Sunday, October 23, 2011

Plenitude 2011



From the figure and chart above, we can see that plenitude is growing consistently and it has clear off its debt and with RM335million cash on hand. It seems plenitude has a healthy position in its financial, but I feel that it is too conservative to expand its business. Year 2011 is a good year for construction, but it only able to achieve a minor growth. If you calculate properly on its ROE, you will notice that its ROE keep on decreasing, from 14.1% at year 2008 decrease to 11.8% at year 2011.

My conclusion is the Management is too conservative, however it is a safe to invest it with a dividend yield around 4%

Friday, October 21, 2011

IOI corp 2011


IOI share price vs market performance, copied from annual report 2011

Future prospect, IOI group recently just acquired around 12,000 ha of oil palm land in Sabah and planning to enlarge the plantation area in Indonesia with another 27,000 ha over next two to three years. So we are expecting the oil palm area will record the total plantation area to 196,000 ha. That is 25% increase from the current plantation area.

Currently, plantation and resource based profit contribute around 75% to company profit. We assume there is no more growth of the company in these coming three years. The profit growth will be 25% x 75%, which is 18.75%.

Dividend return based on current share price is 3.5%. So the total return in these 3 years time will be 18.75% + (3.5% x 3years) = 29.25%

This 29.25% is a very conservative estimate and almost 100% sure you can get this return. Do not forget we assume there is no more growth for IOI in 3 this coming years which I think it is not impossible as IOI is still holding RM2.8 billion cash on hand. So we can expect a greater return than this 29.25%.

Sunday, October 16, 2011

IOI Corp

IOI Corp announced that its wholly-owned IOI Consolidated (Singapore) Pte Ltd, had subscribed 114.8 million shares or 49.9% equity interest in Scottsdale Properties for a cash consideration of S$114.8mil. The other partner in Scottsdale isAscent View Holdings Pte Ltd, wholly-owned by City Developments Ltd with 50.1% stake.

Scottsdale is involved in the development of South Beach property project with sizeable office, hotel, residential and retail components. Scottsdale holds a 66.66% stake in South Beach Consortium (SBC) while IOI Corp holds a 33.33% stake.

The acquisition [of Scottsdale Properties to increase its interests in the South Beach project] will add to the group’s property portfolio in Singapore, which now includes its joint-venture with Singapore’s Ho Bee group for two condo developments in Sentosa Cove and the development of a condo project in Balestier

IOI acquired the stake in SBC from Elad Group for S$173.9mil. It was completed in April 5 2011.Also, IOI Corp and Ascent View might be required to contribute further equity in proportion to their respective shareholdings in Scottsdale (which is estimated to be in the region of S$500mil each) for the purpose of acquiring/redeeming the existing mezzanine notes that were earlier issued by SBC, for working capital requirements and to part finance the construction of South Beach.

In total, IOI will have to cough up S$816.8 million (RM1.96 billion) for its 49.9% stake in the South Beach project that sits on a total land area of 376,925 sq ft which has a leasehold tenure of 99 years. The South Beach project is located between Raffles Hotel and Suntec City and next to the Esplanade MRT Station.

IOI has a net debt of RM1.28 billion (0.12 times net gearing) as at Dec 31, 2010.


As IOI is an established developer like City Development, we have little doubt that the venture into the Singapore property market will be profitable. However, as with its previous venture into property development outside Malaysia , the market does not reward the company in terms of stock price appreciation, as investors invest in IOI not for its property exposure, particularly outside Malaysia .

The group expects to invest up to RM1.96 billion on the project. While the initial outlay of RM276 million is small relative to IOI's net debt of RM1.275 billion, the total investment of RM1.96 billion will result in its net gearing jumping to 20 per cent in the next 12 months. This is assuming that IOI generates RM1 billion in operating cash flow during the period. Otherwise, the company's net gearing will rise to a high of 29 per cent.

Industry observers believed a rise in interest rates was inevitable as the three-month Sibor ( Singapore interbank offered rate) was at a record low. [A rise in rates] will reverse conventional trends for physical prices [of property], through the impact on debt-servicing ability (especially for those with multiple home loans) and lower rental carry.

This acquisition would have an immediate negative earnings effect of 4% to 5% per annum from the interest expense incurred, given that earnings from this property development would not come in until 2015.

Concerned of the impact the Singapore government’s cooling measures would have on the property market in the medium term and therefore IOI’s ability to make a decent return on its investment.

Meanwhile while IOI Corp is busy clearing its name following a sanction by the Roundtable on Sustainable Palm Oil (RSPO) on allegations of land disputes and deforestation charges in Sarawak , environmental NGOs are equally hard at work to gain the support from major palm oil buyers to suspend their purchases from the plantation giant.

One such NGO is San Francisco-based activist group Rainforest Action Network (RAN). RAN is campaigning around the situation given the fact that IOI is a supplier to Cargill, the largest importer of palm oil into the United States .

RAN has demanded Cargill institute basic safeguards on its supply chain to ensure it is not selling palm oil from stolen indigenous land to American consumers. Unilever, the world's second largest consumer group, would review supply agreements with IOI should the latter fail to deliver the requirements by the RSPO.

However, it is currently still business as usual between the two companies.

Another major purchaser, Finland-based renewable diesel producer Neste Oil Corp, meanwhile maintained that it would continue to buy palm oil from IOI as its palm oil procurement comes from sustainable mills with the supply chain fully traceable and documented and not from the conflict area in question. In 2009 and 2010, PT Sinar Mas Agro Resources and Technology (PT Smart), an Indonesian subsidiary of Golden Agri Resources, which in turn is a member of RSPO, suffered the brunt from Greenpeace of clearing peatlands and rainforest in Indonesia which resulted in the lost of a number of major customers.

Unilever, Kraft, and Nestle were among the big companies that abandoned PT Smart, which has since announced a strict forest policy for new plantations. So, will IOI also suffer a similar fate as PT Smart? All will depend on the local plantation giant's rebuttal.

The RSPO has given IOI till May 2 2011 to deliver a proposal to resolve the outstanding issues for breaching “two core membership mandates and obligations” on land conflict and conversion of high conservation forest into oil palm plantations.

Failing to do so, RSPO would consider further sanctions on IOI i.e. suspension of licence on new certified sustainable palm oil including GreenPalm certificates.


At least for now (April 2011), many purchasers of IOI's certified sustainable palm oil are still showing full support for the local plantation giant.

However, a lot would be at stake should IOI be held accountable for the claims on land dispute grievances filed by the indigenous community of Long Teran Kenan in Baram, Sarawak and allies including RAN.

Apart from major disruption or suspension in palm oil purchases from major buyers, the share price of IOI Corp one of the favourite plantation counters on Bursa well monitored by both local and foreign fund managers could be affected as well.


IOI Corp Bhd's acquisition of 49.9% stake in Scottsdale Properties Pte Ltd may provide an opportunity for it to be involved in an iconic downtown development in Singapore but there are also concerns on the subdued outlook of the property market there.

The substantial size and location of the South Beach development, which was close to other landmarks such as Suntec City convention centre and Raffles hotel, would make this project one of the most popular and prominent mixed-use development.

But, this is partially offset by concerns over the group increasing exposure to the property sector that has subdued outlook. There were some concerns about Singapore 's property outlook based on its government cooling measures and moderating home sales.

On Jan 13 2011, the Singapore government imposed tighter borrowing limits and a hefty stamp duty of 16% of the selling price for those who buy and sell within 12 months.

Tuesday, October 11, 2011

Mudajaya

Major boardroom changes have sparked speculation of possible emergence of new shareholders at Mudajaya Group Bhd, particularly against the backdrop of continued depressed valuation of the company that makes the infrastructure group an attractive takeover target.

Mudajaya announced a slew of changes to its board. Its major shareholder Ng Ying Loong stepped down as joint managing director (MD) and Anto Joseph is taking over the reins. Also, former Bursa Malaysia Bhd CEO Datuk Yusli Mohamed Yusoff was appointed the company’s chairman.

Ng, in his capacity as a shareholder was unaware of any parties interested in buying into Mudajaya and stressed he would keep his 24.3% equity interest in the company. In addition, a Mudajaya spokesperson said “rumours of new shareholders are unfounded.”

It was reported that Mudajaya might see emergence of “new faces” soon after Ng has stepped down as MD, citing family commitment as the reason. Mudajaya is looking to get in some prominent figures shareholders, board or senior management members.

Beside Ng who holds his interest via Dataran Sentral (M) Sdn Bhd, Mulpha Infrastructure Holdings Sdn Bhd with a 21.84% equity stake is the second largest shareholder, followed by United Flagship Sdn Bhd, which has a 6.56% interest.

Talk of a takeover of Mudajaya is not new as rumours in 2011 had it that Ananda Krishnan’s Tanjong PLC was keen to take a stake in the company. It is believed that Mudajaya’s link to Ananda is Brahmal Vasudevan who holds less than 1% interest in the company. Brahmal also has interest in other public listed companies including Glomac Bhd.
Market observers said its order book replenishment at Mudajaya remains “healthy”, providing upside to its current outstanding order book of RM4.8 billion.

While Mudajaya won a RM720 million contract for the civil works of the extension of the Janamanjung power plant, it is also one of the frontrunners for the extension of the Tanjung Bin power plant.

Joseph will be replacing Ng as he is no rookie to Mudajaya after serving the company for the past 18 years. He has played very important roles in getting Mudajaya to secure jobs in India , the largest being the RM3.4billion Chhattisgarh independent power producer EP contract.

Going forward, the challenges that lie ahead for the engineering group remain daunting with the most pressing being Mudajaya’s first power plant project in India, which has been beset with delays/ The company’s earnings have been affected as a result. The situation is expected to continue in the coming months but it is confidence of meeting the deadline.

The internal target had originally been for Mudajaya to commission the first unit of its 1440MW coal fired power plant by the end of 2011. However, at end 2010, there were delays due to ….

With the delays, the company is now aiming to complete the construction of all four power plants by 2013, with full commissioning the following year.

So Mudajaya is expected to come into its own in terms of earnings in 2014.

Saturday, October 8, 2011

Faber

Sources say there are three concessionaires, including Faber Medi-Serve, Pantai Medivest and Radicare, were asked to submit a request for proposal (RFP) for renewal of their concessions.

There have been concerns that the concessions, which expire on Oct 28 2011, would not be renewed. However, based on Pharmaniaga’s experience in 2010, the concession may only be renewed for 10 years, rather than our assumption of 15 years.

This may however, be partly mitigated by the likelihood that the concessionaires may be able to charge higher service fees for more technical services such as maintenance of diagnostic equipment, although this could be offset by lower fees for more general cleaning and laundry services.

Speculation of Faber losing Sabah and Sarawak service areas has resurfaced. Assuming that new parties are brought in as 49% JV partners for the two states, and Faber continues to do the work as a subcontractor.

The risks include shorter renewal period; and 2) risk of losing some Sabah/Sarawak earnings

Saturday, October 1, 2011

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