Sunday, February 24, 2013

Digi Prospect


Its Prospects … In its 4QFY2012 results, it reported a net profit of rm256 million which represents a drop on a year on year basis anda 22% drop on a quarter on quarter basis. The drop was mainly caused by higher than expected depreciation, which could recur in 2013. At this juncture, the telco is still vulnerable to profit taking.

Its 4QFY2012 dividend of 2.5 sen brought FY2012 dividends per share to 26.3 sen representing a 170% dividend payout. The aggressive payout leaves year end 2012 shareholder reserves at only rm184 million (2.4 sen per share), just sufficient to offer 4Q DPS. Hence DIGI is constrained to 100% dividend payout going forward.

Nevertheless, the normailization of depreciation going forward means net profit could exceed enterprise free cash flow beginning 2014 allowing the company to return excess cash to shareholders and negating the need for a business trust.

DIGI is currently (20 Feb 2013) trading at an unfavourbale historical PER of 29.7 times and a dividend yield of 3.98%.

However view positively the stock could still represent pretty good investment for a more risk averse investor taking the long view. Investors can expect to earn fairly good net yields with the prospect of earnings mometum kicking higher going into 2015.

After distributing nearly rm8.9 billion back to shareholders in the form of dividends and capital repayment in the past six years – equivalent to 130% of total profits during this period – DIGI is set to bring payout levels back in line with earnings. The company has indicated no further capital management initiative in the works, at least for now (Feb 2013).

While there has been much talk about the company adopting a business trust structure that would allow it to pay dividends from fee cash flow as opposed to net profit, the listing framework is still being finalised by regulators. Hence even if DIGI is keen to change its status, this will not happen in the near future.

As such, expect dividends to be capped at its annual profit in 2014.

Market observers are optimistic about its underlying earnings growth, which will pickup momentum going into 2014 and 2015 with catalysts from several fronts.

Expect to see a gradual crystalization of cost savings from both its network modernization exercise and collaboration with Celcom Axiata Bhd. The former is targeted for completion by mid 2013. Cost savings from the sharing of telecommunication sites, access, aggregation and trunk fibre transmission with Celcom – in terms of both capital and operational expenditure – should start to kick in 2014 and increasing in 2015.
Second with the completion of the network modernization, which will be LTE enabled, DIGI will boost its high speed broadband coverage and capacity. This will rejuvenate the company’s push in the mobile broadband market segment, which has been held back since 2011, and in particular, sales for popular tablet devices bundled with data packages. Meanwhile DIGI has expanded its 3G coverage to 67% of the population nationwide and targets to hit 80% by end 2013.

The twin boost in coverage and capacity will allow the company to tap into new market segments and gain market share.

It is believed that the take up rate for 4G will be faster than that for the previous generation on the back of increasing prevalence of smart devices as well as availability of wide ranging content and applications. If is the general consensus that data usage will spur growth going forward, offsetting saturation and gradual decline in voice.

Wednesday, February 20, 2013

AZRB

It has entered into a concessions agreement with the government for the construction, completion, operation, management and maintenance of the EKVE highway.

The construction costs are estimated to be tm1.55 billion. The government has agreed to provide a loan of rm635 million with an annual interest rate of 4%.

The rm1.55 billion EKVE is more than the value of AZRB’s order book for the whole of 2012 which amounted tm rm1.44 billion. The award is expected to significantly expand the company’s construction business order book that currently (Feb 2013) stands at about rm2.3 billion.

The concession agreement is expected to contribute positively to AZRB’s earnings and net tangible assets for future financial years.

Its net assets per share was 74.7 sen as at Sept 2012.

In 2012, it won contracts with a total value of rm1.44 billion. The contracts came from the award of lumpy work packages from the Sungai Buloh-Kajang MRT Line project.

While the long-awaited East Klang Valley Expressway (EKVE) contract is expected to boost AZRB construction order-book by more than 50% to nearly RM4bil, the RM1.55bil award may not prove so lucrative in the near term.

The concession, for which the letter of intent was reportedly issued in 2007, comes with a period of 50 years as well as a loan from the Government worth RM635mil attached to an interest rate of 4% a year.

The highway contract increases AZRB's order-book to RM3.8bil from RM2.3bil as at end-September 2012, but it was a near-term negative to the company's financials as the loan would add some RM25.4mil in interest expense to the RM9mil it was already servicing each year.

AZRB's gearing level was also set to rise to 1.16 times from 0.25 times currently (Feb 2013)

The construction will take at least three years to complete from 2013, and toll revenue from this expressway is unlikely to boost the group's revenue at least until fiscal 2017.

The expressway was not a “game changer” for AZRB, which mostly undertakes Government-based infrastructure projects.

The fact that the Government had to extend a loan means AZRB's balance sheet alone can't handle it. Nonetheless, the firm has the ability to execute a project of this size based on its track record, which includes the Lebuhraya Pantai Timur in Terengganu.

Critics however said that the contract offered AZRB “two bites on the same cherry” from construction profits over the medium term and recurring toll profits over the longer term.

Tuesday, February 19, 2013

IRCB

The government’s CDRC has agreed to help in its debt structure plan and a substantial shareholder has acquired more shares from the open market.

On Feb 8 2013, the CDRC has approved its application for assistance to mediate with its creditor banks over loans of rm16.89 million defaulted in Dec 2012.

The company is required to submit restructuring scheme which must comply with CDRC’s restructuring principles for IRCB to remain under the Informal Standstill Arrangement with the bankers within 60 days from Feb 6 2013.

Also IRCB’s substantial shareholder Lau Joo Yong had acquired some 4.13 million IRCB shares on Jan 31 2013 from the open market, thus raising his stake in the rubber glove company to 7.57% stake. Lau also bought some 1.2 million IRCB shares from the open market on Jan 29, 2013.

If a substantial shareholder is picking up IRCB shares, it usually means that he has confidence in the future of this PN17 company.

On 22 2013, it was facing possible winding up procedures if it failed to pay back its rm16.89 million debts to Malybank Bhd. There would be major impact on its financials and operations should the winding up proceedings be taken upon the company.

Cheang was appointed as MD of IRCB, following the resignation of major shareholder Tan Keng Beng, after his family sold a 10.89% stake to Cheang via an off market deal. The Tan family has since to cut down its stake in the company further. On Feb 5 2013, the family sold some 30 million IRCB shares via off market transaction. As a result, the family is now no longer a substantial shareholder.

Cheang emerged as a substantial shareholder in IRCB on Jan 4 2013 following his acquisition of 65 million shares at 15 sen per share.

IRCB made a cumulative net loss of rm18 million in the nine months ended Oct 31 2012.

Friday, February 15, 2013

IWH/Tebrau

IWH is 60% controlled by entrepreneur Tan Sri Lim Kang Hoo through Credence Resources Sdn Bhd while the remaining 40% is owned by KPRJ, a unit controlled by the Johor government. IWH controls listed Tebrau Teguh Bhd.

Soon to be listed IWH is a also a major player with 4000 acres in Danga Bay, Tebrau and Johor Baru while Sunway has 1558 acres. Tebrau Teguh is seen as a good proxy for IWH.

The listing of Iskandar Waterfront, a major developer of important parts of JB, is expetcd to raise more than US$300 million (rm900 million).

Tebrau is a waell connected company and investors see it as benefiting from the many projects in Iskandar Malaaysia.

In Dec 2012, its unit Tebrau Bay Construction Sdn Bhd was appointed a building and infra work contractor worth rm335 million.

As at end Sept 2012, its net assets per share stood at rm0.78.

The impending mega initial public offering (IPO) of IWH is hoping to lock in some global names in the property and investment world as cornerstone investors.

Among possible candidates are Singapore's Temasek Holdings Pte Ltd as well as its associate company Capitaland Ltd <http://archives.thestar.com.my/search/?q=CapitaLand%20Ltd>  one of Asia's largest real estate companies.

Also being wooed are Hong Kong investors in the likes of Malaysian Robert Kuok and other players there.

The Kuok group has diverse business interests as well as a significant property division under Kerry Holdings Ltd that has projects in Hong Kong, Macau, China and Australia.
Aside from these, IWH is also wooing big funds in the United States such as BlackRock Inc and Franklin Templeton.

BlackRockis a fund-management company based in New York with more than US$3 trillion (RM9.27 trillion) under management. Investment firm Franklin Templeton is headquartered in California and has more than US$800bil worth of assets under management.

The IWH IPO, slated for a listing in the middle of 2013, is set to raise close to RM1bil. However, some reports have indicated that the figure could be much higher.

Some familiar names from the list of IHH Healthcare Bhd investors may potentially emerge in IWH's listing as well, such as Vanguard Group Inc, Bank of NY Melton Corp and Morgan Stanley.

Both the EPF and Khaznaha Nasional Bhd have indirect stakes in IWH, held via Iskandar Investmebt Bhd.

IWH's vision is to create an international waterfront destination. It has some 1,619ha in Iskandar Malaysia, Johor, which comprises three main areas: Danga Bay, Johor Baru City Centre and Tebrau Coast.

IWH is 60% owned by Tan Sri Lim Kang Hoo via Credence Resources Sdn Bhd. The Johor government, through Kumpulan Prasarana Rakyat Johor, holds the remaining 40% stake. However, sources said that this structure could change in the process of readying IWH for its mega listing.

IWH's waterfront project will have a reported gross development value of about RM80bil. When completed, Iskandar Waterfront will be a waterfront city fronting Singapore.

Some sceptics are questioning the attractiveness of IWH to investors on the basis that it is seen as a “one-project real estate company”.

On the other hand, bankers who are more bullish about the deal reckon that there are many reasons investors would be keen to have a slice of IWH. These include IWH land's proximity to land-starved Singapore and the high plot ratios that IWH has in comparison to companies like UEM Land Holdings.