mainly for the repayment of its borrowings.

The company's debt denominated in ringgit, baht, renminbi and the US dollar totalled RM1.9bil proforma as at Sept 30, 2012. Of these, most will only mature after five years (RM1.35bil), while those maturing between two and five years came in second (RM410.3mil) with the rest maturing in the next two years.

Ranhill Energy would use 70% of its initial public offering (IPO) proceeds to redeem Islamic notes and bonds, 19.1% to pay off company acquisitions and 7.1% to expand its water business in China with the rest going for listing expenses.

The IPO will also see an issuance of new shares to the public

Ranhill Energy's main activity is investment holding with subsidiaries mainly engaged in two main sectors: energy and environment. In the energy sector, it has two main businesses, namely, oil and gas, in which it provides engineering and related services, and power generation.

As for the environment sector, it provides water supply services and operates water and wastewater treatment plants.

The company owns and operates two 190 megawatt combined cycle gas fired turbine power plants in Sabah and has been awarded an exclusive licence by the Government to provide source-to-tap water supply services in Johor, the second most populous state in the country.

Ranhill Energy's major shareholders include its president and chief executive Hamdan, via his private vehicle Lambang Optima Sdn Bhd and Ranhill Corporation Sdn Bhd, and regional investment fund Cheval Infrastructure Fund L.P through its general partner TAEL Management Co (Cayman) Ltd.

The two had taken Ranhill Bhd private in 2011 for 90 sen per share, valuing the company at RM538mil, with Cheval funding the privatisation. The company's shares during that time had largely under-performed due to its volatile financial performance between 2008 and 2010.

It is seeking to raise funds US$240 million to repay debt and for working capital.

Thursday, July 4, 2013

Latest Banking Industry News

BNM has announced the implementation of the FSA and IFSA effective July 2013.

While the scope of the new FSA and IFSA is now (July 2013) wider, the key highlights of the new FSA and IFSA include: permissible shareholding level, supervision of financial holding companies and supervision of non bank financial institutions.

Under the new FSA, restrictions on shareholding only apply to individuals with the cap maintained at 10% while the previous 20% shareholding restriction on non individuals no longer applies.

Despite concern that the new rules will impact the major individual shareholders of PBB, HL Bank and AMMB, interest in financial institutions acquired prior to the now (July 2013) repealed BAFIA 1989 will continue to be grandfathered and therefore exempted form the new rules under the FSA.

Under the new FSA, holding companies that own more than 50% of licensed financial institutions governed by BNM will also be subject to the supervision of the central bank.

Holding companies such as CIMB, RHB cap, AMMB, Affin, Alliance and even DRBHicom (which owns 60% of Bank Muamalat) will now be subject to the supervision of BNM.

This new provision will lead to nom bank entities such as MBSB being placed under the supervision of BNM going forward.

Monday, July 1, 2013

Kenanga/TAE rumors

Rumors were also rife that there could be a merger between the EPF’s banking arm RHB Cap Bhd and MBSB but was denied by the officials of RHB. The EPF controls 44.84% stake of RHB Cap.

Speculation that Kenanga is courting TAE although the latter denied any such move.

Speculation surfaced that the major shareholder of TAE was looking to sell its wholly owned subsidiary TA Securities Holdings Bhd to Kenanga.

Sources say that overtures have been made to both parties and that it all boiled down to pricing. At the moment, the difference in pricing is about rm100 million to rm200 million.

The latest benchmark for stockbrokers is Kenanga’s acquisitions of ECM Libra Investment Bank for 1.3 times book value. But TAS is a stand alone stockbroking unit while ECM Libra is an investment bank.

Kenanga’s MD declined to comment on the speculation, he did say that the group would consider mergers and acquisitions locally if there was a good deal.

TAS’ valuations could go up to about 1.6 times.

As at end Jan 2013, the net book value of TAE’s broking business was rm256 million. Based on difference between TAE’s current market cap of rm1 billion and the value of its 60% stake in TAG – the group’s property arm – of rm988 million, the market is assigning only rm12 million to TAE’s broking business.

Should there be a sale the credit and lending business will be tagged along as part of the deal as it complements the stockbroking business.

Total cash proceeds from such a sale are estimated at rm687 million which could potentially distributed to shareholders in the form of special dividends.

If TAE does dispose of its stockbroking unit to Kenanga or anyone else for the matter, it will then be able to focus on its property development business.

Proceeds from the sale could be ploughed back into TAG, which has been on an acquisition trail for hotels. The hotels business contributes about 50% to the group’s operating profit and provides a steadier income stream than the volatiles and market driven stockbroking business.

A catalyst for the property division, and in turn TAE would be the formation of a hospitality and real estate development trust which will unlock the deep latent value of its hotel assets.

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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.