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%.

About Astro

Utilization Of Proceeds …

Dividend Policy …

The Cornerstone Investors …

Financial Results …

About Astro …

Its Valuations …

Its Growth …

 

Astro Malaysia Holdings Bhd is raising RM1.42bil from the sale of 474.30 million new shares at an indicative RM3 per share for the retail portion.

 

The new shares are part of its initial public offering (IPO) of 1.518 billion ordinary shares of 10 sen each, comprising of a public issue of 474.30 million new shares and an offer for sale of up to 1.044 billion existing shares. This will see it raising a total of RM4.55bil.

 

Of the RM1.42bil from the IPO of which RM750mil or 52.7% of the proceeds would be used as capital expenditures with 36 months and RM500mil or 35.2% to repay bank borrowings.

 

The company had allocated RM112.90mil as working capital while listing expenses would be RM60mil.

 

Of the 1.518 billion shares, 1.258 billion shares would be offered to the foreign institutional and selected investors including Bumiputera investors while 259.86 million shares would be offered to the public, directors and eligible employees.

 

Utilization Of Proceeds …

 

Of the proceeds from its public issue of RM1.42bil, it intends to use RM750mil for capital expenditure within 36 months, RM500mil to repay bank borrowings within a year, and RM112.90mil as working capital. Its listing expenses amounted to RM60mil.

 

Dividend Policy …

 

It intended to adopt an active capital management. It proposes to pay dividends out of cash generated from its operations after setting aside the necessary funding for capital expenditure and working capital needs.

 

As part of this policy, target a payout ratio of not less than 75% of its consolidated profit for the year under MFRS, in each financial year beginning Feb 1, 2013.

 

The Cornerstone Investors …

 

Upon completion of the exercise Astro Networks will own 70.8% equity stake in Astro and the investing public will hold the remaining 29.2% stake. Japanese bank Nomura Holdings Inc and Singapore ’s Great Eastern Holdings Ltd are among the 16 cornerstone investors for the US$1.5 billion listing of pay-TV firm Astro Malaysia Holdings Bhd.

 

Other cornerstone investors include California ’s Standard Pacific Corp and Malaysian state-owned fund management firm Permodalan Nasional Bhd, the sources added, speaking on condition of anonymity because they were not authorised to talk publicly on the matter.

PNB is said to be one of the biggest cornerstone investors out of the 22 that the country's largest pay-TV operator Astro Malaysia Holdings Bhd has secured for its US$1.5bil (RM4.5bil) initial public offering (IPO).

 

A total of 430 million shares were offered to cornerstone investors, which included tycoon Chua Ma Yu, Kencana Capital Libra Investment Sdn Bhd, Great Eastern Life Assurance, Myriad Opportunities Masterfund, Nomura Asset Management, Antell Holdings Ltd, hedge-fund Azentus Global Opportunities Masterfund Ltd, Caprice Capital International Ltd, Cornstone Smith Asset Management, Gordel Capital, five units of Ochis-Ziff, TPG-Axon International, TPG Axon Partners and pension fund Universities Superannuation Scheme.

 

The lock-up period for the cornerstone investors is said to be three months.

 

Financial Results …

 

Astro reported net profit of RM629mil for financial year ended Jan 31, 2012 on the back of RM3.8bil revenue. For first quarter-February to April for FY13, Astro reported net profit of RM123mil.

 

Astro has borrowings to the tune of RM3.7bil and although it intends to pare debts down with the proceeds from the IPO, its debts would still be high but “the company is correctly leveraged and it has an acceptable gearing level.”

 

About Astro …

 

Astro's rationale for returning to Bursa was to provide it access to the capital markets to source funding for its expansion.

 

Astro is making a comeback without its overseas operations in Indonesia and India .

 

Astro Malaysia had also approved rm201.4 million in capex as at end April 2012 and further approved rm2.27 billion, largely earmarked for new businesses as well as investments in additional satellite transponder capacity on Measat-3B that is slated for launch in calendar year 2014.

 

It also intends to invest in content of some rm1 billion annually. It also intends to derive new income stream from smart and targeted marketing of additional products to its existing customer base.

Astro Malaysia , which had previously been listed under the name Astro All Asia Networks Plc, provides SatTV services to both Malaysian and Bruneian homes.

Its total intangible assets stood at RM1.76bil against the next biggest asset component of property, plant and equipment at RM1.71bil.

Astro Malaysia ’s total equity as at April 30 was a negative RM1.13bil while it said its total indebtedness, which also comprised contingent liabilities, was at RM4.56bil. The deficit position is primarily due to the reorganisation, whereby for accounting consolidation purposes, our acquisition of Measat Broadcast Network Systems Sdn Bhd (MBNS), our largest operating subsidiary, was accounted for as a capital reorganisation of MBNS and the difference between the consideration for MBNS and the net assets of MBNS at the date of acquisition has been taken to capital reorganisation reserve.

 

Its Valuations …

 

While industry observers said the new RM3 retail price for the comeback listing of Malaysia ’s largest pay-TV operator is “fairer” compared to the indicative RM3.60 set for bumiputra investors, the investment community is still largely divided on the stock.

 

Despite Astro’s historical price-to-earnings ratio (PER) shrinking slightly to 24 times based on the retail price and net earnings of RM629.6mil for the financial year (FY) ended Jan 31, 2012 some remained unconvinced and would not be subscribing for the shares.

 

The cornerstone investors have their own agenda. There could be other reasons. Maybe they think there is a possibility of someone coming in to buy them out later at a higher price or the funds who showed interest might be doing so for indexing purposes. This is especially true for funds who track the benchmark KL Composite Index. They are buying into Astro for that and not so much for the growth of the company.

 

Astro’s management has guided for lower earnings and margins for FY13 and FY14 as the company converts the current (Sept 2012) batch decoders to high-definition, the cost of which is borne by Astro. This earnings erosion is, however, expected to recover by FY15.

 

Based on the listing price of rm3.00 per share, Astro is valued at rm15 billion. However some say its value could even higher at between rm15 billion and rm22 billion.

 

Astro has already achieved critical mass and its push into more value added products will boost its average revenue per user.

 

Astro currently (Sept 2012) dominates the local pay TV scene with over three million subscribers and is poised to continue adding subscribers at a healthy pace.

 

Post IPO, Astro’s net debt to Ebitda ratio will be reduced to 2.2 times from 2.4 times and be maintained at 1.5 to 2 times in the long run.

 

Ananda, the country’s second-richest man, took the satellite TV operator private in 2009 in a deal worth RM8.5bil. The company is being relisted at RM18.7bil without its Indian and Indonesian operations, or 125% higher than when it was delisted three years ago at RM4.30.

 

Astro has a longer-term growth story and shareholders will have to wait it out.

 

Margins were likely to see compression for the time being (Sept 2012 & Beyond) as Astro worked to switch some 1.5 million of its subscribers to high-definition. However, Astro’s management was confident it could bundle both TV as well as broadband offerings once the conversions were complete.

 

Its Growth …

 

From its inception, this pay-TV operator has grown by leaps and bounds and its offering is now available on multiple platform that allows it to access new target markets.

 

Its growth was about “servicing its existing customers by providing the right value propositions and content. Astro is also moving out of living rooms to provide Astro-On-The-Go and will bundle TV and radio services on broadband and provide existing and new channels on high definition.” With that Astro can now tap into a “100% addressable market” which is about 7.5 million households.

 

Capex would be 11% of revenue by 2014 and maintenance capex will be 4% to 5%.

 

There is considerable doubt over just how much growth a pay TV operator like Astro can expect to have a market placed filled with challenges and new entrants due to the jump in high speed internet penetration and proliferation of mobile devices.

 

Local pay TV penetration growth was already showing signs of hitting a plateau when Astro went private in June 2012, just as the regulatory and operating environment started getting tougher. Moreover, the exclusivity privilege it enjoys for the direct to home platform ends 2017.

 

It is targeting a valuation of over US$5 billion for the new Astro – double the rm8.3 billion or rm4.30 per share its predecessor Astro was valued at when it was privatized by Ananda and Khazanah Nasional.

 

Has that much value created over the past two years (2009-2011)?

 

Its CEO stressed that a much bright future for the group, whose 3.1 million subscribers represent just over 50% of Malaysian households.

 

It has a platform to reach 100% of the market and has mapped out a strategy to not only address Malaysia ’s more than six million households but also individuals with mobile devices.

 

In 2009 Astro prioritized resources to migrate customers who can take more services to take it higher ARPU on the new platform.

 

Now (Aug 2012), having migrated some 1.4 million subscribers to its next generation Beyond platform, Astro can start monetizing its investments by promoting services like HD as well as over the top services like Astro on go which allows content to carried over mobile devices.

 

Astro is also mulling services that encourage impulse purchases – something it will also offer non Astro subscribers within a year.

 

Have all the big ticket capex been made while Astro was private, leaving enough cash for rich dividends?

 

Apart from standard investment, Astro is expected to incur additional capex on the additional transponder capacity when the Measat satellite comes online in 2014. Its plan to aggressively migrate all subscribers to the new platform could also weigh on margins.

 

Its margin will be below 2011’s 36$ over the next two years (2013-2014) as it swap out the boxes.

 

With a large number of broadband users downloading free content, is the bright outlook wishful thinking in Astro’s part? Concerns about the regulatory will to push for on for content sharing as well as the risks from the advent of IPTV on Telekom Malaysia’s high speed broadband network?

 

While TM is seen as a formidable pay TV rival, rivals had pressed to match Astro’s RM1 billion annual expenditures on content.

Dialog

Dialog’s re rating process could gathered momentum with the following key takeaways …

1.      Pre-development progress of the Balai small field risk sharing contract which started drilling its first well Bentara 2 on Sept 11, 2012 and could reach its planned depth of 2750m by early Oct 2012. This is well is part of the field’s pre development phase which could have a possible earlier than expected production by end of 2012;

2.      While the Balai oil and gas production is expected to start by second quarter FY2013, there is a possibility of earlier completion if the early production vessel for this project can be converted by early 2013. dialog has completed the fabrication of the four wellhead platforms at the group’s Balingian province off Bintulu, Sarawak , to secure additional marginal field projects in the area when the group completes its first RSC job;

3.      Dialog may be on the verge of being awarded a very significant enhanced oil recovery project in the Balingian province;

4.      Pengerang development continue to be rolled out with Dialog, Koninklijke Vopak and the Johor government planning to invest in a rm4.1 billion LNG terminal which is in additional to earlier project costing rm5 billion.

IGB REIT

Target Price: 1.43 (MIDF), 1.43 (Affin), 1.34 (Kenanga), 1.43 (RHB)

 

It expects to raise RM837.5mil from the initial public offering (IPO) of 670 million units on Bursa Malaysia 's Main Market. The IPO represents 19.7% of the REIT's total listing of 3.4 billion units. Based on a retail price of RM1.25 per unit, the total market capitalisation of IGB REIT upon listing will be approximately RM4.25bil.

The pricing of IGB REIT with a forecast yield of only 5.1% annualized for its remaining six months’ results of 2012 and 5.37% fort he full year of 2013 is no surprise, given that prices of quality listed REITs have gained substantially in recent months prior to Aug 2012 causing their yields to decline as investors sought stability in predictable dividend income.

Will IGB REIT perform as well upon its debut on the Main Market come Sept 19, 2012?

To be sure, IGB REIT too will have the balance sheet for acquisitions. Upon listing, its debt will stand at about rm1.2 billion or 25.8% of its estimated total assets of rm4.6 billion.

At is indicative pricing of rm1.25 which is still subject to finalization is the maximum retail pay – IGB REIT is selling itself at 1.26 times its pro forma NAV per unit of 99.6 sen.

IGB REIT too intends to invest in its real estate used primarily for retail purposes in Malaysia and overseas and was granted first right of refusal by its sponsor, IGB Corp, to all its future retail properties and mixed used development with retail component.

IGB has commenced work on Mid Valley Southpoint to complete in 2015.Another potential mall is the planned rm6 billion Southkey Megamall in Johor Baru in which IGB has 70% stake following a JV agreement.

IGB REIT, a unit of property developer IGB Corp Bhd intended to distribute up to 100% of its distributable income for the period commencing from the date of establishment until Dec 31, 2014, and subsequently at least 90% on a half-yearly basis.

Its first distribution, which will encompass the period of its listing until its financial year-end on Dec 31, 2012 (FY12), will be paid within two months after FY12.

IGB REIT will invest in a diversified portfolio of primarily income-producing retail real estate in Malaysia as well as overseas.

The retail offer of 201 million units represents approximately 5.9% of the total units upon listing. 24 million of those units will be made available to the public via balloting. The remaining 167 million units are reserved for application by eligible directors and employees. The IPO will see 469 million units available for institutional offering at a price to be determined by a bookbuilding exercise. This represents 13.8% of the total units upon listing. The retail offering will be opened to the public on Aug 23, 2012 while the institutional offering will start on Aug 28, 2012.

The listing expenses are estimated to be RM27mil and will be funded via internally generated funds. IGB REIT would utilise the funds contributed from the rental income of its properties. The expenses will be fully settled within one month of the listing.

Via the IPO, IGB REIT aims to enhance liquidity, raise funds for future real estate acquisitions, and provide investors stable dividends and potential capital appreciation.

 

Prior to its establishment, IGB REIT did not have any portfolio of real estate save for Mid Valley Megamall and The Gardens Mall.

Its total revenue comprises of gross rental income and other income earned from its properties, which include car park income amongst others. IGB REIT has forecasted revenue of RM197.8mil and RM408.1mil for the forecast period 2012 and 2013 respectively, which assumes that the first financial year is the six-month period ending Dec 31, 2012 and an establishment date of July 1, 2012.

The proceeds from the IPO would be utilised for the company's future expansion activities. If this listing is successful, Tan said IGB Corp would consider two other REITS in office/commercial and hotel/hospitality properties. The listing of IGB's retail REIT is to unlock the value of its retail assets - Mid Valley Megamall and The Gardens Mall, which are owned by IGB Corp's 75% subsidiary KrisAssets Holdings Bhd.

KrisAssets has proposed to sell both the malls and related assets to IGB Corp for RM4.6bil, which will be paid for in cash and the issuance of the 3.4 billion units in IGB REIT. KrisAssets had also proposed the 670 million units by Mid Valley City Gardens Sdn Bhd through the IPO. It had intended to distribute the remaining 2.73 billion units as well as the cash proceeds from the sale and the IPO to its shareholders at a later date.

 

Going Forward …

 

Over the next three years, the earnings per unit and distribution per unit will be primarily driven by high end The Gardens Mall as the current average rental base remains low.

 

The Gardens Mall represents 32% of the total REIT’s NLA, and its average rental only stood at rm8.74 psf as at May 2012 compared with rm10.75 psf at Mid Valley Megamall. About 54% of The Gardens Mall’s NLA is due to expire in 2013.

 

IGB REIT’s pipeline of assets is looking dry. Although the sponsor has inked a deal to build a Mid Valley City in Johor, the construction of the mall will only start in about two years time. The sponsor is exploring other potential markets in Penang and even overseas.

 

Hence the injection of assets from the sponsor will be remote and the REIT will have to compete in the market for third party assets.

 

Post IPO, the REIT will be geared at 26%, marginally below the average gearing of the REIT sector.

 

Given the gearing level of 26% and assuming a comfort level of 40%, IGB REIT is believed to have additional RM663 million for new acquisition.

 

The REIT could utilize the fund raising mechanism of placements amounting to 20% with its substantial shareholder base of rm3.4 billion to raise up to rm850 million in new funds to sufficiently acquire sizeable neighbourhood malls.

 

The REIT indicated that it will concentrate on organic growth opportunities rather than on new asset acquisitions in the short to medium term. There are plenty of asset enhancement initiatives opportunistic within the two malls particularly as market observers expect FY2013 to see strong rental reversions, as 54% of the NLA will be expiring.

PPB/Wilmar

The stock prices of PPB and its 18.3% owend associate Wilmar Intl have plummeted over the past three months (June 2012 – Aug 2012) to their lowest in three years but market observers are wondering whether the worst is over.

 

Meanwhile PPB Group Bhd believes the business model of its 18.3% owned Wilmar International is sound and expects the latter's financial performance to improve once market conditions turn around. Wilmar had four years of good earnings. It has been in the commodities business for long time, and have the experience to address and mitigate uncertainties.

 

PPB’s Prospects …

 

PPB is the largest oil palm processor and has 50% share of branded consumer cooking oil market. The Chinese government in Aug 2012 reportedly asked companies like Wilmar not to raise cooking oil prices unless it was absolutely necessary to keep a lid on infiation.

 

There are no immediate catalysts and operating conditions continue to be challenging (Aug 2012).

 

Over 70% of its earnings come from Wilmar.

 

PPB’s environmental engineering business has rm120 million worth of water and sewerage related jobs on its books and is eyeing similar contracts coming up soon such as the Langat 2 project in Selangor presents rm8 billion worth of possibilities.

Its GSC is no longer pursuing expansion in China but is exploring the possibility of entering Vietnam and Indonesia . Some rm95 million has been set aside to open seven more cinemas over the next two years in Malaysia .

Its Massimo bread business is already profitable and FFM is setting aside rm40 million to expand the breadmaking capacity.

The group budgeted RM467mil for capital commitments from 2012 till 2014 for its grains trading, flour and feed milling segment (RM342mil), film, exhibition and distribution (RM106mil) as well as property investment and development.

It reported a net profit of rm108.42 million for its second quarter ended June 2012 which was a fall of 60.8% year on year. The company said this was mainly due to the lower profit contribution from Wilmar.

There is not enough confidence instilled among investors that Wilmar will improve in the short term, and see challenges ahead.

 

Weak CPO prices are likely to persist in the medium term and recommended investors to exit Wilmar and IOI Corp.

 

Wilmar’s Prospects …

 

After years of rapid expansion through acquisitions as well as organic growth, it is now (Sept 2012) a much larger and more complex corporate group than before, making it more difficult than ever to forecast the margins it makes on trading and processing commodities. Rising costs and intensifying competition have not helped either. In fact, WIlmar has now (Sept 2012) fallen short of the market’s earnings forecasts for four consecutive quarters.

 

Food price inflation has also been a growing source of concern for governments of large population nations such as China , which Wilmar counts among its key growth markets. That has increased the odds of the company’s being hit by bouts of price controls and other forms of regulatory intervention, and spells greater uncertainty for shareholders of Wilmar.

 

Despite its slumping market value (Sept 2012), Wilmar is still a palm oil juggernaut with massive scale. It reports its operating profits by five major divisions. The major division is palm and laurics, which processes palm and lauric oils into refined oils, specialty fats, oleochemicals and biodiesel distributing these products through a network that covers more than 50 countries.

 

It owns processing plants in major palm oil producing countries such as Indonesia and Malaysia as well as in consuming markets such as China , Europe and Vietnam . In FY2011, merchandizing and processing of palm and laurics accounted for 30% of pre tax profits.

 

The second largest of its divisions, contributing 25% to pre-tax profits is plantaions and palm oil mills. As at end Dec 2011, roughly 74% of Wilmar’s 247081ha of planted area was located in Indonesia with another 24% in East Malaysia and 2% in Africa . Wilmar also owns plantations in Uganda and West Africa through JV.

 

Wilmar also has a sizeable business in oilseeds and grains. This divisions has grown significant accounting for 2% of pre tax profits in FY2011. In China , Wilmar is a leading oilseeds crusher.

 

Wilmar also one of the largest rice and wheat millers in China .

 

In 2010, Wilmar expanded into the sugar business through the acquisition of Sucrogen, one of the world’s largest raw material producers and a leading sugar refiner in Indonesia . In July 2011, it acquired one of eight licensed sugar refineries in Indonesia . In Dec 2011, it also acquired another sugar mills.

 

Wilmar now has a sugar business that accounted for 2% of pre tax profits in FY2011.

 

Finally, the smaller division with 4% of pre tax profits is the consumer products division which produces and sells consumer packs of edible oils, rice, flour and grain marketed under its own brands.

 

Its 2QFY2012’s earnings …

 

A chunk of Wilmar’s earnings miss in 2Q2012 came from the palm and lauric segment.

 

Also its plantation divisions also turned in weak numbers in 2Q2012.

 

Meanwhile its consumer pack edible oil business continues to worry. To curb inflation, the Chinese government has been holding talks with the country’s major edible oil producers to ensure price stability.

 

It is also continuing to see red link at its oilseeds and grains division which reported a second consecutive quarter pre tax losses in 2Q2012 owing to a negative crush margins and a weaker renminbo. Crush margins were the worst in 10 years, as the industry is currently suffering from excess capacity. Wilmar is likely to be affected by a global shortage of soybeans that has resulted in a spike in soybeans that has resulted in a spike in soybean prices.

 

Another area of concern has been Wilmar’s sugar milling business where pre tax losses widened in 2Q2012 because of wet weather in Australia .

 

Is this an opportunity for investors?

 

Kuok himself warns that Wilmar’s businesses in China face challenging conditions. The excess capacity in oilseed crushing will also continue to affect profitability in that division, while a possible further weakening of the renminbi against the US dollar would be negative for the company. Yet he insists the long term prospects for the oilseed and consumer products businesses remain promising because of growing demand in markets such as China . And Wilmar is working to improve the profitability of its various divisions.

 

Oilseed crushing business is an important part of its integrated business in model in China . Oilseed crushing margins in China will have the most impact on FY2012 results.

 

There is a chance that Wilmar will be able to buy subsidies soybean from the Chinese government in 2H2012 this easing cost pressures. China has strategic soybean reserves.

 

Even if WIlmar’s earnings growth recovers in the quarters ahead (Sept 2012 & Beyond), will it be just a matter of time before its commodity trading or processing margins suffer another squeeze. What if China clamps down on selling prices of staple food again?

 

The fact is that there is no other company quite like Wilmar. It is one of the largest producers of palm oil and sugar in the world. It has 50% share of China ’s cooking oil market. In Australia and NZ its refined sugar products represent more than 60% of volume sale across the retail, food service and F&B ingredient markets.

 

While its profit margins have been under pressure, the company does not appear to be ceding any market share.

 

Wilmar remains a conduit for Asia ’s food supply. The company business model as an integrated supply chain manager remains intact. It has continued to see steady market share gains and volume growth for its key divisions. So while its shares might have suffered a setback in face of lower profitability, the company still operates a crucial and growing business with some of the bigger consuming nations of the future as its key market.

 

Whatever the case, Wilmar seems more interested in buying back its stock than issuing more shares.

Global Monetary Policy as at 10 Sept 2012 ....

The Eurozone …

 

Peter Praet, the chief economist of the European Central Bank (ECB)’s highly-anticipated bond-buying programme was unveiled on 06 Sept 2012.

 

Draghi's plan, which has been coined Outright Monetary Transactions (OMT) could still provide a balm to the wounded financial markets and calm investors for the time being. It's now up to the governments to agree to the terms of programmes the fiscal and structural reforms and then implement them.

 

In essence, the OMT is a scheme that allows the “unlimited” purchases of sovereign bonds issued by troubled member states. The scheme comes with strings attached: borrowers will have to trim their fiscal deficits.

 

But balancing budgets at times like these could likely worsen the economic slump in the region's troubled member countries. As it is, signs are evident that the eurozone is heading for a double-dip recession by the third quarter of 2012 after three years of sluggish growth, while troubled economies, notably, the PIIGS ( Portugal , Italy , Ireland , Greece and Spain ), are already in recessions.

 

The ECB's bond-buying programme could help in a way by partially offsetting the harm from a contractionary fiscal policy (or austerity drive). And to pacify markets' concern, the OMT has a crucial feature: All the bond purchases will be “sterilised”. Technically, this means the ECB will absorb all the new liquidity generated from its bond-buying programme through other mechanisms to ensure that the volume of money in circulation does not increase arbitrarily.

 

In other words, there will be no “printing of money”, unlike the infamous quantitative easing (QE) programmes by the US Federal Reserve.

 

The US …

 

After Draghi, all eyes will be on US Federal Reserve chairman Ben Bernanke on whether he would do anything at all to prop up the sluggish US economy.

 

As far as the markets are concerned, Bernanke has been dropping hints of further easing of monetary policy since July 2012. So now (07 Sept 2012), the markets are crying for QE3, and expectations are high that Bernanke will launch it at the Federal Open Market Committee meeting during 12 -13 Sept 2012.

In late Aug 2012 Bernanke reiterated that “the Fed will provide additional policy accommodation as needed to promote a stronger economic recovery”. He said the institution remained open to various options, including QE3.

 

Certainly, another round of QE by the United States will have some negative side effects on the global economy, and there are quarters, who hope that the US Fed will refrain from “printing money” again.

 

For Bernanke, though, his view is that the costs of such policies “appear manageable”, so one should not rule out the further use of such policies if economic conditions (in the United States , that is) warrant.

 

The US Federal Reserve implemented the first round of its QE programme, worth US$1.25 trillion (RM3.89 trillion) from late-2008 through the middle of 2010. The second round, or QE2, which was worth US$600bil, was implemented from November 2010 through June 2011.

 

The controversial QE2 set off rallies in the global financial markets, and over the period of its implementation, led to the rise in global commodity prices. That's why some critics have blamed QE2 for 2011's high inflation, especially in Asia , and some even claimed that QE2 has played a role in sparking the Arab Spring.

 

Actually, the United States has little policy options left to boost its sluggish economy, which remains stuck with unacceptably high unemployment levels. Further fiscal spending seems out of the question, as the US government's debt is already approaching its mandated limit, so monetary tools seem to be the only more viable options.

 

The Asia …

 

For emerging economies like Malaysia , a highly accommodative monetary policy in developed economies, which has generated higher global liquidity, has led to higher capital inflows.

 

These inflows have resulted in significant strengthening of our currencies, rising asset prices, credit growth and, for some, overheating conditions in our economy.

 

Emerging Asian economies remained “vulnerable” to global financial shocks.

 

Indeed, the global economy has been to the brink and back a number of times over the past four years (2008-2011) because of different levels of shocks. The eurozone, for one, has presented many “make-it-or-break-it moments” with regards to the survival of its currency, and caused panicky moments to others.

 

While Asian economies have still been able to enjoy relatively healthier growth since recovering from the onslaught of the 2008/09 global financial crisis, there are rising concerns that the region could find it difficult to sustain the momentum amid the ongoing weakness of Western developed nations in a highly-correlated world.

 

With mounting evidence that China 's economy is already slowing, market observers are hoping that the country's policymakers would soon unleash huge stimulus measures to prop up its economy. China's growth is crucial to the region, as the world's second largest economy has become its neighbours' major trading partner in recent years amid slowing demand from Western developed nations.

 

According to economists, the key for Asia to pull ahead of the global economic uncertainties is to undertake structural reforms that could boost its institutions and promote domestic demand. This, they say, is a more sustainable way to promote growth in the region.

 

Emerging Asian economies has to implement an important policy shift to rebalance their economies and diversify their sources of growth and promote domestic demand, in particular domestic consumption. However emerging Asian economies are already changing from being export-led to turning to domestic demand as an important source of growth.

 

Conditions for the Western developed economies are unlikely to get better anytime soon despite their governments having almost exhausted all policy options to restore their economies.