MISC.. August 2012

Despite hue improvements in the 2H2012 of the financial year ending Dec 31 2012 that could result in some earnings pressure, including rising bunker prices.

Loss for both tanker and chemical have increased from the previous quarter and expect 2H2012 to remain weak.

Do not foresee a turnaround over the next two to three years (2012 – 2014).

As not all these vessels operate on time charter contracts, rising bunker fuels will impact earnings negatively. In addition, demand for oil and chemicals remains poor and the management guided for a seasonally weak third quarter but was hopeful for the 4Q winter peak.

Losses have fallen substantially, from US$101 million in 1Q to just US$18 million in 2Q2012. Expect lower losses for 2H2012.

MISC has sold 15 of its 16 liner vessels, with another expected to be sold in Sept 2012.

WellCall.. August 2012

It is a hose manufacturer and a contract manufacturers in the OEM market. It is expansion plans which is estimated to cost between rm25 million and rm45 million by taking up a US dollar loan facility.

 

Debt free WellCall had cash of rm39.42 million as at March 31, 2012.

 

Declining natural rubber prices and the strengthening US dollar are essentially tailwinds for WellCall, which exports 94% of its products in the US dollar terms.

 

It produce hoses for industrial such as oil and gas sector, mining, automobile and F&B.

 

Natural rubber hoses make up 60% and synthetic 40% of WellCall’s output.

KNM.. August 2012

Nearly two years after announcing its proposed rm2.2 billion waste to energy project in the UK , KNM says it is close to securing financials for the job that is crucial to regain investor confidence in the process equipment manufacturer. The company said Exim Bank is the lead arranger for a syndicated loan for the project. and expected to complete the syndication soon.

 

The project, which will generate electricity from a biomass and waste cycle facility within the Peterborough enclave in the UK , makes up some 43% of KNM’s rm5.1 billion order book. If successfully implemented, it will provide KNM with recurring cash flow, giving some comfort for the company whose earnings are driven by contracts.

 

The financing facility involves a loan amounting to rm921 million that is expected to be finalized by Oct 2012.

 

It will capitalize on the expertise of its wholly owned unit Borsig GmbH, which is based on Germany to undertake the UK project. It is expecting a steady recurring income thereafter.

 

KNM acquired Borsig for rm1.7 billion cash in 2008. Incidentally, it was the acquisition of Borsig in early 2008 that casued KNM to fall off the radar screen of many institutional screen. The purchase increased KNM’s debt levels to rm1.4 billion as at end 2008. The company undertake a rm726 million rights issue in mid 2008 to reduce debts. But the fund raising exercise in the midst of the liquidity crisis in 2008 was difficult because oil prices tumbled.

 

KNM has 80% in the project to develop an 80MW renewable energy plant while the remaining 20% is held by Peterborough Renewable Energy Ltd.

 

However, market observers remain cautious on the Peterborough project given the current weak economic conditions in Europe . Many had already removed the Peterborough contract from their 2012 earnings in Nov 2011. Nonetheless, further developments that imply the project would take off would prompt them to revisit their earnings forecast. A key re rating catalyst would be the confirmed take off of its Peterborough project.

 

KNM’s agreements for its proposed downstream oil and gas project in Teluk Ramunia had lapsed without any financial closure.

 

It had submitted tenders for rm16 billion worth of projects. However it declined to elaborate on its soil sands project in Canada .

 

Its primary driver of growth will still come from its core process equipment manufacturing operations.

INIX: new substantial shareholder

INIX TECHNOLOGIES Holdings Bhd, a home and office security systems maker, may see a new substantial shareholder coming on board over the next few months.

 

According to a market source, a European-based technology company may be keen to buy a significant stake in Inix as part of the company's plan to expand into this region. It was also speculated that the acquisition may involve the European company acquiring stakes from Deutsche Bank AG as well as from the open market.

Once the acquisition is made, the European company may inject new business or product line into Inix.

 

The source, however, said that the European company currently produces a digital equipment that, once connected to a television set, allows consumers to surf the net, watch live shows, watch movies both online or offline, listen to music, browse their photo library, among others.

 

To recap, Deutsche Bank became a substantial shareholder in the company after buying 7.21 million Inix shares or a 5.7 per cent stake, on August 2 2012. However, the German lender ceased to be a substantial shareholder after it sold two million shares five days later. It is unsure if the lender still have stakes in Inix.

 

Deutsche Bank's acquisition came about a month after Citigroup Global Market ceased to be a substantial shareholder when it disposed a 2.54 per cent stake in Inix.

 

Inix produces intelligent wireless security, automation and closed circuit television surveillance systems for home and business use.

 

For the nine months ended April 30, 2012, the company posted a revenue gain of 4.5 per cent to RM3.35 million, versus RM3.21 million revenue same period a year ago. Nine- month net profit was RM77,000, compared to the RM229,000 net loss in same period last year.

 

Currently, Inix executive director and chief executive officer Azman Hussin has a 24 per cent indirect stake in the company, via Encoral Digital Solutions Sdn Bhd.

 

Encoral is an information and communication technology solutions provider co-founded by Azman.

FGV/Sarawak Plantations

It is eyeing a meaningful stake in Sarawak Plantation Bhd. FGV is seeking to grow its landbank and production of crude palm oil via the acquisition and is looking at buying more than the 30.39% that Abdul Hameed holds in Sarawak Plantation to grow its plantation acreage. However, the deal will require certain issues to be ironed out first such as the position of the State Financial Secretary of Sarawak Inc, the second largest shareholder in Sarawak Plantation with a 25.47% stake.

 

The state may not exit as it has to ensure the interest in the development of the NCR land that is on Sarawak Plantation’s books. But other shareholders may exit if the offer is right.

 

FGV has made known its listing prospectus that 50% of the proceeds were to be used for acquisition of plantation assets in SEA and Africa .

 

Sarawak Planation has a landbank of 51965ha of which 12914ha are NCR land. Its main attraction is the age profile of its trees. About 10.4% of the trees are in the 16-20 year bracket with 15.5% more than 20 years old. Almost 62% of the trees in the age bracket of four and 15 years.

 

A new party coming into Sarawak Plantation is not so simple. It is learnt that previous attempts to acquire the company were not approved by the state. Only a GLC can do the deal with Sarawak Plantation because the of the NCR land which belongs to the state cannot go to private companies.

Genting Bhd… dated Aug 2012

Genting Singapore reported net profit and revenue dropped due to a drop in mass-market gaming revenue. There are downside risks to Genting's near-term earnings prospects with its major earnings contributor, Genting Singapore , reporting a disappointing second quarter profit.

Furthermore, investors' interest in Genting's overseas ventures has subsided somewhat with the postponement of bills to liberalise Miami 's gaming laws to 2013. Genting, through Genting Malaysia Bhd, which had acquired 13.9 acres of prime freehold waterfront property in downtown Miami for US$236mil in May 2011, was forced to scale back on plans for a US$3.8bil mixed development project after Florida state legislators had second thoughts on a bill to liberalise gambling earlier 2012.

There were potential regulatory uncertainties associated with the proposed amendment to the Casino Control Act by the Singapore government. The amendment included limiting Singaporeans' visits to both casinos on the island besides heavier financial penalties. Genting Singapore to account for 46% of Genting's earnings before interest and taxes.

Although Genting offers indirect exposure to both Genting Singapore and Genting Malaysia, do not foresee its holding company discount to narrow persistently in the near future, given the lack of urgency for management to restructure its non-gaming portfolio.

Furthermore, the rising volatility in the equity market does not favour asset reflation play while there is also increase risk premium as the general election draws closer.

The Genting is expected to record a one off net gain of about rm1.9 billion from the proposed sale of Genting Sanyen contributing to an increase of about 52 sen to its consolidated earnings per share for the current financial year. However, following the disposals, the earnings contribution from its power division will be reduced significantly because although the group has other power plants such as in china, its most profitable plant is in Malaysia .

 

The disposal would also lower Genting Bhd’s earnings but existing the Malaysian power business removes a future overhang. If does look like the group still wants to keep its international assets. It clinched a 660MW PPA in Indonesia to complement its India and china interests.

The potential divestment is a reaffirmation of Genting’s direction, becoming a purer global gaming entity, or a conglomerate that is more appreciate of sustaining its level of returns rather than getting bogged down in businesses that are increasingly marginalized.

 

The money will likely be put to good use in overseas power projects or into more gaming opportunities. The prospect of a special dividend was unlikely given that the cash proceeds would be placed in bank deposits and money market instruments for future use. Genting's cash pile was “once again swelling up in anticipation of acquisition opportunities”.

 

Genting raised RM2bil in medium term notes towards end-May 2012 and the group remains vigilant for new business opportunities, especially in the gaming sector. Industry watchers believe the gaming giant could be putting money away to expand its power businesses in India , China and Indonesia .

 

In July 2012, Genting announced its maiden foray into Indonesia 's energy sector by signing a 25-year PPA with the state-owned electricity company there to build and operate a 660MW coal-fired power plant in Banten, west Java, estimated to cost RM3.2bil.

 

With the additional cash in hand, the group could explore other potential power assets abroad as it aims to own a total effective capacity of at least 3,000MW.

 

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YNHP

After six years of false starts, it is determined to kick start its flagship property development project in the heart of KL early 2013.

 

It hopes to seal a JV agreement with a partner to help finance the project in the next few months. But even without a partner, the company has resolved to undertake the construction of the rm2.3 billion Menara YNH on its own.

 

It intends to change the development plan for Menara YNH, a move that will see the inclusion of retail office and serviced apartment components, apart from the food and beverage and hotel components.

 

YNH has already secured the expertise of a local architect to revise the development plan. Construction is expected to start by early 2013 and be completed within three years.

 

Upon completion, the group may sell Menara YNH en bloc or keep it for recurring rental income to sustain the company’s earnings.

 

YNH has two options should it decide to dispose of the building – to sell the tower and land to potential buyers upon completion or to sell the tract and the building plan for Menara YNH via an auction before the project is finalized.

 

It has a strong balance sheet and dividend distribution policy of at leats 30% of its profits.

 

Menara YNH is a wild card in YNH’s valuation. Its existing land bank in the Klang Valley , Genting Highlands and Manjung can last the group for another 20 years.

 

For now a crucial concern is whether potential buyers will be able to secure loans to acquire properties following BNM’s move to implement stricter housing loan requirements.

P&O

Sources say One of South Africa’s largest financial services provider, Sanlam, is eyeing a substantial a stake of up to 49% in P&O insurance business.

 

Sanlam is exploring a price tag of over two times the net asset of the company and is targeting to submit documentation for BNM’s approval in Sept 2012.

 

Should Sanlam successfully acquire a stake in P&O’s insurance bsiness, it would be its first foray into the region. As for P&O, it is not the first time the local insurer has caught the eye of foreign players.

 

P&O’s insurance business will give investors direct access to the motorcycle business, where the insurer has the largest market share.

Genting Bhd/Genting Sanyen

1MALAYSIA Development Bhd (1MDB) is buying another power asset for as much as RM3.5 billion, its second in five months after a RM8.5 billion acquisition of Tanjong Plc’s power business.

 

Sources said the government-owned firm is paying between RM3 billion and RM3.5 billion for Genting Sanyen from the Genting Group. The deal is reaching its final stage and will be announced soon. This is part of 1MDB’s business plan which has identified power as one of its core businesses as well as ensure the long-term power security of the country.

Genting Sanyen is the power arm of conglomerate Genting Group and is one of the country’s five independent power producers (IPPs).

Another source said the acquisition is part of the government’s plan to take over some of the country’s first-generation IPPs whose concessions are due to expire by 2015 and 2016.

 

The potential acquisition of Genting Bhd's power assets by 1Malaysia Development Bhd (1MDB) in a deal reported to be worth up to RM3.5bil is seen as a positive development for the Genting group. Such a deal, if materialised, would see Genting getting a fair offer for its power assets and a good opportunity to expand its gaming operations.

 

Market observers opined that such a potential deal between 1MDB and Genting was “likely to go through, as it is part of the Government's plan to take over the country's first-generation IPPs and subsequently aid Tenaga Nasional Bhd (TNB) from continuing to bleed financially.”

 

Although the potential sale was contrary to Genting's expansion plan under the power division, it will eliminate uncertainties about the power purchase agreement (PPA) re-negotiation with the Government.

 

If the deal materialised, Genting could have total net cash of more than RM9bil. With such a huge cash, the group can continue to acquire more power plants regionally and expand its gaming operations, or distribute its excess cash to shareholders in terms of special dividend. Should the group distribute the RM3bil to RM3.5bil proceeds, shareholders could receive cash dividends of 81 to 94 sen per share.

 

However some were surprised about the deal given that Genting Sanyen won the bid in July 2012 to build a US$1bil (RM3.12bil) greenfield 660MW coal-fired power plant in Indonesia .

 

In addition to its Malaysian asset, Genting also has two other power assets in India and four others in China .

 

If the deal materialises, would involve all power assets except the upcoming Indonesia IPP.

 

IJM Corp: latest news

For the Selangor water issues, IJM's joint venture (JV) project for the Pahang-Selangor Water Transfer Project (PSWT) is currently progressing well at above a 50% completion rate with the project financing, with Japan Bank for International Cooperation (JBIC), still intact.

The management is in discussion with the Government to revive the NPE extension project with a new alignment, although the outcome is not likely to be decided in the near term. Its associate, Kumpulan Europlus (KEURO) is expected to make the announcement on the finalisation of the West Coast Expressway (WCE) concession in the near term.

There are concerns on the funding of the on-going PSWT project due to the fiasco in the Selangor water industry. To recap, a consortium led by Shimizu was awarded a RM1.3bil tunnelling (45km) contract for the PSWT project at the Pahang site. IJM holds a 20% stake in the consortium together with UEM Builders (20%), Nishimatsu (30%) and Shimizu (30%). The project is slated for completion by late 2014 and management reiterated that JBIC is still financing the project.

The management is currently meeting with the Government to refresh the alignment of the proposed NPE highway extension project. This could be due to the feasibility of the project and the competition with the existing Besraya Expressway. Nonetheless, do not expect the outcome to be out in the near term as the discussion could be prolonged due to land acquisition and final agreement on the concession terms.

In the meantime, the management expects its associate KEURO to announce the update on the signing of the concession agreement for the WCE highway project.

In a nutshell, IJMCorp will likely be running at its full capacity after securing the WCE highway construction works. Its current order book now stands at about RM1.7bil for the next two to three years.

Risks involved would be the cancellation of the WCE project, a spike-up in material prices, a sharp decrease in CPO prices below RM3100 per metric tonne and slower take-ups for its property projects

Naim latest news

It owned a 34% stake in associate Dayang Enterprise Holdings Bhd, according to research analysts.

Its wholly-owned subsidiary Naim Engineering Sdn Bhd won a RM208.2mil contract for one of the work packages for the My Rapid Transit (MRT) project in Kuala Lumpur .

Naim Holdings is involved in property development, and contracting of construction, civil engineering, oil and gas and infrastructure projects.

The major shareholders of Naim Holdings include Island Harvests Sdn Bhd (12.25%), Tapak Beringin Sdn Bhd (10.96%), Lembaga Tabung Haji (10%), managing director Datuk Hasmi Hasnan (6.67%), Skim Amanah Saham Bumiputra or ASB (5%), Employees Provident Fund (5%) and chairman Datuk Abdul Hamed Sepawi (4.86%).

Hasmi is also the chairman of Dayang Enterprise.

Naim Holdings' 33.63% stake in Dayang Enterprise, which is a service provider to the oil and gas industry, is worth RM379.1mil or RM1.51 per Naim Holdings share (based on a price of RM2.05 per Dayang Enterprise share).

Also, Naim Holdings has an undeveloped land bank of 2,620 acres in Sarawak with an estimated gross development value (GDV) of RM9.5bil. The group's flagship property developments are Bandar Baru Permyjaya in Miri, Desa Ilmu in Kota Samarahan, and the up-market Riveria satellite township in Kuching.

TA Securities is maintaining a buy call on Naim Holdings' stock, with a target price of RM2.26 per share.

To Aug 2012 Naim Holdings' outstanding order book stood at RM1.3bil, including the MRT contract, which would provide earnings visibility for the next four years. The next re-rating catalyst for Naim Holdings will be additional new contracts secured in 2012. Thus far, the group has secured RM500mil worth of new contracts in 2012.

There was plenty of share price upside potential for Naim Holdings within a two to three-year horizon, based on new property developments and possibly more government construction contracts in Sarawak.

Naim Holdings would develop the site of the old Bintulu airport into an integrated upmarket commercial and residential project, with a GDV of RM2bil. Also, look at the proximity of the fast-developing new Samalaju Industrial Park , where international companies have invested, to Bintulu. A new RM1.8bil Samalaju Port project is also ongoing in Bintulu. So, there is strong potential for lucrative property plays for Naim Holdings. Samalaju is one of the five growth nodes of Sarawak Corridor of Renewable Energy (SCORE) and it will become the state's new heavy-industry centre.

Holdings' MRT contract win underpinned its competitiveness, as it is the first East Malaysian contractor to be awarded one of the main packages of the MRT project. Future prospects remain bright with the development of SCORE, where Naim is poised to be one of the largest beneficiaries as the local champion.

Naim Holdings' unbilled sales stood at RM176mil.

Naim Holdings posted a significant 52.3% drop in net profit to RM46.6mil, compared with RM97.75mil in 2010. Revenue dropped 32.8% year-on-year to RM411.9mil for the year ended Dec 31, 2011. Naim Holdings had posted improved results for the first quarter ended March 31, where its net profit grew 31.5% year-on-year to RM16.1mil. Revenue was 22% lower to RM94.2mil for the quarter under review, and the group attributed the earnings growth to improved margins for its construction segment as well as better performance of its associates and joint ventures, and a decrease in administrative expense.

Earnings recovery on the horizon for Naim Holdings, and its balance

About MyEG

It is Malaysia ’s main e-services, providing electronic delivery services such as annual renewal of raod tax, insurance premiums and foreign workers permits. Its revenue base is recession as consumers are encouraged to use its cheaper and more convenient services. In addition, its long term growth is exciting, given the new and proposed services in the pipeline.

Its next three years are driven from its existing and new services. It is expected to launch an online vehicle ownership transfer services which provides protection to car owners in the interium period when they sell a vehicle to a used car dealer and transfer of ownership to the eventual buyer. It will only be the company offering this service, targeting mainly financial institutions.

It has also proposed to the Customs Department a customs service tax monitoring system. It has yet to sign the concession with the government but hopes to do so before the year end 2012. The proposed CSTM could lead to upside surprises if ti takes off in a big way over the next few years from 2012.

About QL

Its integrated livestock farming business is suffering from the high prices of raw materials such as maize and soybean which are the ingredients for the feed meal for chickens and chicks.

On top of that, the age profile of the group’s oil palm plantation in East Kalimantan Indonesia is still relatively young. It will take several more years for the age profile to mature to give QL good yield.

It is now growing from a high base after couple of years prior to FY2012.

QL has been very cautious in growing its businesses. It has set up a solid foundation for the businesses to grow. However most of the growth factors will only be recognized from FY2014 onwards.

Among the growth factors that will contribute to QL’s higher net profit growth in FY2014 is the maturing oil palm. QL has 15000ha of oil palm plantation in East Kalimantan but only 4000ha are considered mature at the moment.

By 2015, the contribution from oil palm plantation will stand at around 20% of QL’s top line provided QL’s integrated livestock and marine product manufacturing businesses continue to expand at their current pace in the next two to three years.

The group has invested some more than rm300 million in its farms and facilities in Vietnam and Indonesia .

Market View on coming General Election

The risk-reward ratio of owning Malaysian equities ahead of the coming election remains unfavorable despite Bursa Malaysia underperforming against Asean peers. Even if BN were to win with an increased majority, which could result in short term rally, the government would likely need to start tightening its belt on spending to prevent the fiscal deficit from escalating further and attracting the possibility of a country rating downgrade.

 

This time, expects the market to react sooner (Sharp correction), given the experience of the last election and availability of opinion polls that were unavailable previously.

 

The most likely outcome of the election would be a BN win but with a reduced majority. In this scenario, expects some short term negative impact and continued political overhang as the market digests the implications, including the upcoming UMNO election where PM Datuk Seri Najib could be a challenged. A key drive for this scenario was the 25% increase in new voters, rising to 13.4 million from 10.7 million in 2008.

 

Political aside, valuations in Malaysia are not cheap (Aug 2012).

 

Malaysian equities are trading at one standard deviation above historical average PER and price to book values. Construction, infra and power could be impacted by uncertainties as the market starts pricing in the political risks ahead of the election.

 

Potential window for the 13 GE is in Nov 2012.

F&N

While investors are already buying into the companies on market talk of a break up of F&N, there is still some way to go. The situation still remains extremely fluid as Heneiken’s buyout deal still needs shareholders approval. There is not much update this venture. Although It has been reported in the news, neither Coca-Cola or Kirin has actually come out to make an offer.

 

Most agree that the breakup will come. The fact that people are still buying into the companies shows they still see value in the food and beverage assets. Many players have previously said that the market has never been short on buyers, rather on quality sellers. The two major shareholders, ThaiBev and Kirin are not property developers. So it would make sense for them to focus on the F&B business and leave the property division.

 

Assuming Coca-Cola is a keen acquirer, implications for F&N Malaysia are positive. Coca-Cola would either have to acquire F&N’s 51% stake in F&N Malaysia, which would trigger a GO or offer to acquire the soft drinks division. Calculation suggest that the bottling business is worth at least rm1 billion.

 

If APB is sold then the next asset play within the group would be F&N Malaysia and not long ago, Kirin was said to be mulling a bid fro the non beer F&B assets. Recent comment by Kirin’s president that it invested in F&N fort its F&B operations further fuels the belief that Kirin ’s move to buy a 14.7% stake in F&N from Temasek in 2010 was driven by its stake in F&N Malaysia.

 

In the meantime, all eyes will be on the upcoming EGM for shareholders to approve the Heneiken bid, even though no date has been set. The jury is still on whether Thai businessmen who owns ThaiBev will make a move to block Heneiken’s bid. It was Charoen’s buying of a 22% stake in F&N in July 2012 that triggered the situation and he has since upped his stake to 24.1% by buying through the open market.

 

Market observers are not discounting more twists and turns ahead, which could include a potential counter bid from ThaiBev. Kirin holds the key to whether APB is eventually sold. ThaiBev is likely to vote against the proposed sale as APB is a better strategic fit for it than APB is for Kirin . If Kirin agrees, it is likely that the final decision will be the sale of APB to Heneiken.

 

If the sale is rejected by shareholders, Heneiken could come back with a higher offer, which would extend the proceedings by a few more months. The worst case scenario is if the sale is rejected and status quo remains would have an adverse impact on the share price of F&N Malaysia and APB.

Olympia/Dutaland

Olympia ... dated Sept 2011 …

Tan Sri Yap Yong Seong, the former police officer turned businessman, has been increasing his indirect stake in Olympia Industries Bhd.

The businessman, better known as Duta Yap in corporate circles, has been busy in 2011, clearing the balance sheets of his listed entities, namely Olympia Bhd and Dutaland.

Filings to the stock exchange show that Yap had raised his indirect stake in Olympia to 31.4 per cent as at mid Sept 2011. In July 2011, his indirect stake was 27.67 per cent. The buying was done through Duta Equities Sdn Bhd, which bought 26.88 million Olympia shares in Sept 2011 alone, from the open market.

Yap holds the stake in Olympia via his shareholding in Kenny Height Developments Sdn Bhd, Duta Equities and DutaLand. Incidentally, Kenny Height and Duta Equities are major stakeholders in DutaLand, helping Yap have an indirect stake of around 44 per cent in the company.

At this point of time, it is unclear why Yap is raising his stake in Olympia , which is synonymous for its gaming business in Sabah .

Olympia has other interests too. In June 2011, the company announced a plan to sell 15.3 hectares of freehold land in Johor for RM80 million. The deal could help Olympia save as much as RM9.31 million in interest on debts. Olympia has debts of about RM199.32 million, while its total assets stands at around RM1.1 billion.

Besides the planned land sale in Johor, Yap has also been busy on other fronts. In July 2011, DutaLand announced plans to sell 11,977.91ha of plantation land in Sabah via its 100 per cent unit, Pertama Land & Development Sdn Bhd, to IOI Corp Bhd for RM830 million. The original investment in Pertama Land was RM33 million in October 1995. The sale will give DutaLand a net gain of RM511 million. But in Oct 2011 IOI Corp’s move to terminate its proposed acquisition of 11,977.91 ha (29,597.42 acres) of oil palm plantation land from Dutaland for RM830 million has been rejected by the latter.

DutaLand has about RM149 million debts, alongside total assets of RM1.21 billion, meaning if the sale goes through, Dutaland could theoratically wipe out all its debts, and still have enough cash leftover.

Dutaland ... dated July 2011 …

It has proposed to dispose of some 11,977.91ha of plantation land to IOI Corp Bhd for RM830 million cash (Called off in Oct 2011).

Its initial investment in the land was RM33 million. The net book value of the properties was RM319 million as at end-June 2010 and DutaLand will make a gain of RM511 million from the proposed disposal. The properties have been earmarked for divestment since 2007.

Proceeds from the sale will be used to redeem a portion of its irredeemable convertible bonds and the board is contemplating paring down borrowings with the remaining proceeds. Some RM4 million will be used to cancel 7.5 million irredeemable convertible bonds, leaving the remaining amount at RM5.6 million.

DutaLand’s borrowings stood at RM240.1 million as at June 30, 2010.

The funds would come in handy for the group to kickstart work on the remaining parcels of its prime property project in the vicinity of Sri Hartamas and Mont’Kiara.

DutaLand, formerly known as Mycom Bhd, formed a consortium with sister company, Olympia Industries Bhd, to develop an 88-acre (35.6ha) freehold tract in the area that was purchased more than 30 years ago. The land has been divided into nine parcels to be developed over 10 to 15 years.

The successful development of the project, known as Kenny Heights , is thought to be key to the revival of the group’s property business. However, plans to kickstart the project have been beset by a series of failed joint-venture agreements and lack of funds.

The proposed disposal of plantation land is expected to be completed by the fourth quarter of the year (2011). The transaction would reduce DutaLand’s gearing to 0.17 times from 0.26 times while net assets per share would increase to RM2.30 from RM1.44.

MPHB

 Market observers are trying to determine the valuation of the planned IPO of the compnay’s non core businesses.

 

The issue whether the valuation of Newco which will house MPHB’s insurance, property development, hotel investment and stockbroking businesses, should be done at a premium or a discount.

 

The reason for wanting the shares to be given out at a discount is that the exercise is merely to reward shareholders. Also the management realizes that although the new entity will be asset rich, the insurance business will provide the cash flow.

 

Another income stream will be property development. MPHB has tied up with BRDB on some prime land in Selangor and Penang , where the latter will develop the land and give a portion of the profits to the former. The joint development deal is expected to generate a combined GDV of rm4.25 billion.

 

Meantime, if the shares are priced right of the IPO, this may raise concerns over the underwriting of the shares in the merged entity. Nevertheless, MPHB’s MD and major shareholder, Datuk Surin is prepared to underwrite the shares in Newco if the need arises.

 

The group’s vision of becoming a dividend yield stock like rival number forecast operator BJTOTO.

 

The demerger will see MPHB retain the jewel in its crown – Magnum Corp – and park its non core businesses in a SPV in return for shares and/or cash.

MPHB will then undertake an offer for sale of the shares in the SPV to its shareholders at a price that has yet to be determined. The net proceeds from the OFS will then be distributed to MPHB’s shareholders through capital repayment exercise. Effectively the shareholders will be getting shares in Newco for free.

 

The entitled shareholders of MPHB who do not wish to stay with the SPV may sell their entitlements in the proposed OFS on the open market.

 

The exercise will see MPHB morph into a pure gaming company with a dividend policy of paying out 80% of profits, with strong cash flow from its NFO business, Magnum is enjoying steady profits that exceed RM300 million a year.

 

Market observers estimated that MPHB’s non gaming businesses are worth about rm2 billion.

 

The transferring BJTOTO’s gaming operations to a business trust to be listed in Singapore may see investors switching the only listed direct NFO player left in Malaysia – MPHB – which may even command a scarcity premium.

MRCB… dated July 2012

The EPF is planning to inject new assets into its property business.

 

MRCB, the EPF’s property and construction arm, is in negotiations to acquire private developer Nusa Gapurna Development Sdn Bhd, a Klang Valley based property concern owned by businessman Datuk Mohamad Salim through Gapurna Sdn Bhd.

 

The deal, to be financed via an exchange of shares, will give the politically well connected businessman a direct stake in MRCB and a lead management role in the merged entity.

 

Gapurna is in the midst of preparing a proposal for consideration by the MRCB board. However, the valuations for the deal have not been finalized and parties are looking at the possibilities. It is still at a preliminary stage.

 

However government officials say MRCB’s acquisition of Nusa Gapurna will be finalized in the coming months (July 2012 & Beyond).

 

The swap will give Salim and his partners just under 20% of MRCB.

 

The proposed takeover will help streamline the EPF’s shareholding structure ib both MRCB and Nusa Gapurna. The pension fund owns a direct 42% stake in MRCB and another 40% equity interest in Nusa Gapurna Salim’s Gapurna owns the remaining 60% stake in Nusa Gapurna.

 

Under the proposed takeover plan, MRCB will acquire Nusa Gapurna’s development projects in the Klang Valley , which has an estimated GDV of between rm11 billion and rm13 billion.

 

The deal is expected to be finalized by end 2012, will be a bonus for MRCB.

 

Nusa Gapurna owns 60 acres of prime commercial land in PJ, Old Klang Road and SJ. The injection will also keep MRCB busy as its current KL Sentral development is expected to be completed within the next two years (2012 & beyond).

 

The crown jewel of Nusa Gapurna’s landbank is a 40 acre land parcel in Section 52, PJ. The group plans to begin construction in the first quarter 2013.

 

Apart from PJ Sentral, Nusa Gapurna also owns 17 acres in Taman Seputeh, near old klang road, and 3.5 acres next to Subang Parade in SS16, SJ.

 

Market observers do not discount the possibility that there could be another round of corporate exercises of M&As in the near term. MRCB will be actively looking for the right party to contribute major assets.

 

The new landbank injection is good news for MRCB after its failed merger with IJM Land in 2010.

 

As the property developer unit of EPF, MRCB is also said to be the frontrunner to develop some parcels of the 1214ha Rubber Research Institute land in Sungai Buloh. It is also tendering for some MRT and property projects.

Perwaja

It is on track to get a giant share in one of the largest iron ore mines in Malaysia, fending off competition from other local steel players eyeing the mine located in resources rich Terengganu.

 

State government officials say they are evaluating the iron ore mining concession in Bukit Besi but are committed to giving Perwaja a large tract as they had agreed in 2011.

 

Perwaja is in the advanced stages of completing an iron ore concentrate and palletizing plant. The plant needs iron ore as raw material and Perwaja had applied for a long term concession in Bukit Besi. The state government agreed in 2011 but with no new developments, there were concerns about the delay in awarding the concession.

 

It is on track to complete the first phase of the iron ore concentrate and palletizing plant by 1QFY2013. The output will be used by Perwaja to produce DRI, which is eventually processed into steel.

 

With the supply of iron ore from domestic sources the cost of production DRI will be cheaper. Perwaja will not be exposed to the volatile prices of imported iron ore that caused it to suffer margin compression in margins in the past.

 

Apart from Perwaja, Hiap Teck is poised to get an iron ore mining concession in Terengganu. It has yet to get the documentation on the award of the concession.

 

The Lion group is also eyeing an iron ore concession in Bukit Besi.

 

Since FY2008 ended Dec 31, Perwaja has been recording losses. However its cash flow from operations was in excess of rm50 million indicating the operations are cash flow positive.

 

In the 1QFY2012 it posted a net profit of rm16.2 million.

 

The concentrate and palletizing plant when commissioned will significantly reduce the company’s production cost and position its products at more competitive pricing.