GKent - expansion the capacity

It is looking at extending its reach in manufacturing water meters within Asean.

Since it exports to more than 20 countries, it is reviewing whether it would be feasible to build a plant outside Malaysia.

It is constantly expansion the capacity of its plant because the demand for water meters is extremely good.

Its biggest export market is Vietnam.

The water meter manufacturing business is the group’s core revenue earner.

The group is also looking at construction as its next core business. It will be looking at the construction of water infra and treatment plants as well as the transport sector as part of the business transformation.

Its construction and manufacturing divisions used to be on par in terms of earnings contribution. However, the construction business has since overtaken manufacturing.

It had in July 2013 received a contract for the engineering, procurement, construction, testing and commissioning of system works for the Ampang LRT Extension Project.

It was reported earlier that GKent & Johan, both controlled by Tan Sri Tan Kay Hock (said to be Najib’s golf buddy)…'

CPO Industry

The high valuation of Malaysian plantation counters compared with their historical trading range has not deterred investors from ploughing money into the stocks as CPO prices trend higher.

With production going into low season, weather factors and the acceleration of biodiesel mandates in Malaysian and Indonesia, CPO prices could move higher.

There are number of key factors that could push CPO prices to reach 2700 per tone by March or April 2014.

Inventories are lower than expected earlier and then there was the biodiesel announcement in Indonesia. In Indonesia, under the Energy and Mineral Res, varios sectors including transport sectors including, industry and energy raised their minimum use of biodiesel in Sept 2013.

A third factor is the weaker support for biodieel from the US and the European Union, which would narrow oilseeds’ premium over CPO, making former more competitive.

Historically, if the gap gets narrower, users switch for food away from palm to these other oils. That’s what is going to slow the decline in palm oil stocks. So while there is upward pressure on CPO prices, it will be limited by the switch to oilseeds.

Poor rainfall in important production regions in Indonesia has affected production in 2013 and this is expected to spill over to 2014.

There are also restocking in China ahead of the CNY...

Typhoon Haiyan, which destroyed a sizeable area of coconut crops in the Philippines has also pushed CPO prices higher.

Technically, the CPO prices broker through the rm2500 level. Supported is at rm2500 and resistance is rm2700 to rm2800.

Genting Plantations is now (Nov 2013) trading at 20.9 times. TSH at 18 times and KLK at 22 times.

M-REITS - impact by assessment rate

M-REITS with property in the city centre may see some impact on their bottom lines in 2014. If a proposed assessment hike by KL City materializes.

Various reports have that DBKL has proposed to increase the annual value of properties of which the assessment rate is based, by between 100% and 300%.

This will be another stumbling block for the property sector that was also on the receiving end of cooling measures announced in Budget 2014 such as higher real property gains tax.

For REITs, a higher assessment would translate into higher operating expenditure, which would impact net profit.

Presently (Nov 2013), residential properties are taxed at 6% and commercial ones at 12% on the annual value. Industry players believe that DBKL does not intend to raise the tax rates but rather, revise the valuation of properties on which the assessment tax is levied,

This implies that the expectation is for the annual value to be restarted by as high as 100% to 300% on existing valuations.

Those impacted will be existing projects where the market value has not been updated recently. So newer developments should be fairly insulated.

The assessment tax rate is levied on the annual value of a property on a semi annual basis.

These rates vary for different types of residential properties in different localities and is payable in two installments annually.

DBKL has the right to review the assessment once every five years but has not done so for 21 years. The chargeable rates are at the discretion of the local council as long as the rates are less than 35%.

Airasia VS MAS

Airasia got the better out of the price war with MAS, although both airlines’ financials were hammered in the third quarter due to excessive discounts thrown to win passengers.

Going forward, most were of the view that Airasia would suffer less from a continuing price war, given its lower cost structure. While some said MAS could try to sustain the price war, that’s premised on the MAS being able to contain its operating costs.

Airasia stood a better chance than MAS when it comes to cutting prices. Airasia’s main focus is cost reduction and load factor optimization, where it had been making positive progress.

Airasia is handling it rather well. They are deploying modest capacity growth of about 10% and not fixated on battling for market share. However MAS could sustain the fare war better had it not over discounted its tickets.

MAS took on wrong strategy in the third quarter. It was more focused on passenger load. Had it been more selective in the discounts, it would have made profits during the price war.

MAS brought fares down sharply in the 3Q, even though its cost of operations is substantially higher than the low cost carrier. The idea was to gain traffic and increase the top line which should have helped the bottom line as well. But that assumption did not hold.

Operating costs increased as flights were fully booked but MAS did not churn out enough profit due to the high discounts in tickets to compete in the industry.

Being too focused on load factor will cause problems, you need to be balanced so that you achieve a decent level of yields.

Fund Flow

Foreign selling of Malaysian equities has tapered although the overhang of foreign portfolio capital which entered the Malaysian equity market in 2013 remains high at net RM5.2bil.

Outflow fell to net RM525mil in the week ended Nov 22 2013, compared with net selling of RM1.39bil in the week ended Nov 15 2013.

In the last seven weeks, RM3.5bil net of foreign portfolio capital had left Malaysian equity. During the six continuous weeks, from July 29 to Aug 6 2013, net outflow triggered by the US Federal Reserve’s tapering decision resulted in a staggering RM8bil of foreign money exiting the market.

In the week ended Nov 22 2013, the net selling by foreign investors as relatively sedate rate. Although foreign funds were net sellers every single day last week, the average was only net RM105mil per day, compared with net RM277mil per day the week before.

Foreign investors were net sellers in 31 out of the last 33 trading days on Bursa.

Since January 2011, the cumulative net inflow of foreign capital into Bursa is estimated to be at net RM20.8bil or net US$7bil (based on the weighted average exchange rate at the point of entry).

Local institutions showed aggressive presence in the market last week. Although they absorbed only net RM411mil, compared with net RM1.2bil the week before, participation rate surged to RM2.3bil, the highest in 12 weeks.

Local retailers were also net buyers, snapping up net RM113mil. The retail segment appears to be going through a buoyant spell now, with active participation, as total trade has exceeded RM1bil for four consecutive weeks now.

Carlsberg ... A Single SpeedBump But Resume Growth In FY2014

Carlsberg Brewery Malaysia Bhd appears to have hit a speedbump in its quest for shareholder value and earnings growth recently with the release of its third quarter results for the financial year 2013 (FY2013) ending Dec 31.

The company had reported its third quarter net profit falling by 37% in the year-on-year period to RM38.44mil while revenues fell by a smaller measure of 14.3% to RM352.12mil.

Carlsberg attributed this fall in performance to several factors in Singapore which was the stock rationalisation that started in the second quarter and locally, to a trade stocking up a month earlier due to the delayed Budget 2014 announcement.

It would not be a like-to-like comparison to compare the third quarter of this financial year to the same quarter in the previous year because of this sole factor.

The company maintains that the “green label” brand is still strong in Malaysia despite the intense competition, both from licensed competitors and the unlicensed market as well. Despite the challenges from the unlicensed market, which some industry observers say could hinder further growth by the licensed operators, Carlsberg maintains it is upbeat on being the fastest growing beer company locally.

The drop in its net profit in the third quarter results was more of a single speedbump in the road ahead and remains upbeat that earnings growth would likely resume moving forward in FY2014.

It is optimistic about its future and the beer industry into FY2014. In FY2014 the industry would see several positive events taking place that could spur revenue.

There are also three other events that could help in market expansion and sales namely Visit Malaysia Year 2014, the World Cup in 2014 and the unveiling an exciting Chinese New Year campaign for its customers in Malaysia.

Other environment positives that could be looked forward to is the young populace locally that would see their spending power build up over the year moving forward.

Other factors to consider are a possible pick up in the country’s economy in the fourth quarter 2013 and the brand equity or loyalty that could see either one company growing most likely at the expense of the other amidst strong competitive pressures.

Going forward, the share price has already contracted since the middle of 2013 and long-term fundamentals are always there as this is a duopoly business. The near term hiccups have already been priced into the stock at present (21 Nov 2013). Unless its earnings come in even worse than expected in FY13, this contraction has already been priced in. Growth trajectory will be picking up once again in FY14.

Despite this, the beer industry in Malaysia continues remain challenging and has been affected by cautious consumer spending. Some critics however remain sceptical, noting that this could actually signal underlying weakness for industry growth such as already reaching a saturation point amidst a very competitive market.

IPO - Titijaya

Titijaya’s listing will gauge investor appetite for property stocks as some opine that the industry is starting to slow down post Budget 2014’s tabling.

However its landbank in strategic locations in the Klang Valley, the developer will have the upper hand in investment merit considerations.

Its current landbank of over 4671 acres which has an estimated GDV of rm4.87 billion, will provide visibility earnings for the next five years from Nov 2013.

Its portfolio is diversified with products ranging from residential buildings to commercial and industrial projects.

Some of its key ongoing projects are Subang Park Homes, Seri Alam Industrial Park Zone, The Galleria and 3 Elements.

It will launch rm1 billion worth of projects in 2014.

It is raising rm122.56 million for working capital and land purchases in the Klang Valley and Penang.

It plans to adopt a 30% dividend payment policy.

Its substantial shareholder and promoters will hold about 61.7% of the company post listing.

It was reported that it may see an institutional investor emerging as its substantial shareholder. Sources say it is likely to be LTH and the LTAT.

JCY - profit to loss

It posted a net loss of rm61.61 million for the full year ended Sept 2013 against a net profit of rm427.29 million in the last financial year.

Total revenue slumped to rm1.59 billion from rm2.24 billion a year ago.

The overall poor performance was primarily due to weaker sales volume and lower prices.

JCY raised concern that mechanical component supply chain is becoming competitive, given the continued pressure on components pricing and possible over capacity.

Market observers are widening its FY2014 core loss by 1% while reducing its FY2015 core earnings by 5%.

Industry observers are of the view that JCY being a pure HDD component marker, is exposed to product concentration risk.

GAB - Stay Invested For Dividend Though Limited Upside

Brewery stocks appears have lost favor among investors, in start contrasts to the positive sentiment in the first half of 2013.

Although the sector was spared from higher taxes from the Budget 2014, volume demand for the malt liquor market has fallen short in the past two quarters.

GAB reported a declining 16.9% from the previous corresponding quarter to rm325.8 million. This was attributed to the company’s planned reduction in distributor stock levels. But the also indicates signs of weakening in consumer spending.

Domestic consumption has been robust over the past few years, fueled by easy and cheap credit. However, expect the outlook to be less rosy going forward.

The government is expected to continue with its subsidy rationalization plans for the foreseeable future – in order to rein in its budget deficit and public debt levels.

Weaker purchasing power would not bode well for spending on discretionary items such eating out and spending on beer. Thus, MLM volume demand may stay flattish.

Its share price are now (Nov 2013) trading roughly at 22 times annualised earnings for 2014, which may suggest limited upside gains in the near to medium term.

On a more positive note, shareholders can still depend on steady dividend income from the company. Cash flow from operations remain stable while its balance sheet is strong with net debt of just rm29 million as at end Sept 2013.

Assuming a payout ratio similar to that in FY2013, dividends are estimated to total roughly 68 en and 72 sen per share for FY2014 and FY2015 respectively. This would earn investors net yields of 4.3% at the current (19 Nov 2013) share price.

Aside from challenging operating conditions, weaker sentiment for GAB may also be partly attributed to high yielding stocks losing lustre amide expectations of a rising interest rate environment going forward – led by the world’s largest economy.

This will result in rising yields on risk free government bonds, making alternative investments such as high dividend paying stocks less attractive.

Indeed, evidence suggests that investors by and large do well by staying with companies with steady growth prospects – translating into rising dividends – over the longer term.

For GAB, domestic consumption will eventually regain traction, as rising disposable incomes offset the negative effect of higher price. Thus, do foresee better outlook in the long run, on the back of its strong market positioning and portfolio of brands.

Magnum - neutral

It should bracing for challenging times ahead as disposable incomes, especially among the working class, get squeezed by the rising cost of living amid the Government’s move to drive down subsidies.

Magnum’s net profit in the July-September 2013 quarter fell 10.49% to RM64.77mil from RM72.37mil a year earlier, due to lower debt costs and a better prize payout.

Turnover decreased 6.26% to RM702.39mil compared with RM749.31mil previously.

In the nine months to September 2013, net profit plunged 26.09% to RM214.87mil versus RM290.71mil in the comparable period, while revenue dipped 4.17% to RM2.25bil from RM2.35bil.

Magnum’s third quarter 2013 suggested that the business was bottoming out after the initial impact of subsidy cuts to consumer spending. It is also believes that Magnum’s fourth quarter 2013 will start to show positive quarter-on-quarter topline momentum, as the adverse impact of the subsidy rationalisation is absorbed and the benefits of the minimum wage policy start to filter through.

The impact of the goods and services tax (GST) looms in 2015, but expect the working class to absorb it relatively well since it replaces the sales tax and has exemptions on essential goods.

Suria Capital - bright outlook

Its outlook remains bright due to its stable and lucrative port concession in Sabah.

A Sabah state owned investment holding company due to its deep discount to its intrinsic value, which is underpinned by its port operations with stable cash flow generation and JV consideration from the development of Jesselton Quay.

It has also development of remaining landbank at Kota Kinabalu port and limited earnings risk as earnings trend is currently (Nov 2013) at inflexion point with multiple positive catalysts on the horizon.

Its earnings are predominantly driven by port operation which contributes 87.7% and 105% of its revenue and profit before tax respectively in the first half of 2013.

Suria could generate total free cash flow to equity of rm2.15 billion from the remaining tenure of the port concession (2014-2034) and JV consideration from the development of Jesselton Quay.

Currently (Nov 2013) it is exploring plans to develop the remaining seven acres land next to the 16.25 acre Jesselton Quay which is poised to be finalized in 2014.

Suria is involved in four business segments namely port operations, logistics and bunkering services, contract engineering and property development and ferry terminal.

Scientex

Its acquisition of Seacera Polyfilms Sdn Bhd is positive as it would enable Scientex to diversify into an essential component of the consumer packaging product industry, and also to gain a larger share of the market.

Scientex’s ongoing expansion plans and earnings potential within the manufacturing segment could accelerate the prospects of spinning off the group’s property division, which would be a re rating for the stock.

Scientex should not have any issues with funding as its net gearing ratio would only increase from 0.28 times to 0.35 times assuming the rm40 million is funded entirely by borrowings.

Better earnings prospects are expected on the back of new capacities and expansion plans.

This would enable the group to establish a foothold in the relatively untapped thin film market at the same time alleviating bottlenecks blown film capacity which would open up opportunities to utilize the excess capacities in its downstream printing and lamination segments which entails better margins.

Yellen Support For Continuing QE Policy

Janet Yellen signaled her support for continuing the central bank's US$85bil-a-month bond-buying until the world's biggest economy shows signs of a firm recovery.

She said unemployment at 7.3% was too high and reflected an economy running "far short" of its potential.

When unveiling the scheme in September 2012, the Fed had said it would only start winding it down when the economy was strong enough.

Meanwhile Federal Reserve Chairman Ben Bernanke said that the U.S. central bank would remain alert to preventing inflation from declining too far from its goal of 2 percent. And it is important that we continue to provide the necessary support to help put people back to work and keep inflation from falling too low.

The Fed's preferred gauge of price pressures facing consumers, the PCE price index, is running at slightly above 1 percent on a yearly basis. Bernanke said this was "too little."

The U.S. central bank has held interest rates near zero since late 2008 and quadrupled the size of its balance sheet to $3.8 trillion to spur growth and hiring through three rounds of massive asset purchases.

It has pledged to keep rates ultra-low until unemployment hits 6.5 percent, so long as the outlook for inflation stays under 2.5 percent. The October jobless rate was 7.3 percent.

These aggressive steps are designed to prevent price pressures from spiraling into Japan-style deflation, and Fed officials decided in October 2013 to keep buying bonds at an $85 billion monthly pace. Critics fear this so-called quantitative easing will stoke future inflation.

Bernanke said that these measures can be removed once the economy strengthens and when unemployment "falls to its sustainable level," referring to the maximum jobless rate the U.S. economy can tolerate without triggering inflation.

Then it will be important for the Fed to normalize policy, to begin to raise interest rates, to begin to reverse, in some way, quantitative easing, perhaps by just letting the assets we hold to run off, to mature.

IPO - Titijaya

Property developer Titijaya Land Bhd is looking to raise some RM122.6mil from its initial public offering (IPO).

RM30mil from the IPO proceeds was allocated to acquire additional land bank.

Of the remainder of the IPO proceeds, RM49.5mil will go into Titijaya's working capital, RM15mil to go into repayment of bank borrowings, RM24.3mil for repayment of advances from previous shareholders of its subsidiary Epoch Property Sdn Bhd and RM3.8mil for the listing exercise.

The group has completed a gross development value (GDV) of RM1.14bil and n ongoing GDV of RM1.08bil. In total, it has built over 3,000 homes within the Klang Valley.

The group will issue 81.7 million new ordinary shares an issue price of 50 sen each, at an issue price of RM1.50.

Of that 17 million new issue shares are for the public, six million for eligible directors and employees, 34 million for bumiputera investors approved by MITI and 24.7 million as placement for selected investors.

The listing also offers 49.5 million existing offer for sale shares at a RM1.50 offer price.

Upon listing, the group should have an enlarged share capital of 340 million ordinary shares of 50 sen each and 100 million redeemable convertible preference shares of 50 sen each.

It will pare down its gearing ratio to 0.44 times post IPO from 0.7 times.

Its total unbilled sales as at June 2013 was rm500 million. Its plan for 2014 is to launch a total GDV of about rm630 million worth of projects.

It is currently (Nov 2013) very focused in most of the prime locations in the Klang Valley.

Almost 99% of its income derived from property investment sales.

Yoong Onn Corp - small and beautiful

It is on an expansion trail to meet growing demand for home linen and bedding accessories.

Its home grown brands – Jean Perry, Novelle and Louis Casa are well known premium household brands in the local home linen and bedding accessories market.

At rm0.78 per share, it is trading at 0.62 times which is at a discount of 40% to its peers’ average of 10.4 times. It is also trading at 0.9 times its book value of 87 sen per share.

The company has achieved a good give year net profit compound annual growth rate of 14%.

The company is in a net cash position of rm7.24 million after taking into account borrowings of rm24.12 million.

Sales of premium department stores make up half of the total revenue.

YTL Power - future plan

In mid Oct 2013, it was reported that YTL Power stunned the industry when it outbid the likes of Tenaga, 1MDB and Malakoff for a tender to build and operate a 2000MW coal fired plant, Project 3B.

The tender will only be awarded early 2014 but sources say YTL Power’s bid of 25.12 sen per kilowatt hour was the cheapest when the documents were opened end Oct 2013.

With rm38 billion worth of bonds issued, it is no surprise that there is some urgency for 1MDB to list some of its assets to ease its financials. Nonetheless YTL Power is just as hungry for a new power asset as 1MDB.

Since building and operating the first IPP in Malaysia in 1993, it has not won any new projects for power plants. On top of that, the group’s two power purchase agreements for some 1212MW of capacity will expire in Sept 2015 after it failed to renew them.

Apart from putting in a competitive bid for the 2000MW power plant, the YTL group is also said to be a strong contender for the HSR project between KL and Singapore.

Sources say the group is also tipped to get the mandate to redevelop the old Customs, Immigration and Quarantine building in JB. YTL Is making inroads in Johor.

Winning a new PPA would be a huge catalyst for YTL Power, but whether it translates into cash dividends for shareholders remains to be seen.

On the one hand, the group’s rm3 billion foray into 4G broadband is at the tail end of capex and the business is on its way to breakeven.

However its CEO affirms that the shareholders will be rewarded going forward.

YTL Power’s dividends have been on the downtrend in the past three years prior to Nov 2013 with cash dividends stopping completely in 2013. At the same time, the group is sitting on a cash pile of rm9.6 billion.

The group had spent some rm842 million buying back 500.9 million of its own shares in 2013. These cash could have been returned directly to shareholders via a dividend.

Long term shareholdings like YTL Corp are definitely seeing the benefits. Some 250 million YTL Power shares were cancelled in Aug 2013, effectively boosting YTL Corp’s stake to 53%.

YTL Power’s cash pile of rm9.3 billion has not diminished in the past financial yearm supported by strong cash flows from its other segments. Even net debt remained relatively flat, standing at rm13.173 billion as of June 2013.

Moving forward, the group should improve as capex on the 4G rollout slows down. The group has just about spent the rm3 billion it had allocated for its 4G investment. There is going to be more capital outlay to upgrade to LTE but it will have enough cash flows to invest in the future without huge amounts like it had in the past.

With no clear visibility of it landing the 2000MW coal fired plants, investors of YTL Power will continue to monitor the group’s brandband business which is the only segment with high growth potential considering its other assets are the stable cash generating type.

The 4G investment will break even by 2014 and points out that the number of subscribers is approaching the half million mark, the breakeven point.

However its mobile broadband division is still making losses.

Notably, given the large capital outlay depreciation and amortization make up a substantial amount of the segment’s expenses so breaking even at an operational level could be much closer.

Note however the group is still in the process of rolling out its services in the under served Sabah and Sarawak markets, which could be a catalyst for subscriber numbers going forward.

WellCall - incresing dividend yield

A London based asset management company Mondrian Investment Partners Ltd with its growth story and attractive dividend yield.

It has its stake in the industrial rubber hose manufacturer and exporter by about 62% in less than two months. Between Aug 2 and Sept 19 2013, it bought 5.02 million shares to raise its shareholding to almost 10%.

Other funds include iCapital.biz holds 320000 shares in the company.

The company will increase its gearing to finance up to 50% of an estimated rm35 million to rm38 million capex in 2013 so it can maintain its close to 10% dividend payout ratio. It is also likely to take out some short term borrowings to sustain its 90% to 100% payout ratio.

Its dividend yields have also been inching up ... from 4.26% in FY2010 to 4.65% in FY2011 and 5.97% in FY2012.

The company’s main products are rubber mandrel and extrusion type hoses, used for air, water, steam, oil, chemicals as well as F&B in industrial applications.

Its main market is the rubber hose replacement market. Currently (Nov 2013), air and waste hoses contribute most to its revenue (43%), followed by gas and welding (20%) and oil and gas (31%).

Cash rich China-Based Companies

It is interesting to know that Malaysia listed China-Based Companies hold so much cash in hand and not even planing to distribute out as a dividend.

You may take a look on the table below: -
What are the intention behind it?
 

Net Cash For the China-based Companies
Company Name	CASH (FY2012)	Borrowings (FY2012)
CAP	218.76 million	12.10 million
CSL	1889.49 million	54.40 million
XingQuan	618.17 million	30.00 million
XiDelang	305.11	NA
Maxwell Intl	467.07	NA
MSports	488.78	27.50
HB Global	252.64	15.83
China Ouhua	142.53	NA
KStar	139.27	23.33

GBH - Freehold land in Jalan Segambut

It is ripe for GBH, which is 74.35% controlled by Tan Sri Robert Tan to develop its landbank in Jalan Segambut, following in the footsteps of its sister company FCW Holdings Bhd.

GHB owns about 12.92 acres of freehold land in Jalan Segambut, which is currently (Nov 2013) occupied by its bathroom ware manufacturing operation. The land and the factory buildings are carried at a net book value of rm114.44 million or about rm203 psf, based on the last valuation done in 2009.

The land, whose value could have gone up since then, is adjacent to the 15.41 acre parcel being jointly developed by FCW (which is also controlled by Tan) and IJM Land Bhd. The FCW tract, which was acquired from GBH in 2007, was valued at rm188 million or rm280 psf in the recent deal with IJM Land.

While FCW and IJM Land have yet to disclose the planned gross development value of their joint project, it has a GDV of rm1.2 billion that could serve as a yardstick.

A development of that size would have a significant impact on GBH if it chose to develop its Segambut land.

Tan’s plan is for FCW-IJM Land to take the lead in the area development, and perhaps learn from the project. GBH may develop its land slightly later as it still needs to carry on with the bathroom ware business at this juncture.

GBH is debt free and cash rich with a bank balance of rm42 million as at June 30 2013. By most measures, the company would seem an undeveloped gem, given the value of its land and cash holdings.

However, there is not much trading activity in GBH shares perhaps because Tan holds almost three quarters of the company.

Apart from GBH, several other companies linked to Tan, such as FCW and MAICA, have seen renewed interest following property related deals.

Tan owns a 25.00% stake in FCW. In MAICA, he owns 17.37% while daughter Tan Ching Ching has another 7.86%.

United Bintang, is which Tan is not listed as a shareholder of director of the company apart from an affiliation with its directors and shareholders.

UBB’s independent director Ong is a long time directors in Tan controlled Jasa Kita while another independent director, Lee Wu Jin is also a director in FCW and MAICA.

UBB is deal in used and reconditioned heavy machinery and equipment. However it plans to diversify into property development by re developing and refurbishing.

Lankaran Asia emerged as a substantial shareholder of UBB on Sept 2013. Datuk Ooi Kee Liang – the controlling shareholder of PN17 outfit Ideal Sun City Holdings Bhd – also acquired a 31.48% stake in UBB in Oct 2013.

Robert Tan and one of UBB shareholder Ong Huey Peng is a substantial shareholder in Marco Holdings Bhd.

Nevertheless GBH remains Robert Tan’s core holdings.

Cuscapi ...

An Asia's leading F&B solution system and managed service provider has embarked on an aggressive expansion drive to tie-up with more F&B outlets in China and other key markets in South East Asia, India and the Middle East in line with its target of achieving a 70% revenue contribution from its overseas markets by end-2015.

Overseas operations currently accounts for about 40% to the company's revenue. It now (Nov 2013) has direct presence in nine countries. China provided 50% of the group’s revenue for the first quarter of 2013. China is its single-largest international market.

It plans to open another seven more offices, of which four would be in the Middle East, ASEAN and India, and three in China over the next three years from 2013.

At present, Cuscapi's operations in India and in the Middle East was through supplying its F&B solutions systems to partners which would then install the relevant software and hardware in restaurants to facilitate the delivery process. Besides this, it also provide outsource call centre delivery services to restaurants. This new product allows the company to also get a recurring revenue and strengthened its income over the longer term.

Among the company's clientele in China are Bread Talk Group, Ganso Group, Qing Feng Bao Zi Pu Group, Yong He King ( part of JollibeeGroup), Xiabu-Xiabu and DG. In Malaysia, Cuscapi's clients, among others, are KFC, McDonald's, Pizza Hut, Papa Rich, Sushi King, A&W and TGI Fridays.

For the financial year ended Dec 31, 2012, the company's net profit stood at RM6.8mil compared with RM8.6mil in 2011 mainly due to continue investments and expenditure incurred in setting new overseas offices . Revenue for the period rose to RM58.9mil against RM53.6mil previously.

The completion of its corporate exercise which involved a rights issue and bonus issue had helped it raised RM29.6mil which would help in the expansion of new offices in China, India, Middle East and Asean.

Its potentially catalysed are stronger-than-expected demand for REV -- Cuscapi’s new commercial interactive tablet --- and potential M&As.

Twitter - IPO

Twitter aims to sell shares for between $23 and $25 apiece. The company plans to sell 70 million shares, which would raise $1.7 billion at the midpoint of the price range. With just under 545 million shares outstanding after the offering, that price would give Twitter an initial market cap of just over $13 billion.

Bullish observers estimated Twitter's fair value at $26 per share, and that shares could climb to $50 in a bull case. Should the service "become ubiquitous like Facebook, the investment case is unusually strong”.

Critics however said that the offering matched 92% of the characteristics of "Bubble-Era IPOs, a considerably higher figure than either Facebook or LinkedIn. Twitter is an earlier-stage company than FB and LinkedIn. In many ways, the Twitter IPO seems more reminiscent of the pre-2000 dot-com 'Bubble era' than other the tech IPOs in 2012 and 2013.

Shares of LinkedIn have more than doubled since the company's 2011 and Facebook, which had a rocky debut in May 2012, is one of 2013's best-performing stock and has gained more than 30% from its IPO price despite being cut in half within a few months of the offering.

A group of executives and founders, including CEO Dick Costolo, Chairman Jack Dorsey and co-founder Evan Williams, will own slightly over 22% of the company post-offering, while a group of institutional investors including Rizvi Traverse Management, JPMorgan, Spark Capital, Benchmark Capital Partners, Union Square Ventures and DST Capital will own approximately 46% of the shares.

Twitter is going public at a time when social-media stocks are all the rage.

On October 30 2013 Facebook’s share price, which had already risen by 84% till early Nov 2013, soared following news that its latest quarterly revenue had hit $2 billion. LinkedIn has seen its stellar revenue growth slow a bit recently, but its shares are still up 95% till Nov 2013.

Twitter has continued to increase its audience, and now (Nov 2013) boasts 232m users that visit it at least once a month. Observers opine Twitter is currently (Nov 2013) generating about $2.30 of revenue per user. That is much less than Facebook makes from its audience, implying Twitter has plenty of room to boost sales.

But they gloss over an important fact. Unlike Facebook and LinkedIn, which were making healthy profits before they went public, Twitter is still losing money—$134m in the first nine months of 2013 compared with $71m in the same period of 2012. These losses make it impossible to compare Twitter’s IPO with others using the traditional yardstick of a price-earnings ratio.

The challenge faced by companies with high ratios is to generate revenue fast enough to meet investors’ expectations. So far (Nov 2013), Twitter has only a microscopic share of the $118 billion a year global market for online advertising. Yet the fact that many people tweet on their smartphones means it is well-positioned to take advantage of growth in mobile advertising.

On the other hand the compact nature of its tweets, limited to 140 characters, means that Twitter will find it harder than Facebook to generate ad formats that mint money. And it now (Nov 2013) faces much stiffer competition from the social network and other companies such as Google in the mobile-ad arena.

Instacom/OCK - benefit from budget 2014

In the face of it, industry observers opine that telecommunication contractors OCK and Instacom look likely to benefit the most from the government’s plan to spend rm1.5 billion on boosting rural internet connection over the next three years from 2013.

The Budget 2014 aims to increase internet coverage in the rural areas by building 1000 telecoms transmission towers.

This is bound to create opportunities for OCK and Instacom to secure contracts which will contribute positively to their margins.

However with a market cap of just around rm220 million each, the two companies could lose some of the jobs to smaller unlisted competitors that are already in the field. After all, telecoms are not difficult to build.

It is believed that OCK and Instacom would not be able to take on the whole project because the two companies could bite off more than they could chew by taking on the whole projects.

Principally, involved in the provision of telecoms network services, OCK has been handling projects for MAXIS, Celcom and DIGI. The group has also been awarded the necessary licenses by the MCMC to be a network facilities provider.

Instacom which has a strong presence in the telecoms industry via new subsidiary companies acquired in Oct 2012, has been generating good returns.

Its services vary from telecoms, civil, electricity and mechanical services to turnkey build and finance and fibre infra.

With over 10 years experience erection of telecoms towers, Instacom has worked with such companies as Celcom, DIGI, MAXIS, P1, U Mobile and YTL YES.

After completing jobs in Sabah and Sarawak, it started taking on projects in Peninsular Malaysia in mid 2004 because of demand.

Perisai - MOPU

It was reported that Perisai has partnered with Takisman Energy Inc and is understood to have pulled ahead of at least two other competing bids to secure the production sharing contract for Block PM-9 which is expected to be awarded before the end of 2013.

The news is positive if the tender is secured as Perisai will be able to deploy the currently (Nov 2013) idle Rubicome mobile offshore production unit to revive this matured field.

If the MOPU starts work earlier or there are profit sharing terms to the PSC, there could be upside to its earnings.

The Rubicone MOPU is a very significant contributor to Perisai’s earnings (40% of FY2012 earnings).

Perisai is also pending a new charter for the Enterprise 3 barge.

In the most extreme cases, if Perisai does not secure a charter for the whole of FY2014, it could mean another estimated 15% cut to its current earnings.

Securing a long term job for the Rubicone will provide much needed earnings visibility to Perisai’s earnings going forward, at rm40 million to rm50 million in recurring profit. Furthermore, depending on the terms of the PSC, Perisai may also be able to receive remuneration from the field production.

To recap, it was reported earlier that have allowed for a break in charter for the MOPU for a period of nine months, starting Oct 2013 to June 2014.

If secured by end FY2013, it could take up to three to six months to get the production at the field back on track, and the Rubicone back in production.

MKH - plantation start going to contribute

Its move into the oil palm industry four years ago (2010) is beginning to pay off as the yield its 15000ha of planted area in Kalimantan has started to contribute to the group’s profile.

The group’s property development business continued to perform well, but it was its plantation division that stole the limelight for its 9MFY2013 financial results.

It will strive to achieve an even contribution between its two core businesses of property development and oil palm plantations.

However, its financial results are still heavily dependent on the property development and investment divisions.

Since its oil palm business is still in its infancy, most of its palm trees are inmature, having been planted less than five years. It now claims to have planted 15000ha.

It was reported that 77% of the planted trees were in mature at the time. But it is likely that more of the trees have started fruiting now.

Its oil palm venture, however pushed up its debt because it had borrow heavily to open up its plantations. Total borrowings had grown to rm500 million in FY2012. Its net debt to equity ratio also rose to 50.51%.

The rise in its debt corresponded with that its capex, which reached rm94 million in FY2012.

The maiden contribution from the oil palm business offers a glimpse of the earnings MKH could derive from it in the future, provided demand for the commodity continues to be stable in the short term and positive in the long term.

The plantation unit will be a significant catalyst for MKH. Since venturing into the business in 2008, it has fully planted the 15000ha of its concession land.

In the oil palm industry, the trees fruit optimally between their 7th and 15th year, Since MKH’s trees are mostly less than five years old, their yield would be quite low. However, as the trees reach maturity, FFB production and yields will increase and contribute positively to the business. MKH also processes its FFB into CPO locally in Indonesia.

HSL - lrgest builder in Sabah & Sawarak

The largest builder in Sabah and Sarawak by market size expects to continue its growth trajectory over the medium term, given the number of sizeable infra jobs coming up in its home state of Sarawak.

With its niche in marine engineering, particularly land reclamation, it is seen as being a major beneficiary of the government’s Budget 2014 allocation for Sarawak.

The government allocated rm1.6 billion for the continued development of the five economic growth corridors which includes the Samalaju Industrial Park and a halal hub in the Sarawak Regional Corridor.

Its ongoing will come from three factors – issues of urbanization, providing better amenities to rural people and the SCORE.

It has a healthy balance sheet with zero gearing and decent dividends.

Datuk Paul Yu Chee is a substantial shareholder in the company. The EPF has a 9.8% stake.
It has a small but growing property development business, which accounted for 7% of its profit.

Its niche in marine engineering and there were few competitors with a Sarawak issued license that can bid for public jobs.

Its order book stood at rm2 billion of which rm1.2 billion is outstanding. Construction jobs formed the bulk of the order book, at rm1.85 billion.

Kretam - stronger earnings growth

It has laid out plans to cultivate stronger earnings growth.

The Sabah based company has invested rm150 million to expand its refinery capacity for both edible oil and palm oil biodiesel.

Should things pan out as planned, the refinery division would contribute half of its earnings in two years time.

Kretam’s 19763ha plantations, sitting along the oil palm plantations prime belt in eastern Sabah, have not been fully reflected in the company fully share price (04 Nov 2013). Based on the value of rm75000 per ha, its plantation land alone is worth rm1.47 billion.

Based on the value of rm75000 per ha, Kretam’s plantation land alone is worth rm1.47 billion.

It does not have a dividend policy. The company’s priorities in the past three years were debt restructuring and replanting.

Its plantation has a rather balanced age profile. Prime age trees (6 to 15 years) make up 56% of its planted that area, while young trees, 20 years.

It is worth noting that Kretam’s balance sheet has a share premium reserve amounted to rm158 million and a revaluation reserve of rm31.44 million which adds up to rm189 million.

It is unknown how the management would leverage the sum.

Tenaga

Management indicated that gas supply has improved significant for the fourth quarter ended Aug 2013. TNB has been receiving sufficient supply of gas for generation purposes thus far (Nov 2013), since the regasification terminal in Melaka commenced operations in May 2013.

As a result, reliance on alternative fuel like hydro and oil and distillate has reduced on the whole for FY2013. The trimming down of the usage of alternative fuels would serve as a means of cost savings for TNB.

It is understood that even in the wake of a tariff adjustment via the fuel cost pass through mechanism, only coal prices and regulated gas are taken account, when such adjustments are made. Any LNG supplied to TNB and usage of oil and distillate would not be imputed into the tariff adjustments as such costs would not be passed on to consumers. Hence, management had indicated that the fuel cost compensation initiative will remain, in which the government, Petronas and TNB will share out the incremental LNG cost, which is currently (Nov 2013) at the market price of approximately rm42 per mmBtu, on the basis of a one third cut each. In preparing for future gas supply shortages cropping up, TNB has started to explore obtaining gas supply from third party sources instead of relying on Petronas as the sole supplier.

Despite the lack of updates on the FCPT mechanism and incentive based regulation framework during the Budget 2014 session, management has reinstated its confidence that these incentives will be announced by the end of 2014 and commence in early FY2014.

Management has also reiterated that both the FCPT and IBR measures would augur well for TNB as fuel cost fluctuations would be captured and passed on to consumers via a tariff adjustment.

The GST will be implemented from 2015, and electricity was not identified to be GST exempt. Only the first 200 units of electricity consumed will be spared from GST.

UMW Oil & Gas - Fair Value

Fair Value: 3.15 (JF Apex), 3.03 (PBB), 3.20 (HDBS). 

Among the cornerstone investors are the EPF, Tabung Haji, PNB and KWAP. Others individuals are Tan Sri Abdul Rashid Hussain and Tan Sri Chua Ma Yu.

UMW Oil & Gas aims to grow its fleet by at least one rig per year. This would substantially add to its financial performance as 93% of its revenue is derived from its drilling business.

UMW O&G would be raising RM2.36bil with almost 60% or RM1bil of the proceeds to be allocated for more offshore asset acquisitions to expand its business.

UMW O&G was awarded two jack-up rig contracts and a hydraulic workover unit contract from units of Vietnam’s national oil company PetroVietnam (PV) in a short span of six months prior to Oct 2013.

In April 2013, PV Drilling awarded it with a drilling contract for Naga 2 for six months, while Naga 3 has been deployed in Vietnam since March 2011, with the latest extension for two years awarded in August 2013.

Similarly, Indonesia is starting their oil exploration again, while Philippines and Myanmar has turned aggressive in terms of exploration activities.

Vietnam to leap frog Malaysia with a drilling rig demand of 26 in 2014, up from 15 in 2013.

On the local front, Malaysia, lead by Petronas, is also ramping up exploration with rig count going up to 32 by 2015, up from 20 currently (Oct 2013).

Until now (2013), only 3 clusters of the 24 clusters of marginal fields have been awarded by Petronas, and there is still more room for drilling activity as 105 fields in the said clusters were identified.

With Naga 5 soon to be delivered in May 2014, the group’s contracted backlog for drilling rigs stood at RM1.47bil as at June 2013.

Although its oil field services business seems small with a contribution of just 7% to the group’s revenue, it actually complements its core business and acts as the group’s eyes and ears on the ground.

Its oil field service, mainly pipe threading services, serves an array of international oil companies and made a breakthrough with Thai’s PTT Exploration and Production (PTTEP) oil company when they signed a three-year contract for one of our hydraulic workover units.

With its stronghold in Malaysia, the company’s pipe threading business is also in China and Turkmenistan, which is on its target list to expand.

Petronas will always be its baseline client. But moving forward, it needs to grow and growth will be from South-East Asia and Asia Pacific, and we may go as far as India and China.

Petronas and UMW has a long standing relationship since 1988, and the link has grown after its first semi-submersible rig was contracted to Petronas in 2005.

The company is still in the midst of harvesting low hanging fruits abundant in the region before eventually venturing into deepwater drilling where the big boys like Chevron, ExxonMobil are.

UMW O&G is very interested in the deepwater business after having first forayed into the business with its Naga 1 (contracted to Petronas), the company’s only semi-submersible rig capable of drilling at water depths of 1,000 ft, compared to its fleet of jack up rigs that operates only at about 450 ft.

Its asset base is already built up and it is looking for are premium rigs that can drill better than its competitors. And the upcoming Naga 5, manufactured by Keppel FELS, is top of the line The Naga 5 is similar to its sister jack up rig Naga 4 which is currently (Oct 2013) deployed on a three-year contract till 2016 with Petronas Carigali offshore Malaysia.

It is now (Oct 2013) talking to a few parties and hope to conclude discussions for the Naga 5 contract soon.

At a cost of about US$210mil, Naga 5 will be delivered by May 2014.

Most of its rigs have received extensions with higher charter rates, and in the oil and gas industry, it is always about maintaining relationships.

In FY ended Dec 31, 2012, it recorded RM71.8mil in net profit over revenue of RM724.3mil, and is on its way to join the billion-dollar club of Malaysian companies with revenue over RM1bil.

It has seen a steady three-year growth trajectory from RM348.8mil revenue in 2010, and climbing 57% to RM550.2mil in 2011, while net profit stood at RM79.1mil in 2011 and a loss of RM47.6mil in 2010.

UMW O&G’s IPO involves an offering of 843.18 million shares, comprising an offer for sale of up to 231.38 million shares and a public issue of 611.8 million new shares. It will offer 76% of its IPO portion to institutional investors and the rest to the public at an indicative retail price of RM2.80.

Post-IPO, parent UMW Holdings Bhd would hold approximately 55% of its oil and gas unit spin off.