Kotra (Huge Debts)

It awaits approval for two manufacturing projects to be made EPP3 under the government’s ETP.

In Dec 2013 it secured its first project for the manufacturing of sterile infusion under EPP3 and expects to see revenue come in progressively over the next five years from 2014.

As at Dec 31 2013 the company’s net asset per share was at rm0.82.

It had recently appointed Pharmaniaga Bhd’s former executive director and MD Azhar Hussain as its chairman. He was also Kotra ndustries’ non executive director.

It is currently (27 March 2014) trading at 22 times PER which is even higher than Pharmaniaga’s business which is showing profit …. At 21 times PER.

When compared with other pharmaceutical companies such as YSP, CCM and Hovid whose PER range from 11 to 14 times.

Its performance has been volatile these past few years. It had recently turned around its business, posting a net profit of rm17000 for the second quarter ended Dec 31 2013 against a net loss of rm1.86 million a year ago.

It posted a net profit of rm1.12 million and rm3.69 million in 2012 and 2013 but incurred a net loss of rm2.14 million for 2011 and a net profit of rm11.72 million in 2010.

The company has a total debt of over rm126 million as at Dec 31 2013. In terms of cash, the company has only rm10.1 million as at Dec 31 2013.

Observers opine that the company has difficulty turning a profit as most of the earnings go to pay back its debt. The company needs to restructure its debts.

The company may invite a shareholder to inject some assets or funding to lower gearing level.

Its MD links the volatility of the business to its transformation plan which began five years ago cost about rm350 million.

It is targeting to increase its contribution of export markets from 35% to 80% in three years to five years from 2014.

The EPP contracts could be a catalyst for growth.

Ancom: Datuk Siew Ka Wei, its group MD was seen to be continuous his purchase of Ancom shares. He now holds a 8.79% stake in Ancom with another 9.53% indirect stake in the company making him the largest shareholder in the company.

General Insurance player P&O Bhd is the largest shareholder with a 19.64% stake.

NEXT For MAS ... Declare Bankruptcy Does Not Work !!!

Industry observers opine that the government should close MAS Bhd down and re incorporate it in the future as it is understood to be in the midst of revising its turnaround plan.

They believe MAS which is weighed down by high legacy costs, a bloated workforce and declining yields from rising competition, could emerge leaner and nimbler once it rids itself of liabilities and restructures its debt.

It is viewed that MAS can no longer exist in its current (March 2014) form. Its operating costs are too high. The best alternative to another restructuring and bailout is to shut the carrier down and rebuild it from scratch.

MAS is however is aware of the possible political backlash from it. There has to be the political will to break the carrier down and rebuild t from scratch. The other alternative is another restructuring of the airline’s debt and bailout which has so far (till March 2014) failed to prop the airline up.

However a plan should not be likened to that of Japan Airlines Co Ltd – the airline declared bankruptcy in 2010 and returned to the stock market in 2012. JAL completed a trip through bankruptcy protection and a turnaround that included shedding a third of its workers, cancelling routes and retiring older planes.

That would not work for MAS. JAL had the full backing of its government to ask Janpanses creditors to write off its debt. That would not be easy for MAS to do because the majority of its debts are held by international banks.

MAS also has a social obligation to fulfill as the national carrier.

MAS is 69% owned by Khazanah Nasional Bhd while the government retains a golden share in it.

Also considering is that MAS should consider spinning off its ancillary units, such as its maintenance, repair and overhaul and cargo operations, to better manage them and help boost profits.

But now is not the right time for MAS to spin off its units. The carrier’s WAU restructuring exercise in Nov 2002 which saw MAAS’ aircraft assets transferred to and leased back from Penerbangan Malaysia Bhd failed to tackle the root of the problem.

As much as MAS has focused on slashing costs, including closing unprofitable routes, it has also sought to close the service gap with Airasia which is wrong. A lot of airlines, when they restructure they go down the low cost road or just scale back service. This is a wrong move.

Secondly MAS needs to change its strategy of just capturing market shares, its products have improved with six brand new A380s and 737-800s and 900s. MAS should leverage this advantage and not sell cheap tickets.

MAS should focus on being a premium carrier and target a specific market segment. It cannot be like CATHAY PACIFIC or SIA because HK and Singapore are business centres and they have a high volume of high paying business travelers to fill the front seats.

MAS can find a middle ground where its cost is higher than Airasia but lower than that of Cathay Pacific.

MAs must target the right market. If not the passenger experience will become bad. MAS should focus on reducing its headcount, identify its target market and raise fares and service level for the said market which in turn will increase yields.

KeyWest

Testa Holdings Ltd of China will inject its edible oil business into Key West Global Telecommunications Bhd in a RM210mil corporate exercise.

Upon completion of the RTO, Key West will be removed from the current GN 3 status.

Under the RTO, Testa will inject Supreme Global Group Ltd, who owns Henan XingHe Oil and Fat Co. Ltd that ranks among the top six edible oils companies in China into Key West.

After the corporate exercise, Key West will change its name to XingHe Holdings Bhd (XingHe).

Through Henan XingHe, Supreme Global's core business is the production, blending and marketing of edible vegetable oil and peanut protein cake. The exercise would enable Key West to venture into edible vegetable oil industry in China and provide the company with a new source of income.

Supreme Global owns 91.15% of Henan XingHe through its unit, Anyang HeRun Oil Technical Co. Ltd. The remaining 8.85% stake in Henan XingHe is owned by the Chinese Government-linked Henan Finance Bureau through its unit, Henan Agric Synthesis Exploitation Co.

For the financial year ended Dec 31, 2012, Henan XingHe registered a revenue and profit after tax of 1.49bil renminbi (RM728.32mil) and 134.66mil renminbi (RM65.78mil) respectively.

Symphony/Ranhill Energy

After aborting its controversial IPO, Ranhill Energy and Resources Bhd is heading to a listing on Bursa Malaysia via a RTO of Symphony House Bhd.

The proposed takeover of the BPO company will first see current (March 2014) controlling shareholder Tan Sri Azman Yahya buying over the businesses of Symphony, leaving a listed shell for Ranhill to buy over.

However, it would also mean absorbing whatever liabilities that the company might own.

Sources said Azman would remain a shareholder of Symphony after the reverse takeover by Ranhill, which has businesses in energy and utilities.

Ranhill recorded a net profit of RM282.23mil on revenue of RM1.99bil for its financial year ended Dec 31, 2012.

Ranhill’s IPO plans were put on hold in 2013 after it emerged there had been a disclosure breach related to the suspension of the licences of its affiliate company, Perunding Ranhill Worley Sdn Bhd, by Petroliam Nasional Bhd for an indefinite period.

Subsequently, the SC imposed a fine of RM200,000 on the company, while its substantial shareholder Tan Sri Hamdan Mohamad was reprimanded and fined RM300,000 for the failure to disclose the licensing issue.

Ranhill was supposed to list on Bursa on July 31 2013, with about 70% of its RM753mil IPO proceeds to be utilised for the repayment of borrowings. The SC had instructed the company to postpone its IPO indefinitely on July 25 2013 in view of the non-disclosure issue. The following day, Ranhill announced that it had terminated its IPO.

According to the company’s prospectus, it had debts of RM1.93bil and a gearing of 1.61 times as at end December 2012.

Symphony recorded a net loss of RM40.84mil for its fourth quarter ended Dec 31, 2013, compared with a net loss of RM37.66mil in the corresponding period, which was mainly attributed to an impairment made in respect of its BPO business of RM40.6mil.

Its revenue during the quarter rose to RM14.66mil from RM12.77mil previously.

Its total cash and cash equivalents stood at RM22.80mil as at Dec 31, 2013.

Symphony expects to complete the sale of Symphony BPO Solutions Sdn Bhd by the first quarter of 2014. Upon completion of this sale, the group still has the remaining international BPO business for payroll solutions, which will focus on completing the implementation of secured projects in Japan and Europe.

Benalec

Its unit has entered into a S&P for the disposal of 22 piece of commercial land for a total consideration of rm235 million.

This development is positive as the disposal is done before the reclamation process, enabling the group to immediately crystallize the value of its land bank, hence improving its cash flow.

The land disposal is line with the group’s business model in selling a portion of the reclaimed land, which improves a settlement in kind for cash. This also provides an avenue for Benalec to raise funds to repay its borrowings as well as finance ongoing and future reclamation projects.

The disposal will reduce its net gearing ratio to 0.05 times from 0.06 times.

Expect to be a few more disposals in the immediate future…

E&O

Its net asset value stood at RM4.61 per share, including the significant accretion from Seri Tanjung Pinang 2 (STP2). Stripping off STP2, AmResearch’s net asset value stands at RM1.36 per share.

STP2 remained as the key catalyst for E&O given the potential tripling of net asset value and deep development potential of the 760-acre prime land located opposite the highly successful STP1.

E&O was on track to obtain approval from the Penang Government in the second quarter of 2014 for the commencement of reclamation works on STP2, which it expected to begin in the same quarter. It said approval-in-principle was obtained from the state government in April 2011 for STP2 and this was pending (Department of Environment) approval for the Detailed Environment Impact Assessment (DEIA) study.

E&O was currently (march 2014) conducting a last round for the public to submit feedback on the DEIA study with the cut-off date being March 27 2014. Assuming no hiccups, this would mark the final step to obtain DOE’s approval on the DEIA study.

The launch of STP2 could happen earliest in end-2016, two years after the commencement of reclamation works.

Observers were positive that STP2 would do well, underpinned by scarcity of land, the firm establishment of STP1, and improved accessibility ( Second Penang Bridge and Penang undersea tunnel).

Launches of E&O’s key prolific projects were on track. The balloting for Avira Wellness (Phase 1: 208 terrace units) was earmarked to happen in April 2014, with indicative prices of more than RM600 per sq ft (fully-fitted units).

About OCK

In the face of it, industry observers opine that telecommunication contractors OCK 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 2014.

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 to secure contracts which will contribute positively to their margins.

However 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.

Its Prospects …


Companies in the telecom infra businesses are likely to emerge as the better bet in terms of returns.

Owners of telecoms tower assets are one such example. While OCK may not be in the same league as the largest telecoms tower asset owner in the world, it is a good proxy to the infra play.


Having obtained a Network Facility Provider (NFP) license from MCMC in late 2011, OCK is able to capitalize on the opportunity of the growing cell tower lease business.


NFP license allows OCK to build, own and rent out telecommunication towers and rooftop structures, whereas the equipment is provided by the mobile operator but it maintains and install for them.

Essentially, with this license, OCK is also enjoys recurring income from leasing the towers to the operators. The license allows it to move from task based revenue (one time payment) to rental based revenue.

This business model is in line with the government’s directives to mobile operators to share infra in order to reduce cost. MCMC is encouraging telcos to shift from the traditional practice of owning infra to network infra sharing and renting from third party owners to reduce infra development costs.

OCK builds the structure which allows three to four operators to share. For example, if onw operator owns the site, they will have to pay for rental, maintenance and utilities. The mobile operators need to spend about a billion yearly on such capital and operation expenditures as they have thousands of sites.


With OCK owning the site structures, the cost of rental and maintenance will be shares among the tenants of the towers, allowing the mobile operators to focus on gaming larger market share of their business.

OCK can have steady revenue while operators benefit from lower capital and operation costs. This is a win win situation.

In the immediate term, the company has plans to further bring down costs for these players by owning and leasing the equipment to the mobile operators.

It had proposed for new and existing 4G/LTE operators to bring down costs. It is working together with technology providers to share the equipment which can further reduce operators capex.

The company has budgeted some rm150 million to invest in NFP, which also allows it to own basic equipment such as antenna and microwave link for operators to share.

With NFP, it wound not contribute significantly to its business but will give it steady income.
OCK position itself as management service provider. They need a third party to maintain their towers. As for tier two telcos like P1, U-Mobile and YTL, the ucan free up cash by selling the towers to OCK. It is in talk to some of these players (March 2013).

The tier two players can reduce their capex as it will be investing instead of the telcos. It has more justification to get bank loans. It get sure rental for every tower OCK build.

While OCK is slowing building its recurring income business, the company is not short of business from its current (March 2013) contracts. The bulk of its revenue is derived from its network planning, design and optimization and network deployment businesses.

As technology advances there is always a need to upgrade infra. Upgrading is a continuous and done in stages.

With the deployment of 4G/LTE and further enhancements of 3G, these contracts will keep OCK busy for the next four to five years from 2013.

The challenge for OCK is to continuously drive down its own cost so that it can provide its services at cheaper rates to the operation.

About Yee Lee

It has allocated RM36mil for its capital expenditure for 2013 to expand its business while continuously looking to add products to its distributorship portfolio.

It had allocated RM20mil for its packaging business, mainly to expand the efficiency of the aerosol can production machineries, while RM16mil had been set aside for its plantation division.

It is exploring the feasibility of developing a parcel of undeveloped land in Sabah into an oil palm plantation.

The trading division was its biggest revenue contributor, providing 65% of the group's total revenue, followed by 22% from its packaging division, 12% from its palm oil refinery and mill and 1% from its other businesses, including plantation division.

Yee Lee's main products include the Red Eagle cooking oil, Vecorn corn oil and SunLico sunflower seed oil. It also has a 32% stake in bottled mineral water producer Spritzer Bhd.

Its wholly owned subsidiary had lost the distributorship for Johnson & Johnson products from Oct 1 2013.

About Protasco

It is a defensive stock given that the company profits highly from its road maintenance and construction division.

Protasco is maintaining about 14000km of federal and state roads under long term maintenance contracts and concession. The outstanding value for these road maintenance and construction works stands at rm1.7 billion which would provide earnings visibility to group for the coming three years from 2013.

Protasco’s crisis is the civil unrest in Libya, which led to the company halting operations in Malaysia in 2011. Protasco has written off rm40 million in provisions over the past two years from 2013 which the company is seeking to claim form the Libyan government.

In spite of the imminent risks, it is not deterred from its work there and is in fact facing considering extending its stay beyond the completion of the suspended works.

Its O&G Division …

Expect its proposed O&G business through the purchase of a 63% stake in PT Anglo Slavic Indonesia (PT ASI) to contribute no less than 15% to its earnings from 2014.


However its entry into the oil and gas sector has been delayed hopes the restated S&P that it signed with an Indonesian party in Jan 2014 will expedite its entry into the sector.

The restated SPA will enable the company to take control of PT-ASI and commence with the exploration, well reactivation and construction of the well in accordance with the agreed development plan approved by PT Pertamina, Indonesia’s state owned oil corporation.

There are approximately 30 wells in the field, some of which may be able to be reactivated.

Under the restated SPW, PT-ASU is required to resolve all outstanding issues within six months from Feb 2014 to the satisfaction of Protasco, failing which the company has the right to terminate the restated SPA.


To recap, Protasco will fund the acquisition via internally-generated funds. The investment represents 24% of Protasco's net assets.


PT ASI's unit, PT Haseba, has a 10-year contract to extract oil and gas from KST Field starting 2004. The extraction works, however, were halted as PT ASI faced financing issues.

PT ASI made a net loss of RM346,000 for the five-month period ended May 31 2013, with net assets of RM31.4 million.

PT ASI has attached a profit guarantee of a consolidated net profit of US$22 million in the next four years from Jan 2014. The deal includes a US$5 million advance to be made by Protasco to PT ASI to conduct exploration, wells re-activation and/or construction of wells.


This is necessary to obtain an extension of the production management partnership agreement between PT Pertamina EP and PT Haseba beyond its expiry on December 14 2013 for a further 10 years to December 14 2024, on the best terms possible.

Its Property Division ….

Tey Por yee is using his two companies (Asdion and Protasco) as his platform to fast track his property development business outside the Klang Valley. In the Sept 2013, the two companies teamed up to develop property in Johor.

Tey is the largest shareholder in both Asdion and Protasco with a 28.13% stake in Asdion and 18.51% stake in Protasco. He also has a 2.44% stake in Nextnation.

Nextnation had acquired am 11 storey office building in Bangsar South for rm64 million.

Protasco also has development in Kajang, a mixed development on 40ha of freehold land with a GDV of rm6 billion.

Besides being an indicator of Tey’s expanding property development interests, the formation of the JV marks a turning point for Asdion which is involved in ICT.


Also, Protasco owns approximately 100 acres of freehold land in Kajang for a mixed development known as De Centrum City. The land’s GDV alone is worth about 15 times more than the company’s market cap of rm420 million as at 31 July 2013.


This RM10 billion De Centrum integrated development in Bangi is essentially the redevelopment of its 100-acre University Kuala Lumpur (IUKL) land acquired at a very low price more than a decade ago.

Property development is still a small part of its business but the group intends to make the segment one of its core businesses. The construction business will remain the largest contributor, contributing rm99.5 million or 96% of its operating profit.

It owns a 40ha plot in Kajang of which it plans a mixed development worth a GDV of rm6.6 billion.


Its Financial Strength …
Protasco is in a net cash position of about rm105 million. Cash and its equivalent stood at rm147.13 million as at end FY2012 while total borrowings amounted to rm42.3 million.

Its healthy balance supports its aggressive business expansion.

Debt to equity ratio stood at 0.697 times as at end FY2012.
It has an unofficial dividend payout policy of 60% of net income every year.

Tey Por Yee became the second largest shareholder with a 15.13% stake in Adison. Tey is also the CEO, MD and executive director of Nextnation, a director of Protasco Bhd and former executive provider of Petrol One Res Bhd.

Tey Por Yee’s Shareholdings as of Oct 20 2013 …
· 18.51% in Protasco;
· 28.51% in Ire Tex Corp Bhd;
· 28.13% in Protasco;
· 13.33% in Hytex;
· 2.44% in Nextnation;
· 18.38% in Malaysian AE Models

UZMA

It will propose a renounceable rights issue of up to 132 million rights shares on the basis of 1 rights share for every 1 existing share.

The exercise will strengthen its balance sheet, finance the company’s expansion plan and improve liquidity.

Overall its financial year 2015 ending Dec 31 2015 earnings per share will be diluted by 45%.

This exercise is expected to raise up to rm90 million. Its net cash position will increase from rm3.5 million to rm93.5 million, beefing up its war chest for expansion.

Any marginal field contract win will re rate the stock and transform the company into an E&P player.

Its latest order book of rm1.6 billion and tender book of rm2.6 billion are expected to sustain earnings growth going forward.

Risks are delay in contract disbursement and execution risk.

The positives are its direct exposure to enhanced oil recovery and exploration spending and room to grow.

Next for Astro

Its home shopping venture represents a differentiated entry into Malaysia’s growing e-retailing market. More importantly, it signals AStro’s evolution into an entertainment/lifestyle company, which should improve the company’s long term growth profile – the key reason market observers turn positive.

Astro’s original content production will be an increasing competitive differentiator, offering cost mitigation and potential for further monetization. With the set top box swap out nearing completion, anticipate margin recovery will drive earnings growth. A 30% earnings growth is expected for the next few years from 2014.

Market conditions are ripe for e-commerce to take off in Malaysia, given an expanding middle class, relatively high broadband/mobile penetration and developed e-payment/billing systems.

Astro’s hjome shopping offering will be a unique proposition, given its live TV broadcasts and multiplatform strategy.

Expect home shopping to be earnings accretive from financial year 2016 ending Jan 31 (FY2016). While contributors may initially be small, home shopping bears the significance of potentially altering Astro’s long term growth profile.

Its key risk include competition, ability to secure exclusive content, content costs, foreign exchange, regulations and consumer sentiment.

Tropicana

Singapore listed steel trader Albedo Ltd said its proposed S$774 million reverse takeover deal to buy the property arm of Infinite Rewards Inc, a company controlled by Tan Sri Danny Tan is still intact.

It said the parties to the proposed acquisition have not reached any mutual agreement, verbal, written or otherwise, to terminate the proposed acquisition.

It was reported that Tan Sri Danny Tan is aborting his plans to inject his prized Johor land into Singapore-listed Albedo Ltd, a company whose share price shot through the roof late last year on speculation that it would become a new “Iskandar play”.

Sources said talks between Tan and the major owners of Albedo – a loss-making steel and raw materials company – broke down after they failed to agree on the terms of the sale.

Tan had planned a reverse takeover of the Catalist-listed Albedo following the injection of his 762-acre tract of land in Johor.

It is learnt that both parties have mutually agreed to end the deal and are in the midst of making their announcements soon.

SKPetro

It has signed a rm16.5 billion refinancing club deal with 13 local, regional and international banks.

The refinancing program was put in place to replace and streamline facilities that were inherited following the merger of SapuraCrest Petroleum and Kencana Pet in 2012.

It was also undertaken for the financing of the group’s two most acquisitions the Seadrill tender rig business and the purchase of the entire equity interest in Newfield Holding Inc.

About 80% or rm13 billion of the refinancing package is dedicated for assets that are fully contracted out to independent oil companies and national oil companies.

And about 70% of the borrowings are in USD to hedge again the businesses SKPetro engages in.

Fitters ... To Capture 10% of Domestic Pipe Market

It subsidiary – Molecor SEA - is eyeing to capture 10% share of the domestic water pipe market by 2015.

The company was entering the South East Asia region water pipe market after securing exclusive rights to manufacture and market PVC-O pipes under the Hypro brand.

Molecor developed and patented the molecular orientation technology that gives PVC-O pipes higher impact resistance and longer lifespan of up to 50 years compared with 30 year lifespan of conventional steel based pipes.

The company would invest rm80 million in capex for its manufacturing plant in Kuatan.

PVC-O pipes were much lighter than conventional pipes, a 6 – diameter PVC-O pipe typically weighs 18kg approximately one-tenth the weight of a similar sized ductile iron pipe.

The PVC-O pipes were resistant to corrosion and natural chemical substances to ensure consistent fluid quality. They are also ideal for high pressure water transport from water treatment plants to distribution pipeline for industrial and household usage. Moreover, the completely watertight joints prevent leakage during fluid transport.

The current (March 2014) water crisis in Malaysia highlights the urgent need for pipe replacement initiatives so as to minimize water interruption and prevent further wastage of water.

PVC-O pipes produced using Molecor’s technology have a track record of effective implementations in several countries to date, including Australia, Italy, France, Spain, South Africa and Ecuador.
It hopes to replicate that success in Malaysia and for a start aim to capture 10% share of the domestic water pipe market within the first full year of operations.

Next for OldTown

It is taking various measures to counter the expected slowdown in domestic consumption over the coming months from March 2014.

These include segmentation its target markets in the café business and expanding the geographical footprint for both is café and fast moving consumer goods (FMVG) businesses beyond local shores.

In fact the export of instant coffee mix has become a key driver for growth and is expected to remain so for the foreseeable future.

Volume sales in China have more than doubled over 2013. Chin is now (March 2014) OldTown’s single largest export market. Exports now (March 2014) account for nearly 57% of total sales for the FMCG arm.

The FMCG growth outpacing that of its café business.

Its shares are now (18 March 2014) trading at 15.4 times and 13.3 times FY2015 and FY2016 respectively.

The company is sitting on net cash of rm122.5 million as at end Dec 2013.

It has a dividend policy to pay out half of its annual net profit. With the bulk of its expansions already completed, capex will decline sharply from that in 2012 and 2013. Thus the company is well positioned to return cash to shareholders.

However it is not planning any bumper payout at least for now (March 2014) – preferring to keep the cash as buffer which will also allow it to take advantage of any acquisition opportunity.

One of the concerns for the stock has been its relatively high foreign shareholding which peaked at 41% stake in June 2013. Since then foreign funds have been net sellers on the local bourse and OldTown shares.

Positively, the decline in foreign shareholders appears to have stabilized some what at around 36% currently (18 March 2014).

Airasia

It was proxy for growth in air travel without undertaking the airline industry’s inherent risks such as volatile fuel price and air ticket price cuts.

The exclusivity agreements signed with Airasia allow Tune Ins to tap Airasia’s 37 million passengers (and growing) and dominance in the SEA low cost carrier market with new market expansion potential such as India.

It had entered into two partnerships with Cebu Pacific and UAE. The new tie ups illustrate Tune’s ability to grow beyond its current (March 2014) tie up with Airasia (renewal of the current ten year agreement a key risk).

Tune Ins was still in its infancy and see further potential in penetration rates, revenue per customer in travel insurance and ancillary sales, as well as margin improvement in its general insurance as portfolio mix improves.

Its key catalysts include Airasia India and Thai Airasia X starting operations, positive execution with new partnerships, tourism boom with Visit Malaysia Year 2014 and margin improvement in general insurance.

Key risks include over reliance on the exclusive status from Airasia, selling pressure if key shareholders meet regulatory ownership requirements, adverse claims developments (with reinsurance for large events) and adverse regulatory risks.

IHH ... Underperformed For 2015-2016 Due To High Valuations

IHH is expected to register strong double digit growth going forward, underpinned by the positive outlook for the private healthcare sector as well as the company’s expansion plans.

The problem is that even this pace of growth is not driving down lofty valuations fast enough (15 March 2014) - thus likely limiting upside gains for investors for the next year (2015) or so …

At the prevailing price of rm3.69, it shares are trading at 41 times and 34 times its estimated earnings for 2014 and 2015 respectively. The stock may well underperformed over the next year (2015) or two (2016) while earnings play catch up with valuations.

The company will be paying out a minimum 20% of yearly earnings.

Its gearing stood t 13% as end 2013.
Revenue wise, the company is faring quite well. Revenue was up some 17% in 2013 to rm6.76 billion. This was driven by its three key operating bases in Singapore, Malaysia and Turkey.

Newly opened hospitals are also turning around nicely with rising demand. The Mount Elizabeth Novena in Singapore and two hospitals in Turkey achieved operating break even within a year of opening.

Singapore and Turkey, are also popular destinations for medical tourists from their respective regions.

The outlook for growth going forward remains positive. Demand for private healthcare is comparatively resilient to downturns and indeed, expected to keep trending higher on the back of longer life expectancy, ageing population, greater health awareness, rising disposable incomes, subscription to medical insurance and so on…

Rising demand for healthcare services will be met by IHH’s expansion plans. The company has numerous Greenfield and brownfield projects in the pipeline, scheduled for commissioning between 2014 and 2016.

MAS - privatise?

The cricis of the missing MAS flight MH370 will likely set back its turnaround plan.

Due to the unfortunate incident, investors now expect MAS to face turbulence for the rest of 2014.

Khazanah Nasional holds a 69.37% stake in MAS.

Negative sentiment may affect MAS’ load factor at least in the near term. While MAS is already operating at historically high load factors – bearing even those of SIA and Cathay Pacific – the main concern is a further erosion of its passenger yields. The lower yield is the result of the airline discounting its fares to fill up its seats.

Anticipating lower yield following the MH370 incident, industry observers had projected wider losses for the airline in FY2014 ending Dec 31.

Besides lowering fares, MAS will need to work extra hard to regain flyers’ confidence in the airline.

Hence, expect tougher challenges ahead for MAS to turn around.

Meanwhile MAS may need to compensate the next of kin of flight MH370 passengers. It is too early to estimate how much compensation MAS may need to pay but the financial impact on the airline is not expected to be significant relative to its revenue.

Further deterioration in its operating condition could eat into its RM3.75 billion cash pile as Dec 31 2013 fast. The cash was mostly from a rights issue that raised rm3 billion in the middle of 2013.

MAS which is undergoing a fleet replacement programme, needs about rm1 billion a year to stay afloat.

Industry observers say the current (March 2014) could be a reason to revisit plans to privatize MAS. If there is any indication to privatise MAS, this incident is all the more reason to do so and fix the airline.

Deleum - long term contracts and steady dividend payout

It has proposed a bonus issue and share split.

After both exercises, Deleum will have an issued and paid up ordinary share capital of rm200 million capex comprising 400 million shares.

It has a high order book of rm3.3 billion. Roughly 60% of the of the order is for power and machinery segment and the remainder for oilfield services and maintenance, repair, and overhaul segment.

The current order book will sustain earnings till 2020.

The group has ventured into the asset integration solutions business. To recap, this is a fairly new area of growth for the group which could start to bear fruit in FY2015. It involves services relating to enhanced oil recovery where Deleum could provide either mechanical or chemical solutions to improve productions at underperforming wells, or reactivate wells.

It is liked for its sold earnings growth which is backed by steady recurring income from long term contracts as well as steady dividend payout.

Hibiscus

The second exploration well by Masirah Oil Ltd, an associate of Hibiscus Petroleum Bhd, has achieved a light oil flow rate of up to 3,000 barrels per day.

The successful testing will allow it to deepen its knowledge and understanding of the offshore geology in the east of Oman and assist in its decisions on its further exploration, appraisal and development plans for this 17,000-sq-km block.

The well, which was drilled to its final depth into the Cambrian formation, was done with the objective of proving the presence of movable hydrocarbons and a working petroleum system within the block.

Several zones in the well showed evidence of hydrocarbon presence.

This is the first offshore oil discovery in the east of Oman after more than 30 years of exploration activities.

Masirah Oil is 64% and 36% owned by Lime Petroleum Plc and Petroci Holding, respectively.

In Feb 2014, Hibiscus said the second exploration well found evidence of hydrocarbons, which had to be sent for testing.

Tambun Indah

On the back of rm600 million in new projects to be launched in 2014, its sakes target of rm500 million sales target can be easily achieved given year to date bookings of rm140 million.

In anticipation of more news flow on its project in Batu Kawan, Penang, its prospects remain positive.

Tambun Indah’s flagship Pearl City township in Penang have seen a consistent 10% increase in the average selling price annually over the past six years.

This is a good indication of demand for affordable housing. This gives Tambun Indah plenty of room to raise its ASP going forward. Compared to the current (March 2014) market price of about rm35 to rm40 psf for land in Datu Kawan, Tambun Indah’s average land cost of rm16 to rm18 psf will mean a much stronger margin for its property developments compared to the newcomers.

Seberang Perai Selatang has become the focal point following the opening of Penang’s second bridge and Swedish home furnishing store IKEA’s announcement that it is planning to open a mall in Batu Kawan. It is believed that good news will continue to flow in coming months (March 2014 ...).

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MYEG - triggering MGO

Its major shareholders would have increased their stakes in the e-government service provider to a level close to triggering MGO, had it not been for the 10.81 million treasury shares retained in its books from a recent share buyback.

MYEG’s MD Wong Thean Soon and executive director Datuk Raja Munir Shah Raja Mustapha via Asia Internet Holdings Sdn Bhd acquired a 8.5 million shares, representing 1.44% of the company, for rm24.23 million or rm2.85 a piece.

The transaction, a block of shares in married off market deal, increased AIHSB’s stake in MYEG from 31.2% to 32.66% close to triggering an MGO to buy the remaining shares in the company.

Wong and Munir, who have deemed interest in MYEG saw their direct interest jump from 32.1% to 33.57%.

The percentage of direct and indirect interest excludes the 10.81 million ordinary shares bought back by the company, and retained as treasury shares.

An MGO will be triggered when the 33% shareholding threshold is breached. Hence, an acquisition of an additional stake of 0.34% by AIHSB would see Wong and Munir propose a GO.

Cuscapi

It is in advanced talks to acquire a China based technology solutions provider which will see the group double its revenue contribution from the country to 50% of total revenue by end 2015 from 20% to 25% in 2013.

It is looking at providing its F&B customers with a complete management the area that it is looking at to complete its offerings to its F&B customers.

It is provider of software solutions and tablets specializing in ordering systems for the F&B industry. It had secured a five year contract worth rm21 million from MAHB which is expected to contribute 10% to the group’s revenue for the financial year 2014 ending Dec 31.

Cuspaci swung to a net loss of rm3.62 million in FY2014 from a net profit of rm6.78 million the previous year, as revenue declined 18% to rm48.26 million.

The company also increased its headcount in anticipation of more jobs and to provide technical support for the take off of its new REV tablet product.

Cuspaci hopes more fast food operators who start using the REV tablet.

China offering the strongest growth prospects for REV rollout. The group has secured a fast food operator in China to start REV trials for the quick service business in April 2014. Once the pilot trials are completed, it will move into full scale accelerated deployment. The expanding to shopping malls is a potential business model that Cuspaci is looking at.

Its restaurant management system and POS business contributed 80% to 85% to the group’s revenue in FY2013, with the rest from its call centre business.

Expects its REV tablet business to overtake its POS business and contribute about half of its revenue by end of 2015.

Perdana/Alam Maritim

There are worries that charter rates in the offshore support vessels (OSV) market may have already peaked.

Petronas president and chief executive officer Tan Sri Shamsul Azhar Abbas said (05 March 2014) that domestic OSV charter rates had dropped 15% below market rates. He also called on contractors in the OSV and drilling rig business to hold off their expansion plans because of the current (March 2014) softer rates outlook.

Industry observers are turning more cautious towards small- and mid-cap companies that do not have good track record and those that acquired assets to bet on the asset localisation policy.

Drilling rig utilisation rate in the South-East Asian region had dropped to 72% in early March 2014 from 78% a year ago (2013) as the number of rigs increased to 111 units from 102 previously. The number of active ones remained the same at 80.

Meanwhile, local oil and gas contractors were also expanding their OSV fleet size to take advantage of strong demand as Petronas stepped up its exploration and production spending.

Nevertheless Perdana will embark on a fleet-expansion programme in 2014 as it capitalises on the improving OSV sector outlook and balance sheet.

Fimma - double digit growth with low PE

A trading company in electrical home appliances, is seeking to maintain double digit net profits, it has been enjoying for the past four years prior to 2014.

The company plans to expand its trading and services section (which currently (Feb 2014 sells electrical home appliances, sanitary ware, and medical devices and healthcare products).

Under its in house brands are ELBA, Faber, Rubine, MEC and Tuscani which contribute 80% to its sales, Agency products are Braun, Whirlpool and Omron.

Trading and services contributed 90% to group revenue, with property development contributing the rest.

Moving into FY2014, the property development is due to increase its contribution to group revenue to 20% at most.

It has three ongoing projects and another three in the pipeline, with a total GDV of rm1.5 billion … in KL and Johor.

The group is on the look out to buy more land, primarily in the Klang Valley.

Apart from continued earnings growth for the past five years since FY2009, it has been able to sustain its net profit margins between 10% and 12% in the last four financial years. Revenue has also recorded double digit growth in the same period of between 12% and 14%.

It is currently (28 Feb 2014) trading at a PER of 6.6 times.

TSH - FFB step rising trend

It reported a strong set of earnings results for the financial year ended Dec 31 2013. Net profit came in at rm153 million up from rm76.7 million in the previous year. This is in stark contrast to results for many plantation companies where earnings declined year on year due to weak selling prices for CPO.

To be sure, TSH earnings were boosted by a one off gain of rm85 million gain from the sale of its stake in Pontian to FELDA in the third quarter of 2013 which more than offset some rm63 million in foreign exchange translation losses resulted in its investment in Indonesia plantations.

But even after stripping out these factors, TSH’s results still underscore the company’s solid underlying fundamentals. Excluding the above mentioned items, pre tax profit grew by some 28% or so driven by strong 27% increase in FFB production, This is more than offset the 14% decline in average selling prices.

Expect the company to continue to do well in the current year.

Valuations are fairly in line with the sector of just over 18 times estimated earnings of rm148 million. Assuming no change in CPO price assumption of rm2600 per tonne, valuations are expected to fall to about 15 times by 2016 on the back of increasing FFB output and earnings.

Importantly, TSH still has substantial room for growth over the longer room.

FFB output remains in a steep rising trend, the fruits from expansions made in the past years prior to 2014. Expect double annual output growth for 2014 to 2016 underpinned by new areas coming into maturity as well as newly mature areas moving into higher yielding age brackets.

The weighted average age for TSH’s plantations is about eight years. This will be the primary driver for earnings growth for the foreseeable future.

TSH has substantial unplanted landbank. It currently (Feb 2014) has land totaling some 117430ha including the most proposed acquisition of about 27000ha of mostly unplanted land in Sabah. Of the total landbank, just about 40200ha have been planted leaving plenty of room for future growth.

Expect some 4000ha of new planting in the current year, primarily in its Indonesian estates. The pace of planting up is expected to pickup up from 2015 once the proposed acquisition in Sabah is completed, likely by mid 2014.

Meanwhile the average cost of production is expected to decline due to economies of scale – with fixed costs spread over rising FFB output – and higher yields as trees approach prime production ages as well as lower fertilizer costs.

A less predictable factor affecting earnings would be selling prices.

Maybulk/POSH - solid recovery

The listing of PACC Offshore Services Holdings (POSH) – Maybulk’s 21.23% associate – is finally getting off the ground.

Observers see a “solid recovery” in Maybulk’s heretofore loss-making dry bulk segment, and the stock (28 Feb 2014) could be a cheaper and earlier entry into POSH’s initial public offering (IPO).

Depending on the terms of the share sale, there is a potential for special dividends as well. However it is unsure whether Maybulk will divest its stake in the unit through this listing. Should this be the case, the gains could be paid out as dividends or utilised for more vessel acquisitions in the future.

POSH’s Singapore Exchange-listed peers like Ezion Holdings Ltd, Ezra Holdings Ltd, Mermaid Maritime PCL and Swiber Holdings Ltd are trading at forward price-earnings multiples of as low as 6.21 times to a high of 14.42 times, or an average of 9.88 times.

POSH’s IPO valuations could scale higher, given the strong earnings growth prospects as it doubles its fleet in the next three years from Feb 2014.

In late Feb 2014 it was reported that POSH’s advisers have started investor education, with the pre-marketing to last two weeks before the formal launch of the IPO. The report said POSH could raise up to US$400mil (RM1.31bil).

To recap when news of the listing first emerged in July 2014, Maybulk was better off exercising a put option to sell back its interest in POSH to the vendor at a 25% premium to its cost. Yet, POSH’s bankers are brandishing a US$1.6bil-US$1.8bil (RM5.25bil-RM5.9bil) valuation based on its projected earnings. That gives Maybulk’s stake a value of between US$340mil and US$382mil (RM1.12bil-RM1.25bil) come 2015.

Maybulk essentially has three avenues to cash out of POSH. In 2008, Maybulk had bought the 21.23% stake from its biggest shareholder Pacific Carriers Ltd for US$221mil (RM724.88mil).

There was a caveat: if POSH wasn’t listed by the end of 2013, then Maybulk has six months by which to exercise a put option to hive off its shares at 125% of its cost, or US$276.25mil (RM906.1mil).

Pacific Carriers also has the right to take POSH off Maybulk’s hands at a 50% premium to the latter’s cost, or US$331.5mil (RM1.09bil), valid for six months following the expiry of the put option period.

Alternately, Maybulk can stick with POSH and ride on the offshore supply vessel (OSV) operator’s growth as a listed concern. It is yet to be known, however, if the IPO will dilute some of its interest.

So, what will Maybulk choose?

Under the previous scenario, with POSH priced at a speculated US$1bil-US$1.3bil (RM3.28bil-RM4.26bil), Maybulk’s stake would have been worth between US$212mil and US$276mil (RM695.36mil-RM906.1bil), barely touching the US$276mil (RM906.1mil) implied under the put option.

Should the IPO fail to live up to “market expectations” – referring to POSH’s minimum value of US$276mil (RM906.1mil) for a 21.23% stake as dictated by the put option – Maybulk’s shares could buckle under pressure.

This is because many have used the US$276mil (RM906.1mil) price tag as their yardstick for Maybulk’s sum-of-parts (SOP). But the US$276mil (RM906.1mil) minimum valuation no longer appears to be an issue, helped by the upward re-rating of Singaporean OSV stocks since 2013.

However industry observers pegged (Feb 2014) POSH at 15 times earnings, putting Maybulk’s stake at US$310.98mil (RM1.02bil) on the basis that POSH will be worth S$2bil (RM5.18bil) upon its debut.

The Singapore-headquartered POSH, which has one of the largest OSV fleet in the region at over 100 vessels, is known as an industry leader in the marine towage market.

Its fleet is a mix of platform supply vessels, accommodation vessels, semi-submersible barges, harbor tugs, and tugs and barges.

POSH’ earnings contribution has helped Maybulk stay afloat since the post-crisis years, when many shippers went bust as global trade reeled from the credit crunch.

Maybulk’s main dry bulk unit has bled red ink for the past two years now, with pre-tax losses widening to RM25.61 in 2013 from RM9.54mil the year before. But associate earnings from POSH surged, rising by more than 50% to RM54.42mil from RM35.26mil.

Observers also expect Maybulk’s core shipping business to remain under water at least until the end of 2014 although the losses will likely narrow from 2013.

NCB - sharp earning recovery in 2014

Logistics provider and port operator NCB could see a much needed boost from its new wharf, which came on stream in Dec 2013.

The new capacity could be a bright spot for the group, which saw tough times in 2013 with its loss making logistics unit, Kontena Nasional Bhd.

The new capacity selling point is that the port will be able to accommodate larger vessels with drafts of up to 17m, from 12m previously.

While this offers room for growth for NCB, industry observers caution that it still has a strong competitor in Westports Holdings Bhd.

This may raise eyebrows of new and prospective clients because Northport now (Feb 2014) has a new wharf and bigger handling capacity but there is no room for error. At it is competing with Westports, it has establish that it can just as efficient.

NCB is banking on recovery in exports. It is not yet clear if the company will be able to see outstanding growth because it comes down to whether clients choose it over Westports.

NCB has an element of uncertainty due to the restructuring of Kontena Nasional, and also because investors cannot tell whether morel losses will be incurred in future.

In May 2013, there were claims that Kontena Nasional sufferd a rm19.2 million loss for FY2012 ended Dec 31. It also made a pre tax loss of rm72.8 million for FY2013.

Currently (Feb 2014), NCB is trading at FY2014 PER of 11 times, a substantial discount to its peers. Investors expecting a sharp earnings recovery in FY2014, NCB is valued at a low PE-to-growth multiple of only 0.2 times compared with its small peers Integrax Bhd’s 1.9 tiems and Suria Capital’s 2.5 tiems.

What would be a re rating catalysts for the stock is if NCB’s parent company, PNB takes up a larger block in NCB. It could make a private placement to PNB.

PMB has a controlling shareholding stake of 47.71% in the company. The other major shareholder are MISC Bhd (15.73%) and Retirement Fund Inc (9.13%).

Sold Coastal Contract @ average price RM4.40

I have disposed all my Coastal Contract shares @ average price RM4.40.

Return analysis: -
Bought RM2.33 @ 19/4/2010
Dividend received RM0.05 @ 3/9/2010
Dividend received RM0.0840 @ 27/9/2011
Dividend received RM0.0825 @ 12/5/2011
Free Warrant received and disposed RM0.155 @ 9/2/2012
Dividend received RM0.0380 @ 12/4/2012
Dividend received RM0.0560 @ 28/9/2012
Dividend received RM0.0560 @ 29/3/2013
Dividend received RM0.0600 @ 2/10/2013

Total Dividend received RM0.5815
Total Free Warrant          RM0.1550

Return  =  RM4.40 + RM0.5815 + RM0.155    = 120.45%
                                 RM2.33

Annualized return = around 22%

PavREIT

It may double by value in five years from 2014 as it injects more properties in Kuala Lumpur, which could include Royale Pavilian Hotel.

PavREIT is currently (Feb 2013) the largest retail REIT and the second biggest Malaysian REIT by asset size at around RM4.1 billion.

It comprise two properties which are Pavilion KL Mall and Pavilion Tower (office).

These properties form part of an integrated urban commercial development which includes two residential towers known as Pavilion Residences and Royale Pavilian Hotel

For FY ended Dec 31, 2013, Pavilion REIT's asset under management increased from RM4bil to RM4.1bil. The REIT closed the year at RM1.28 per unit.

The 13-storey Royale Pavilion Hotel is owned by Harmoni Perkasa Sdn Bhd, a subsidiary of Urusharta Cermerlang Sdn Bhd, which owns Pavilion Kuala Lumpur. The Qatar Investment Authority (QIA) has a 49% stake in Urusharta Cemerlang.

Developed by KL Pavilion Design Studio, construction of the Royale Pavilion Hotel will run from March 2014 to the second quarter of 2016.

This project is separate from the 29,127-sq ft parcel, which was acquired by Urusharta Cemerlang Sdn Bhd at a record RM7,209.80 per sq ft (totaling RM210mil) from London-based Millenium & Copthorne Hotels plc in 2010. That project was reported to be 50-storey block comprising 39 floors of residential units and 10 floors of retail space.