Benalec (The Land Reclamation Industry … dated July 2012)

The cost for land reclamation projects is high due to the large amount of raw materials needed, use of expensive and sophisticated heavy machineries, labour force, time to complete and most importantly, the feasibility studies and engineering designs that are unique to each site.

 

Since 2006, the sector had grown by a resounding 68 per cent, largely due to the funds provided by the government under the 9th Malaysia plan.

 

Having various drivers to push the industry was crucial as this meant the industry was not dependent on any one particular sector. The land reclamation industry can be a beneficiary of the oil and gas sector, port and logistics sector, construction sector, property sector and so forth.

 

Among the major players in land reclamation locally are Benalec Holdings Bhd, Muhibbah Engineering Bhd and Galactic Maritime (M) Sdn Bhd.

 

The good thing about this industry is that it is a very niche business and not many companies have that specialty. Another reason why the prospects of land reclaimation companies will remain bright over the long-term is that some of them receive land parcels as partial payment of the reclamation job.

 

Benalec, for example, owns several parcels of land in Malacca in return for the reclamation works it did there. Having land in return can be beneficial, especially so if the value increases.

 

The order book of privately-held Galactic Maritime currently stands at about RM220 million, comprising of reclamation projects around the Iskandar economic region, including the Nusajaya waterfront development.

 

The company is also involved in the upgrading of ports, harbour and navigational waterways along the Tebrau Strait, Port Dickson, Klebang in Malacca, Pulau Indah near Klang and Jambatan PIAI in Johor.

 

Since 2003, Galactic Maritime has been involved in marine construction works in China 's southeast coastal areas, with the successful completion of projects in Zhejiang , Fujian and Guangdong .

 

About Benalec …

 

It is able to manufacture land and sell it at a margin.

 

It had sold two plots of reclaimed land in Kota Laksamana for rm45 psf and another deal done in June 2011 for rm28 psf. The total sale consideration for the 395175 sq ft leasehold land in Kota Laksamana was rm17.78 million while the price of the 1627405 sq ft land was rm45.57 million.

 

Sources say that Benalec has secured 2400 acres for land reclamation projects in Melaka. Of these, the group has reclaimed 1500 acres which have either been paid for in cash by clients or sold to the third party. In Melaka. Benalec still has roughly 900 acres more to go and it has been bidding for more land reclamation projects in Melaka, Johor and Penang .

 

In addition to land reclamation, it – which lists marine engineering and construction as its niche – has ventured into the construction of an oil and gas terminal in Tanjung Piai, Johor. However Benalec is not interested in owing the operating the terminal itself, or even in a JV with another party. Although it still holds a stake in the JV with Rotary, the stake will be small.

 

Apart from concession to reclaim 2485 acres in Tanjung piai, it has also been given the right to reclaim 1760 acres of land in Pengerang, which has been slated to become the region’s OG& refining hub with the planned investments by Petronas.and Dialog.

SSteel… dated July 2012

Its has joined the ranks of those seeking to build flat steel plants in Malaysia, an area that has been largely controlled by Tan Sri William Cheng’s Lion goup.

 

The company obtained the approval of the MIDA about six months ago (Jan 2012) to set up a flat steel plant on the premises of its long steel plant in Penang .

 

The flat steel is slated to come onstream by the third quarter of 2013 that has been the domain of Megasteel Sdn Bhd.

 

Southern Steel could be the second player to enter the flat steel segment that has been the domain of Megasteel Sdn Bhd.

 

Two other steel players – Tunku Datuk Yaacob Abdullah’s Maegma Steel Sdn Bhd and Tan Sri David Law’s Hiap Teck Venture Bhd – are looking at breaking Megasteel’s monopoly. Maegma is planning to set up an integrated plant in Lumut while Hiap Teck has already broke ground for a rm1.8 billion integrated steel plant in Kemaman.

 

Southern Steel could prove to be a strong competitor to Megasteel because it has a strong balance sheet and would be able to put up the plant quickly. This could add to the pressure faced by Mesgateel, which has been given a deadline of between 24 and 36 months to turn around its loss making flat steel operation.

 

The deadline is the result of a study by a consulting group, which has been tasked with coming up with a solution to improve the competitiveness of the flat steel industry in Malaysia . The industry is protected to a certain extent to allow Megasteel to recoup its investment of more than rm2.3 billion made over the last 10 years.

 

Downstream players have complained that Megasteel’s products have quality issues and are not priced competitively. Megasteel, in turn, says its plant is only 30% utilized because flat steel imports are hampering its sales.

 

The question is, how will Megasteel stop the bleeding if Southern Steel comes onstream to compete against it? Things will only get worse when Maegma and Eastern Steel come onstream.

 

Southern Steel confirms to set up a flat steel plant.

 

At present, long steel products, which are generally used in the construction industry, are the mainstay of Southern Steel. But its entry into flat steel could pose a serious threat to Megasteel.

 

The benefits of the new flat steel plant could be numerous, but the most significant would likely be Southern Steel unlocking excess steelmaking capacity, increasing overall plant efficiency and reducing operating costs.

 

Southern Steel will also have the flexibility to produce either long or flat steel products allowing it to mitigate significant risk in what has been prominently a volatile past three years (200-2012) for the steel industry.

 

In a nutshell, the plant will result in higher profits for Southern Steel and fairly priced HRC for the industry.

 

Quek’s 60% owned HL Bank is also known to play an important role in financing steel players, which could nudge them into acquiring Southern Steel’s flat steel products.

 

Then there is the question of which company Quek will bring in as Southern Steel’s partner. A partner is essential as Southern Steel will need the expertise.

 

At end 2010 the QUek controlled Signaland Sdn Bhd bought out Natsteel Asia Ltd’s 27% stake in Southern Steel for rm2.05 per share on a total of rm233 million. This triggered a MGO as Quek already held more than 40% in Southern Steel. At present, Quek owns 71.9% stake of Southern Steel.

Tenaga… dated July 2012

TNB posted a RM631.6 million net profit in the third quarter ended May 31 2012.

 

The outlook for its financial year ending August 2013 (FY13) appears more upbeat. This will be sweetened by a possible tariff re-rating after the general election.

TNB's FY13 outlook should improve as the re-gasification terminal in Malacca will commence operation in September 2012 while the re-negotiation of the first- generation independent power producers (IPPs) as well as declining coal price may potentially mitigate the higher generation cost.

 

TNB had been assured that it will not have to bear the brunt of higher gas prices when it starts importing liquefied natural gas in September 2012. This seems to indicate that even if gas prices changed, the impact on TNB would be neutral.

 

These positive developments will help TNB mitigate rising operating costs and boost its bottom line.

 

Falling global coal and US-based natural gas prices will positively transform TNB's cost structure.

 

Tenaga and a consortium of Pendekar Power Sdn Bhd and Mitsui & Co Ltd are said to have put in the lowest bids for the new Prai combined cycle gas turbine (CCGT) power plant.

CIMB… dated July 2012

CIMB Group Singapore is still keen to have a Qualifying Full Bank (QFB) licence in Singapore despite the republic requiring foreign banks with large deposits to incorporate their retail operations locally.

Late June 2012, the Monetary Authority of Singapore (MAS) said foreign banks that fell under the QFB programme must also meet the republic’s stringent capital requirements.

 

CIMB was not deterred by the new rules. Instead CIMB Group Singapore was encouraged by MAS’ announcement that it would continue to consider awarding new QFBs to foreign banks operating in Singapore .

 

Such licences were awarded by MAS under the free trade agreement negotiations.

 

QFBs enjoy greater privileges, such as being able to open several branches in the city-state and accept retail deposits. MAS is considering granting foreign banks that incorporate locally and are sufficiently localised to open an additional 25 places of business, of which up to 10 may be branches.

 

CIMB Group Singapore currently has a two-branch banking operation that was once part of Malaysia ’s Southern Bank, which it acquired in 2006.

 

Without the QFB, CIMB expansion in the city state is limited.

 

CIMB also has stockbroking and corporate-finance businesses in Singapore when it acquired GK Goh in 2005.

 

CIMB Bank Singapore hopes to account for 10 per cent of the group’s earnings by 2016, with Indonesia and Malaysia contributing 35 per cent each, Thailand 10 per cent and the final 10 per cent from the businesses in other markets.

MK Land… dated July 2012

The group's degearing exercise and business streamlining (liquidated ascertained damages issues and disposal of non-core assets) are within expectations.

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

There are RM400mil of unbilled sales. MK Land will continue to focus on pushing the remaining units in Rafflesia (semi-Ds) and Metropolitan Sq (condominiums) with a combined RM760mil in gross development value (GDV).

The group is exploring more new products such as bungalows and condominiums, possibly in the next one to two years.

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

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

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

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

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

Oriental Holding

The cash and asset rich group is making a diversified conglomerate grounded in plantations, autos and real estate. With rm3.80 net cash per share and another rm3.30 in landbank and real estate assets, investors are getting their plantations and auto earnings for free.

The group’s landbank stands at 76920ha of which 36% or 27654ha are planted. Of the planted oil palm estates, 82% is in Indonesia with 4840ha in Pahang and NS. It enjoys high yields because most of its planted estates are in their prime. Oriental is among smallest of the listed planters but will, after completing its planting programme, be uniquely positioned as the only Malaysian company with almost all its concession assets in Indoensia.

Oriental has only 15% of Honda Malaysia Sdn Bhd. It still has about 12% share of all Honda cars sold locally, has started distributing Hyundai cars and has 49% stake of the motorcycle wholesale business.

The startup losses from the investment in healthcare via a 1000 acre medical tourism project in Melaka as a risk but is mitigated from the enlarged group’s experience and track record in the industry.

Oriental has also started mergers and acquisitions that could further enhance its value. The focus on any M&As is expected to be on plantations. Potential restructuring between privately held assets and assets held in Oriental would be positive.

Its 60% earnings come from plantations and investment income. This stable earnings stream will increase further over the long term as the group expands its plantated area and diversifies into healthcare.

F&N received an offer from unnamed bidder

Talk of a possible new shareholder emerging in its Singapore listed parent F&N Ltd.  It was reported that F&N and F&N Malaysia had received an offer from an unnamed bidder for its interest in F&N. OCBC directly and indirectly through its insurance unit, Great Eastern Holdings Ltd, has a 18.2% stake in F&N.

 

The unknown bidder – speculated to be Thailand’s TCC Group that owns Thai Beverage Pcl; or a Japanese brewer, Kirin Holdings Co or Asahi Group Holdings Ltd – also offered to buy OCBC;s 7.92% stake in Asia Pacific Breweries Ltd, the brewer of Tiger beer.

 

F&N owns 56.43% stake in F&N Malaysia. The joint interests in F&N, OCBC and Great Eastern in the Malaysian outfit amount to 59.29% stake. Amanahraya Trustees Bhd is F&N Malaysia’s second largest shareholder with a 17.1% stake followed by the EPF at 7.54% stake.

 

It remains to be seen if there will be any spill over activity from the offer.

 

Relative to the Singapore entity, F&N Malaysia’s overture in the property sector in Malaysia is very small with the focus largely on the beverage and the daily business.

E&O dated July 2012

The question of whether the former should have done a MGO still lingers in the background. And it looks it will remain there for a while more.

 

The is because the SC has appealed against High Court Judge Abang iskandar Abang Hashim’s decision not to recuse himself from hearing a legal challenge mounted by E&O minority shareholder Michael Chow against the regulator.

 

The appeal will be heard on July 24, 2012.

 

To recap in Dec 2011, Chow had filed for the application for a judicial review in a bid to challenge the SC’s ruling that Sime Darby’s purchase of the 30% stake in E&O from its three major shareholders did not trigger an MGO obligation.

 

No doubt if the court rules that Sime Darby must undertake an MGO, it would mean it would have to cough up another rm1.8 billion to buy the remaining E&O shares it does not own. If so there would be an impact on its share price though Sime Darby can afford the amount but would eat into its planned capex.

 

Meanwhile for E&O, the delay in resolving the legal issues leaves it in a unenviable position. This is because Sime Darby, with its 29.77% interest must be seen to be in control of E&O’s board and management.

 

Of the substantial shareholder include Grand Mission Intl Ltd (6.95%), ECM Libra Investment Bank Bhd (5.21%), Tham (5.04%) and GK Goh (5.59%). GK Goh has been adding E&) shares since mid May 2012.

 

Shangri-La Dated June 2011

Rober Kuok’s move to privatise his Singapore-listed company Allgreen Properties Ltd at a steep premium of 39%, raises talks of whether he will plan for a similar exercise for his listed firms here, which include the likes of Shangri-La Hotels ( Malaysia ) Bhd, Malaysian Bulk Carriers Bhd and PPB Group Bhd. 

However PPB Group, by virtue of it being his flagship company in Malaysia , is unlikely to be privatised. PPB’s key asset is its 18.3% stake in one of Asia ’s largest integrated agribusiness groups, Singapore-listed Wilmar International Ltd.

Kuok’s other companies reveals that his thinly-traded Shangri-La may prove to be an undervalued, asset-rich company.

The company, which has a market capitalisation of RM1.1 billion, has a portfolio of five hotels and large tracts of valuable land across Kuala Lumpur , Penang and Sabah carried at very low prices in its books.

Its net assets per share stood at RM1.85 as at March 31, 2011.

Shangri-La’s hotel assets include the Shangri-La Kuala Lumpur, Traders Hotel, Shangri-La’s Rasa Sayang Hotel and Golden Sands Resort in Penang, and Shangri-La’s Rasa Ria Resort in Sabah . Collectively, these five hotels have a total of 2,217 rooms. In addition, the company has a landbank of 27.4 million sq ft.

Excluding those where the five hotels are situated, Shangri-La has about 24.97 million sq ft of land, or 573.3 acres (229.3ha). Of this, 399.8 acres are undeveloped land next to its Rasa Ria Resort, as well as 165.3 acres for the Dalit Bay Golf Club, both in Sabah .

It is worth noting that the undeveloped land at Rasa Ria was carried at RM3.71 million as at December 2010, or a mere 21 sen psf while the Dalit Bay land was carried at RM32.3 million or RM4.49 psf.  If both tracts of land are revalued to RM10 psf, there could be a revaluation surplus of RM210.2 million.

With the property boom in Penang , a more interesting tract of undeveloped land is an 8.2-acre plot in the prime area of Batu Ferringhi, which has a book value of RM9.7 million, or RM27.11 psf. A revaluation to around RM120 psf could yield an estimated surplus of RM33.1 million.

Shangri-La’s fame lies in its strongly branded luxury hotels which are valued at low prices in its books.

In Penang, its three hotels — Traders Hotel, Shangri-La’s Rasa Sayang and Golden Sands Resort — also appear undervalued relative to their room rates.

Meanwhile, over in Sabah , the Shangri-La Rasa Ria Resort has a book value per room of RM212,467, while the room rate listed by the website was RM700 per night.

Assuming a value of RM1 million per room, the hotel could be worth RM420 million, instead of RM89.2 million.

At these market prices, a potential revaluation surplus of RM1.35 billion, or a significant RM3.08 per share. Based on its book value of RM1.80, Shangri-La’s revalued net assets could be worth some RM4.88.

BIMB dated July 2012

It is the only pure exposure for a play on the Islamic banking theme, as it is the only listed Islamic bank in Malaysia .

 

The Islamic banking business only accounts for about 20% of the bottom lines of other listed banking groups such as Maybank and CIMB,

 

Furthermore, BIMB’s plans to acquire a stake in Bank Muamalat Indonesia will lend a hand in boosting its presence. Its management had indicated that it was still in talks with the Indonesian banking group.

 

If an acquisition materializes, it will provide the group with a foothold in the underpenertrated and fast growing Indonesian banking system.

 

Other catalysts are BIMB is awaiting response from an Indonesian Islamic bank on its proposed offer to acquire 30% to 40% stake;

 

BIMB (LTH owned 18.5% & 30% by Dubai Investment Group) could be an M&A proposition either on its own, or through Bank Islam (BIMB owned 51%) or Takaful Malaysia ;

 

DRBHicom is exploring potential merger of Bank Muamalat (DRBHicom owned 70% and 30% by Khazanah);

 

Reports of a potential change in the ownership of the DIG stake in BIMB;

Sources say BIMB may assume the listing status of its parent company BIMB Holdings Bhd;

 

Syarikat Takaful Malaysia Bhd, although much smaller than BIMB’s banking business, may be one of the major growth engines for the group on the back of swift expansion in the general and family Takaful segments and anticipated market share gains.

 

Even though, it is already one of the largest players in the market, Syarikat Takaful has managed to raise its market share in the overall Takaful market to 21% in 2011 from 15% in 2010.

 

However, despite its bright prospects for the group, stiffer competition for deposits and fee income may result in thinner net interest margins. This has only affected BIMB but all banks in Malaysia .

 

Previously, BIMB was afflicted with weak loan growth and the highest non-performing loan ratio among the local banks. However, there are significant improvements in the group over the past three to five years (prior to 2012). In fact, its organic loan growth was the fastest and its gross impaired loan ratio the third-lowest among the local banks in March 2012.

BIMB has shown significant improvements in the following areas over the past two years (prior to 2012): firstly, a fall in its gross impaired loan ratio from 12.7% in 2009 to 2.6% in 2011; secondly, a surge in loan growth from 2.5% to 18.6%, and, thirdly, a jump in return on equity from 3.1% to 15%.

Bank Islam Malaysia is the third-largest Islamic bank in Malaysia with total assets worth RM29.9bil as at end-December 2011.

BIMB recorded a net profit of RM203.3mil in FY12/11, representing 32.1% growth from the annualised FY12/10, which covers an 18-month period due to a change in financial year-end from June to December.

The growth was achieved on the back of an 18.5% expansion in total operating revenue to RM1.56bil in FY11.

At the topline, the banking operations contributed about 77.7% of operating revenue while 16.9% came from the takaful business.

Likewise at the bottomline, the banking business was the biggest contributor, accounting for 70% of the group's FY11 profit before tax versus 15% for takaful.

The significant improvements in the financial performance in the past three to five years reflect the quality of the management, especially for Bank Islam.

Bank Islam is helmed by Datuk Seri Zukri Samat, who was appointed as the managing director on June 9, 2006. Banking statistics show that the Islamic banking segment is growing faster than the banking system as a whole. BIMB is the only listed Islamic bank in Malaysia while the Islamic banking business only accounts for more than 20% of other listed banking groups' top- and bottomlines.

The group has a dividend policy of 50% payout.

P&O dated June 2012

In the last four years prior to 2012 it has undergone a massive change in its business direction, and since then engineered a major turnaround in its fortune and profitability.

As a general insurer, P&O is now (June 2012) posting strong profits.

It is the No. 1 insurer in the market for motorcycle business. Its continuing quota share arrangement of 20% in this segment business with Hanover Re of Germany reflects sound confidence in P&O's business model.

 

Motorcycle insurance is the most profitable motor segment with huge growth potential leverage on the country's steady 5% growth in gross domestic product annually for 2010 to 2015. There is also an earnings upside to its claim ratio as the Government may restructure the current (June 2012) tariff and loading ceiling with an adjustment price mechanism.

Therefore, the current (2012) and next two years (2013-2014) would see the group's earnings jumping up by a three-year compounded annual growth rate of 14% in the financial year ended Sept 30, 2011 (FY11) to FY14, driven by huge profits from the group's motorcycle premium operation, which is benefiting from 2010's surge in premium rates.

Also Hanover Re could potentially return its excess profits to P&O starting from 2013 as part of its previous quota share arrangement.

It will be worth even more on a merger and acquisition (M&A) basis.

Lion Group holding percentage

 Cheng’s control via direct cross holdings among Lion Group companies…

 

William Cheng

Ø      Lion Diversified (18.96%+12.21%)

Ø      Lion Industries (14.21%)

Ø      Lion Corp (17.2%)

 

Lion Diversified

Ø      Lion Corp (48.15%)

Lion Corp

Ø      Lion Industries (25.16%)

 

Lion Industries

Ø      Lion Forest (72.88%)

Ø      Lion Diversified (20.85%)

 

What’s NEXT! … dated July 2012

 

Its Megasteel Sdn Bhd, which is Malaysia ’s only flat steel plant, is struggling with cash flow problems that have crimped operations and is bleeding red ink.

 

Its fortunes now hinges on how the government moves in its rationalization plan for the sector. In mid July 2012, the MITI begins dialogues with steel players to discuss the recommendations of The Boston Consulting Group on how best to restructure the sector.

 

In March 2012, Lion Corp was being courted by three international suitors who were keen on buying a piece of the group’s extensive steel operations. Baosteel Group and Fosun Group of China and China Steel Corp of Taiwan had carried out due diligence on the group’s steel mills, which produce both flat and long steel products.

 

Of the three companies, CSC had the best deal on the table, it allowed Cheng to have a say in the operations.

 

The downstream flat steel players – who depend on Megasteel’s HRC to producec CRC – want the import of flat steel to be fully liberalized so that they can stay in the game.

 

They allege that Megasteel’s prices are not competitive and that Lion Group itself is a large producer of CRC and hence a competitor to them. Megastel, contends that it is being hit by imports of HRC from Asean by companies taking advantage of loopholes in the regulations. It proposed that the tariff be raised from 25% to 60% for the long term development of the industry, but MITI shot down the proposal after the downstream players protested.

 

Megasteel’s strongest point for wanting more protection is its dismal finances. Since 2007, it has show a profit of only in 2008. Another huge loss would further deplete its shareholders’ funds, which stood at only rm750 million as at March 31, 2012. Cash and bank balances were just below rm150 million while long term and short term debt totaled rm2.7 billion.

 

The situation was critical 18 months ago (Jan 2011) when trade credit swelled to rm2.5 billion while receivables and inventory were only at rm1.2 billion. But Lion Corp undertook an exercise in 2011 to convert some of the amount owed to creditors into equity, hence reducing the amount to rm2.1 billion as at March 31, 2012.

 

Steel industry officials pointed out that as long as Lion Group does not have a strategic partner or new money in to improve its cost effectiveness, the trade credit will build up again.

 

Towards this end, Lion Group’s officials said that as part of the group’s operational improvement plan, it is keen to collaborative with potential partners who can provide the expertise, technology and experience to help boost its operations, further enhance its quality and increase its market share to ensure its competitiveness in the steel industry.

 

Industry players contend that Megasteel is not competitive because of its high operating costs. The company still uses the electric furnace to product HRC when it is cost efficient to use the blast furnace.

 

The EAF depends on electricity whose rates are likely to go up with tariff hikes while the blast furnace relies on iron ore and coal prices. In Malaysia , we have subsidized electricity, which serves the millers with the EAF well.

 

But for the first time in three years (July 2012), the difference in the output cost of millers using the EAF to produce steel and those utilizing the blast furnace has narrowed. This is because iron ore and coal prices are coming down to normal levels, which makes the blast furnace more efficient.

 

Another industry game changer is the setting up of Brazil based Vale’s iron ore depot in Lumut. At least two integrated steel mill companies – Melawar Industrial Group and Esatern Steel Corp, in which Hiap Teck Venture has a stake – have announced plan to start operations here.

 

Both Melawar Industrial and Hiap Teck are large flat steel customers of Megasteel at the moment.

 

For these companies, the biggest advantage of setting up plants in Lumut would be the huge reduction in the cost of transporting iron ore and hence overall cost.

 

About MKH (Metro Kajang)

None of big institutional funds have stakes in MKH. The reason being is that MKH’s business portfolio includes a non-halal livestock business.

MKH is among the property companies with a fairly balanced business portfolio. It owns a sizeable landbank of 500 acres, mostly in the Kajang Sememyih area, as well as 16000 ha of oil palm estates in East Kalimantan . The plantation will be maturing in the next few years, hence providing a catalyst for the group.

PNB’s Skim Amanah Saham Bumiputera owned an 8.6% stake in MKH in 2004 but exited in 2009. But it has Public Bank Group Officers’ Retirement Benefits Fund, which held a 9.04% stake and Public Smallcap Fund with 0.81% and PCB Asset Management Sdn Bhd with a 0.42% stake as at end 2010.

Chen, together with his brothers and other family mambers own over 45% stake of MKH.

Its net asset per share as at Sept 30, 2011 stood at 2.77.

MKH had disposed of its non halal livestock farming business for rm64 million cash. MKH will utilise about rm30 million to pare down group borrowings, which stood at rm280.83 million as at Sept 30, 2011 while the remaining rm34 million will be used for working capital. The group held about rm65.8 million cash as at Sept 30, 2011.

The proceeds from the disposal will further improve its cash position for acquisition of more development land bank and plantation estates.

Its disposal of its non halal livestock farming business was beginning to attract institutional investors that seek syariah compliant stocks as well as government linked funds as EPF, LTH and PNB.

 

After exiting its non halal business, it will focus on its core business in property development and oil palm plantation in Indonesia . It still has close to 242.8 ha of land bank in Kajang/Sememyih that carried at less than rm10 psf, and have mostly converted for development purposes. The group’s borrowings stood at rm315 million as at Sept 30, 2011 translated into a net gearing of 42.9% which is set to reduce with the rm64 million proceeds from the disposal. Its book value stood at rm2.77

 

MKH had unbilled sales of rm405 million as at Nov 30, 2011.

MKH’s current 600 acre landbank, much of which has been converted for housing purposes, total estimated GDV is about rm4.5 billion over seven years.

However its plantations will be the catalyst for the group

 

In April 2012 its wholly owned unit of MKH has been awarded a turnkey construction contract worth a total of rm675 million over 5 years by Puncak Alam Resources to build residential and commercial properties in Kuala Selgnaor.

 

Its rm675 million turnkey construction contract from Puncak Alam Resources Sdn Bhd is considered unusual and puzzling. The group’s construction outfit makes only a small margin compared to its core expertise as a property developer. However its MD said MKH is open to taking on more turnkey construction contracts if the profit margin is satisfactory. The TCC project awarded to MKH’s wholly owned subsidiary is for the construction of residential and commercial properties over a period of five years in Kuala Selangor on about 223ha land, translating into rm135 million per year.

Apex June 2012

There is speculation that a proxy fight could break out between two of the substantial shareholders of Apex Equity. Executive chairman chan was ousted at the company’s AGM. In an interestingly twist, Apex Equity’s existing board, which consists of only two directors Datuk Azizian and Leow Yan Seong reappointed Chan as the company’s executive director on 25 June 2012, less than two working days after the AGM in Kajang.

 

Meanwhile in response to Bursa ’s UMA, Apex Equity said it was unaware of any material development in the company that would have cause the sharp rise on its share price.

 

It is learnt that Metroplex Bhdm which is controlled by the late Tan Sri Lim Goh Tong’s daughter Lim Siew Kim had voted against the re election of Chan and Lew Lup Seong on the board at the AGM. The single largest shareholder in Apex Equity is Fun Sheung Development Ltd (15.71%) followed by Chan 8.76% and Metroplex Bhd with 6.63% stake, whose shares have been pledged to Arab Malaysian Credit Bhd.

 

However industry observers noted that both Chan family and Metroplex together with parties acting in concert hold more than 30% each. Lim is the wife of Dick Chan, the brother of Chan Guan Seng.

 

This is likely to be shareholder fight caused by a family feud.

 

The sharp rise in Apex Equity’s share price was mainly fuelled by speculation that the stockbroking group might be in for a shareholder tussle which may lead to the disputing substantial shareholders accumulating more shares on the open market to strengthen their position in Apex Equity. Shares in Apex equity are tightly held … there is not much liquidity.

 

All eyes will be on the Metroplex’s next move in Apex Equity after Chan’s reappointment back to the board. Will the substantial shareholder convene an EGM to remove the present board? Also, is Metroplex mulling a move to participate in the company’s management currently led by Chan. Chan remains as the MD of Apex Equity’s subsidiaries including JF Apex Securities Bhd.

 

Apex Equity is one of the standalone stockbrokers that had completed one plus one merger.

Affin June 2012

Bank of East Asia (BEA) could release its 23.5 percent stake in Affin Holdings Bhd as it shifts its focus to Greater China. A shift in BEA’s strategy to focus on Greater China could mean that is no longer keen on leveraging on its relationship with Affin. This leads to the conjecture that it may release its stake in Affin. It could result in the meger of Affin Holdings Bhd and HLB Bhd.

 

BEA has disposed of its businesses in the US and Canada where it once sought growth overseas in areas with large ethnic Chinese populations. Furthermore, media reports have indicated that BEA’s largest shareholder and Spain ’s fourth largest bank, Caxia Bank, may cut its stake in the group. However, it is difficult to ascertain if Spanish regulators would force Caxia Bank to cut its stake to shore up capital and provisions to counter asset quality risks. At the very least, regulators may stop Caxia from increasing its stake in BEA. This implies a higher probability for Guoco Group, BEA’s second largest shareholder to pursue BEA for a potential takeover.

 

In the past three years (2009-2012), Guoco has been steadily increasing its stake in BEA to 15.3% stake as at March 31, 2012 fuelling speculation it was trying to gain control of BEA. Guoco faces one less hurdle if Caxia sells its 17% stake in BEW. Assuming Guoco does control of BEA, HLBB would emerge as a distant cousin of Affin’s/ Would HLBB merge with Affin or would Affin be divested?

 

Market observers noted that in the current (June 2012) situation, despite a common indirect shareholder via Guoco, there would be no compulsion for HLBB to merge with Affin as Guoco’s stake in BEA is only an investment rather than a strategic stake. Guoco owns 25% stake of HLFG Bhd which in turn owns 61.3% stake in HLBB.

 

Even if BEA decides to sell its stake in Affin, HLBB may not necessarily be its acquirer, especially since the group completed the acquisition of EON capital bHd only in 2011 and still reaping merger synergies. It also saw little accretion to this marriage, contrary to the HLBB-EON Cap merger .