Jcorp/KFC/QSR

Jcorp/KFC/QSR: Sources say Felda is said to be among those considering to bid for KFC Holdings Bhd (KFCH) and QSR Brands Bhd should Johor Corporation (JCorp) make available its stakes. However, Felda has yet to table the offer and planned to discuss with JCorp regarding the proposal. Felda chairman, Tan Sri Mohd Isa Abd Samad, earlier 2011 expressed interest in buying these two companies as Felda has the experience and strength to manage big entities. However, while Felda may be interested, the chance of it happening is slim as JCorp is unlikely to be willing to part with cash cow. Going forward, Lembaga Tabung Haji (LTH), the largest single minority shareholder of KFC Holdings (M) Bhd with a 23% stake, is likely to hold the key to the proposed privatisation deal of the fried chicken retailer.

PetGas

The company enjoys steady earnings from the gas processing and transmission agreement (GPTA) it signed with Petronas. But it doe not offer much excitement in terms of growth.

Going forward, things could be different for PetGas and its business model may not longer just constitute the processing and transmission fees it receives under the GPTA. The government’s measures to liberalize the import of gas, as well as the rising demand for gas as fuel, will augur well for the company’s future earnings.

The re-gastification terminal will enable the import of gas by third parties, something currently monopolized by Petronas. With more parties involved in the import of gas, it will mean more users for PetGas’s Peninsular Gas Utilization (PGU) pipeline, which links to about 20 power generation plants, including those IPPs, along the coast.

The first re-gastification terminal in Melaka is ecpectedt o start operations in July 2012, while two more terminals will be constructed in Johor and Dabah.

The commencement of operations at the Melaka terminal will redefine PetGas business model. Expecting the plant to enhance PetGas’ FY2012 and FY2013 net earnings.

Its officials said that the re-gastification plant in Melaka will enhance the companh’s enhance the company’s capability beyond gas processing and transmission of utilities. Revenue will be generated from processing and handling fees, and this addtional reevnue stream will further enhance PetGas’ profitability.

The re-gastification terminal will enable the import of LNG from various sources into Malaysia , and will help to resolve Malaysia ’s acute shortage of gas. With the LNG re-gastification facilities, PetGas and others will be able to import LNG and re-gastify it in Melaka before piping the gas into the PGU pipeline.

Besides Petronas, other companies could also make use of the re-gastification terminal to import gas from the international market. Third parties shippers would be to import LNG, re-gastify it and transport it to the customers in the peninsula Malaysia through the PGU pipeline operated by PetGas.

Indeed the government;s move to liberalize the natural gas market would help fuel PetGas’s earnings growth as the company currently only serves Petronas which is PetGas major shareholders with 60.66% stake.

Given the sentiment and efforts towards gas market liberalization, PetGas recognizes the gas transport business, through the PGU pipeline, as a potential growth area.

In anticipation of the increase in usage of the PGU pipeline, PetGas has developed a club rule called PetGas Network Code, which provides a set of guidelines on, among others, access to PGU, services provided by PetGas and tariff and transport fees.

PetGas will sign on Gas Transport Agreement (GTA) with third parties that want to subscribe to the group’s gas transport servicves. The GTA is standard for all parties, ensuring nin-discriminatory, non preferential treatment.

The group’s assets, especially the PGU pipeline, to grow to cater for additional volume from more re-gastification terminals. Thus, PetGas is indeed a proxy to the rising demand for natural gas.

PetGas’ priority is to expand within Malaysia due to the wider domestic growth parameters attributed to the rising demand for natural gas. This increase in demand for gas requires the company to seek new sources to complement the depleting local supply.

Apart from the gas processing and transmission, PetGas wants to diversify into the power generation business to cultivate future growth. To this end, PetGas has formed a JV company with Yayasan Sabah to develop a 300MW gas power plant in Sabah . PetGas holds a 60% stake. The power plant is expected to be completed and start operating by 2013.

The prospect of higher profitability under the 4th GPTA has fuelled the company’s earnings prospects and on top of that, the group has an earnings catalyst in the commission of the re-gastification terminal and power plant in Sabah .

67% of its revenue are from fixed under agreement with Petronas.

JCorp/KFC/QSR

KFC is one of JCorp’s better assets with growing operating cash flow and dividend payouts to shareholders. It generates more than rm300 million in gross operating cash f low per year.

So it is easy to see why JCorp, with some rm3.2 billion of debts to pay off in 2012, wants to bring KFC closer to the mother ship.

The Johor state government is teaming up with CVC Capital Partners via a special purpose vehicles called Massive Equity Sdn Bhd to carry out the exercise.

It will cost Massive Equity some rm2.2 billion of its bids to acquire the assets and liabilities of QSR is successful. The bid will also trigger a general offer in KFC as QSR has more than a 50% stake in the former. The success of the general offer in KFC will cost Massive Equity a further rm3.2 billion.

The exercise will add to JCorp’s debt burden considering that it holds 51% equity interest in Massive Equity. JCorp has yet to strengthen balance sheet and firm up plans to meet its rm3.2 billion debt obligation. Will this exercise the help JCorp with the debt restructuring in anyway? Should not the group focus on asset disposal and resolving the rm3.2 billion bond issue instead of taking on more debt?

However, officials from Massive Equity say the exercise to streamline the structure will add value to the JCorp group of companies as whole. JCorp could have partnered any local funds, such as the EPF, to take over QSR and KFC. However, JCorp preferred CVC Capital Partners because of the value proposition that it brings to the business and there will something left on the table for JCorp to take back after paying the cost of acquiring the assets and liabilities of QSR.

But naysayers believe otherwise. They say the growth in KFC’s business cannot outpace the cost of carrying out the transaction. The growth will no doubt come from KFC’s chains as Pizza Hut and Ayamas chains are not generating the kind of growth that would motivate a private equity firm to undertake a privatization.

The deal values the assets and liabilities of QSR and KFC at rm5.5 billion. Assume that the outlay of the deal is rm5 billion after stripping the cash from the companies. If the amount is divided on a 30% equity and 70% debt basis, the equity portion would come up to rm1.5 billion to be shared by JCorp and CVC. This means JCorp’s portion would be rm750 million. The debt which probably be financed by a local bank, would be r,3.5 billion.

At a conservative interest rate of 7% it would cost the JV almost rm250 million per annum. KFC’s gross operating cash flow in FY2010 ended Dec 31 was rm318 million. But after stripping out of the cash flow for operations, the amount left would probably be just enough to service the debts. It would not be much left on the table for JCORP even if KFC improves its operations and stops the leakages to improve cash flow.

The upside will come in the next few years when both companies (QSR and KFC) are re listed, probably as one entity. And then JCorp would certainly continue to have a majority stake in QSR and KFC. But would it need to fork out a hefty amount to buy back CVC Capital? Would CVC Capital exit post listing?

In the immediate term, the bigger concern is if the deal will go through.

The offer for KFC still seems to be on the low side. At r,4.00 for the shares and rm1 for the warrants, it is lower than its all time high price of rm.4.11. The offer values KFC at more than 22 times earnings in FY2013 ended Dec 31 and more than 20 times earnings for the current year of operations ending Dec 2012. The offer for QSR is almost 17 times its earnings for the current year of operations.

While the valuations for QSR is generous, KFC is different and minorities may demand a higher valuation.

What happens when minorities do not approve the KFC offer but accept deal for QSR. Then the deal will not happen as the takeover of the assets and liabilities of QSR is subject to the KFC transaction going past the shareholders.

There has been speculation that other parties will come into Massive Equity at a larger stage. This is on the basis of JCorp not having the financial muscle to undertake the exercise at this juncture.

Some of the names being bandied about include businessmen with extensive interests in Johor and strong links with the state and the palace. However, Massive Equity denies such a notion.

Massive Equity is a venture between JCorp and CVC Capital Partners. Where CVC Capital gets its money is unknown. But JCorp holds the majority stake in the venture, and its is something that will add value for the longer term.

JCY

Its Prospects

According to WD and Seagate, the floods in Thailand will cause a shortage of at least 50 million HDDs in 4QFy2011 compared with a demand for 180 million. The facilities of HDD component markers such as Notion and Eng were also flooded.

Production can only return to pre-flood levels at the end of 2012.

The floods have been a blessing in disguise. Before that, the average selling price of HDDs was dropping by around 2% to 3% every quarter. But the floods caused a shortage, which pushed up the ASP. HDD prices have risen by as much as 20% since the floods.

JCY is in a better position than other component makers because of its product mix. The company produces four types of components used in a HDD – the base plate, cover plate, actuator and antidiscs.

Some of its competitors produce single components but their machines were submerged by floodwater. Thus, JCY is the only supplier of some of the components for its vendors. It is the biggest supplier of base plates and cover plates to WD and is a top supplier of antidiscs to Seagate.

Since the floods, these vendors have requested bigger supply of components due to shortage and has also led to higher ASP while its costs remains the same. HDD demand will continue to be strong and a higher ASP will persist until 2012 as it will take about 6 to 12 months for the other component makers to resume operations.

Observers note that it will take about six months for the affected manufacturers to assess the flood damage receive payment on insurance claims. The companies will also need to reinvest in new machines and obtain quality approval from the vendors.

They also need to decide whether they will continue to run operations in Thailand in cas of floods in the future.

JCY CEO reckoned that HDD will not be replaced by SDDs. The usage and applications of SDDs and HDDs are distinct. SDD are used for gadgets such as tablets and netbooks while HDDs are used in desktop computers and laptops. SDDs will not replace HDDs in computers anytime soon as the former lacks the capacity HDD will continue to be the cost efficient drive used for mass date stoage.

With the advent of digitalization and cloud computing, massive media files will continue to be stored in media centres that use HDDs. While Ipads are used to view photos and watch movies, users will download and store their pictures and motives in HDDs. In addition, as cloud computing flourishes, media files will be stored in servers that demand large capacity at competitive prices. Thus the demand for HDDs will continue to grow in the future.

In 4QFY2012 ended Sept, JCY returned to the black with rm20.44 million in net profit. The improved earnings were also due to favorable exchange rates and improvement in operational efficiency.

JCY will also able to increase its capacity by another 20% to meet demand.

Given that the floods, increased orders and strong US dollar, JCY is optimistic about better results in the future.

As at Sept 30, JCY had rm93.56 million in cash and bank balances while short term borrowings stood at rm225 million. Based on its shareholders’ funds of rm512 million, it has a net gearing of 0.26 times.

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Golden chance to accumulate Bank of American

Current share price around USD 5

The shares have not closed so low since March 2009

Lowest price during financial crisis is USD 3.14

Most of the fund managers are holding and buying this share

Warren Buffett purchased 5 billion of the bank's preferred shares

Warren Buffett average purchased price for common stock is USD 7.14

Do you think Warren Buffett make a wrong move? :)

XingQuan new factory construction progress~

Below are the pictures copy from Xingquan International company website. The whole construction just took about one year (you can check the progress date there).

These pictures do give you some confidence on Xing Quan share? Which now is trading at PE around 1.

Check out on its website HERE

Can you see its brand GERTOP?

They have put so much money into the business, can china stock be trusted?

TNB no enough money~

KUALA LUMPUR: TNB expects to record losses in the first quarter of 2012 as long as it has not yet received the cash from Petronas and the government.

lol~ sound like they still no enough money after raises up the electrical tariff. So when TNB need to raise up the tariff again? I think no so fast, should be after government election. When that time remember to buy TNB if its price still at low level.

Proton

Sources say Lotus Group Intl Ltd is being courted by a Chinese suitor interested in a possible stake in the US based automobile.

Sources say China-based Shanghai Automotive Industry Corp has expressed interest in Lotus and visited the plant in England . If the talks are successful, the purchase will give Lotus’ turnaround plan a much needed boost.

SAIC is one of the top auto corporations in China and produces passenger cars, commercial vehicles and auto components.

Lotus has been dragged on Proton of late. This is mainly due to Lotus’ turnaround plan, which utilizes Proton’s financial muscle. Lotus has taken a 270 million pound loan from a consortium of six banks for a five year turnaround plan while the entire turnaround is expected to cost Proton some 480 million pound.

The Lotus turnaround plan came about as the loss making auto manufacturer had begun to impact Proton’s balance sheet.

One of the suggestions to put Lotus on a sound financial footing was to divest a portion of its equity to a strategic investor that is able to market Lotus cars. The proceeds could then be used to develop future car models.

In Oct 2011, Proton denied reports that it might be looking to sell a stake in Lotus to Luxembourg-based investment firm. However SAIC has a presence in China , where Lotus has a following.

Lotus already has large orders despite not having a branch in China . It would be a smart move for Proton to sell a stake in Lotus to the Chinese party if it is indeed interested.

As at Sept 30, 2011, Proton had rm1.31 billion in cash, bank balances and deposits. Its short and long term borrowings grew to rm960 million.

A major concern is that Proton is only in the second year of a five year turnaround plan for Lotus. Proton expects Lotus to reach break even by 2014.

The repayment of the 270 million pound syndicated loan is due from March 31, 2015, and the maturity date is six years from the first drawdown.

SAIC has an existing tie up with GM, which has also rumored to be talks with Proton. GM had previously been keen on a JV with Proton to utilize its manufacturing facilities in Tanjong Malim when the national carmaker was still under Petronas. The deal fell through.

SAIC also has ties with VW.

Greek crisis

Why Greek bankrupt?

1. Government is trying to cover country financial problem.

2. Government is spending money like nobody business.

3. Government is hiring too much government servants and pay them high salary. 

Do you find that above 3 points are sound familiar?

My view on EURO crisis

why EURO crisis so hard to solve? why US dollar can be solved so easily? For me, it is as simple as that, EURO dollar is used by 23 countries from the European. Every country has their own economy, their own diplomatic and their own culture and so on.. When everyone is making money and the wealth separate fairly, everyone is living with happy and no arguments and problems. But now, some of the countries is facing financial problem, do you think other countries will use their money to help the countries who face financial problem? The answer is NO! come on, human are greedy.. They are neither going to use their own money to help the rest nor print more money to dilute their money value. So, that's why EURO crisis is so hard to solve.

Unlike US, US can print US dollar as much as they like, because US dollar is own by US, they need not to see other countries face. It is same as Ringgit Malaysia. Malaysia will not bankrupt but only will dilute the value of the RM only if Malaysia start to print money.

The theory is as simple as that. 

Genius water level controller~

This thing is great, it can save a lot of money and our environment by reduce the usage of water. Please watch the demonstration in the video above, it explain all~

You can get it at everyday website with a offer price RM23.80 for 2 sets. Click HERE for the explanation.

About KrissAssets/IGB

(Dated Nov 2011)

Speculation KrissAssets is mulling a REIT following its completion of its purchase of the The Gardens shopping mall in July 2011 from parent IGB Corp Bhd.

KrisAssets’ current property asset is the 10-year-old Mid Valley Megamall. With the completion of the purchase of The Gardens, there is the possibility of a REIT being set up to take advantage of the tax benefits.

To qualify as a REIT, a fund must have most of its assets and income tied to a portfolio of real estate. In Malaysia , a REIT is exempt from corporate tax if it distributes at least 90% of its total annual income, and unit holders enjoy a lower 10% withholding tax on distribution.

Another point favouring a REIT is that it is an asset class that is not affected by market sentiments as its share price is backed by assets. The assets that KrisAssets holds, solely retail malls, command better demand due to higher returns. Compared to office spaces, retail REIT are supported by high occupancy rates and strong rental income. The local buying sentiment is also going strong at the moment.

The yields of the assets in KrisAssets of between 6% and 7% are comparable to other local REIT such as Sunway REIT, CapitaMalls Malaysia Trust REIT and the soon-to-be listed Pavillion REIT.

The retail space in Mid Valley Megamall and The Gardens saw an increase in rental income.

However, KrisAssets REIT might not take off so soon as it does not have enough funds to purchase the remaining assets from IGB Corp. IGB Corp’s remaining assets consisting of Mid Valley and The Gardens’ office towers have an estimated combined value of RM2 billion to RM3 billion. However, market observers do not discount a possible corporate exercise to raise funds for the acquisition of the other assets.

Speculation on the establishment of a KrisAssets REIT surfaced in February 2011 when KrisAssets agreed to buy the entire stake in The Gardens at an indicative price of RM820 million. To fund the acquisition, KrisAssets issued RM300 million in convertible secured bonds.

As at Sept 30, KrisAssets had RM72.8 million in cash and bank deposits. KrisAssets is 75.66% owned by IGB Corp.
The group also saw a recognition of revaluation surplus of RM25 million for Mid Valley Megamall .

Excluding the fair value gain on investment property, the group recorded pre-tax profit of RM55.1 million, representing a 20.6% increase, compared with pre-tax profit of RM45.7 million in the corresponding quarter [last year].

For 9MFY11, KrisAssets’ net profit grew 27.6% to RM170.8 million, on the back of RM273.1 million in revenue.

About Rsawit

(Dated Sept 2011)

A pure plantation player run by Chiong Hoo’s (Tan Sri Tiong Hiew King’s son) older brother Chiong Ong.

It offers plenty of upside, stemming from their large unplanted areas and young palm profiles. Its appeal is its full exposure in the palm oil sector.

It would seem that Tiong is turning Rsawit into the family’s plantation flagship by rapidly expanding its landbank via acquisitions and the injection of family landbank.

Nonetheless, the group’s aggressive building up of plantation landbank resulted in huge net total borrowings of rm427 million against its shareholders funds of rm467 million as at June 30, 2011.

It is proposing a rights issue to pare down its borrowings and for capex needs. The rights issue will keep Tiong’s interest in Raswit at 57.17% stake assuming the rest of the shares are fully subscribed by the other shareholders. Such a move would entitle him to rights and bonus issue. It would also increase his shareholding.

My view on Citigroup

Citi group is cutting 4,500 jobs worldwide after Bank of American announced planning to cut 30,000 jobs earlier of this year. It seems like the worldwide economy is still doing bad~ by the way, is it a good chance now to collect Citi's shares? Citi now is trading at USD 29 something and it went up to max USD 502 before at May 2007 which is before the prime crisis.

Let us use USD 502 divide with USD 29, that is 17 times different! too much!? then we divide 2 again, it still 8.5 times different! how many years do u think it can recover back to the half of USD 502? 5 years? too short!? How about 10 years? it is very likely..

10 years give you 8.5 times return is it enough for you?

Some might think Citigroup will bankrupt, but I can very sure to tell you, Citi will not bankrupt, if she bankrupt, then whole world are in deep shit, same as if Maybank bankrupt, Malaysia also will deep shit~

About Wijaya

It has to get shareholders’ approval for its proposed US$80 million investment in two companies with timber extraction rights in Indonesia ’s Papua province. The 80000 ha are slated for oil palm cultivation.

The Papua oil palm is still some years as it takes about three to four years away for oil palm trees to start bearing fruit. Moreover, the group would first need to obtain the final go head from Indonesia ’s Forestry Ministry before extracting timber and clearing the land for planting.

In any case, the group’s borrowings will go up substantially following the US$80 million purchase. Currently it has almost zero borrowings. The company could borrow against its 379 acres in Pulau Indah, Klang carried a rm163 million in its book.

Assuming 80% of the purchase considering is funded by borrowings, the group‘s gearing will increase to 0.86 times (rm215 million). Net assets per share are expected to fall to 0.89 sen.

The purchase will be funded by internally generated funds, bank borrowings and/or a fundraising exercise.
Its cash and bank balances stood at about rm1.5 million as at June 31, 201. Besides the USS$80 million purchase price, Wijaya will need about rm20 million to rm30 million to get the project off the ground.

The new shares cannot be issued below their par value of rm1 apiece unless they are offered to all shareholders in a rights issue. A shareholder placement is unlikely to happen unless the stock appreciates further.

A shareholders’ meeting to vote on the deal will be called within two weeks from 14 Nov 2011.

The group is also benefiting from its interest in its 45% owned construction associate Wijaya Baru Sdn Bhd which is in the business of implementing flood mitigation projects.

Its CEO said that Wijaya in good stead to vie for more jobs from the rm1 billion slated for flood mitigation works in Perlis, Perak and Johor announced by the PM in Budget 2012.

OCBC Titanium credit card 5% cash rebate

Nowadays, getting more and more bankers are offering cash rebate credit card to the market.

Like the OCBC, they are offering a 5% cash rebate on the petrol, groceries, bills and dining and 1% on other purchases. Which can give us a good value of money, since those thing we are needed to spend no matter how, why not we use the benefit provided by them for our own good?

I have prepare a table for you to have a look as below: -

As you can see the even they are giving a 5% cash rebate, but the maximum cash rebate per month is capped at RM50.00 and no reward points are given.

If you are big spender, then you might need to consider another cash rebate credit card from other banks.

Maybank 2 cards might be suitable for you, as it offers 5% cash rebate as well and 2.5% points rebate.

You may refer my previous article, Maybank 2 cards

However, OCBC allow us to wave RM50.00 government service tax by spending RM10,000.00 per annum and enjoy annual fee waiver by 12 swipes every year (this can be done easily, just one swipe on petrol every month will do.)

Fore more information, you can go to OCBC official website as HERE, there have a saving bar you can play around also, then you know how the maximum RM50.00 work.

There are some comments from other people as they find out some spending is only giving 1% cash back instead of 5% cash back as below:-

Krispy Kreme - Midvalley Megamall

Carrefour - Tropicana City Mall

Giant - Atria Mall

Geographer Pub & Restaurant - IOI Boulevard

Haagen-Dazs [MCC: 5499]

House + Co (restaurant) - Bangsar Shopping Centre

Maxis Centre - The Gardens [MCC: 4812]

Telekom Malaysia - fixed line, by calling up the call center

Jusco Supermarket - 1 Utama

Jusco Supermarket - IOI Mall

Jusco Kepong (Dept. Store NOT Supermarket)

Jusco Sunway Pyramid (Dept store)

Jusco Tmn Maluri (Dept Store)

Isetan (Supermarket) - Lot 10 

MPSJ Counter - Bandar Puteri, Puchong [MCC: 9399]

Zun Express Eu Yan Sang Restaurant - The Gardens

So, as you can see from the above list, how are they define the "GROCERIES"? Is it interesting huh!?..

About NAIM

Sources say there has been talk of delays in the progress of Petronas Carigali Sdn Bhd’s Sabah Oil and Gas Terminal (SOGT) project that could potentially cast a shadow over the state’s petroleum developing progremmes. However, Petronas Carigali has brushed off talk of any delays on the US$766 million project.

To recap, the award of the SOGT project had raised eyebrows when it was announced in Aug 2010. The job was given to Sawarak based construction and property firm Naim, instead of Dialog and Kencana. Naim holds a 34% stake in Dayang, which is a brown field hookup and commissioning service provider in the O&G industry.

Naim’s subsidiary landed the job to provide engineering, procurement, construction and commissioning EPCC services for the SOGT project.

Naim’s management had guided that the company will have a 30% equity stake in the JV with Samsung Engineering to develop SOGT.

Market talk then was that Naim had secured the job because of its influence at the state and federal government levels. Naim has long seen as linked to Sawawak Chief Minister Tan Sri Abdul Taib.

Taib’s cousin is Naim’s chairman and holds 16% in Naim.

About SP Setia

PNB is believed to be looking into the possibility of improving its offer to SP Setia shareholders, particularly its CEO Tan Sri Liew.

In this respect, it is learnt that PNB is working out a package for Liew in which he will have the option to divest his interest in SP Setia at a higher price over a period of three to five years provided that the company meets the milestone set. This is to entice hom to stay put at the company.

Sources say there has also been discussion about PNB improving its offer price of rm3.90 per share. Some believe this is unlikely to happen as PNB has maintained that the price is fair. But the deliberations on such matters is one of the reasons why the offer document is still not out yet.

It is learnt that during the period in which Liew has to meet the milestone set, he would continue to run the show. For that period, Liew will oversee the senior management of the company as well as the appointment of contractors.

Speculation is rife that the general offer by PNB for SP Setia had even attracted the attention of the top people at Putrajaya. It is said that an intervention by top officials at Putrajaya led to both PNB and Liew re negotiating the takeover offer.

PNB was supposed to have sent out the offer documents for its general offer to SP Setia shareholders by Oct 19, 2011, but they have yet to release. According to the Malaysian Code on Take-overs and Mergers 2010, the offer documents are to be sent out within 21 days of making the offer. It now has to send out of the offer documents within two days of the SC’s clearance of the offer document.

PNB recognizes that the talent at SP Setia is valuable to the company and is exploring incentive to ensure that they continue to stay on with the company.

It is not surprising that PNB may be considering an incentive package for the senior management, and specially Liew who is credited with building and growing the company to where it is now.

The rm3.90 per share offer values the property company at 2.15 times its price to book value as at July 31, 2011. Its five year historical average is 2.22 times.

Since the MGO was announced, PNB and funds under its management have increased their shareholding over 39% by acquiring shares and warrants on the open market. The offer is conditional upon PNB receiving more than 50% of the voting shares of SP Setia.

About Mercury

Mercury is one of the top two car paint manufacturers in Malaysia by market share, is exploring opportunities to diversify and expand its existing business.

It is looking at up to four business proposals from other players in the local industry for a potential diversification, possibly via acquisitions.

It is in net cash position. It had rm6.46 million as at June 2011 comprising rm1.67 million cash and rm4.78 million short term deposits and virtually no borrowings. 

Datuk Tiong Kwing Hee is the largest shareholder now with 4.41 million shares or 10.06% equity. Thang Joo Chiet has a 7.56% stake while Liau has a 5.22% stake.

Tiong is also sits on the board of EcoFirst and a substantial shareholder of Meda Inc with 5.78% stake.

While Mercury is busy looking for businesses to acquire, industry sources say the company itself is the potential acquisition target of some of the world’s top paint manufacturers.

AkzoNobel nv is the world largest coatings manufacturer by sales, followed by PPG Industries Inc and DuPont Coastings & Color Technologies Group. One of the top three paint makers in the world is keen on buying the company’s entire assets and retain its management team.

The company has registered continuous annual growth from 2006 to 2010. Its net assets per share stood at RM1.15.

Its shares are tightly held by its major shareholders. The top 30 largest shareholders collectively hold 75%.

It should be noted that the coatings and paint manufacturing business is susceptible to volatile crude oil prices because of its raw materials are petroleum based.

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About Pavilion REIT

It has forecast a dividend yield of 6.51% in FY2012 ending Dec 31 based on its tentative retail price of 88 sen a unit. Its pro forma NAV upon listing is 94 sen per unit.

Market observers say that while Pavilion REIT’s dividend yield is decent, its two assets may not be enough to entice medium to long term investors.

So how does Pavilion REIT’s promised dividend yield stack up against those offered by some of the Malaysian REIT?

The three are Sunway REIT, Axis REIT and CpitaMalls. Sunway REIT’s gross dividend is at about 5.72% based on closing price of rm1.15. Axis REIT offers a dividend yield of about 6.79% (based on closing price of rm2.55). As for CMMT, it offers a gross dividend yield of 6.59% (based on closing price of rm1.36).

The above REITS reveal that Pavilion REIT’s projected yield of 6.51% in FY2012 may pale in comparison to other offerings in the region.

It aims to add more assets to its portfolio and wants to continue its “shopping spree” to acquire at least three more retail properties within the next three years (2011-2013), depending on the economic situation.

Pavilion REIT will be looking at potential injections [into the REIT] maybe in 2013. Potentially, the first acquisition will be Fahrenheit88, depending on the valuation and the yield.

It has right of first refusal (ROFR) to Fahrenheit88, an extension of Pavilion Kuala Lumpur and a new shopping mall to be built in USJ Subang Jaya. The acquisitions of the extension to Pavilion and the mall in Subang Jaya could take place in 2014 or 2015 once both projects are completed. Both developments are undertaken by the sponsor company, Urusharta Cemerlang Sdn Bhd.

Pavilion REIT’s portfolio currently consists of Pavilion Kuala Lumpur mall and the 20-storey office building Pavilion Tower, which have a total appraised value of about RM3.5 billion. As at June 30 2011, Pavilion KL was about 98.5% occupied while the occupancy rate at Pavilion Tower was 64.5%, including committed tenancies that had yet to commence.

It could either finance these additional property injections by going back to its shareholders or through bank borrowings, although the latter was the preferred option for now. The proceeds of close to RM700mil is being utilised to pay down the debt.

Upon listing, the REIT will have RM730.6 million debt, about 20.1% of its estimated total asset value, giving it headroom to gear up further with the debt ceiling set at 50% of total asset value. Under Securities Commission rulings it is allowed to gear up to 50% LTV ratio.

The current Pavilion shopping complex, which has been fully occupied for two years with a potential-retailer waiting list of 200 and rental yields of about RM16 per sq ft, will begin extension works by the first half of 2012. Pavilion REIT had “obtained all development approvals” for the extension.

This is an extension of about 300,000 sq ft of retail space, and will be built by Pavilion REIT's sponsors (original shareholders Urusharta Cemerlang Sdn Bhd) on the former carpark of Millenium Hotel. They (the sponsors) will also build an apartment on top of the new retail space.

Pavilion REIT will also develop another shopping mall in UEP Subang Jaya, following the compact mall concept with an apartment block on top of it. This compact mall which will be developed by Usurharta Cemerlang will have another brand name that will be managed by the Pavilion Group.

Pursuant to the initial public offering (IPO), 755 million units would be offered to Malaysian and foreign institutional investors and selected investors at the institutional price (other than cornerstone investors) which would be determined by way of book building.

A total 265 million units has been earmarked for allocation to six identified cornerstone investors at an offer price of 90 sen per unit or the institutional price, whichever is lower. The six cornerstone investors are Permodalan Nasional Bhd, Employees Provident Fund, Kumpulan Wang Persaraan, Great Eastern Life Assurance (M) Bhd, American International Assurance Bhd and HwangDBS Investment Management Bhd.

About 35 million units will be offered to the general public in Malaysia, eligible tenants of Pavilion Kuala Lumpur Mall and Pavilion Tower, directors of the manager and the eligible employees of the manager, Urusharta Cemerlang Sdn Bhd, Capital Flagship Sdn Bhd and Kuala Lumpur Pavilion Sdn Bhd at the indicative retail price of 88 sen per unit.

At an indicative retail price of 88 sen, the manager expected Pavilion REIT to provide a distribution yield of 6.41% and 6.51% for the one-month forecast period ending Dec 31, 2011 and the 12-month forecast period ending Dec 31, 2012 respectively.

The total appraised value of Pavilion REIT's initial property portfolio was about RM3.5bil. With the inclusion of Pavilion Kuala Lumpur Mall, which forms 96.4% of the total appraised value of Pavilion REIT's initial property portfolio, Pavilion REIT would become one of Malaysia 's largest listed REITs with the largest exposure to the retail sector of any listed Malaysian REIT by appraised value.

Upon listing, Malton Bhd’s chairman Datuk Lim Siew Choon and his wife, Datin Tan Kewi Yong, will collectively own 37.6% of Pavilion REIT whileQatar Holdings LLC, will hold 36.1%.

KLCI Chart from 1990 to 2010

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Tenaga prospect~

Although the Bekok-C gasfield resumed operations sooner than expected in the second week of October 2011, the current 75 million standard cu ft per day (mmscfd) of gas it is supplying to the power sector will not be enough to bring TNB back into the black.

TNB now received close to 1,050 mmscfd of gas, which is short of the 1,150 mmscfd it needs to avoid burning alternative fuels and distillates. In the meantime, TNB will still have to rely on alternative fuels, which are imported and five times more expensive, although in lesser quantities.

Earnings visibility already weakened by slowing electricity demand growth will be somewhat uncertain possibly until Petronas' regasification plant in Malacca is ready in July 2012.

The gas shortfall had forced TNB to incur an additional RM1.3bil in fuel costs for its third quarter 2011 due to 61 days of gas supply disruption, of which 51 days were due to unscheduled maintenance.

The Bekok-C gasfield, which was damaged in a fire in December 2010, was supposed to be restored by Petronas in June 2011, but that was postponed to September and again to end-October 2011. Estimate that when the field is back in full working order, it will increase gas flow by 150 mmscfd, thereby substantially enhancing operational reliability.

The taskforce comprising the Performance Management and Delivery Unit and Economic Planning Unit, that was set up to review the gas shortage, might not be able to do much since “the resolution depends solely on Petronas sorting out its gas facilities problem.”

Meanwhile TNB had proposed to issue RM5bil in Islamic debt notes to finance the development of the 1,010 MW coal-fired power plant in Manjung, Perak. It would establish an Islamic securities programme of RM5bil in nominal value through an independent special-purpose company Manjung Island Energy Bhd.

The proposed Islamic securities programme would have a tenure of 28 years from the date of first issue, which was expected to be in November. The proceeds will be used to purchase certain syhariah-compliant leasable assets from TNB Janamanjung Sdn Bhd.

Near-Term Woes ..

Tenaga CEO has been quoted that the gas shortfall has forced Tenaga to buy pricey oil and distillate to run its machines. However, the additional cost incurred cannot be passed on to the consumers because the government will not allow the pass through mechanism.

Because of the gas shortfall, Tenaga is now forced to spend an additional rm400 million per month on fuel oil and distillate. If the situation continues, Tenaga will be forced to borrow to fund its operating expenses. In addition, Tenaga has had to spend more on purchasing coal on the spot market.

The more pressing matter is the current state of Tenaga, which has been hit hard as a result of Petronas curtailing gas supplies in order to upgrade its facilities.

The gas shortage problem has been ongoing since mid 2009, which was when Tenaga first mentioned. At the time, the most immediate effect was that Tenaga had to burn more coal, which was pricier than subsidized gas. This then hiked up its total fuel bill.

In early 2011, however, the focus has shifted from simply pay more to having an assurance of supply in the light of the natural disasters. Massive flooding in certain parts of Australia disrupted coal mining operators, which had already been ramped up to meet growing demand from China and India .

Then, the massive earthquake and tsunami that hit Japan in March 2011 resulted in a number of nuclear plants being shut down globally amid safety concerns, which meant that an increased reliance of gas and coal plants.

This was when Tenaga really started to feel the pinch. Because of the prolonged gas curtailment, due to a fire at facility and scheduled plant maintenance, Petronas has been delivering around 25% less than the 1250 mmscfd promised to the power sector.

As a result, Tenaga has been forced to buy more oil and distillate at market prices or five times more per KW to make up for the gas shortfall. Tenaga had to issue a profit warning, stating that it was now spending (Sept 2011) more than rm400 million a month on additional fuel.

Aside from the higher price tag, using oil and distillate in gas turbines shortens the life of the machinery, a problem that both Tenaga and the IPPs share. What this means is that from having to service the machines on a yearly basis, for example, the maintenance cycle is now (Oct 2011) shorter, which means more shutdowns.

The gas turbines are not meant to be run on other types of fuel, such as distillate. This shortens the lifespan of the machinery and means higher maintenance costs in the long run as the cycles get shorter.

Ultimately, the prolonged gas supply issue resulted in Tenaga slipping into the red in 3QFY2011 ended May 31. Tenaga provider posted a net loss of rm441 million compared with a net profit of rm1.1 billion in previous corresponding period.

Critics said that Tenaga will even making losses in 1QFY2012 if the gas shortage persists.

And for the first time, Tenaga is looking to borrow to fund its operating expense. It has already gone to the bond markets to sell rm4.85 billion debt to fund the expansion of its Janamanjung coal fired plant.

Things have come to a point where the government has set up a task force comprising Permandu and the EPU to look into the problem.

In another two months (Dec 2011), the government is set to review the gas subsidy again as earlier announcement that the cost of gas will increased by rm3 every six months to catch up with market prices as part of a subsidy rationalization plan. But it should be warned that even if an increase in gas price is agreed upon, it does not automatically translate into an increase in tariff.

The problem with gas supply may be alleviated in the longer term through higher gas prices, so eventually Petronas will have more incentive to supply more gas to the power sector. The next review is due in Dec 2011 but this is questionable as the election is speculated to be around the corner.



Petronas has always bristled at supplying the bulk of its gas to the power sector, vocal about the potential revenue it could have made selling the gas at market prices. This, it does seem that if the power sector paid market prices, it would get the full amount it needs.

Petronas can hardly be faulted for not wanting to supply gas at a subsidized price because the commodity can fetch higher prices on the open market. Petronas claims that because the domestic power sector is heavily dependent on gas, it has not been able to undertake regular maintenance works on its own facilities, which has resulted in a forced shutdown.

On a positive note, Petronas has completed its mobile offshore platform unit bypass for the Bedok C gas field. This has led to the flow of 75 mmscfd of gas to the power sector since the second week of Oct 2011. The impact will be felt in 1QFY2012.

The Longer Term Plan …

Rumors have been rife that a corporate exercise at Tenaga will culminate in the national power provider being broken up into three units – generation, transmission and distribution. Although the Minister of Energy, Green Technology and Water has come out to say that there are no plans to break up Tenaga, there is a proposal to unbundle its accounts.

However, the crux of the matter is whether separating Tenaga’s acounts will helpp avoid a recurrence of the problems of the power provider is facing now (Oct 2011).

While the main cause of Tenaga’s troubles – the shortfall in the supply of gas from Petronas – is short term, it serves as reminder yet again of the underlying weakness of the industry as a whole.

The most niggling being the lack of a fuel pass through mechanism. This is oft cited as being the main dampener when it comes to accessing the power’s supplier’s prospects.

Separating the accounts would then reveal the true cost of generation. At the moment, Tenaga’s generation cost includes others aside from fuel, such as administration costs. If the actual cost of fuel were identified, then the fuel cost pass through tariff can be tied to that number as a base.

This would in turn determine the subsidy needed for Tenaga to make up for the shortfall between the actual cost incurred and what is being charged. At the moment, Tenaga’s generation cost is lumped as part of its operating expenditure. It comes under the sub-segment of energy cost in its operating expenditure.

Without full disclosure, it is difficult to tell if Tenaga’s generation plants are as efficient as those of the IPPs.

At the moment, Tenaga is the sole offtaker of all the power generated in Malaysia .

The proponents of segmenting the accounts say this will make the entire process of procuring and distributing power more transparent. While an increase in tariff will not be welcomes, it will help stem the constant criticism hat Tenaga is inefficient.

Separating accounting will make the cost pass through formula more transparent to all parties. It can be used to show that there have been cross subsidies from the generation segment to the transmission and distribution segments.

But it should be noted that this proposal to separate Tenaga’s accounts is not new. Tenaga states in 2008 that segmental reporting is not presented as rge group is principally engaged in the generation, transmission, distribution and sales of electricity and the provision of other related services, which are substantially within a single business sector.

What is clear is that energy cost makes up the bulk of Tenaga’s opex – some 90% - but without additional data, it would be hard to estimate whether that proportionally translates into the same percentage of sales.

It is for this reason that some argue against breaking up Tenaga. If there is one division within Tenaga that is in the red, it would prove difficult for that segments to gain funding. Inability to meet its capex needs would mean a break in the supply chain.

While the restructuring of Tenaga will help form the base of industry reform, there is question that the industry itself is due for a change.

Previously, re-negotiations with the IPPs were cited as one of the main stumbling blocks. However, now (Oct 2011) with the first generation power purchase agreements due to expire in three years from now, it might make the IPPs soften their stance somewhat.

Sources say the government has made some progress with the first generation IPPs. The terms being offered are an extension of the PPAs but at a much lower cost per KW.

The government is talking to Petronas and getting it to commit to a certain amount of gas for a certain number of years, but that is still preliminary.

What could happen in the nearer term is the re-emergence of the undersea cable between Sarawak and the peninsula Malaysia as more plants come up in the former.

IPMuda

It could see the emergence of new investors following a spate of share disposals by its substantial shareholders.

Teh and IGB have collectively disposed 12.1% equity stake in off market trades. Any party which takes up the block of shares would emerge as the second largest shareholder after Tan Sri Abu Sahid.

It is worth nothing that Abu Sahid has been accumulating shares. He nw holds a 30.6% take in IPMuda. So if he takes up the shares disposed by The and IGB, he would cross the threshold for making a MGO.

Abu Said’s private vehicle Maju Holdings Sdn Bhd was thrust into the limelight when news of its plans to divest its unit highway concessionaire Maju Expressways Sdn Bhd.

While IPMuda has been profitable in the last five financial years, it has seen ballooning receivables for at least the past four years. The amount is due from one of its directors.

Un 2QFY2011, IPMuda’s receivables stood at rm220.02 million.

In its latest filing, the company has resolved most of its outstanding matters with the sub contractor for the government project. As part of its efforts to resolve its related party receivables, the company said the director involved has proposed to settle part of its debt through a contra of two units of property.

IPMuda has incurred operations cash flow deficit for two consecutive quarters. As at June 30, its cash stood at rm6.76 million. Its short term borrowings stood at rm78 million, commercial paper worth rm10 million and shareholders’ equity of rm143 million

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%

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%.

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.

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.

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

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Puncak Niaga

A proposal is in the works for IWK to be taken over and managed by 1MDB with Puncak Niaga as its partner. These entities will then jointly run the loss making IWK, which is tasked with managing the public sewerage systems for most of Malaysia , excluding Kelantan, Sabah, Sarawak and JB.

Puncak’s executive chairman Tan Sri Rozali Ismail has clarified that the company is in talks with 1MDB on the possible takeover of IWK. However, it will not be taking a majority stake. It will only provide the technical expertises and the systems.

1MDB which is wholly owned by the government had confirmed that it was assessing a partial privatization of IWK in which the government would retain control.

At this juncture, it is uncertain what shape and structure the takeover of IWK will take but it is learnt that its assets and liabilities will be sold for rm1. More crucially, the water and sewerage bills will be consolidated to improve the collection of IWK charges.

Also the takeover of IWK jointly by 1MDB and Puncak Niaga may involve a commitment by the government to provide up to rm2 billion over the next few years to upgrade and build new sewerage facilities.

IWK’s problem has always been the collection of sewerage bills and this is often cited as one of the reasons the company has been loss making.

It forms part of the government’s attempt to clean up IWK, which will then be followed by a crackdown on the industries that discharge water into the river. IWK will also monitor the levels of wastewater effluence in the rivers.

Sources also says that Puncak Niaga’s 70% subsidiary SYABAS which is responsible for water supply and distribution in Selangor, the Klang Valley and Putrajaya, will eventually run the show at IWK.

The deal is set to happen very soon, with some expecting the issue to be settled before the year end 2011.

There is no question that with two water concessions already under its belt, a wastewater management concession would help strengthen its position as a water player in Selangor. More importantly, the consolidation of the water and waste management bills will finally get rid of a persistent problem for IWK.

What is the rationale behind for taking over IWK? There is value to be had in IWK in spite of its poor financial showing. Sources say the company spent around rm600 million t o rm700 million alone in 2010 on top of the rm540 million opex. These are contracts that will be divided out to subcon as it would prove difficult for IWK to handle every aspect of its business. Thus although the business is loss making, its capex and opex are enough for any operator in the water industry to give it a second look.

And if the injection of funds of up to rm2 billion into IWK to upgrade and build new facilities happens, the company would be an attraction to anybody. The returns from capex works would serve as a sweetener to any company.