BJtoto

After years of enjoying high dividend payout from cash rich BJToto, investors could be in for lower dividends for full fiscal year 2013.

The lower dividend payout is due to mainly to the company’s need to maintain a comfortable level of retained earnings to undertake the listing of STM as a business trust on SGX and thereafter pay out special cash dividend and distributing bulk of the trust units to shareholders.

Given that he group is unlikely to declare more dividends until the listing of STM-Trust, market observers anticipated no dividend to be declared in 4QFY2013.

BJToto is expected make a capital repayment of more than 40 sen per share from an offer for sale/placement of STM-Trust shares to be listed in SGX, and latter a dividend in specie of STM-Trust shares pending approval.

The restructuring would expand its shareholder base, provide access to cheap financing and halve gearing to 0.6 times.

The listing of STM-Trust is expected to be completed in April 2013. The listing will raise about rm1.24 billion.

BJtoto announced on June 5 2013 that it would transfer its entire equity interest in STM, which holds the lottery license to STM-Trust in a deal valued at rm6 billion.

Generally, market observers are not excited over the prospects of STM-Trust’s listing in Singapore due mainly to the earnings dilution faced by BJtoto shareholders post listing of STM-Trust.

BJtoto risks being overlooked as investors may choose to buy STM-Trust directly potentially yield 6% or MPHB which offers exposure to the resilient Malaysian NFO.

The combined effects of upcoming dilution of its interest in STM arising from its injection into a business trust but partially compensated by capital repayment and potential de rating as a holding company post listing of the business trust.

Market observers advice investors to switch to MPHB as it is expected to be re rated on potential domestic gaming liberalization, capital management and cyrstalization of hidden intrinsic value in non gaming assets. MPHB will be a pure NFO stock once the demerger is completed sometime in 2013 due to exposure to its pure gaming and dividend play counter.

Once the listing of STM-Trust is completed, BJTOto will be reduced to a holding company with only its Philippine operations and the STMM trustee manager as revenue generator sources.

As such, it is widely expected for BJtoto to be delisted at a later date following the completion of the listing of STM Trust. It does not make sense for BJtoto to maintain its listing structure just to hold investment in a trust.

In the event that happens, MPHB will be the sole counter with direct exposure to the resilient NFO market.

About MYEG

Its results for the first half of FY2013 financial year (1HFY2013, from June 2012 to Dec 2012) posted a pre tax profit and net profit both grew by 21% from rm6.7 million to rm8.1 million in the quarter. Revenue for the quarter rose by 13.1% from rm16.9 million to rm19.2 million.

Market observers expect stronger earnings in 2HFY2013 (Jan 2013 to June 2013) which is seasonally much stronger and traditionally contributing about 50% more than 1H especially for the Road Transport Department business.

The demand for new driving licenses generally increases in the second half of MYEG's financial year due to the long school holidays after the government exams as most 16 to 20 year olds obtain their driving licenses between Jan and June.

Its prospects remain bright due to its business model, defensive qualities and scope for earnings growth through new business opportunities and services.

The company's earnings are poised to accelerate, spurred by the introduction of new JPJ and immigration related services while the customs tax monitoring service will be the wildcard over the longer term.

The company's services are seeing increasing market share and customer experience. The underlying market for its range of services is large, with recurring demand, supported by the growing popularity of online services.

Its near term earnings will continue to be driven by its JPJ services, namely road tax renewal and insurance premiums, while the introduction of new services, such as the online vehicle registration service, will spur growth.

These services are supported by the large number of vehicles and drivers and high transactional frequency.

The Dec quarter is traditionally the weakest in terms of road tax registration, as many buyers tried to defer their car purchases until the following year to obtain a higher resale value for their vehicles.

In Dec 2011, MYEG launched the first phase of its online vehicle ownership transfer service, comprising the temporary transfer ownership service. In Oct 2012 the service was upgraded to a full online vehicle ownership transfer system, which covers all sale and registration of second hand vehicles. More meaningful contribution is expected in the coming quarters as more people become aware of the service.

The potential market is around one million transfers annually for used cars making this a potential rm35 million market to tap into. After this, MYEG plans to expand the service to new car registration and introduce an online registration number bidding system.

Immigration services will be another major driver of growth going forward. Launched in April 2010, the service involves the online renewal of foreign workers' permits. Initially the service only covered domestic maids but in Feb 2013 MYEG extended it to cover all types of foreign workers.

The impact of this expanded service should be felt in the coming quarters (2Q2013) but more noticeably in FY2014. The potential market size is around four million foreign workers' permits per year making this a potential rm200 million business.

As for the customs tax monitory service, MYEG has already completed the pilot project and is now (March 2013) awaiting the government's response. The scheme will initially focus on category C and D businesses, restaurant and entertainment outlets. The potential market is large. The service tax base is around rm4 billion which is evenly split between category C and D businesses on one hand, and professional services plus gaming on the other.

Under the customs tax monitoring scheme, MYEG has a 40% stake in a special vehicle that will link up point of sales terminals of businesses that are subject to customs' service taxes. The SPV will undertake the programme and install a software at each POS terminal for the link up = at its own cost. In return, the SPV will receive a 20% share of the taxes that were previously under declared with 80% going to the government, with a base growth imputed.

This could boost earnings from FY2014 onwards, although capex is also high at rm100 million for Phase 1.

It is worth nothing that the customs tax monitoring service is compatible with a GST regime that is widely expected to be implemented at a later stage. This will give the company a potentially wider earnings base, if it is given the rights to administer the system.

Puncak Niaga

In a clear attempt to break the deadlock between the Selangor government and Puncak Niaga Bhd, the state has invited the water treatment concessionaire to jointly meet with PAAB to resolve outstanding issues in relation to the latest offer by KDEB to take over the water assets in the state.

This comes hot on the heels of Puncak Niaga’s response to KDEB’s offer in late Deb 2013 stating that they had to resolve certain issues with PAAB before the board could consider the offer.

Puncak Niaga wanted to clarify the offer with PAAB before taking any action.

The Selangor government, through KDEB, has been trying to privatize the state’s water concessionaires for the past four years. KDEB got the mandate from the federal government in Feb 2008.

Khalid says KDEB should have no trouble raising funds for the acquisition.

Once KDEB takes over the water concessionaires, it plans to sell the water assets of these companies to PAAB. PAAB has already been acquiring PNSB and SYABAS’s debt papers, which are now (March 2013) worth less than rm4.99 billion.

If the consolidation exercises takes place, PAAB will act as the holding company of all the water assets. The state will create a SPV to manage and operating the water assets using an asset light model. The SPV will then leases the assets in return for an estimated lease payment of between 3% and 4% which is PAAB’s cost of debt.

Keck Seng

There is speculation of a corporate exercise cum special dividend at keck Seng Bhd.

It is a Singaporean run and low profile property and oil palm estate owner

Market observers opine that its asset are worth rm8.60 per share.

Its assets include 1850 acres of land surrounding JB that were valued 30 years ago. It is primed for a major re rating … and a share bumper dividend by virtue of its section 108 (Tax Credit) balance that expires in Dec 2013.

It was also speculated that its assets can spun off into a REIT.

Its businesses range from oil palm estates and property development to share investment and running hotels and resorts, is only one part of the wider Keck Seng group, the other vehicles of which include HK listed Keck Seng Investments Ltd and Keck Seng Pte Ltd.

The group’s assets include residential properties in Singapore, KL, Johor and Macau. It also owns Riverview Hotel and the Keck Seng Tower office block in Singgapore, the Sheraton Saigon Hotel & Towers and Caravelle Hotel in Vietnam, Holiday Inn Riverside Wuhan, Sheraton Ottawa Hotel and W San Francisco.

Of these assets, the Doubletree Alan Waikiki Hotel in Hawaii. Doubletree Toronto Airpot Hotel and Tanjung Puteri Golf Resort in Johor are housed under Keck Seng Malaysia.

At this juncture, what is certain is that a lot more can be done to unlock the value of Keck Seng Malaysia whose cash pile doubled in FY2010 after it acquired a takeover offer for its Parkway Holdings Ltd shares. Keck Seng made a bonus issue in 2010 bit has paid out less than rm30 million in dividends a year.

Cash and short term investments stood at rm761 million or rm2.11 per share as at Dec 31 2012. Including investment securities, Keck Seng’s liquidity assets made up of rm3.47 per share.

This means investors pay only rm593 million (rm1.63 per sharea) for the rest of Keck Seng’s assets, which include plantation, the hotel in Hawaii and Toronto and a mall in Johor. Most of these assets are virtually free given that the Menera Keck Seng office block in Jalan Bukit Bintang is carried in its books at a 1996 valuation of only rm56 million or rm212 psf floor area.

Market observers value Keck Seng’s plantations at rm383 million or rm1.06 per share. The company has 3411ha of mature estates in Johor with palm trees averahing 16 years plus 246ha of immature estates.

Its biggest earnings generators were property development, share investments. Plantations and hotels.

Keck Seng is only about 30% owned by the Singapore based Ho family led by its executive chairman Ho Kian Guan and his brother and MD Datuk Ho Kian Hock. 66% of the Keck Seng is in the hands of 30 shareholders.

RHB Cap

RHB Cap: In an effort to create better value and improve tax efficiency, there is a proposal to restructure RHB Cap Bhd in an exercise that will lead to its privatization. The extensive proposal suggests that RHB Bank be re-listed later and the banking group be enlarged with the subsequent injection of MBSB at a later stage.

The rationale for the proposals is to prepare the group to meet changes in the upcoming new FSA as well as to create a more efficient platform for dividend payments and further strengthen the capital base.

The timing of the restructuring and whether the major shareholders of the group – which include the EPF – are agreeable to the proposal remain unknown.

The EPF holds 41% equity interests in the group, had yet to respond to such speculation. The two other major shareholders of RHB Cap are Middle East based Aabar Investments, with a 22% stake, and OSK holdings with 9.8% stake.

At rm8.30, the stock is still trading at a cheap valuation of 1.2 times.

With the OSK acquisition completed, RHB Cap has another target on the table – Indonesia’s Bank Mestika – and thus, it is not surprising that its major shareholders are exploring avenues to ensure its capital base remains strong.

Banking observers are expecting the group to make a rights issue soon. The company maintained it was likely to contemplate a rights issue but hinted that the size of the issue would likely be only slightly larger than the cost of rm651 million to acquire Bank Mestika. This is less than its initial assumption of rm1 billion.

Speculation over a merger and acquisition exercise between RHB Cap and MBSB has always been there because the EPF is the largest shareholder in both financial groups.

The EPF currently (March 2013) has two good financial assets in its table – MBSB and RHB Cap.

About KSL...

Its Prospects … dated Jan 2013

It is a natural beneficiary of the real estate boom in the southern state of Johor.

The Ku’s family owns over 50% of KSL, the fourth largest landbank owner in Iskandar Malaysia with 1500 acres.

The company had not revalued its property assets for 10 years and market observers see upside potential in its Nusa Bestari and Kempas Indah parcels. The book value of Nusa Bestari is rm58 million or about rm12 psf while that of Kempas Indah is rm74 million or rm18 psf.

These tracts are worth more in Jan 2013 and add significantly to KSL’s net asset value (NAV) given the company’s low historical cost for the assets.

KSL’s NAV amounts to rm956 million or rm2.47 per share.

The real game change for KSL are its Bestari and Kempas Indah projects both are strategically located near the second Link Highway and JB city centre.

Apart from property development, KSL also owns KSL city mall and KSL Resorts as well as Giant Muar and GiantNusa Bestari.

It is believed that KSL City Mall and KSL Resorts and the two hypermarkets are generating rm50 million to rm60 million in rental income a year. These properties are expected to contribute even more significant recurring income given that the retail mall and hotel business are in the early cycle or operations.

KSL is a potential REIT owners.

A revaluation of KSL’s assets will widen the discount gap to its NAV.

In the Klang Valley, KSL has more than 400 acres with the rest of its total landbank of some 2300 acres in Johor.

Based on the current (Jan 2013) share price, the Ku family will need to fork out more than rm300 million to take the company private. The privatization talk came over ayear after Tan Sri Syed Mokhtar’s privatization of UM Land and Tradewinds Corp Bhd which has landbank in Johor.

The chairman and largest shareholder of KSL, Ku Hwa Seng has denied talk about privatizing KSL.

Earlier there are rumors in the market that KSL could potentially be a privatization target.

There are several factors why a privatization is possible …

KSL has been undervalued.

Many property players are building up their landbank in Iskandar, either via direct acquisition or privatization of companies. These include tan Sri Syed Mohktar who has made privatization offers in 2012 to UM Land and TWS Corp which own substantial landbank in Johor. Given the trend, the Ku’s brothers may privatize the company given KSL owns two valuable property investment assets – KSL City Mall and KSL Resorts. These two assets and two hypermarkets are currently (Jan 2013) generating rental income per year and are likely to have more material contribution given that the retail and hotel are in the early cycle of operations.

If a privatization comes true, the Ku’s family will need to fork out about rm200 – rm250 million to fund the acquisition, which is manageable for the family given the assets in hand.

The offer price could potential be 1.85 – 1.90 per share.

About Power Root

Power Root develops, manufacture and distribute various beverage products such as coffee, tea and herbal energy drinks fortified with two main rainforest herbs i.e. "Tongkat Ali" and "Kacip Fatimah".

Coffee, Energy drinks, Chocolate and Tea account for 77%, 12%, 5% and 5% of its total sales respectively (9MFY13) under the brand names of Ali Café, Per'l Café, Oligo Café, Power Root, Per'l Ali Tea and the Ah Huat White Coffee. 

Through its subsidiaries, Power Root has successfully penetrated into 35 countries from the initial two (Brunei and UAE) in 2006 as it forges ahead in replicating its success experienced in Malaysia.

The revenue contribution from overseas markets have grown to 32% of its total revenue, with new markets being developed such as Philippines, Algeria, Maldives, Somalia and Australia in 9MFY13. Plans are also underway to expand into Singapore and Hong Kong. Its top export destinations are the Middle East and Africa, which account for 87% of its total exports by revenue.

The group recorded a 116.7% YoY surge in its 9M13 net profit  (from RM11.7m in 9M12 to RM25.4m in 9M13).

This was due to: 1) an increase in the local and export sales of the group's FMCG business and 2) A c.RM3.4m (RM2.1m in 2Q13 and RM1.3m in 3Q13) one-off gain on the disposal of properties. Excluding the exceptional gain, the net profit still came in ahead of our revised FY13 full-year earnings projection of RM26.9m.

Power Root's export sales have been particularly impressive. The group's export sales have grown from just RM1.7m in FY06 to RM65.2m in 9M13 with the Middle East and African regions making up most of the exports revenue (about 87% ).

Going into FY14, management aims to grow the full-year contribution from this segment to RM130m. Expect a significant scope for further growth here and in other countries as well going forward.

It has a strong foothold in Malaysia, with 18-24% in Coffee and 29-33% in Energy drink market shares. Market leader in the UAE coffee premix market. However Increasing contribution from exports could cause a seasonality effect on the group's revenue.

Going forward it could set up a production facility in the UAE to support growth and reduce delivery lead time in the Middle East and African regions.