An engineering firm in the ICT sector is expecting to clinch more contracts in 2014 that will boost its earnings.
The firm remains optimistic of securing Taiwan Biodiesel’s RM35 million contract by Jan 2014. Total contracts that could be secured in 2014 is RM200 million, including the current jobs. The values of these contracts are 37% higher than the expected RM146 million secured in 2013.
The company will continue to solidify its position as the leading Malaysian ultra-high purity engineering system solution provider.
It has started ultra-high purity skills to extend its reach into the healthcare, bioscience, and pharmaceutical industries as this will dampen the effects of the semiconductor industry’s downturn.
It had secured a US$46 million (RM151 million) healthcare-related project from Kang Hui Maternity Centre in Shanghai is a case in point.
Formed in 2000, Kelington is a leading ultrahigh purity gas and chemical delivery solutions provider with operations in Malaysia, China, Taiwan and Singapore.
It has also diversified into the areas of system design and modelling, fabrication and installation, quality testing and certification, control and instrumentation, and maintenance for
various foundries.
The majority of Kelington’s capital expenditure (capex) is spent on human capital as it is involved in the engineering services. Therefore, its capex spending is not huge compared with the manufacturing-based industry.
Kelington has a dividend policy of a minimum 25% of net profit. As at September 2013, it has a net cash position of RM23 million with an order book of RM44.6 million.
It expects to benefit from future contract flows from new developments in the oil and gas industry, such as enhanced oil recovery initiatives and marginal fields.
In Nov 2013, Petroleum Perdana terminated a bareboat charter on three vessels, and entered into a memorandum of agreements to acquire the vessels instead for a total of US$50mil. The move is expected to enhance the company’s bottom line in 2014.
In general, 2014 is set to be a good year for Petroleum Perdana, especially with its associate company Dayang Enterprise Holdings Bhd starting its topside major maintenance/hook-up construction and commissioning project in the year ahead.
Including the vessels chartered to Dayang, 15 of Petroleum Perdana’s 17 vessels are now (Dec 2013) on long-term charters. Its current orderbook totals RM1.4bil, with five years’ earnings visibility.
For the nine months to September 2013, Petroleum Perdana’s net profit more than tripled to RM39.8mil from RM12.1mil in the corresponding period a year earlier. Earnings per share stood at 7.94 sen, compared with 2.45 sen previously. Group revenue, on the other hand, increased only a marginal 0.6% to RM196.6mil compared with RM195.3mil previously.
Slim margins due to a high opex have been among key reasons for the lack of interests in its share price. But it will be different in 2014 for Astro’s heavy opex cycle is near its tail end.
As its opex shrinks, the group’s profit margins will grow. This means it can continue with its progressive dividend policy since it is very cash generative.
It is now (Dec 2013) 80% of its customers are already on the new platform. So it can much say the peak reinvestment year is over.
Astro’s net margins was affected because it was in the reinvestment stage over the past few years prior to Dec 2013. It incurred heavy opex and depreciation charges to upgrade subscribers’ set top boxes to high definition decoders which allows it to charge higher fees for premium services.
To entice subscribers to upgrade, Astro obsorbs all the costs for the Beyond decoder, satellite dish and installation charges at rm600 per decoder.
From FY2011 to FY2013, the total number of decoders swapped was 1.63 million, This could cost Astro more than rm900 million.
For 9MFY2014, Astro’s net profit came in marginally higher at rm336.56 million compared with rm334.84 million the previous corresponding period. Earnings stood at rm1.202 billion which was 15.49% higher that the previous year’s rm1.04 billion, indicating that opex had eaten into the group’s bottom line.
To date (Dec 2013), 80% of Astro’s 3.4 million subscribers have converted to Beyond decoders.
Observers expect Astro to post a higher net profit in FY2015 given lower opex from the STB swaps.
It has entered into a share subscription agreement with several parties for a land deal in Jalan Klang Lama.
The agreement with Eureka Equity Sdn Bhd, Regenta Development Sdn Bhd, Lau Soon Woh, Mow Chooi Yoon and Kok Koek Hung involved the subscription of three million ordinary shares of RM1 each in Eureka at par by UOA and Regenta.
Eureka has pieces of land measuring about 1.2ha in Jalan Klang Lama valued at RM63.5mil.
The principal activity of Eureka, which is currently dormant, is property development.
Following the share subscription, UOA holds 59.99% stake in Eureka, Lau (10%), Mow (20%), Kok (10%) and Regenta (0.00002%).
The land waslocated approximately 1km from the federal highway and was near Mid Valley City and has a prominent frontage to Jalan Klang Lama.
The location of the land is also highly accessible. The land is ideal for condominium and commercial development.
The proposed subscription allows the company to strategically expand its landbank in Kuala Lumpur that matches the fast turnaround strategy.
The proposed subscription was expected to contribute positively to the future earnings of UOA following development of the land.
UOA is the developer of Bangsar South, a RM10bil gross development value integrated development on the former Kampung Kerinchi squatter colony.
Granted, the lackluetre growth of China’s retail and consumer market has pulled its earnings down so far this year.
Briefly, department stores in China are facing challenges from the slowing economy, rising wage costs and heightened competition, not to mention the advent of online shopping.
While not many observers are excited about Parksin, the sheer size of China’s consumer market cannot be ignored. Parkson’s plan is to expand selectively and close non performing stores on the mainland will reflect on the group’s earnings going forward.
In China, Parkson operates through its 51.5% subsidiary Parkson Retail Group Ltd, that is listed on the HKSE. For its fourth quarter ended June 30 2013 (4QFY2013), Parkson recorded a net profit of rm30.2 million (-63% year on year), -61% quarter on quarter on the back of rm802 million revenue. This is only 78% of its full year net profit.
Earnings were dragged by its China operations/parkson Retail Group which booked rm80.7 million in earnings in 4Q (-41% y on y, -47% q on q) with 0.7% SSSG versus -2.8% in 3QFY2013. This was mainly attributed to weaker consuemr demand arising from China.
Similarly its second largest revenue contributor Malaysia expereinced softer SSSG in the quarter under review.
Within the Parkson group, the performers appear to be its Malaysia and Indonesia operations. The company’s operations in Malaysia, Indonesia and Vietnam are parked under its Singapore listed, 67% subsidiary Parkson Retail Asia Ltd.
The Parkson stores in Malaysia and Indonesia may have performed well, but they account for only a quarter of the company’s earnings and cannot make up for the sluggish Parkson China. Decent growth in Malaysia and Indonesia cannot offset the slowdown in consumer demand in China because China contributes about 75% to group earnings while Malaysia and Indonesia combined account for only 23%.
Nevertheless, the group hopes to expand its retail network in China.
Kuching based Borneo Oil Bhd saw its second largest shareholder Datuk Freddy Lim reducing his stake in the company. On June 17 2013, he disposed 9.14 million shares at 55 sen per share. Freddy Lim who is also CEO of Kretam Holdings Bhd, remains a substantial shareholder of the company following with transaction, with a direct interest of 5.38% remaining.
On June 18 2013, Freddy Lim also increased his stake in Kretam to 50.27%.
Freddy Lim and his brother Andrew Lim are well known entrepreneurs in the state, with the latter being the CEO and controlling shareholder of timber company PriceWorth Intl Bhd.
Datuk Freedy Lim Nyuk Sang also emerged as a new substantial shareholder in Destini when he purchased some 17 million shares on Oct 9 2013 gaining a 6.86% stake in the company.
The bad news that its associate and partners have failed to extract commercial oil in Oman has caused its share price to slump.
In addition, the RVD technology used by REX Intl Holdings Bhd – the partner of Hibiscus in the Oman project – could also be an issue of debate.
To mitigate the negative impact of the news, it also said that the information acquired has assisted all partners in the Oman Block 50 project to identify a second exploration well as the next drilling location. It is anticipated that drilling at this location will commence within the next two weeks from 24 Dec 2013.
Indeed in anticipation that technology could be an issue of concern, its MD said the RVD technology has been tested exhaustively on 41 locations in Norway and has performed successfully on 40 locations.
But detailed analysis of Rex Intl Holding suggests that investors should be mindful of the Rex technology. Rex Technologies has not led to successful well yet. To date (24 Dec 2013), the group is yet to drill a well based on location arrived after using Rex Technologies suite of software. However the technology has had 85% success in predicting drilling results.
Given that this is the first offshore well Rex would be drilling with the use of its Virtual Drilling technology, significant failure to find oil here could dampen investor sentiment.
Hibiscus Pet acquired a 35% stake in Lime for USD55 million as its Qualifying Acquisition in April 2012 due to its portfolio of assets and access to Rex Virtual Drilling Technology.
The block 50 Oman concession is jointly owned by Lime with a 64% stake and Petcoci Holdings holds the remainder of the 36%.
Its prospects remain bright due to sizeable outstanding order book of rm1.26 billion, total rm425 million worth of property launches earmarked for FY2014, intention to boost its utility division by increasing capacity in existing water treatment business while diversifying in to mini hydro power generation, potential of winning more projects under the construction division a it is bidding for projects worth rm6 billion in total and explosive earnings growth from FY2014 to FY2016.
Gadang’s current outstanding order book of rm1.26 billion comprising MRT package V2, Shah Alam Hospital and RAPID earthwork would be able to provide earnings visibility for the next 3 years from Nov 2013.
The group is also targeting for projects worth more than rm6 billion in total.
Near term order book replenishment could come from the second phase of RAPID worth estimated rm300 million, expected to be awarded by earlier 2014 after having clinched the site work in the first phase.
It derived its recurring income solely from its utility division, in which the group treats 880 litres per second of water via 3 concessionaires in Indonesia while currently (Nov 2013) in negotiation to increase the capacity to 1250 lps.
Apart from that the group is set to diversify the utility business by venturing into mini hydro power generation.
However the contribution from the new business would only kick in over the longer term as the construction of infra and facilities around two years from Nov 2013.
Gadang’s cash piles ballooned to rm83 million in FY2013 mainly due to the variation order arising from the KLIA2 project.
Its net gearing as of FY2013 was close to zero thus providing the group ample room to gear up for further land bank acquisition as well as supporting its venture into the power generation business.
Besides the group is also contemplating to distribute dividend on a regular basis by adopting a stated dividend policy to reward long term investors should the cash flow continues to be stable.
Eksons expects to record a net gain of rm52 million after minority interests, from the disposal of land in Selangor for the financial year ending March 31 2015.
The net gain is equivalent approximately 32 sen per share.
The disposal would enable the group to acquire a new land for development. Additionally the firm said the land was part of the land bank of the group’s property development division and was to be developed with a mix of commercial and retail components.
Its net cash per share will rise to rm1.18.
The rise in net cash per share does not include the value of the group’s plywood manufacturing business, with the estimation of rm200 million for the replacement cost of the plywood business.
However the company is not expected to pay out all of the land sale proceeds as management is looking to buy more landbank and the plywood market conditions remain difficult. Also it would be easy for the company to sell its plywood business even if it wanted to.
The Japan core consumer prices rose the fastest in almost five years indicating a gradual shift from deflation to inflation. Its housing market also appears to be rousing from slumber as consumer confidence picks up.
The Japanese construction sector and overall Japanese economy is benefiting strongly from Abe’s dynamic new economic policies consisting of the three arrows of Abenomics.
Japanese residential construction starts were year on year by May 2013. Construction starts for homes constructed from wood, which account for about half of total Japanese housing starts have surged over the latest three months (April 2013 – June 2013).
With more than half of Malaysian timber products exported to Japan, local exporters like Ta Ann, Jaya Tiasa, Subur Tiasa and WTK stand to benefit from a Japanese housing recovery.
A short term catalysts for the timber industry will be the increase in Japan’s consumption tax from 5% to 8%. This will push forward some of the housing demand to 2013, increasing demand for timber.
Expect timber stocks to come into focus in the 2HFY2013 … as new Japanese home buyers rush to beat the planned increase in sales tax. The risk of course, is if the consumption tax is delayed.
However a weaker yen, a result of Abe’s policies, is negative for timber exporters since it makes it more expensive for Japan to import timber. But the US dollar pricing for timber can be justified as most Japanese can still afford.
In July 2013, the log prices have already been driven higher due to a combination of supply shortage in Sarawak, owing to seasonal wet weather and higher demand from India. There will be better prices in the HFY2013 in light of Japan economic recovery. Prices will improve in tandem with stronger demand, which will be driven by macroeconomic fundamentals of the Japanese economy.
In US dollar terms, plywood prices have risen marginally but enough to offset any production cost increase.
Those with the best exposure to Japan will be the purer timber companies such as WTK and Subur Tiasa. However TA Ann may benefit more. It is exposed to higher production costs due to its operations in Tasmania. Therefore its earnings will be more leveraged to any price increase. So if plywood prices go up, TA Ann will benefit.
More than 90% of TA Ann’s plywood production and 20% of its log production is exported to Japan.
WTK is another company that exports over 80% of its plywood to Japan. Unlike TA Ann however its timber segment makes up the bulk of its earnings, with 76% profit contribution in FY2012.
Jaya Tiasa which has the highest number of timber assets of the four companies draws about 63% of its revenue and 68% of its profit from its timber division.
Subur Tiasa is the smallest timber player. Logging and manufacturing of timber products make up about 83% of its profits.
In 2011, Dongwha Malaysia Holdings Sdn Bhd has decided not to pursue its proposed acquisition of Heveaboard Bhd’s particleboard manufacturing assets.
Dongwha had indicated in a letter that it decided not to pursue the proposed acquisition after Heveaboard imposed certain conditions following its request for an extension of time to complete the preliminary due diligence. Following this, the earnest deposit shall be refunded to Dongwha. However, Heveaboard did not state the conditions that were imposed.
Dongwha, a Korean multinational medium density fibreboard manufacturer, then deposited a refundable earnest deposit of RM1 million with the company’s solicitors to hold as stakeholders. The proposed acquisition includes two particle manufacturing plants, industrial land, plants and machinery.
To recap, Heveaboard Bhd had received an offer from Dongwha Malaysia Holdings Sdn Bhd to acquire its assets related to the manufacturing of particleboard. If the deal is approved, it will be transacted at no less than RM245 million, based on the book value of Heaveaboard’s assets as at Dec 31, 2010.
Unlike most other corporate deals that also include liabilities, Dongwha’s offer is only for the assets that have been largely responsible for growing Heveaboard’s business in China.
Heveaboard’s board had received a letter of intent from Dongwha indicating its interest in acquiring Heveaboard’s particleboard manufacturing plant assets comprising, amongst others, two particleboard manufacturing plants, industrial land, plants and machinery.
A refundable earnest deposit from Dongwha amounting to RM1 million has already been paid while Dongwha will conduct a due diligence exercise on the assets which it proposes to acquire. The due diligence exercise will take 75 days from March 28 2011.
If the deal is approved by both its management and shareholders, it could possibly leave Heveaboard a cash rich company, adding RM243 million to its current cash pile of RM22.82 million as at Dec 31, 2010. The cash pile outweighs its market capitalisations that stands at RM92.21 million based on RM1.02 per share.
However, Heveaboard also has outstanding warrants which, if converted, will see an additional 42.6 million shares coming on stream, raising its share capital to 133.6 million shares of RM1 each.
It also has net debts of RM163.16 million based on its unaudited results as of Dec 31, 2010. Assuming all the proceeds from the sale are used to retire the debts in full, the company may end up in a net-cash position of about RM80 million, away from its current net-debt position.
Assuming the warrants are converted, it will add another RM42.6 million to the company’s coffers, making its cash pile rise to about RM122.6 million.
Based on a fully-diluted share capital of 133.6 million shares (assuming the warrants are converted), the company’s net cash per share will amount to 92 sen.
Heveaboard managing director Tenson Yoong had indicated that it intended to continue to pare down the company’s borrowings with the improved cashflow resulting from the growing business of the company.
Heveaboard is a manufacturer of ready-to-assemble furniture and produces particleboard from rubber wood for use in panel furniture, speaker boxes and doors. In 2006, it suffered badly when the company increased capacity along with its competitors causing an industry overcapacity situation, depressing prices of particleboard.
However, Heveaboard recovered over the last two years (2009-2010) by focusing on selling its particle board to China’s domestic market which now accounts for 30% of sales.
But now (May 2011) with the offer for its manufacturing of particle board assets, Heveaboard is uncertain if the board would accept the deal as this would leave the company without its strongest business.
If approved by shareholders, it will leave Heveaboard as a ready to assemble furniture manufacturer and trader of particleboard.
But can RTA manufacturing and trading take the company to greater heights. Is it better than the particleboard business than yielded a margin of 11.73% for FY2010 ended Dec 31? In comparison, the margin from the RTA business is less than 5%.
If the sale goes through, proceeds could be used to expand the operations of its subsidiaries. The proceeds would also enable the company to repay all its bank borrowings.
Also how the company plans to distribute the proceeds to shareholders. The decision can only be made when the sale is completed.
It is uncertain whether Heveaboard will fare better without its particleboard making business. It is worth noting that the RTA making business could continue to face profit margin squeeze from the weakening US dollar, because of the Fed’s QE measures.
Couples with rising oil prices and expectations of further interest rate hikes in most parts of the world, it seems unlikely that the dollar will regain its strength in the near term.
Its share price has done exceedingly well lately, surging by 21% in the month of Dec 2013. The strong performance may be attributable to the two contracts wins and stronger investor appetite for Malaysian oil and gas stocks.
At rm4.12, it is valued at 34.1 times of FY2014 earnings per share and 23.8 times CY2015 EPS, making it the most expensive rig operator as well as the most expensive Malaysia O&G stock.
The group is trading at a substantial premium to the global peer average CY2014 and CY2015 PER of 11 times and 8 times and Malaysian big caps O&G companies’ average CY2014 and CY2015 PER of 20 times and 16 times respectively.
While the group’s management and the good prospects of Malaysia’s jack up rigs market, its valuation is stretched with limited upside potential. The risk is on the downside.
Key risks to the negative view are the undertaking of major earnings accretive mergers and acquisitions, faster than expected expansion plan and stronger than expected earnings.
Its acquisition of 40 acres of land in China has raised eyebrows in light of the company’s poor financial performance in recent years.
The transactions amounts to 420% of the company’s revenue for the nine months ended 9MFY2013 and 54% of its cash reserves. As it has been renting the land, it is a transaction that does not appear to provide a boost to income or substantial cost savings in the short term.
With the transactions, it is using up its cash reserves to buy an asset for 133 times its annual rental at a time when it is bleeding money cutting back on production.
The wine maker has seen a sharp decline in its profitability since it was listed in 2010.
Moreover, the land transaction comes at a time when China Ouhua seems to be facing difficulties collecting its trade receivables. Its 86.5 million yuan in trade receivables at the close of its financial year were as large as its inventories then, and its total receivables as at Sept 30 of 72.11 million yuan were also similar to its inventory and more than double its 9MFY2013 revenue.
The transaction also depends on whether the company has no other better strategic acquisitions or uses of its cash. As at Sept 30 2013 it had 242.9 million yuan in cash and cash equivalents, representing 40% of its total assets, 62% of its current assets, and 18 times of its current liabilities. Its cash per share stood at 0.364 yuan. The company has no borrowings.
Most markets across Asia had only reacted mildly towards news that the US Fed would start to taper its US85 billion monthly bond buying programme in Jan 2014. It will scale back its QE measures by shrinking its monthly buy back quota by USD10 billion to USD75 billion a month.
Tapering is negative for Asean markets, but so far (19 Dec 2013) the reaction has been stable and the impact has been minimal. Part of the reason is that most of the foreign fund managers have already wrapped up for the year and have gone on holiday. Once they come back in 2014, we could see some impact.
Amid QE tapering concerns, foreign institutions have been net sellers on Bursa Malaysia for most of 2013. Going forward, as US continues to see improving fundamentals in its economy, the flow of funds back to the US is expected to pick up.
There is not going to be a one off hit on the market but this is far from over. The USD10 billion cut is well within expectations and not too big. However the Fed is expected to continue to tapering in 2014, possibly brining it down to zero by end of 2014.
The ringgit has weakened but it has less to do with QE tapering and more to do with inflationary expectations within Malaysia.
Observers expect any increase in interest rate in the near term will to be to address rising inflation.
Moreover we will likely to see another round or two of subsidy rationalization in 2014.
Also expecting BNM to only consider rising interest rates sometime in second quarter 2014, possibly after their May 2014 meeting.
Since foreign holdings of MGS were larger than foreign holdings of equities, there was a bigger concern on the local debt market than the equity market.
Observers expect the group’s continuous expansion in Indonesia, solid market share and consistently strong margins at the marine product manufacturing segment to drive earnings growth.
MPM remains the group’s main earnings driver with major expansion completed in Indonesia and ongoing expansion at the Hutan Melintang plant.
More M&A’s in the MPM segment are expected in order for the group to gain market share and expand its regional operations particular in China.
The group’s integrated livestock segment’s PBT is also gradually improving as prices of soyabean and corn are declining, as the extended drought in the US eases (Dec 2013).
Signature: If its land sale go through, its net cash should rise to rm78 million or 65 sen per share. The proceeds would be more than sufficient to fund the construction of its new factory.
Its existing order is more than rm200 million.
Earnings growth over the next three years from 2014 should be very strong.
It is an integrated ODM of upholstered home furniture. It is also an OEM that contract manufactures based on designs provided by customers.
The higher valued added ODM business contributed 86% to the company’s revenue in FY2009 with the remaining 14% coming from the OEM business.
The company focuses on the medium to high end range and designs its products primarily based on Western stylishness and preferences. Sales to overseas markets covering more than 40 countries, contributes to 99% of its revenue.
The company is committed to a 50% dividend policy. It envisages a dividend payout ratio of not less than 40% of its future net profits to its shareholders in each financial year.
Its top three exporting regions are Europe (60%), Australia (25%) and America (8%).
It plans to introduce new products as well as fresh designs and is looking to broaden its geographical coverage. Apart from that, the company aims to promote its own brand of upholstered home furniture, and targets to have 50% of its sales coming from products bearing its own brand within the next three years.
It has received approval from SC to establish a sukuk programme of up to rm1 billion in nominal value.
To recap in Feb 2013, it inked into a concession agreement for the EKVE worth rm1.55 billion. The concession period is for 50 years.
Although the sukuk is for a nominal sum of up to rm1 billion, it is unlikely that the entire sum will be drawn down. Management guided that the rm1.55 billion EKVE will be financed via a debt to equity ratio of 80:20 which puts the debt portion at rm1.24 billion.
However, AZRB has already secured a rm635 million from the government. Thus, the drawn down from the sukuk make up for the remaining debt portion is rm606 million.
Market observers are positive on AZRB achieving financial closure for the EKVE as the signals that construction works can begin in 2014. The EKVE makes up 43% of AZRB order book balance of rm3.6 billion. Earnings should come in strongly once AZRB begins to recognize construction profit from the EKVE over the next three years from Dec 2013.
Assuming the sukuk drawn down of rm606 million, it gearing will rise to 3.6 times. Though seems drastic, the fact that the debt for the EKVE will be non recourse to the group.
It is bullish about delivering stronger results ahead, having proposed land banking exercises that will boost its GDV pipeline to rm1.8 billion.
The first acquisition involves 267 acres of agricultural land in the district of Klang for rm100 million. The second acquisition of three property development companies from related parties for rm25.82 million.
To fund the purchase it will borrow rm60 million and use rm25 million from a 2:10 rights issue exercise that also comes with a 1 for 10 free warrant issue. The remaining rm15 million will be raised through a private placement exercise.
It will not only have larger asset base but also be able to address its current (Dec 2013) narrow public spread of 13.32%.
Its net gearing will be about rm55 million making its enterprise value of rm276.4 million.
The proposed acquisition will boost its development landbank to 382.1 acres.
It was in a net cash position as at 3QFY2013 with cash and bank balances of rm5.37 million against long term borrowings of rm363000. With the acquisition, its net borrowings will jump to about rm55 million.
It has regain its footing over the last two years after it suffered a major blow due to a revision to the Direct Selling Act in 2010. The MLM company had to impose stricter rules on the recruitment of members following the amendment of the Act, which took a heavy toll on its earnings.
Its current valuations look attractive provided it can continue to post growth.
It has a 50% dividend policy and has a consistently dishing out dividends above that rate over the past five years.
It has three main businesses – MLM, wholesale and retail. Its bread and butter is the MLM division which contributed 62% to revenue in FY2013 while wholesale and retail trailed behind with a 10% and 16% respectively.
Indeed, the company’s profit and revenue have bounced back since FY2011 attributed this to an obvious change in strategy – product diversification.
With the charges now (Dec 2013) dropped, the parties intend to immediately negotiate and finalize the terms of a full and final global settlement under HOA with a view to execute the agreement within a month of the announcement.
The change in management and lawsuits will affect market sentiment as they are a distraction from Benalec’s key catalyst.
It is business as usual for Benalec in the meantime because it has a professional team in place. The main re rating catalyst for Benalec is its reclamation job in Tangung Prai, Johor.
Benalec has a binding term sheet with the State Secretary, Johor and 1MY Strategic Oil Terminal Sdn Bhd to undertake the reclamation and sale of 405 ha of land off the coast of Tanjung Piai.
Once the SPA is signed, it should be reflected soon after in the company’s earnings as the works can start quickly.
This is important for Benalec because it slipped into red in the first quarter ended Sept 30 for the first time since it was listed in early 2011.
It is believed that the loss is temporary. In the near term,, order book replenishment took a back seat.
It is taking steps to prepare the construction and property development group for the anticipated softening of the property market.
Its property development is carried out by its unit WCT Land Bhd.
It will focus on strengthening its market presence in the local property market.
As of Sept 30 2013, WCT had cash and bank balances of over rm1.44 billion. Part of the cash will be used for loan repayments due in the next 12 months from Dec 2013. The company has over rm380 million in term loans that need to be settled within the next two years from Dec 2013.
The stronger cash position may also mean the company is expected to be actively pursuing construction projects in 2014.
WCT is also well known in the construction circle, especially in the Middle East region.
When Maybank ceased stabilizing action for Airasia X Bhd on Aug 7 2013, many investors were unhappy with the decision of the investment bank, which acted as a stabilizing manager, as its inaction had indirectly led to the share price falling below the IPO level.
The bank still had some 53 million shares available for purchase under the price stabilizing mechanism during the nine days before the 30 days were up but it did not continue to acquire the shares.
Maybank IB ceased stabilization on Au 7 2013, the last trading day at the end of the max stabilization period allowed under the SC guidelines.
Instead, Maybank IB exercised the over allotment option for the remaining 45% and returned proceeds of some rm66.2 million to share lenders, in this case Orix Airline Holdings Ltd and Menara Malaysia I Ltd. Tan Sri Tony is the controlling shareholder.
Maybank IB would have purchased a total of 118.5 million AAX shares from the price stabilizing programme of 65.53 million shares and the exercise of the over allotment option, fully covering the number of shares that had been over allocated in the IPO exercise. The 118.5 million shares represent 15% of the total number of IPO shares over allotted in the exercise.
Technically, the bank did not breach any regulation. But without buying support from the stabilizing manager, the counter continued to fall.
According to sources, Maybank IB did not continue to purchase AAX shares during the remaining period was to allow the market to dictate the price.
The management also dismisses the notion that share lenders had requested that Maybank IB not purchase the remaining 53 million shares under the over allotment option, as they wanted the proceeds returned to them instead of the shares.
It is a China’s bamboo flooring maker.
It is raising rm20 million from selling 80 million shares at 25 sen per share.
Of the 80 million new shares, 11 million are for public subscription while 69 million have been placed out to selected investors. The 11 million shares for the public are underwriten by Kenanga.
About rm8.2 million of the proceeds is for working capital while rm5.5 million will be used to repay debt. That leaves rm1 million for capital expenditure and rm2 million for R&D after setting aside rm3.3 million for listing expenses.
Set up in 2004 by MD Leng Xingmin’s family to undertake the trading of bamboo flooring and related products, Kanger entered into an agreement with FRIM in 2011.
On the financial side, it made rm6.37 million in net profit in FY2012 ended Dec 31 on the back of rm38.56 million in revenue.
Based on its enlarged 430 million shares base, it is valued at 16.8 times its FY2012 earnings of rm6.4 million at its IPO price.
While it does not have a formal dividend policy, the group expects to earmark along 20% of its future annual net profit as dividends.
Leng’s 67.77% stake in the company will be diluted to 55.17% post IPO while Lim Lai, a Malaysian will see her stake diluted to 13.19%. Chinese national Leng cannot sell any of his shares in the company in the first six months of listing and needs to keep his stake above 45% in the subsequent six months of listing.
Lim and six other shareholders who collectively holds 26.22% of the company post IPO have their entire block under moratorium for three months thereafter. Among the six shareholders are Tuanku Syed Sirajuddin Tuanku Syed Putra Jamalullail, the current Sultan of Perlis and his younger brother Syed Razlan Tuanku Syed Putra Jamalullail. They each hold a 3.2% stake in the company.
There are about 200 bamboo manufacturers across China and Kanger intends to widen its domestic distribution network and increase awareness of its products and brand through the appointment of third party dealers.
It is looking to grow its exports. Overseas accounted for 49% of FY2012 revenue and 20% of revenue for the six months ended June 30.
It expects a major boost with the impending rebranding of its multi billion ringgit township development in Batang Kali, Selangor.
It has a GDV of rm3.3 billion which contribute about rm112.5 million annual to SBC Corp’s revenue over the next 15 years from 2013.
Moreover the rm1.8 billion development of Jesselton Waterfront in Sabah carries to SBC Corp and its joint venture Suria Capital.
Based on its 82% stake in JC Co, SBC’s GDV portion will amount to rm1.4 billion.
Its net asset value stood at rm3.59 a piece.
Most of its land was acquired between 2000 and 2004. Of its 47ha of land bank, 19ha is located in Prime locations like KL and Kota Binabalu. The remaining plots are in Ulu Selangor and Kuantan.
It was reported that SBC’s land bank, the revised net asset value would be rm5.86 per share.
Debt laden MP Corp had revealed its intention to divest its core revenue generating asset … Wisma MPL.
Should it manage to find a buyer at the price of rm320 million cash, it would instantly be on a net cash position.
In March 2013, the company had a declaration of default in the repayment of principal sums and interest in its revolving credit and bank overdraft facilities amounting to rm25.7 million and rm61.4 million respectively. It also owes its creditor Amanah Raya Development Sdn Bhd rm119.4 million as at end of its reporting period.
Sale proceeds of over rm300 million would be more than enough to settle the company’s debts of about rm206.5 million. However, the reality may be different for MP Corp. Property valuers did not value the commercial property at such a high price. It is estimated that the property to be worth rm300 million to rm310 million at most. At most conservatively, it is slightly more than rm200 million.
It is worth noting that MP Corp wholly owns the 19 level office tower and three levels of car park, but it only partially owns 75372 sq ft of the building’s retail podium at level 4, with the remaining 66045 sq ft owned by private individuals.
Taking into this account of complications and need refurbishment, prospective buyers may demand a lower price. Furthermore, the commercial block does not offer good rental yields based on an investment of rm320 million.
For its financial year ended June 30 2013, 89% of the group’s revenue was derived from rental income from Wisma MPL and property management services.
Based on rental income calculation of rm12.8 million minus expenses of rm6.6 million, its net rental income is estimated to be rm6.2 million which translates into a net yield of barely 2% - a return that us much lower than the fixed deposit rates in the banks.
Wisma MPL is the main income generator asset, but it is not the company’s only asset. MP Corp owns a parcel of land in southern Johor, near Iskandar Malaysia.
However, its creditor Amanah Raya Development filed a writ summons for an injunction against the company, prohibiting the company from selling certain parcel of land in Johor or entering into any transaction resulting in the disposal or transfer of ownership of certain parcels of land in Johor.
As at June 30 2013, MP Corp’s current liabilities exceeded its current assets by rm224.01 million. These conditions indicate the existence of material uncertainties, which may cast significant doubt about the ability of the company to continue as going concerns.
MP Corp currently (Nov 2013) is solely dependent on the rental income derived on the rental income derived from Wisma MPL and by selling the property it would have lost its recurring income source, although it is able to make profit even after paying off its debts.
To recap in 2010 HTPadu, which derives 60 per cent of its business from the public sector, wants to grow contribution from the private sector over the next five years. It is also eyeing contracts from sectors like manufacturing, oil and gas and utilities.
HeiTech Padu has many clients such as banks in the private sector, accounting for 40% of its revenue. The remaining 6% is made up of government ministries like National Registration Department, the Road Transport Department (RTD), the Home Ministry and the Immigration Department. It provides infrastructure and network management, automates processes, manages disaster recovery sites and it also runs 20 data centers nationwide.
With the government's continuous efforts to computerize its agencies and programmers to bridge the digital divide, with initiatives such as the High-Speed Broadband and transformation of the public service delivery system, these will translates into potential opportunities for HeiTech Padu in the years ahead.
The public sector contributed 70% to the company's revenue and the private sector 30 per cent during 2010.
HeiTech Padu has successfully undertaken and implemented several projects and initiatives for its customers, among them, Amanah Raya Bhd, Inland Revenue Board, Armed Forces, Bank Negara Malaysia, Malaysia External Trade Development Corp and the Immigration Department.
It planned to expand overseas, mainly in developing countries like Indochina, Laos, Vietnam and Cambodia, to broaden the earnings base. The company has operations in Indonesia, Sri Lanka and the United Arab Emirates.
It is also open to mergers and acquisitions or other joint ventures and will continue to give out dividends at a rate that is better than fixed deposit rates.
It is also set for a strong presence in Sabah, particularly in the ICT sector development.
PNB ceased to be a substantial shareholder in 2012 after disposing its 13 million shares in the company. The block of shares was acquired by Amanahraya Trustee Bhd and raised its stake to 27 million shares of 26.68%. The other major shareholders in the company are Padujade Corp Sdn Bhd with 30.15% and Skim Amanah Saham Bumiputera with 13.84% stake.
Meanwhile HTPadu holds a 20.1% stakes in Grand-Flo Solution Bhd.
The acquisition would provide a platform for the company to venture into the value added business of research and development on enterprise data collection and collation system (EDCCS) solutions. It will not only enable the company to diversify its business but also add value to its existing business of providing total information technology business solutions.
Grand-Flo specialises in the provision of EDCCS solutions to businesses in all industries.
It is in no rush to increase its 20.1% stake in Grand -Flo Solution Bhd. It was a viable move for Heitech to leverage on Grand-Flo's strong presence in Thailand, Vietnam and China while Grand-Flo would also tap into Heitech's presence in the Middle East.
Grand-Flo had landed a big infrastructure project in Thailand and would capitalise on its new relationship with Heitech to work on that project. Both the companies were working on a few projects together.
The company would like focus on its e-Government Solution Framework leveraging on its proven track record in Malaysia.
Contracts Awarded ...
It has secured an IT project worth rm15.88 million from the JPN Department in late Oct 2013. The proposed transaction is expected to contribute positively to the future earnings of the group. Any renewal or extension of the duration would be at the discretion of the Government.
In June 6 2013, it has bagged an rm18.95 million contract to maintain and service computer systems for the data centre at the immigration Department of Malaysia. The contract will run for two years.
HeiTech Padu Bhd has also bagged a €4.83 million (RM21.54 million) contract from the Department of Immigration and Emigration of Sri Lanka to supply of 1.5 million blank 'N' series passports.The contract is for two years, beginning 2013 to 2015.
In 2010 Heitech Padu Bhd has secured a RM282mil contract from the Government to undertake an integrated solutions project for the Road Transport Department. The contract was for 24 months for system development and a warranty of 24 months.
It has also secured a RM36.79 million contract from the federal government to maintain the computer system of the Road Transport Department. It had accepted a letter of award from the government and the contract was from January 2010 to December 2011. The proposed transaction will not have any material effect on HeiTech group's net asset for the financial year ending Dec 31, 2010 and is expected to contribute positively to the future earnings of HeiTech Group.
While a key creditor discount turned XOX Bhd’s unaudited net loss into an audited net gain for FY2013 ended June 30 2013, the company is facing other challenges to keep itself in the black. This includes short term concerns over its cash flow as well as a proposed scheme with a creditor to convert its net balance outstanding into loan stocks.
In Nov 8 2013, it highlighted a deviation of 225.7% between its unaudited net loss of rm3.59 million and audited profit after tax of rm4.51 million for FY2013.
The variance was mainly due to rm10 million discount given by a major trade creditor following negotiations with XOX. It was given the credit note after the conclusion of its financial year, resulting in the subsequent adjustment in the audited financial statements.
The company says it will continue its relationship with Celcom and Axiata. The two have a commercial arrangement that allows COC to utilize Celcom’s nationwide mobile network infra.
While the creditor discount went a long way toward improving XOX’s FY2013 results, the company is working hard to turn things around.
Another point in the agreement between XOX and a trade creditor is the creditor agreed to convert the net balance outstanding of about rm16.6 million into RCULS at 10 sen per share.
Should the creditor convert the RCULS into equity, it would be entitled to nominate XOX’s top management personnel at its own discretion. In other words, the agreement entails a potential management reshuffle and a restructuring of XOX’s business.
Another caveat in the scheme says XOX will be obligated to pay a minimum of rm2 million or 90% of the creditor’s invoices issued after June 30 2013. Moreover XOX will have to remit 50% of any amount raised from a private placement to the creditor when the scheme is in force.
Another concerns, the group’s current liabilities exceeded its current assets by rm16.64 million which indicates the existence of material uncertainty. This may cast doubt about its ability to continue as a going concern.
One big worry for XOX at the moment is its depleting cash reserves. The group has cash and cash balances amounting to a meager rm244987 as at June 30 2013. After deducting fixed assets such as property, plant and equipment, its current assets amounted to rm14.8 million.
In contrast, its current liabilities stood at rm31.44 million as at June 30 2013.
The group has receivables of rm13.75 million which may come into its coffers sometime in the foreseeable future.
The agreement between XOX and its creditor is expected to have major ramifications on the company’s future direction.
It has in its books some parcels of land and buildings in KL that it had acquired as far back as 2001.
Apart from owning relatively cheap landbank on KL, the company also has a string of developments in the Klang Valley, Johor, Penang and Pahang with a combined GDV of more than rm1.3 billion.
In 2013, it had launced a luxury condominium in Dutamas Mont’ Kiara and a hotel and a serviced apartment development in Genting Highlands. The Mont’ Kiara project sits on 10 acres of freehold land acquired in 2001. It has a net book value of rm85.6 million, the cost works out to around rm90 psf.
Its headquarters in Jalan Tun Razak has a net book value of rm116.21 million. Acquired in 2006, its cost works out to around rm145 psf.
Another acquisition of Industrial land in Jalan Universiti is valued at rm124.2 million.
PJ Developments include D’ Majestic in KL, YouOne in Subang, USJ and Swiss Garden Resort Residences in Kuatan.
The resort in Kuantan has a net book value of rm53.13 million while the Swiss Garden Hotel and Residences in the heart of KL is booked at rm86.5 million or rm252 psf. The latter freehold land would command a much higher price now (Nov 2013).
In the past three years prior to Nov 2013, it has seen its earnings decline as margins weakened due to increased competition from an influx of cheap tinplate imports. However its most recent results show a major operation turnaround following a change in management earlier in 2013.
The significant recover in margins, and hence stronger earnings, should help sustain its annual dividend payout of 40 sen per share.
The much higher margins are thanks to the efforts of Perstima’s new MD who managed to slash costs and boost efficiency.
In Oct 2013, it declared a 20 sen per share interim dividend, which means that it is well on track to pay its annual total dividend of 40 sen per share.
Its net cash as at Sept 2013 translates into 74.6 sen per share, it looks to have the balance sheet strength to maintain its generous dividend payouts.
Historically, it has maintained a 40 sen per share annual dividend even when its earnings fell a peak of 78 sen per share in FY2010 to only 27 sen per share in FY2013.
It is worth noting that the competition from cheap tinplate imports from China and South Korea is still prevalent. At this stage, it has only addressed its production efficiency and costs. If the oversupply of tinplate eases of if strict anti dumping measures are imposed, its earnings could take another leap.
It has been petitioning the MITI to take anti dumping measures against the import of tinplate. However downstream players under the MTCMA that use tinplate to manufacture food storage products are lobbying against Perstima, which has a virtual monopoly on locally produced tinplate.
Its net profit for the nine months period ended Sept 30 (FY2013) of rm73 million came in above market observers expectations.
The group’s third quarter 3Q of FY2013 revenue surged 2.4 times to rm180 million largely due to recognition of charters undertaken by third party vessels, as well as higher utilization of Alam Maritim’s own fleet. However its net profit fell by 26% quarter on quarter to rm22 million as the margins for third party vessels are lower than that of the group’s own assets.
Its 9MFY2013 revenue rose 4% year on year to rm347 million due to higher utilization of the group’s own fleet.
Net profit surged much higher by 88% year on year to rm73 million due to higher charter rates and utilization of the group’s vessels, third party vessels and recognition of subsea and underwater installation and construction work.
However its 4QFY2013 may be weaker quarter to quarter.
With 16 charters for AHTS and straight supply vessels secured so far in 2013, the group’s vessel utilization rate for its wholly owned fleet has risen quarter to quarter from 70% to 80% currently (Nov 2013) with the rest of the vessels on spot charters.
Year to Nov 2013, it has secured contracts worth rm1.278 billion of which 81% are marine charters for vessels that are either wholly owned, under JV’s or for the third parties. Its current order book of rm1.3 billion has surpassed its 2008 peak of rm1.1 billion.
It hopes to secure rm1.2 billion to rm1.5 billion worth of contracts for underwater services, which were earlier extended to Offshore Works Group Sdn Bhd, currently (Nov 2013) in finalization distress.
Additionally the group hopes to secure part of the concessions for Package A of the Pan Malaysian transport and installation umbrella contract, which may be potentially worth rm400 million annually.
In terms of valuations, it is trading at a PER of 10 times FY2014 … way below the oil and gas sector of 17 times.
Despite being in the same industry, the performance of UNISEM and MPI could not be more different. This is because the two semiconductor players focus on different areas of the industry.
Both companies are export based with exposure to the US dollar, yet UNISEM continues to be loss making while MPI’s earnings are rising.
The divergent fates of the two companies could be attributed to their product mix.
Unisem caters for the auto industrial, communications, PC and consumer electronics segments whereas MPI focuses on the smartphone and tablet and PC segments, where demand is higher and the profit margins better.
That is what makes UNISEM different from other companies in the industry.
The smartphones and tablet segment contributed 36% to MPI’s revenue in 1QFY2014 ended Sept 30, up from 33% a year ago, while UNISEM, its consumer segment was its largest revenue contributor, accounting for 29% in 3QFY2013 ended Sept 30.
The areas UNISEM focuses on may have contributed to its lower utilization rate. By comparison, MPI’s utilization rate has been improving over the last two quarters – it was 82% to 83% in 1QFy2014.
For companies in the semiconductor industry, the most important thing is to boost their utilization rate. The threshold differs from company to company but generally, UNISEM’s utilization rate is lower which is possibly why there has been no profit translation.
It was reported that MPI’s successful transition to high margin businesses and stringent cost controls should continue to keep the company in the black.
Based on sales by end product, the revenue of MPI’s smartphone and tablet division grew while that of its PC division expanded. Whereas UNISEM says the continued poor performance was due to low sales volume and a drop in average selling prices.
UNISEM still lacks re rating catalysts for now (Nov 2013) and that most of the negative factors including its bleak near term outlook should have been priced in.
Based on its latest annual report, it has 2957 acres of remaining landbank (excluding land currently (Nov 2013) under development) in Johor. In terms of location, 2640 acres are in Kota Tinggi, 115 acres are in Tebrau and 104 acres of strategic golf course are in Plentong.
Average land prices in Johor started rising since 2QFY2012 and over time, land prices will continue to increase. Daiman’s development land is carried at 2011 valuation, even through the price for land has risen.
Menara Landmark is an investment property the group acquired in Aug 2011.
Based on its latest annual report (FY2013 ended June 30), 94% of the group’s earnings were derived from the property development segment. It is set to launch projects with a total GDV of rm225 million.
Its revised net asset value is based on the estimated market valuation of Daiman’s development land. It is targeting local demand for landed residential properties priced at rm500000 to rm1 million a unit.
If offers food value, trading at a steel discount of 74% to its estimated revised net asset value per of rm11.45. It is a pure Johor play as the group’s remaining landbank of 2957 acres is located in Johor.
It has a strong balance sheet and has been in a net cash position from FY2008 to FY2013. Net cash as at FY2013 is 65 sen per share. If were to include other investments, which is basically short term investment in managed funds (upon disposal, funds cans be used for reinvestment or may be retained as cash), the cash increases to rm1.10 per share.
The Tan family from Singapore owns close to 51% of Daiman.
It is looking for more production licenses in 2014 to complement its existing assest in Norway.
It had obtained an approval for an additional two production licenses on top of the four granted in Sept 2013 for the Norwegian Continental Shelf through its JV unit Lime Petroleum Norway AS.
Lime Petroleum Norway is a wholly owned subsidiary of Lime Petroleum Plc, an entity jointly controlled by Hibiscus, Schroder & Co Banque SA and Rex Oil & Gas Ltd.
Its Norwegian concessions, which Hibiscus owns through certain interests, are still in the early stages of development. The company is expecting the first well to be drilled in the later part of 2014.
REX’s technology has been used in Norway. The technology is used to detect hydrocarbon reserves via data by satellite.
Through HiRex Petroleum Sdn Bhd, its JV with REX International Holdings Pte Ltd, the group has been looking at 15 different concession opportunities in SEA and it hopes to close two or three concession deals by the end of 2013 or early 2014.
On its Australian concession, it is forecast to provide revenue to Hibiscus by 2015. Earlier 2013, Hibiscus acquired a 13% stake in Melbourne based exploration and production company, 3D Oil Ltd, listed on the Australian Stock Exchange. 3D Oils owns the concession that has a proven discovery of nine million barrels of oil in the West Seahorse oil field. In total, the life of the field is about 4 ½ years.
On operations in Oman’s Block 50 concession, which the group started drilling … if Hibiscus makes a successful discovery of oil and receives relevant government approvals for an extended well test, it expects the first oil find to be in Sept 2014.
The group is estimating the cost of drilling the two wells in Oman from USD40 million to USD44
It has two major land parcels in Bandar Sri Sendayan (5233 acres or 2093ha) located in Seremban and Taman Seri Impian in Kluang, Johor (900 acres). Identifiable remaining GDV of rm8.3 billion provides visibility of up to 2022. Its main drivers are its township developments and Sendayan TechValley.
Seremban is part of the Greater Klang Valley-KL conurbation and this, Bandar Sri Sendayan has indirectly benefited from the spillover effects due to the significant property price increase in the Klang Valley. Sendayan TechValley has also attracted FDIs which will spur economic activities in the area.
Matrix’s demand profiles leave them relatively unscathered from the measures to tighten the property market.
Its land parcels are largely locked at favourable low prices, at around 5% to 6% of land cost/GDV ratio. Hence lower holding cost for the group means they reap higher gross margins of 40% to 45% compared to the average gross development margins of 20% to 30%. It also provides them more pricing flexibility against the competitors which helps combat the property cooling measures.
As the nine months ended Sept 30 2013 the company was in a net cash position of 0.36 times post its IPO. The group has about rm124 million (combination of cash and debt) to use for further landbanking in Seremban.
Matrix has a dividend policy of 40% dividend payout policy and is the only developer to pay out quarterly dividends so far (Nov 2013), which reiterate its strong cash flow position.
Additionally its yields are attractive of 9.4% and 7.8% and PER of 6.6 times and 5.8 times for FY13E and FY14 respectively.
It threw out the kitchen sink in the third quarter ended Sept 30 and may end up in the red for the full year of 2013.
The conglomerate may be monetising some of its mature assets for a “substantial” sum to be concluded in January 2013. The disposal of GTC Global Sdn Bhd for RM45mil is considered small, there should be something more substantial going forward.
It is possible that MRCB will dispose of its non-core unit MRCB Technologies Sdn Bhd that provides information technology services and professional outsourcing. That is on top of its plans to sell its 30% stake in Duta-Ulu Kelang Expressway, which is believed to be worth RM200mil.
MRCB is also looking to monetise Platinum Sentral, an office property located within the group’s flagship KL Sentral project.
It is learnt that the group is considering several ways to unlock the value of the property to match its monetisation goals.
It was reported that the sale of Platinum Sentral would raise its realisable net asset value by 9%.
MRCB’s net gearing stood at 1.7 times while total borrowings was RM3.4bil as of September 2013.
The potential toll collection at the Johor Baru Eastern Dispersal Link Expressway could enhance its cashflow especially with the improving traffic volume.
Market observers were turning more positive on the company because it was making efforts to clean up the books by making all the provisions in the third quarter.
Due to the provisions, the company may be making losses for full financial year ending Dec 31 but it should be turning around well in 2014. MRCB reported a loss of RM122mil in the third quarter ended Sept 30, with nine-months deficit of RM111.3mil.
MRCB had guided that the company would unlock its property value by launching more projects going forward while rationalising its construction arm.
The construction firm could see earnings recovery in 2014.
Positive results will result from the kitchen sinking exercise. Observers do expect such provisions in the next quarter and in 2014 and that the provisions could be written back in the future.
Big cap companies excluded from the revised list are YTL Power, Bumi Armada, SP Setia, Airasia, Panasonic, MRCB, Parkson and Dutch Lady.
Other names excluded are Silver Bird, Southern Steel, BJFood, Pantech, SKP Res, Yinson and SKPRES.
As at 29 Nov 2013, LTH holds a 8.8% stake in MRCB, 6.93% stake in Parkson, 4.55% stake in Pantech and 5% stake in SKP Res.
To recap, the Securities Commission has introduced a revised Syariah-compliant securities list which is said to be helping Malaysia to draw more investments from the Middle East.
The updated list, which took effect 29 Nov 2013, will feature a total of 653 Syariah-compliant securities, which constitute 71% of the 914 listed securities on Bursa Malaysia. The list includes 16 newly classified Syariah-compliant securities and excludes 158 from the previous list issued in May 2013.
A new set of Syariah guidelines by the SC may see fund managers sell more than rm1 billion in the stocks from Nov 2013.
The new SC rules, announced on June 18 2013 entail a revised screening method which introduces new financial ratio benchmarks to determine the Syariah complaint status of listed companies.
Essentially this means listed companies which do not have at least two thirds of their debt and cash that are Syariah compliant will see Syariah funds and investment schemes compelled to sell their shares in these companies. Currently (Sept 2013), the ruling does not require companies to adhere to the financial ratio benchmarks to be Syariah compliant.
Funds which will include LTH … As of June 30 2013, there are 173 Islamic based funds with assets of rm37.48 billion or 11.4% of total assets of rm326.4 billion.
The new ruling of less than 33% conventional debt to total assets is not so easy to comply with.
It is learnt that the SC has had discussions with key shareholders including companies which will be affected following the newly introduced financial ratio benchmarks. They have been asked to refinance all their conventional borrowings to sukuk or Islamic financing but this is not feasible for them, as this will bring their cost of financing up.
Institutions that manage Islamic and Syariah compliant funds will be impacted. They will have to tailor their portfolios to account for quite a few companies that may drop out of the Syariah compliant list.
The good news however is that funds have a grace period of six months from the effective date of the Syariah compliant list in Nov 2013 to dispose of affected securities.
Looking at LTH’s shareholding in current (Sept 2013) Syariah compliant stocks, a possible selldown by LTH in the event of the breach of the financial ratios benchmark would include FGV, Faber and Hiap Teck.
FGV and Faber can easily take steps to ensure the conventional cash to total assets ratio follows below the Syariah compliant list. They can simply move their cash in conventional banking accounts to Islamic ones.
Naturally there are some that will not comply but these affected ones will find ways to rectify the situation. Thus within a year so from the time the new guidelines come into force, expect an increase in Islamic deposits and in Islamic financing.
A second revised benchmark’s involves the business activity of the companies, currently (Sept 2013) assessed under 10% or 25% benchmarks; this may affect companies as their activities will now (Sept 2013) assessed under 5% or 20% benchmarks.
It incurred a huge loss of rm122.4 million for the third quarter to Sept 2013 compared to a net profit of rm35.8 million in a similar quarter a year ago.
Revenue generated was rm159.7 million against rm299.8 million.
The loss of the current financial quarter was mainly due to the recognition of higher construction costs for certain KL Sentral development and construction projects without recognition of the same for the potential variation orders claims to its clients.
For the nine months to Sept 2013, MRCB incurred total loss of rm111.3 million versus a net profit of rm63.1 million in the first nine months of last year. Revenue totaled rm607.5 million versus rm969.9 million.
Disclaimer:
Please note that all data given are merely blogger's opinion. It is strongly recommended that you do your own analysis and research before investing.
