Direction of Fund Flow~

Foreign investors turned net buyers of Malaysia equities in the week ended Dec 14, 2012, accumulating RM678.7mil of equities, after three consecutive weeks of selling.

Foreign investors bought Malaysian equities in the open market relatively aggressively in early Dec 2012. On a net basis, foreign investors bought RM678.7mil. It was the sixth highest in a week in 2012.

The cumulative net inflow of foreign funds to Malaysian equity surged to a positive RM13.4bil. This was more than seven times the amount of RM1.9bil recorded for the entire 2011.

Since January 2010, cumulative net purchase of Bursa Malaysia-listed shares by foreigners stayed above the RM30bil mark at RM30.5bil.

Foreign funds bought every single day in early Dec 2012 to mid Dec 2012.

Local investors continued to withdraw from the market. Retailers were net sellers in mid Dec 2012, selling RM106mil. It added that participation rate stayed depressed, averaging less than RM500mil a day for the second week running at only RM474mil. As for local institutions, they sold an aggressive RM573mil, compared with a net purchase of RM235mil the week before. Daily average participation rate rose to RM1.6bil.

Genting UK/Genting Bhd/Genting Malaysia

Tan Sri Lim Kok Thay’s Genting group is quietly revamping its operations in London where more casino friendly laws are being weighed alongside potential job creation.

That’s what Tan Sri Lim Kok Thay is betting on as the group steps up efforts to won premium players in London and to beef up the competitiveness of its offerings in other parts of the UK .


In Oct 2012, constructing work began on Genting UK ’s rm615 million Resorts World Birmingham, an integrated complex with a casino, hotels and etc … that is slated for completion in Jan 2015.

In London , Genting in Dec 2012 shuttered the poker only Fox Poker Club which will be reopened as March 2013 as a Genting casino after renovation.

Genting’s attempt to bolster its UK operations also comes at a time lawmakers are reportedly contemplating legislation changes that would allow easier movement of casino licenses between localities in the UK . British gaming industry players are lobbying for the move to facilitate expansion in better locations. Some politicians are reported to be in favor of it as allowing licenses to be ported from one local jurisdiction to another would mean no additional licenses would be issued.

Tan Sri Quek Leng Chan also seems to be eyeing the London gaming market.

While countries like Japan and South Korea may potentially be new growth markets for the Genting group, should it win a license, there is concern about some cannibalization of existing casino markets.

Industry observers are lowering expectations of Genting being successful in its bid for a full casino license in NY.

Genting had also a presence in Philippines but lacks a presence in Macau . However its UK casino is seeing higher patronage.

What's NEXT For Astro ...

It beats several bidders to win the broadcast rights for the next three seasons of the EPL football matches at what is said to be a respectable cost increase to the previous three seasons.

It is understood that the amount is near rm1 billion for the three seasons up from the rm800 million Astro is said to have paid in the current three year season ending 2012/2013.

A substantial cost increase could further dent earnings for Astro, which is already guiding smaller margins year on year in the next two years from Nov 2012 as it spends to convert the remaining half of the 3.1 million subscribers it has to the next generation platform.

Rather than Astro losing the EPL broadcast rights, market observers are currently (Nov 2012) more concerned with the jump in cost, which could hurt dividend payments. Astro has promised to pay out at least 75% of its earnings as dividends to placate shareholders as it nurture new growth sources.

One way Astro could boost confidence is to show it can continue to deliver strong earnings while keeping a tight rein on costs, despite facing heightened competition.

Is It Worth Buying Now (22 Nov 2012) ???

 

MIDF (YES) …

 

ASTRO Malaysia Holdings Bhd had won the broadcasting rights for the Barclays Premier League (BPL) for the next three seasons starting from season 2013/2014. The broadcast rights is reportedly to cost near RM1bil, up from the previously reported RM800mil. However, ground check indicates that the actual cost for both current and previous deal is lower than those appeared in newsreports.

 

Nevertheless, expect the impact to Astro's earnings will not be significant.  Estimate that its content cost as a percentage of revenue will increase by 1% to 2%-points in financial year ending Jan 31, 2014 (FY14) from current 32%. This will be within the management guidance of circa 32% to 35%. In addition, content cost will only reach 35% of revenue in the year with major sporting event such as the World Cup and Olympics. Otherwise, content cost will range between 32% and 33% of revenue.

 

Hence its margin will be under pressure. Churn will be limited but sports are not the only reason. The impact to Astro will be positive as it will limit the churn rate of its subscribers. Current churn rate as at calendar year 2011 (CY11) is 7%, which is well below the industry average of 13%. With BPL rights, churn rate can fall to the 5% to 6% level. However, regardless of the sporting content, Astro's churn rate will also be limited by its local and international offerings.

 

Astro's wholly-owned subsidiary, MEASAT Broadcast Network Systems Sdn Bhd (MBNS), has received a letter from the Indonesian Embassy in Kuala Lumpur on Nov 14 2012 naming MBNS as second defendant with respect to a claim made by PT Direct Vision (PTDV) for an unlawful act or tort in the District Court of South Jakarta, Indonesia, against Astro All Asia Networks Plc. The on-going dispute with PTDV will not have an impact to Astro as its operation is solely focus in Malaysia .

 

The current (Nov 2012) content cost is within management guidance. The winning bid for BPL should remove a lot of uncertainty for Astro and at current price level (rm2.65 – rm2.72) is an attractive entry point for investors to accumulate on Astro's shares.

 

Astro aims for a dividend payout ratio of 75% will be an added incentive for investors.

 

The main investment cases for Astro are as follows: Astro has room for growth given that Malaysia pay-TV market penetration rate is only at 50% and it is the leader with market share of circa 99%; popular in-house content and international content which will limit the churn rate and entice new subscribers; increasing income level in Malaysia will consequently increase its average revenue per user (ARPU) as subscribers upgrade its packages; new products that can tap previously underserved market; innovative product to maximise ARPU.

 

By OSK (NO) …

Content has been the largest component of the group's cost of sales, comprising 54.4%, 55.1% and 51.6% of its pro forma cost of sales for the financial years ended Jan 31, 2010, 2011 and 2012 respectively, as well as 52.1% of its audited cost of sales for the three months ended April 30, 2012.

Despite the decrease in content costs as a percentage of total operating costs, its content costs have increased in absolute amount primarily because of the addition of new channels to expand our channel offerings, the addition of high definition (HD) channels to increase our HD penetration, the increase in content prices due to inflation and the increase in local production.

The cost of winning the BPL is likely to have an impact on Astro's earnings before interest, taxes, depreciation, and amortisation (EBITDA) margins for the next two to three years from Nov 2012.

Also expecting a slight impact on the company's dividend payout in the near term or thr next two years.

However mariket observers did not rule out a potential subscription price hike to pass on some of the costs to viewers.

Since 1997, Astro has been showcasing BPL action as part of a comprehensive bouquet of football programming to Malaysian football fans.

Meanwhile, it will be interesting to see if Astro would be mandated to share its content with other players. According to reports, a policy directive to ensure certain types of popular content, such as some live sports, is not bought on an exclusive basis by any television station in the country, is expected to be issued.

This is said to pave the way for joint bidding for live sports content by all the players or, if only one player bids for it, the concept of sharing popular content with all the players will be possible.

The directive is said to address the concerns and comments made by industry players that claim that when only one broadcaster gets all the exclusive content, it allows it to keep its market dominance and the exclusivity blocks the prospects for new entrants.

By Mercury Securities (NO) …

The share price would not revert its offer price or higher (on news of it securing the broadcasting rights). The public already expected Astro to be given the exclusive rights.

The management had already factored in the fee for the rights which is said to be about rm1 billion before the IPO.

Apart from current (Nov 2012) cautious market sentiment, the expensive valuation has also put a cap on Astro’s share price. Furthermore, the company cannot afford a generous dividend as it is incurring large capex as it migrates customers to the new Beyond set up boxes.

The Astro’s management said that for the next two or three years from Nov 2012, Astro should see a 2% to 3% contraction in Ebitda margin.

However it is a wise long term investment on the group’s part to raise profitability.

More than 93% of Astro’s revenue is derived from its pay-TV segment with is current (Nov 2012) Arpu standing rm83.00.

Fro the near term, Astro has no catalyst insight.

Astro venture into IPTV broadcasting – with its mobile Astro On the Go service and strategic collaborations with TIME dotcom Bhd and Maxis as well as it no frills prepaid satellite broadcast service – could potentially be a new growth area for the group and could elevate its pay TV market supremacy. Astro has the exclusive rights for the satellite DTH broadcast service in the country until 2017 until that does not mean it will not face competition.

Astro’s management said that it would face no competition in the foreseeable future. However, that is only partially true as it does not have any competition only within the satellite television service.

The exclusive rights do not guarantee that audiences will only watch Astro. As high speed broadband (HSBB) is becoming increasingly ubiquitous in Malaysian households, Internet users can immediately download or stream any programming to view it a their convenience. Thus Astro’s PVR service, which allows viewers to record and watch a programme later loses some of its appeal.

Another potential competitor for Astro is the cable TV provider ABN which is currently (Nov 2012) doing a test run in the Klang’s Valley.

Meanwhile Astro is only known for its monopolistic business model which provides resilient recurring cash flow, and is well run by a capable management team.

In the long run, there might be an intense war among broadcasters for audiences. But for now (Nov 2012), Astro will continue to dominate.

Philip Capital (NO) …

Astro is a well run company. The current (19 Nov 2012) capex is necessary as it will set a platform for the group’s future earnings growth.

Nonetheless it does not see the share price weakness (19 Nov 2012) as a buying opportunity but until the group starts paying dividends.

The IPO valued the stock as a PER of 32 times based on projected EPS of FY2013. The media industry’s average PER is 18.26 times.

F&N Nov 2012

F&N Malaysia could potentially gain a new owner in the form of Japanese brewer Kirin Holdings Co.

 

In early Nov 2012, a consortium led by OUE, a property concern controlled by Indonesia ’s Lippo Group, made a S$13.1 billion (RM32.78 billion) or S$9.08 per share, takeover offer for F&N Malaysia’s parent F&N Ltd ( Singapore ).

 

The offer by OUE sets the stage for a potential bidding war between the Indonesians and the Thais. But adding weight to OUE’s bidding is support from Kirin , which is F&N Ltd’s other major shareholder.

 

Kirin will agree to accept OUE’s offer without contest, but will subsequently makes a S$2.7 billion offer to acquire F&N Singapore’s F&B business. Kirin holds 14.7% stake in F&N Singapore.

 

F&N Singapore holds a 56.43% stake in F&N Malaysia, which carries out the bulk of the Singapore parent’s F&B business. F&N Malaysia’s market cap (19 Nov 2012) is rm6.99 billion, which values F&N Singapore’s stake in the Malaysian operations at rm3.8 billion.

 

Kirin’s move is significant as it is the first indication of the Japanese group’s intentions since Charoen bought into F&N Singapore in July 2012.

 

Ultimately, however, Kirin ’s entry hinges on whether OUE is successful in its takeover of F&N Singapore. But as F&N Singapore’s current (Nov 2012) largest shareholder with a 35.7% stake, Charoen is unlikely to go down without a fight.

Gamuda

In the near term, the company is expected to secure the lead role in even more mega projects such as the two new KVMRT lines to be unveiled in 2013 and more railway jobs nationwide over the next few years from Nov 2012.

 

Its ability to land large contracts, given the ambitious plans for infra buildup put forward by the government, has the company on close watch by the investment community. And with the GE around the corner, the change in company’s shareholding dynamic has captured investor attention. While some Gamuda directors and substantial shareholders were paring their equity holdings, MD Datuk Lin raised his stake to 3.25% as at Nov 5, 2012. Lin raising his stake in Gamuda shows his commitment to and confidence in Gamuda. But as his five year term expires in June 2013, the market has also been wondering whether Lin will stay on for another term.

 

Market observers viewed that Lin intends to renew his contract for another five years from 2013 as he anticipates more opportunities in the construction and real estate sectors. He acquired more shares in Gamuda (Nov 2012) as he believes the current (Nov 2012) valuations are attractive.

 

It is also expected that the company to post record profits in the next three years from 2012 with a positive outlook to translate into gains in the company shares.

 

Gamuda’s fundamentals remain strong with an existing order book of rm4.8 billion and prospects of clinching over rm10 billion worth of jobs in 2013.

 

The feasibility study on additional KVMRT lines within the Klang Valley should be finalized by end 2012. Gamuda tips the government to approve the new lines by 1QFY2013.

 

For now (Nov 2012), the market will be closely watched whether Lin’s contract is renewed to ensure management continuity.

 

The company property projects include the Kota Kemuning and Horizon Hills in Johor and real estate jobs in Vietnam .

NESTLE

Its shares have been profit taking in the past two weeks from end Oct 2012 which is due to its lofty valuations after it hit an all time high of rm10.72 at end Oct 2012.

Now that the shares have given back some gains (15 Nov 2012), will they attract investor interest anew? After all, the outlook for the global economy is till uncertain and the outlook for the local bourse is clouded by the looming GE. Persistent investor caution has been one of the key drive factors behind the strong interest in defensive, high yielding consumer stocks.

The company manufacture a wide range of staple consumables targeting the mass market, where consumption has so far remained resilient. Indeed, it has been bolstered by rising disposable income and goodies handed out by the government in 2011. In addition, the company has a long, established track record and good corporate governance.

It is likely that the company will continue to do well going forward, earnings wise.

However its prevailing valuations still look rich. The current investor risk off sentiment is underpinned both by uncertainties in the global economy as well as domestic concerns ahead of the GE. Nevertheless, the stock remains a solid long term investment choice for the combination of steady earnings growth and yields.

Scomi Grp/IJM Corp

Datuk Phillip Siew Mun Chuang increased his shareholding in Scomi Group Bhd acquiring an additional six million shares on 05 Nov 2012 and nudging his shareholding up to 72.98 million shares or 5.48% of the company. His purchased is ahead of a crucial shareholder meeting – to be held soon – to vote on the issuance of convertible debt paper to IJM Corp which could potentially use that to tighten is grip on Scomi Group if it chose to convert the paper into shares. Siew is against issuing the paper to IJM corp, citing dilution to existing shareholders.

 

Siew is aligned to Tan Sri Abu Sahid who has 7.7% stake in Scomi Group. The duo who collectively hold 13.1% stake in Scomi Group have aired their grouses against the existing board of Scomi Group and its CEO Shah Hakim over IJM Corp’s entry.

 

On the other side, Shah Hakim together with his partner Datuk Kamaluddin Abdullah have about 13.06% stake in Scomi Group. But things took another turn when Shah Hakim’s long standing partner Kamaluddin wrote to Kaspadu’s board seeking a split in their shareholding in the private vehicle, which holds 13.06% stake in Scomi Group. Kamaluddin and Abu Sahid are close.

 

While the shares placement to IJM Corp has gone through, the issuance of debt paper to IJM Corp and the conversion of debt paper to shares require approvals from Scomi Group’s shareholders.

 

While Shah Hakim and IJM corp just require a simple majority to push the proposal through, the simple majority may not be so easily achieved.

Genting Bhd

Anticipation that an 18 year long mega casino project being planned in South Korea will provide it the much needed investment opportunities outside Malaysia .

 

It was reported that the South Korean port city of Incheon has partnered with a group of investors to develop a US$290 billion leisure and gaming destination to rival Macau and Las Vegas .

 

The SK government liberalized laws to lift a major hurdle for foreign investment in opening foreigners only casinos.

 

The partnership could be a win win situation for all parties in turning SK into a gaming destination … Casino players could benefit given the opportunity to penetrate into a new market.

 

Market observers would not be surprised if Genting is interested as it had earlier shortlisted SK as one of the group’s potential new market, given the country’s well established infra and high GDP per capita.

 

Genting is looking for ways to expand outside Malaysia and this is one opportunity. With its track record in casino operations in Malaysia and globally, there is merit to believe that Genting may gain a footing in SK.

 

In fact, Genting share has not brightened up for some time till late Oct 2012 due to the perception of election risk. Since mid Sept 2012, it had hovered at below rm9.00 following news reports that PAS might close down Genting casinos if PAS won the coming state election in Pahang.

 

Other catalysts for Genting include the higher than expected visitors’ arrival into Malaysia , Genting Malaysia ’s UK development completed earlier than expected and the license to develop full scale casino will be granted by the NY legislators.

KNM

Its rm2.3 billion RE plant project in Peterborough , the UK is on track having completed the acquisition of a 55 acre tract in Peterborough for 25 million pound. The land, acquired through the purchase of a company named Poplar Investments Ltd will be the site for the 80MW RE plant project that was announced in 2010. The securing of the site clears the way for KNM to obtain financing for the project, hopefully in Nov 2012.

 

Some 80% of the RE plant’s rm2.3 billion investment will be provided through a syndicated loan by Exim Bank with the remaining 20% through equity financing. KNM owns 80% of the E plant project through its 80% stake in a vehicle named Energy Park Investments Ltd.

 

KNM’s gearing will increase once the syndicated loan is secured for the RE plant project.

 

As at June 2012, the group’s total net borrowings amounted to rm861 million versus its shareholders fund of rm1.64 billion. Nonetheless, this was to account for its recent rights issue that raised rm196 million cash.

 

After securing the financing with the Exim Bank, KNM can commence the construction of the first phase of the RE plant by the 1QFY2013. Meanwhile part of the engineering, procurement and construction contract from the Peterborough RE project will go to KNM’s unit Borsig GmBH. This will help to ensure a steady order flow to the German subsidiary which is expected to be listed in SGX in Aug 2013 for an indicative valuation of rm1.9 billion.

 

KNM acquired Borsig for about rm1.7 billion in 2008.

 

About Gamuda

The market is pricing in election risk. The flow of contracts could be affected if the opposition coalition wins the election. The opposition has also indicated that it wants to review the mega projects, which could have an impact on projects Gamuda has already secured.

 

Another concerns about Gamuda’s property arm, which is expected to see a slowdown, particularly in Vietnam .

 

In 50:50 JV with MMC Corp, Gamuda has secured the lion’s share of Klang Valley ’s MRT construction and engineering works, including the rm8.2 billion contract to construct a 9.5km underground tunnel and seven underground stations.

 

The MMC-Gamuda JV is the project development partner for the MRT project.

 

This brings Gamuda’s order book to over rm4.8 billion/

 

The stock may rebound when the political risks subside and there is more news flow on infra projects.

 

Another potential catalyst for the construction industry is the proposed second MRT line. A firm decision on it is expected to be made over the next two to three quarter from Oct 2012.

 

Meanwhile speculation that major shareholders and directors of Gamuda reducing their stakes in Gamuda. Market observers said that it could be a usual portfolio reorganization in anticipation of Malaysia ’s impending general election.

 

Major shareholders and directors of Gamuda had disposed of Gamuda in early Oct 2012. The EPF had sold 4.5 million shares. Following the sale the EPF still holds 5.37% stake in Gamuda.

 

Meanwhile Raja Datuk Seri Eleena Azlan Shah, a director in Gamuda, had sold a total of 1.9 million shares in the open market at between rm3.52 and rm3.57 each. Followinf the sale, Eleena still owns an indirect 6.2% and a direct 0.01% stake in Gamuda.

 

Another director, Datuk Ng had disposed three million shares at rm3.50 each leaving him with a remaining direct stake of 1.39% in Gamuda.

AMedia

In Oct 2012 it announced a proposed bonus issue of 250.80 million new shares on a one-for-one basis and also a proposed issue of 250.80 million free warrants on the basis of one warrant for every share held.

 

The steep fall in its share price (08 - 09 Oct 2012) could raise concerns about the exercising of the warrants. According to the Oct 5 2012 announcement, the indicative exercise price of the warrants was assumed at 51.1 sen per warrant, which was the theoretical ex-bonus price, calculated based on the five-day volume weighted average market price of the shares up to and including Oct 4 2012 of RM1.021.

 

In June 2012 Asia Media Group Bhd had fixed the issue price for the final tranche of the private placement shares at 38.5 sen each for the tranche allocation of 11.4 million shares.

 

In 2011 it had placed out 35% of the paid-up in 2011. The private placements entail the issuance of up to 79.80 million new shares to identified Bumiputera investors. The funds from which will also be directed towards building DTDB infra. Along with the CASP-I license, AMedia was also awarded network service provider and network facilities provider licenses.

*************************

 

Asia Media Group Bhd, the country's largest transit-television network operator, plans to launch a terrestrial digital TV station by as early as the first quarter of 2012.

 

It has allocated as much as RM50 million in capital expenditure in 2013 to help it with the launch in the Klang Valley .

Its first step in the plan to launch the terrestrial digital TV station is to launch the "out-of-home service". Out-of-home service means that people who use public transport such as the Rapid buses and the city's rail service will be able to watch live TV.

Currently (Aug 2012), Asia Media operates transit TV services for the city buses, but most of the feed are pre-recorded, with the content coming from third parties.

Asia Media is expecting to bring in as much as RM50 million in 2012 from advertisements alone.

Most of the shows will be in English and Bahasa Malaysia , with content coming directly from Asia Media.

 

The company also has a licence to operate a radio network. The radio network will focus mainly on the Chinese market.

Apart from the cost, finding the right content is the major drawback, pulling the company away from this path.

For the nine months ended August 30 2011, the firm's pre-tax profit stood at RM11.74 million versus RM8.13 million in the same period a year ago.

 

It plans to expand its reach onto trains and taxis once it fully rolls out its DTTB system

by end of 2012.

 

It controls 73% of the market in its business segment with its major clients being Syariakt Prasarana Negara Bhd, which operates RapidKL and Rapid Penang busess and trains and Konsortium Transnasional Bhd which runs the interstate bus routes.

 

It is optimistic about renewing its tie up with Prasarana when its contract with the latter expires at end of 2013. It holds a license as content application service provider.

 

A potential new revenue stream being considered by AMedia is the leasing of its excess capacity to other players or those who serve the hotel segment.

 

Its Strength …

 

It belongs to a small group of companies that own free to air (FTA) broadcasting licenses and is essentially able to provide services similar to those offered by RTM and Media Prima.

 

Certainly, this license has enhanced the company’s appeal for it has attracted other players in the media space. Rumors had it in June 2011 that the company was in talks with Star on a possible takeover but its CEO denied.

 

AMedia has not have any discussions with Star but they do want to explore all the opportunities it has. A few entities, local and international, have shown interest in taking up a stake in AMedia in July 2011 but things are at a preliminary stage.

 

Talks were also ongoing with a number of investors, including local media groups, on the purchase of a 10% stake in the company in July 2011.

 

So why would local media company want a stake in Amedia.

 

Apart from its huge margins, the company’s license to provide FTA broadcasting services offers an avenue for bigger media players eyeing a piece of the electronic media market.

 

In 2010, the MCMC awarded AMedia a content application service provider (CASP-i) license, which enables it to enter the digital television, FTA television and radio broadcasting industry.

 

AMedia is one the few companies in Malaysia that are permitted to offer broadcasting services and facilities. A full CASP-I license allows the company to operate nationwide 24 hour non subscription broadcasting, subscription broadcasting and terrestrial radio broascasting services.

 

Currently (July 2011), only Media Prima and RTM hold FTA broadcasting licenses.

 

With CASP-I, AMedia has the right to provide broadcasting services within the frequency in Malaysia and to operate multiple TV, radio and data channels.

 

The company has its eye on digital terrestrial television broadcasting – a service to deliver real time as opposed to pre recorded, content on mobile screens.

 

However, to realize the full potential of services that the CASP-I license enables the company to offer, it needs substantial capex and foothold in the industry. Effectively, AMEdia has to compete with established players like Astro and Media Prima.

 

Its CEO said that it has no immediate plan to venture into digital television. Furthermore, expanding its DTDB segment would absorb most of its capex in the years ahead.

 

AMedia is part of the ETP, under which it plans to invest rm500 million over the next 10 years from 2011 to provide live broadcasting and grow its network of mobile broadcasting on public transport.

 

This will be part of its project to deploy digital broadcasting in stages. It first wants full coverage of the Klang Valley by the end of 2011.

 

Asia Media, Malaysia’a largest transit TV operator, offered a good growth story in a small but fast-growing media segment. Another key attraction is the group’s exposure to the public transportation upgrade in the Klang Valley which will allow it to expand its services to the LRT and MRT systems.

 

It could be catalysed by success in securing the licence to operate on the LRT. Asia Media provides investors with an alternative exposure to growing media segments other than FTA TV and newspaper.

What's NEXT For Scomi Grp/IJM Corp ....

IJM sees Scomi as an ideal investment vehicle to regain a foothold in the oil and gas industry.

 

The group had previously divested its fabrication business in 2007 after having seen its role as the main contractor diminished.

 

Having built up a diversified earnings base (construction, property, plantations, building materials, infrastructure concessions), IJM felt it needed a new growth angle to take the group to the next level.

 

Specifically, Scomi provides the group with an instant platform for IJM to participate in some Petronas jobs that require bumiputra shareholding.

 

IJM had previously highlighted the possibility of forging a joint-venture with Scomi to participate in some engineering works under Petronas' massive RM60bil RAPID project in Pengerang, Johor.

 

The estimated RM149mil proceeds due from IJM would be used to repay part of the group's RM500mil medium term notes.

 

Along with IJM, Maju Holdings' major shareholder Tan Sri Abu Sahid (8.7%) and his associate Datuk Siew Mun Chuang (5.3%) have surfaced as major shareholders of Scomi with a combined 14% stake.

 

For the last three years (2009-2010), the Scomi group had embarked on a series of internal restructuring exercises which include the disposal of under-performing foreign units.

 

In the United States , Scomi hived off its entire oilfield business where the run rate for jobs had shrunk as much as 80% to around 40%. Similarly, the group is planning to exit the markets in Nigeria and Algeria , and has reduced its UK investments to 20%. Central to its restructuring plans are the internal reorganisation within the group that will see Scomi Marine emerge as an integrated oil and gas marine and drilling services provider. This involves a reverse take-over (RTO) exercise that will marry Scomi's eastern hemisphere oilfield services with Scomi Marine's offshore support services. As part of the exercise, the minority shareholders of SOL and two other units currently parked directly under the Scomi Group ie SKMC and Scomi Sosma would also migrate into the enlarged Scomi Marine entity.

 

Post-restructuring, the effective stake that Scomi will hold in Scomi Marine would rise from 43% to 66%. Scomi Marine made a capital repayment of RM136mil (RM0.18.5 sen per share) on 29 Sept 29 through the reduction of its par value (from RM1 per share to 45 per share) that gave rise to RM525mil. The balance RM330mil is to be set off the entire accumulated losses of Scomi Marine. This would result in Scomi Marine emerging with a cleaner balance sheet and a debt/EBITDA ratio of about two times (including working capital).

 

Taken together, do not discount the possibility of seeing Scomi Marine being chosen as the vehicle to bid for future contract bids rather than its parent, Scomi. By extension, this would also reduce the risk of IJM having to inject more equity into the Scomi group beyond its RM149mil investments.

 

Scomi's management revealed two key engines of growth which it believes would propel Scomi Marine to the next level. One is expanding core product base. Scomi shared that the group has an estimated share of 7% in the Eastern hemisphere drilling fluids and waste management market worth US$5bil.

 

Apart from Malaysia (40%) market share, Scomi is looking to ride the regional exploration & production boom by offering integrated upstream drilling services via an enlarged Scomi Marine.

 

Scomi also confirmed that it had put in bids for risk-service contracts (RSC) for two of Petronas' upcoming marginal oilfields.

QL

It is a leading resource based agriculture company with three main business segments in marine product manufacturing, palm oil and integrated livestock farming.

The group draws from its background in deep sea fishing and is now the largest producer in Asia of surmi based (fish meal) products, and fish and poultry feed. However the group’s largest source of revenue and profit is now ILF business, which generated almost 60% of revenue and more than half of its profit for FY2012.

Through its poultry operations under the ILF arm, the group supplies roughly 15% of the eggs consumed in Malaysia .

The group has taken a more regional focus, and one of its strengths is its ability to replicate its core businesses regionally.

It is expanding its MPM capacity with a plant in Surabaya , Indonesia , that will see it double its surmi capacity to 10000 tones per year by Sept 2013 and fishmeal to 10000 tones per year by March 2013.

It is also expanding its ILF business in Indonesia .

It has set aside rm200 million annual capex from 2013 to 2014 with 60% borrowed and the rest from internally generated funds. The group’s capex will go towards palm oil activities which contributed 8.5% to operating profit in Fy2012.

Most of the capex on palm oil activities will go into planting 2000ha to 25000ha per year of the group’s total 15000ha of plantation land in Indonesia for next few years from 2012. The group has 3000ha of matured oil palm plantaiton land in Sabah .

Palm oil related assets currently make up slightly over 22% of the group’s total assets

Amway

Its net profit fluctuated within a narrow range over the past few years going from rm88 million in 2007 to a high of rm96 million in 2008 before falling back to rm73 million in 2009. Since then, it has done better with earnings rising to rm79 million in 2010 and rm90 million in 2011.

 

Turnover on the hand, has been on a steady uptrend, growing from rm584 million in 2007 to rm736 million in 2011. This indicates a degree of volatility in its operating margins, likely due to exchange rate fluctuations, which affected its cost given that the bulk of Amway’s products and the company’s unwillingness to raise selling prices amid competitive market conditions.

 

Nonetheless, it is more cautious on the outlook for 2H2012. Although the second half of the year is traditionally stronger half, this may not the case in the current (2012) year given the strong earnings reported in 1HFY2012.

 

Do not expect any further lift from currency exchange for the next 12 months from Oct 2012. Amway has locked in the ringgit-US dollar rate for its purchases from its parent company effectively taking out all foreign exchange exposure. Additionally product costs have been raised by 3.5% since July 2012. On the other hand, the company is not planning any corresponding increase in its selling prices. Its last price increase was back in March 2010.

 

As such expect slightly weak earnings in 2HFY2012 compared with the first six months of the year and only modest growth in 2013.

 

Amway has a strong balance sheet and is sitting on net cash totaling rm158 million as at end June 2012. With no major capex planned for the foreseeable future, it can maintain a high dividend payout ratio.

 

However future dividends will be capped by its limited retained earnings reserves. Having paid out more than its annual net profits in the past three years (2009-2011), reserves have been whittled down to some rm26 million as at end 2011.

 

Dividends going forward will be capped to its annual net profit. The company indicated that it has no intention of undertaking any capital management exercise, such as capital reduction, to return excess cash to shareholders.

 

Its current range of consumer goods include personal care, nutrition and wellness, beauty and skin care, home tech and home care, totaling 250 products. There are plans to launch several new products each year.

Perak Corp/Integrax/MajuPerak/Gunung (Perak-based) 2012

There could be several material developments in Perak-based companies listed. Sources say that there could be changes as the helm of some of these companies and a shift in their strategic assets before the general election is called.

It is all linked to politics and the upcoming general election.

PKNP (The state’s development corporation) has almost 53% equity interest in PErak Corp, whose main asset is its wholly owned Taipan Merit Sdn Bhd. Taipan Merit has 50% plus one share in Lumut Maritim Terminal Sdn Bhd (LMT), while the remaining equity is held by port operator Interagx Bhd.

The state via PKNP, has an indirect 15.45% stake in Integrax via Taipan Merit and Perak Equity Sdn Bhd. Apart from LMT, Integrax also has an 8-% stake in deepwater port Lekir Bulk Lumut Sdn Bhd.

LMT operates Lekir Bulk Terminal. LMT and the Lekir Bulk Terminal collectively form Lumut Port.

Perak Corp is under appreciated by market, so a shifting of assets could be deemed as extracting value by taking some assets out. As as end Dec 2011, Perak Corp’s net assets per share stood at rm4.31.

It is worth nothing that the concession for LMT expires in 2015 and what will happen after this is anyone’s guess.

Many other assets held by Perak Corp have not been revalued since 1997. For instance, Perak Corp is sitting on a 189.62 acre of freehold tract of agricultural land, which was approved for mixed development and valued at rm23.24 million as at end 1997.

There is also 72.54 acre used as a yard, which is part of the Lumut Port with a book value of rm82.74 million as at April 1997.

In addition, Perak Corp has a 12.88 acre freehold parcel in Kinta district valued at rm14.17 million in 2010.

Apart from Perak Corp and Integrax, the Perak government has considerable equity is in MajuPerak Holdings Bhd.

PKNP has slightly more than 52% equity interest in MajuPerak. Other substantial shareholders include KUB with 10.99% stake.

Its book value of the land as at Dec 2011 was around rm1.78 million. A few of MajuPerak’s properties have not been revalued since the 1980s and 1990s.

Another Perak related company is Gunung Capital Bhd.

As at end Dec 2011, Gunung Capital had cash and bank balances amounting to rm15.51 million. Its short term borrowings stood at rm3.94 million and its long term debt stood at rm45.07 million.

Gunung Capital completed a private placement of 10 million shares at 40 sen per share in Feb 2012.

Among those sitting on the board of Gunung Capital is well connected Datuk Ahmad who is independent non executive director. He is the president of Malaysia Haulers, and the chairman of Mexter Technology Bhd.

Other political wings in Gunung Capital include chairman and executive director Datuk Syed Abu Hussin, the former deputy head of the Bukit Gantang UMNO division.

In Jan 2012, Low Bok Tek, who has been with Gunung Capital since 1996 stepped down. Low’s other investment is in Latexx. He still owns 16.55% stake in Gunung Capital.

While there has yet to be any real shifting of assets or key management positions, will the talk of changes become a reality?

A simple calculation to show why we shall not pay PTPTN instead 20% discount

PTPTN 20% off?
Will you pay it?
A simple calculation show if we make use of cash to do proper investment instead of a lump sum pay off to government, we are actually earning money, because PTPTN interest is too low! even inflation exceed the rate!

Calculation show by simply get a return of 5% from investment, you are actually can break even on year 12..
6% return and break even on year 9
7% return and break even on year 7
8% return and break even on year 6
9% return and break even on year 5
10% return and break even on year 4

Now thinking back again, will you pay?
Plus we still have a chance which not need to pay, if OPPOSITE PARTY win the coming GE.. hee hee~

IGB REIT

Its IPO was priced at a the higher end of its indicative range and at yields that were much lower than Pavilion REIT’s when it was listed late 2011.

 

At rm1.41, IGB REIT’s yields have narrowed further to roughly 4.5% for the current financial year (annualized), making the lowest yielding REIT on Bursa Malaysia . It is now (late Sept 2012) trading at a comparatively pricey 1.42 times its book value of 99.6 sen per unit.

 

The trust intends to distribute all of its income up to Dec 2014. That would give unit holders yields of 4.8% to 5.1% for the two years. Comparable retail focues REITs such as Sunway REIT, Pavilion REIT and CapitaMalls Malaysia are currently (Sept 2012) yielding between 54% and 5.4% for 2013 at prevailing prices. In this respect, the strong interest in IGB REIT could trigger a slight upward rerating for its peers.

 

IGB REIT’s portfolio consists of just two properties, Mid Valley Megamall and the Gardens Mall, valued at a combined rm4.6 billion, making its portfolio just a shade smaller than Sunway REITs.

 

The mall has near full occupancy and enjoyed positive rental reversions, which averaged over 5% per year in the past three years (2009-2011). The Gardens has also registered steady rental increases over the past three years. Furthermore, it is still in the early stages of its rental cycle – heading into just is second three year rental cycle – and thus could see sharper upward reversions.

 

The bulk of the current (Sept 2012) leases are up for renewal in late 2013 and 2014, together accounting for nearly 86% of total net lettable area.

 

IGB REIt plans to acquire more property going forward. The trust currently (Sept 2012) has gearing of about 26% well below the guidance maximum of 50% suggesting further leverage and quite substantial purchasing power. Among potential acquisition are Mid Valley Southpoint and Southkey Megamall being developed in JB. On the other hand, suggestions acquisition abroad including US and Europe could add an additional element risk to the trust.

KFima

Diversified KFima sees its plantation business as one of the group’s growth drivers going forward although management does not discount investment opportunities in other sectors. Its plantation segment is the second largest contributor to the group’s earnings behind manufacturing, which involves the production and trading of security documents mainly for the government.

 

The manufacturing and plantation segments contributed 35% and 33% respectively to KFima’s pretax profit for its financial year ended March 31, 2012.

 

KFima has five core businesses. They are manufacturing, plantation, bulking, food and property investment and trading and food packaging. The plantation segment involves oil palm and pineapple cultivation, and palm oil processing.

 

KFima has a plantation area of 7287ha, 90% of which is mature.

 

Its landbank is mostly in Johor, Sarawak and Indonesia .

About Takaso ...

Dated Jan 2012

The company, whose core business is condom manufacturing, will acquire a Papua New Guinea company that has a timber licence and concession, in a bid to diversify its business. It was reported that Takaso would acquire Kayumas Plantation PNG Ltd, which holds the rights to a net loggable area of 40,000ha of timber, possibly worth up to RM500mil, in Inland Pomio, East New Britain Province , Papua New Guinea .

It is also in preliminary discussions to collaborate with Golden Pharos Bhd and an annoucement will be made upon the execution of any documents with Golden Pharos. Golden Pharos, which is 61.2% owned by Terengganu Inc Sdn Bhd, was likely to form a collaboration with Takaso and together, both parties might obtain a state-related iron mining project.

Sources familiar with the matter said Golden Pharos, which is 61.2% owned by Terengganu Inc Sdn Bhd, was likely to form a collaboration with Takaso and together, both parties might obtain a state-related iron mining project. Both companies have had serious discussions.

Terengganu Inc was set up by the state government to manage its investments.

It is unclear at this stage how a collaboration between Golden Pharos and Takaso will pan out whether it will be a pure joint venture or will require changes in shareholding. No specific details on the mining project are available.

The slow progress in the formal award of iron-ore mining rights by the Terengganu government has caused discontent among several domestic steel players and prospective foreign investors. Some local and foreign investors are clueless whether the official award of the mining concessionaires will finally be given out in 2012.

The Terengganu government is believed to have agreed in principle late 2011 to award five to six companies including joint-ventures with foreign parties, iron-ore mining concessions in Bukit Besi near Kemaman. The companies include Perwaja Holdings Bhd and Eastern Steel Sdn Bhd, a joint-venture between Hiap Teck Ventures Bhd, and China-based steel group, China Shougang and Chinaco Investment Pte Ltd. Another company widely speculated to get the mining concession is a joint venture between condom maker Takaso Resources Bhd and Terengganu-state owned timber company, Golden Pharos Bhd.

Takaso is a condom maker but is looking to diversify its businesses and review its corporate structure which may involve the appointment of new board members to boost profits. Golden Pharos is a resource-based company involved mostly in timber.

Takaso made a net profit of RM167,000 in its most recent quarter ended Oct 31, against quarters of consecutive losses as the eurozone crisis hit its largest export markets. Golden Pharos made a net profit of RM1.36mil in its latest quarter compared with a net loss of RM1.59mil for the same period a year earlier.

Its ED Chin Boon Kim has emerged as a substantial shareholder after he acquired a 4.62% stake. After the acquisition he holds 5.44%.