High5 - Still No Sign Of Improvement !!!

It has been dogged by financial troubles over the past two years from 2012. Despite the emergence of new stakeholders in 20123, which saw a change in management and a cash injection, the company’s financials have not improved significantly.

It posted net losses of rm11.11 million to rm12.97 million in its three quarters on revenue of rm17.93 million to rm19.24 million. However its net loss of rm12.97 million in its first quarter ended Jan 31 2014 is slightly more than rm10.69 million net loss it reported in 1QFy2013.

The above results prompted investors to question the company’s turnaround plan.

The company’s officials said they are looking to complete the second tranche of interim funding for further expansion and working capital.

The portion of the losses registered in the three quarters will be addressed by a proposed regularization plan which was submitted to Bursa Malaysia in Feb 2014.

To recap, two investors – Covenant Equity Consulting Sdn Bhd and Suncsi Holdings Sdn Bhd – injected rm16 million into High5 in July 2013 to meet its financial needs.

In return, the companies get rm16 million worth of RPS of rm1 each which are convertible into 160 million High5 shares with a par value of 10 sen each plus 320 million free warrants.

A second round of funding, this time amounting to rm22 million is in the pipeline to fund a possible shifting of its factory to new to new premises with cheaper rent and upgrading equipment.

The new management’s team is certainly incentivized to turn the company around. As part of the internal funding arrangement, the team comprising a mix of High5, Covenant and Suncsi representatives was allocated one fifth of the total share option and free warrants entitlement as well as a 10% share of the profits if the company achieves a consolidated audited pre tax profit of at least rm5 million in a financial year.

Nevertheless, legacy issues seem to be impacting the company’s financial well being. High5 is involved in a multitude of civil suits and counter suits between itself and former executives as well as those filed by creditors looking for repayment.

High5’s cash flow position also does not look encouraging. As at the end of 1QFY2014, the company had cash and bank balances of rm4.82 million and bank overdraft of rm90.34 million.

The company has moved to buy new assets worth rm220000 deal will be satisfied in cash via internally generated funds.

The first tranche of rm2 million from the next interim funding may be injected into the company in May 2014.

High5 was hoping its regularization plan would get Bursa’s nod by the fourth quarter of 2014 which would pave the way for the exit of PN17 status.

As part of its revised restructuring plan, the company will undertake a rights issue, which would raise proceeds of up to rm62 million. The two rounds of interim funding, which the officials said should be sufficient for it. It may get a further of rm62 million as part of the regularization plan exercise.

BREM/Bertam - privatization

Its Datuk Khoo does not deny that its landbank is cheap on paper even though it is smack in the middle of good locations such as Segambut.

Khoo also says the company was an idea target for privatization before the surge in its share price (early Jan 2014).

Brem holds a 32.89% stake in Bertam Alliance Bhd which is also a property company. Brem could restructure Bertam in several ways, for instance for making the latter its property arm since it plans to concentrate on construction projects now (Jan 2014) that the five year grace period for the restriction has ended. But things are still on the drawing board with no concrete plan as yet.

Its landbank is cheap which could fetch margins as fat as 30% to 40%.

On top of that, it saves on construction costs as its own unit undertakes the property projects.

It land cost for its eight freehold parcels in Segambut Dalam totaling 34.38 acres carry an average net book value of rm73.55 psf. However the parcels could easily fetch between rm200 and rm300 psf of today (Jan 2014). Calculation shows that at rm200 psf, the parcels are worth rm299 million.

It still replenish its landbank nand has a strong balance sheet with a low gearing of about 10%.

Apart from the urban areas, Brem also owns more than 50% of a 46.21 acre freehold tract in Mukim Bukit Raja which is very close to the EPF upcoming Kwasa Damansara township. Brem will develop this parcel in about four years.

Dialog - Current PER Is at 34x !!!

It is trading at a premium to their three year average (24 April 2014).

Its next catalyst could be the development of the billions Pengerang project in Johor given that the management is in talks with potential investors for subsequent phases of the Pengerang Terminal and signing up of more off takers.

Its current PER is 34 times however its peers’ PE ranges from 20 to 64 times with Petra Energy having the highest PE of 64 times.

The company’s Pengerang Independent Terminal announced its first shipment from the petroleum and crude storage facility.

As Petronas final investment decision for the RAPID project has been approved, expects the construction plans for phases 2 and 3 to be expedited over the next few months from April 2014 depending on negotiations with customers.

The stock is trading at a 28 times PE of CY2015F which is a 40% premium on its three year average of 20 times.

Dialog will also benefit from long term recurring income once the terminal’s tank facilities are fully operational.

It is currently (April 2014) in talks with potential investors for subsequent phases of the Pengerang Terminal.

At the meantime, Dialog will continue to invest in upstream ventures, to create robust platforms that will generate long term sustainable income for the company.

Dialog’s risks include O&G prices fluctuations, demand for O&G and off takers committed to sealing long term contracts.

Dialog intends to challenge the claims by Tanjung Langsat Port Sdn Bhd of rm546 million which makes up 37.5% of Dialog’s equity as of Dec 2013.

Dialog is in a net debt position of rm398 million.

KEuro/IJM Corp

It will now (Feb 2014) focus on the execution of its RM6bil West Coast Expressway (WCE).

Mamee-Double Decker (M) Bhd managing director Datuk Wira Pang Tee Chew and his brother, Datuk Wira Pang Tee Nam emerged as substantial shareholders of KEuro with a 9.08% stake or 52.05 million shares via their holdings in United Frontiers Holdings Ltd, a British Virgin Island incorporated company.

Tan Sri Krishnan Tan, the former boss of IJM Corp Bhd, is also likely to join the board because the decision to push on with the WCE was largely his brainchild.

Currently (Feb 2014) the second largest shareholder of KEuro is MWE Holdings Bhd, a company controlled by Tan Sri Surin Upatkoon with a 24.68% stake in the company. In 2013 he bought a 22.15% stake from KEuro’s substantial shareholder Tan Sri Chan Ah Chye for RM155mil.

IJM is the largest shareholder with a 25.1% stake.

Observers opine that it is not just the WCE that attracted MWE and the Pang brothers to put their money in KEuro. After all, concessions’ profits will only kick in at least five years down the road.

While the WCE will be providing the long-term revenue stream for the company, it is the potential of KEuro’s 1,879-acre Bandar Rimbayu mixed development in Shah Alam that appears to be the sweetener.

Also, it is this mixed development with an RM11bil gross development value (GDV) that will likely bring the company back to the black in FY14.

The first two phases launched last year recorded sales of RM600mil, with take-up rates of 100% and 80% respectively.

KEuro presently (Feb 2014) has three main assets: the WCE project, the 40% stake in Bandar Rimbayu development and a 30% stake in associate company Trinity Corp Bhd (now known as Talam Transform Bhd).

Since receiving confirmation from the Government to commence work on the WCE, KEuro has been given 5 years to complete the project effective from Dec 20, 2013.

Construction work on the highway in the Selangor stretch is expected to commence in April 2014 and take three years to complete. This portion of the highway will contain a section of elevated highway.

The WCE project spans Banting in Selangor to Taiping with 233 km of tolled highway (including 40 km of highway to be constructed later).

It is a build-operate-transfer project with a concession period of 50 years. This concession period will be extended a further 10 years if the agreed targeted internal rate of return is not achieved.

Tee Chew is a non-executive director of KEuro.

A government support loan (GSL) of RM2.24bil will be provided at an interest rate of 4% per annum subject to separate negotiations and an agreement to be executed with the Finance Ministry.

Of the RM6bil cost of the WCE, land acquisition cost of up to RM980mil will be borne by the Government.

During the GSL tenure, 70% of excess revenue will be utilised as repayment of the GSL. After settlement of the GSL, the ratio will switch to 30:70 between the government and WCE if the targeted IRR is not achieved and 70:30 if the actual IRR is more than the targeted IRR.

Previously, West Coast Expressway Sdn Bhd chief executive officer Datuk Neoh Soon Hiong (now CEO of KEuro) said that five out of a total of 11 work packages would be dished out in April 2014.

Being an equity owner of the WCE, IJM is obviously a beneficiary and is likely to be appointed the project manager and main contractor.

IJM is eyeing some 70% of the RM5bil project, hence potentially boosting its order book to RM6bil from RM2.5bil as of September 2013.

While KEuro owns 80% of WCE, the rest is held by Road Builder (M) Holdings Bhd, a unit of IJM Corp.

The commencement of work is definitely positive for KEuro. It is a beneficiary of the WCE story and will eventually see a new revenue stream from the concession. For now (Feb 2014), its earnings are still very lumpy. Revenue contribution from property will also smoothen out its earnings.

KEuro is now (Feb 2014) in the midst of implementing its rights issue, having obtained the approval of shareholders to raise more than RM400mil to kickstart the WCE.


KEuro will be placing out 429.74 million rights shares and 214.87 million free detachable warrants on the basis of three rights shares for every four existing KEuro shares held and one warrant for every two rights shares.

Property wise, KEuro has Bandar Rimbayu, which is being developed by Radiant Pillar Sdn Bhd, a 50:50 joint venture between KEuro and IJM Land Bhd’s subsidiary IJM Properties Sdn Bhd.

In January 2014, shareholders approved a plan to sell 10% equity stake in Radiant Pillar to IJM Land for RM52.5mil cash. Once the sale is complete, KEuro will only own 40% stake in the project.

After the successful launches of its first two phases, it will launch its third phase in early 2015 with a GDV of RM400mil. Phase one of Bandar Rimbayu was launched in March followed by phase two in August 2014.

Bandar Rimbayu’s GDV of RM11bil will be spread over the next 10 to 12 years. The township is accessible via three highways – Elite, Kesas and the South Klang Valley Expressway.

The original land cost for Bandar Rimbayu is only RM5 per sq ft compared with an average of RM18 per sq ft Tropicana Corp paid for 1,172 acres near Bandar Rimbayu (total cost of about RM1.3bil).

Talam

It is hoping that Tan Sri Surin Upatkoon’s entry will bring a new lease of life to Talam.

Surin was in the limelight with his entry into KEURO and Talam Transform. He holds stake in MPHB and Magnum. He also holds a 32.62% stake in MWE that had acquired a 24.68% stake in KEURO.

KEURO, the West Coast Expressway concessionaire owns a 30.04% stake in Talam. This means that Surin has replaced the outgoing Chan as the single largest shareholder of KEURO and Talam.

Whether Talam Transform’s fortunes will bounce back with the help of Surin is debatable, but market observers think that the emergence of SUrin bodes well for Talam.

Chairman of Talam has not talked about possible collaboration between MPHB and Talam.

The reputation of developers does play a crucial role on how well their properties sell. With a substantial stake in the company, expects Surin to get some board positions. In such cases, usually presume the new shareholder to enter the board and probably pump in some assets.

Industry observers do not rule out the probability of an improvement in Talam’s market position. Surin could possibly take Talam into different market segment.

In fact, MPHB Capital and Talam’s business shares some similarity with both involved in the property business.

It was reported in June 2013 that MPHB Capital has no intention of going into developing property. The group was essentially a landowner and property investor. The company is looking for JV partners to develop the land or dispose of the assets if the opportunity arises.

That is it could some form of JV or maybe MPHB Capital injects asset into Talam and lets Talam develop the land.

Talam’s most valuable asset is the 753ha located in Ampang, Sepang, Puchong, Bukit Jalil and Rawang valued at rm1.16 billion.

The large tracts of land could be valuable since property prices have doubled or tripled in the past 20 years. The sharp appreciation of land could possibly bring the company back to vibrancy.

Overall, observers remain cautious on Talam’s performance down the road. It remains to be seen how it restructures the debt and also the viability of its business model.

Talam is aggressively paring down its debt via disposals and participating with new partners to jointly devevlop property.

Its current borrowings stand at rm400 million and it managed to reduce its total liabilities to rm1.43 billion in 2009.

It seems there is light at the end of tunnel for Talam with the slow recovery of debt.

Press Metal

Its future prospects remain upbeat despite a headline third quarter FY2013 net loss.

Despite the net loss, the company posted a decent core profit of RM19.5mil in the third quarter after excluding an asset disposal loss and the fixed and financing costs for the Mukah smelter post the power outage that halted operations, and recognising a deferred tax asset.

The better results despite the distressed aluminium prices – averaging at USD1,782 per tonne in the third quarter supports the view of that its Sarawak smelters enjoy lower cost curves, derived from competitive power costs and strategic location.

Also there had been some positive developments for Press Metal of late after its disposal of its loss-making Hubei smelter in September 2013 through an asset swap that sees it acquire a profitable extrusion unit.

Its RM444mil deal with Sumitomo Corp will see the latter take a 20% stake in the Samalaju smelter. The deal underscored Sumitomo’s commitment in the aluminium manufacturer.

The company will make a gain of RM336.4 mil from the disposal. The sales proceeds would help pare down Press Metal’s net gearing to 1.2 times from 1.74 times.

Expect the fourth quarter earnings to improve further as the disposal of the Chinese smelter assets is expected to be oneoff while its Mukah plant has re-commenced operations.

Ongoing repairs at the Mukah plant following a power outage in June 2013 and weak aluminium prices might put a cap to its share price.

YTL Power - Mobile Broadband To Generate Higher Revenue

It had lost its bid for the Prohect 3B power plant, is set to be without domestic power assets when its two PPAs expire in 2015. While it is expected to actively bid for upcoming power plant projects, YTL Power’s future growth catalyst in the meantime, seems to lie in the performance of its mobile broadband network division.

For the financial year ended June 2014, YTL Power’s two power plants in Malaysia contributed revenue of rm1.12 billion or 7% of total group revenue. With the existing concessions enduing in Sept 2015, the conglomerate needs to find a new revenue source to rectify the earnings shortfall due to the expiration of the PPA in May 2014.

The group will remain in the running when the tender for Tracks 4A and 4B – two upcoming power generation projects.

YTL Power has indicated it is keen to maintain its presence in domestic power plant assets.

Going forward, YTL Power’s only option to grow its utilities business at the moment (April 2014) is to acquire power assets overseas. With rm9 billion cash in its coffers, the group can certainly afford to grow its business via acquisitions or new joint ventures.

As it stands, YTL Power’s 60% owned subsidiary YTL Communications Sdn Bhd may hold the greatest potential in generating higher revenue for the group.

The mobile broadband network division, which was established in 2010 with the launch of YES 4G, has reported tremendous revenue growth over the past three years prior to 2014.

This segment’s revenue grew from rm26.4 million in FY2011 to rm446 million in FY2013. For FY2014 the division delivered cumulative revenue of rm446 million nearly the same amount of revenue for the whole of FY2013.

Losses have also been pared down at a slower pace compared with revenue growth. The division reported losses rm309 million and rm269 million in FY2012 and FY2013. With the help of revenue growth, losses are expected to be narrower in FY2014.

With the revenue growth is encouraging, YTL Communications is certainly expected to become a profit contributor at some point. Investments totaling rm2 billion were made over the past 4 ½ years prior to 2014 to develop its 4G network, which was built with the LTE platform in mind.

Further investments for its LTE rollout will not cost more than its current (April 2014) capex for building the YES 4G infra.

Nevertheless the lack of earnings growth driver may have contributed to the selloff of YTL Power in early April 2014.

It is starting to put its treasury shares to use.

While its balance sheet and track record in power assets remains solid, the group will need to win the next round of local power plant contracts to maintain its IPP credentials. It will also need to work towards recouping its investments in the mobile brandband segment which has so far (April 2014 run into the billions.

Major Shareholders of JIT/BAT/Nestle/DLady/GAB/Carlsberg/AEON

They are trading at around 20 times PER in relation to their earnings growth of about 5% to 10%.

JTI – JTI Intl Holding B V (60.37%), EPF (8.13%), KWP (6.84%)

BAT – BAT Holdings (50%), EPF (7.19%), Credit Suisse AG (5.41%)

Nestle – NESTLE SA (72.61%), Landsbanki Securities UK Ltd (9.75%), EPF (9.08%)

DLady – Frint Beheer IV (50.96%), Skim Amanah Saham Bumiputera (19.67%), dimensional Fund Advisors LP (0.30%)

GAB – GAPL Pte Ltd (51%), Aberdeen (6.16%), Watasch Advisors Inc (1.40%)

Carlsberg – Carlsberg A/S (50.69%), OCBC (4.30%), Aberdeen (2.07%)

AEON – AEON Co Ltd (51%), Aberdeen (20.15%), EPF (8.99%)

Sell PBB, Switch To Maybank/CIMB >> Closing The Valuation Gap

Public Bank’s strong share price performance over the past week implies that its valuations (07 April 2014) are now relatively less attractive compared to its peers.

Investors should take the opportunity to switch out of Public bank into liquid, large cap peers such as Mayabnk and CIMB which still have attractive valuations and offer better leverage to the ETP and capital market activities.

Public Bank recent price (early April 2014) surged was mainly driven by its corporate exercise to merge its foreign and local shares as this will lead to an increase in weighting of certain global indexes due to a higher free float factor.

Currently (08 April 2014), only foreigners holding PBB’s PBB-01 shares (30% of capital) have voting rights and this has capped the share’s investability weighting in FTSE and MSCI indices. Note that FTSE has confirmed that the merger will raise PBB’s investability weighting to 80% from 30%.

However, domestically the exercise will not impact PBB’s weightage in the FBM KLCI.

Following PBB’s share price rally (07 April 2014), PBB now trades at 16.7 times 2014 PER and 3.2 times 2014 price to book value compared with its long term average PER of 15 times and P/BV of 3.1 times.

Industry observers think PBB’s currently (08 April 2014) valuations are less attractive given its weaker growth prospects and structurally declining ROE.

Switching to CIMB and Mayabnk may be a better choice.

The valuation gap between PBB and Maybank/CIMB has widened further and is now (07 April 2014) significantly above long term averages.

PBB is currently (07 April 2014) trading at 2014 PER and P/BV premiums of 33% and 88% respectively over Maybank, versus the 10 years average PER and P/BV premiums of 10% and 67% respectively.

Relative to CIMB, the PER and P/BV premiums are currently 37% and 100% respectively versus the 10 year average PER and P/BV premiums of 8% and 73%.

The valuation gap should close, especially given that the ROE spread between PBB and Maybank/CIMB has narrowed.


Industry observers do not discount the possibility of PBB’s strong share price performance sparking interest in the sector.

CIMB, Maybank and HL Bank offer strong leverage to corporate lending and capital market activities, strong growth prospects.

merger PBB & PBB-01

It is believed of a revision in the weightage accorded to the shares by the FTSE Group in view of the impending merger of the two stocks – PBB & PBB-01 which would take effect on April 16 2014.

The merger would also increase the free float of Public Bank shares, something that contributed to the increased weightage.

According to a statement issued by FTSE earlier 2014, it is expected to replace Public Bank Foreign with Public Bank in the FTSE Global Equity Index Series on the effective date of the merger.

On April 16 2014, Public Bank’s entire issued and paid-up share capital would be quoted and traded on the Main Market of Bursa Securities under a single stock name of “PBBANK”. The stock name “PBBANK-O1” will be removed from the Official List of Bursa Securities.

Under the merger, the aggregate limit of 30% of the total issued and paid-up share capital of the shares held by foreigners and the foreign ownership regulations would no longer be relevant.

The higher weightage for Public Bank could have spurred fund buying of the local and foreign shares.

As at Dec 31, 2013, foreigners held 30.71% of the issued shares which meant that 0.71% of the shares would be entitled to the rights and entitlements attached to the shares except for voting rights.

It was also speculated that PBB was poised for a merger and acquisition exercise.

Hua Yang (UnInspiring 1H14, Better Sales In 2H214)

Its sales for the third quarter ended Dec 31 of financial year 2014 (3QFY2014) hit a record level of rm382.4 million propelled by resilient demand for affordable homes. The strong 3Q sales brought Hua Yang’s nine-month (9M) new sales to rm580 million surpassing FY2013’s new sales and also the previous high in FY2012.

The significant jump in new sales was attributed to new projects in this quarter – Sentrio Suites, Media Residences and Greenz which collectively contributed about 50% of total year to date sales.

Its three projects launched in Nov 2013 received encouraging responses. Specially the affordable serviced apartments with average selling prices per unit of between rm380000 and rm60000 were fully booked within a month.

Notwithstanding the new cooling new measures, the healthy sales numbers were a clear sign that the demand for affordable homes in urban areas was still strong.

In view of the strong 9MFY2014 new sales, the group is tracking ahead of its internal sales target of rm600 million for FY2014.

Expect both the existing and new projects to contribute to 4Q new sales.

Nevertheless, its profit growth is likely to be flattish at best as the broader construction sector is now experiencing a labor shortage. As such, the group may face challenge of speeding up the pace of construction significantly.

Expect its net profit for 4QFy2014 to be driven by maiden contribution from three new projects – Greenz, Media Residences and Sentrio Suites and increasing billings from Parc and Gardenz.

Over the next six months from Feb 2014, it will be focusing on project execution and handling over of completed PARC & Gardenz@One South units to buyers. The group next flagship project at Puchong (GDV of rm1.5 billion) will likely be marketed in 4QCY2014. Hence FY2015’s sales trend could be a replica of FY2014’s, implying an uninspiring sales performance in 1H and better sales prospects in 2H.

As far as the implementation of the GST in 2015 is concerned, management intends to tender out its FY2015 and FY2016 construction orders on net basis, which means Hua Yang will lock in the contract amount up front , with future cost escalation borne by the contractor.

Dsonic - overvalue?

To recap, in Dec 2013, Dsonic announced a one for give shares split, which together with the bonus issue, will address the company’s low liquidity.

Besides the bonus issue and dividend, it is a also a growth story, given the likelihood of it clinching more public ICT contracts.

It is understood that the company is close to securing a deal to supply an additional 10 million polycarbonate MyKads to the NRD. This could materialize sometime in the first half of 2014.

Furthermore, there is market talk that DSonic is one of the ICT companies that made presentations to the government for a project to implement selective petrol subsidies. It is learnt that DSonic’s proposal to the government is to have the income level of individuals incorporated into the MyKad chips in order to determine the appropriate subsidy when pumping petrol.

Currently (April 2014), DSonic has two contracts worth rm73.1 million and rm183 million with the NRD to supply new polycarbonate MyKads, the operating system and the chips. It also has a rm284.7 million contract for the manufacturer of 10 million polycarbonate photo pages for passports issued by the immigration department.

In its financial year 2013 ended Dec 31 2013, it delivered four million polycarbonate MyKads to the NRD and will be rolling out another four million in FY2014. As for the polycarbonate passport pages, the company has so far delivered 1.7 million for the 10 million it is required to supply under the contract. In fact DSonic is looking at 30% to 40% potential growth in this area in FY2014.

DSonic is also said to be eyeing Percetakan Nasional Malaysia Bhd (PNMB) from the Government. Sources say Datasonic has yet to submit a formal offer, but has already indicated its interest to the Government.

An acquisition is seen to be a perfect fit to the company’s core business as manufacturer and supplier of security cards. PNMB has a contract to supply identification cards to the Home Ministry and the Royal Malaysian Customs Department.

It is believed that a joint venture between pension fund Kumpulan Wang Persaraan (KWAP) and a company linked to Tan Sri Syed Mokhtar Al-Bukhary has already submitted a bid to acquire PNMB.

It is unclear, however, whether the Government is ready to sell PNMB. The company, which is wholly owned by the Ministry of Finance Inc was previously identified as one of the potential companies to be listed on Bursa Malaysia. The company was eyeing bigger and more lucrative projects.

It is currently (04 April 2014 trading at 39 times PER of its FY2013 EPS of rm0.1213.

DSonic’s MD DAtuk Hanifah Noordin is the largest shareholder with a direct and indirect stake of 50.25% while deputy MD Chew Ben Ben holds a 12.86% equity interest.

GPacket & Telekom .. Can Buy ah ? ... Is A Waiting Game !!!

For Telekom …

TM’s acquisition of a 57% controlling stake in P1 is a good idea but “pricey and requires hefty future investment”.

Investors are advice to switch to DiGi as it offers modest growth from rising market share and a solid balance sheet.

To recap TM was paying RM350mil for new shares in P1 for a 57% stake, while forking out RM210mil at the same time to buy exchangeable bonds from Green Packet Bhd, which presently owns 57% of P1.

The injection of the RM350mil into P1, on the other hand, will give it a boost to expand its wireless business and move into the 4G mobile space.

The acquisition price suggested that P1’s subscriber base would grow fourfold to 1.8 million. It will be a stretch for P1 to achieve 1.8 million subscribers as Celcom, the largest wireless broadband operator in the country, only has 1.2 million users.

Nonetheless the acquisition was “opportunistic and synergistic for TM” because it extended TM’s offering from fixed services to the wireless space. Both telcos would benefit from TM’s extensive fibre coverage but claimed P1’s 2.3GHz and 2.6GHz spectra had poor propagation qualities. This proposition would be more positive if TM could use the 850MHz spectrum for non-universal service provision (USP) areas.

TM had not obtained approval from the regulator to convert the use of its 2x10MHz spectrum in the 850MHz band for use in non-universal service provision (non-USP)/rural areas.

Time will tell if the scenario will change should Telekom’s stake in P1’s rise substantial.

According to the terms of the planned rm210 million convertible bonds issuance by GPacekt, Telekom could end up taking over the latter’s entire 30% stake in the enlarged P1 if GPacket defaults on the debt papers. This would raise TM’s stake from 57% to 87%, leaving South Korea SK Telecom with a 13% stake. As it is, Telekom is taking up 60% or rm990 million of P1’s planned rm1.68 billion convertible bonds to raise cash for network rollout over the next three to five years from 2014.


For GPacket …

Telekom cash injection into P1 and recharge its expansion is no guarantee of success in the very competitive telco sector.

Telekom is paying only rm350 million for a 57% stake in P1. Telekom’s 57% stake comes from the issuance of new shares by P1. This means that GPacket does not get a share of the rm350 million proceeds but its stake will be diluted to 30% based on the enlarged share capital of P1.

GPacket will get some cash flow – from the issuance of rm210 million worth of redeemable exchangeable bonds to Telekom. The first tranche for rm120 million should be issued later 2014 with the balance likely in 2015.

Save for some rm30 million that will be used to acquire P1 shares held by minority shareholders, the remaining proceeds can be utilized by GPacket for settlement of liabilities and working capital.

But given that GPacket will also subscribe for 15% of the rm1.65 billion redeemable convertible bonds to be issued by P1 – equivalent to roughly rm248 million over the next three years from 2014, it is unlikely there will be any special payout to shareholders from this whole exercise.

This means that GPacket shareholders will have to wait for P1’s turnaround. In the meantime the company will likely remain in the red with limited chance for dividends.

With Telekom in the picture, P1 is slated to raise rm2 billion in fresh capital – rm1.65 billion in convertible bonds and rm350 million from new shares issued to Telekom – to fund its LTE network rollout for the next three years from 2014. Telekom and SK Telecom will subscribe to 60% and 25% of the bonds while GPacket will take up the remaining 15%.

Going forward, there is no guarantee of P1’s turnaround due to LTE space is extremely competitive and dominated by MAXIS, Celcom and DIGI.

Meanwhile GPacekt has been ordered to pay Intel Capital Corp rm60 million in April 2014, together with interest of 1.5% per month compounded month to month from Nov 28 2012 to the date of full settlement.


The KL High Court had ordered GPacket to remit the full payment within 90 days from the date of the court’s decision, less the amount of rm3.29 million which the company had already paid in Aug 2013.


It also stated that upon receipt of the full amount, Intel is to transfer 200000 Class B (ICPS) in Packet One Networks to GPacket.

The verdict will have a material impact on GPacket. As at end 2013, the company’s cash balance stood at rm36.68 million against borrowings of rm218 million.

EnCorp

Sources say that Felda Investment Corp (FIC), a newly set up investment arm of Federal Land Development Authority (Felda), is believed to be eyeing for a substantial stake in the mid-cap construction and property group.

In July 2013, the shareholding of Encorp saw a major change when former executive chairman Datuk Seri Dr Mohd Effendi Norwawi decided to sell out via his private vehicle Lavista Sdn Bhd, which owned a 30.55% stake in Encorp.

The stake was bought over by both Encorp group chief executive officer Yeoh Soo Ann and chief operating officer Mohd Ibrahim Masrukin.

For now (15 March 2014), it is still unclear whose block of shares FIC is ogling at.

Among Encorp’s signature development projects in Malaysia and Australia include its flagship Encorp Strand in Kota Damansara, Encorp Cahaya Alam in Shah Alam, The Enclave Hillside Villas in Batu Feringghi, Encorp Marina Puteri Harbour in Nusajaya and Residences on McCallum Lane in Perth.

As at June 2013, Encorp’s gross development value stands at RM3.5bil with its construction division’s order book generating over RM2.2bil and its concessions valued at RM2.2bil.

Set up in July 2013, FIC is one of the four income generating models created by Felda to support the new generations of Felda settlers. Thus, FIC has been tasked to monetise Felda’s existing assets including 22-acre prime land bank in Kuala Lumpur and hotels by way of undertaking ventures in property-related projects and further develop Felda’s hotel ventures under the Felda Residence brand name, among others.

It was reported that FIC via Felda also have some RM8bil worth of quoted and unquoted shares in companies in Malaysia.

Sources said that FIC is currently (March 2014) identifying new businesses and also streamlining its existing ones. For now (March 2014), the core businesses identified by FIC include hotels/hospitality, property development, travel/tourism and manufacturing businesses.

Under hotels and hospitality, which Felda has been involved since 1991, sources point out that FIC is in the process of rebranding and considering a name change for its Felda Residence (FR) chain of hotel.

There are seven Felda Residences in the country including FR Tekam in Pahang, FR Trolak and FR Hotsprings in Perak, FR Kuala Trengganu in Trengganu, FR Sahabat in Sabah and FR Tanjung Leman in Johor. This exclude the three new ones bought over by FIC in 2013 namely Hotel Grand Borneo in Sabah for RM86mil, Hotel Sri Costa in Malacca for RM24mil and UK-based Grand Plaza serviced apartments in Bayswater central London for a hefty RM497mil.

FIC came under heavy criticism from the detractors of Felda last year for splurging over RM600mil on the three ventures within a short span of five months prior to March 2014.

Meanwhile Encorp expects to continue on its growth trend and sustain its revenue growth this year from progress billings generated from the lock-in sales of RM727.5mil comprising the projects of Encorp Marina Puteri Harbour in Nusajaya, Encorp Cahaya Alam in Shah Alam and Encorp Strand Residence in Kota Damansara.

Yeoh had earlier denied that Encorp was disposing its only shopping centre asset, Encorp Strand Mall in Kota Damansara, and that an interested party had offered RM400mil to buy the mall. He said the company was keeping the shopping centre for future recurring income.

The Encorp Strand Mall is projected to strengthen the group’s financial performance for the financial year ending 2014.

Contrary to the speculation of the sale of the mall, he said preparations were going full swing for the mall’s grand opening in April 2014.

L&G - unbilled sales RM600 million

It sits on unbilled sales of about rm600 million that will last the company through the next 15 months from March 2014.

The unbilled sales of rm600 million is contributed by its two projects. The Elements@Amapang and Damansara Forests, both of which contributed to the huge jump in its property division’s revenue to rm134.6 million in 2QFY2014 ended Sept 30 2013.

It had also proposed to acquire a 5.66 acre tract off Jalan Ampang for rm118.5 million cash.
L&G intends to fund its portion of the financial commitment of rm127 million through internally generated funds and/or external bank borrowings. Its gearing as at March 31 2013 stood at 0.2 times.

The land purchase is for its serviced apartment project which has an estimated GDV of rm789 million. With a gross development cost of rm559 million, estimated profits stands at about rm231 million. The company plans to launch the project at the end of 2014.

As at Sept 30 2013, the company had cash of rm293 million.

It is primarily in the business of property investment and development. It is also engaged in the cultivation of rubber and oil palm, ownership of a school building complex and provision of education services.

Its current focus will be to look at development properties – land for development where it can acquire, build and sell.

PJDev/OSK Property

Tan Sri Ong Leong Huat is holding the reins of both OSK property and PJ Dev.

Talk late 2013 that he would take private his property OSK Property has resurfaced with a new twist – the merger of the two companies, fusing their strengths into a single entity that will give the big guns a run for their money.

Whether this new entity will remain listed also hangs in the balance, as Ong appears bent on taking his companies private.

Ong now has am indirect stake of 21.4% stake in PJD. Ong’s wife has a 6.28% stake in PJD. PJD owns the Swiss Garden hotel chain.

In OSK Property, Ong has a direct stake of 28% but total indirect control of 45.8% as at Jan 2014.

While OSK Property is not a subsidiary of OSK Holdings, Ong has said a REIT is in the pipeline for OSK Holdings at some point.

Market observers noted that Ong appears to be selling assets and shares. Whether this is for the upcoming projects or to build cash reserves in the event of a sharper economic slowdown remains to be seen.

Ong loaded 2.57 million GPacket shares and the 28 storey Menara PJD for rm220 million.

In late 2013, PJD also made over tunes to enter PJ, and Mukim Batu in KL. It also bought 2.4ha of industrial leasehold land in PJ for rm124 million which has the potential to be re developed for retail and serviced apartment.

PJD is currently (Feb 2014) working on nine projects, with a combined GDV of rm1.6 billion to last until 2015.

Its unbilled sales currently stood at rm800 million. It has yet to realized some rm4 billion in GDV which could be launched over three to five years from 2014.

PJD was reported to have 670ha of undeveloped land in the Klang Valley , Kuantan, Johor and Penang .

OSK Property has been expanding its landbank. In 2013, it entered into a deal with Kuala Dimensi Sdn Bhd to acquire two parcels of commercial land in Shah Alam’s Section 13 for rm15.19 million.

Digistar

It is in talks to acquire an ICT company to boost its secutiry monitoring system business.

For the financial year ended Sept 30 2013, it registered a net loss of rm10.83 million compared to a net profit of rm5.95 million in FY2012.

On its property development business, 70% of the group’s serviced apartments in Melaka dubbed The Heritage has been sold to date (30 March 2014).

It is also looking for more land bank in the Klang Valley and Melaka.

It is confident that the completion of the Malaysian Technology Advancement Centre, for which the group has a 15 year concession worth rm240 million to build and manage will contribute positively to the group’s earnings.

Meanwhile it was reported that Digistar is expected to benefit from Puncak Semangat Sdn Bhd’s contract win to build, operate and manage the infra for DTTB service in Malaysia is still in the early stage. It will bid for the job.

Formosa

It manufactures home speaker saw a Taiwan based Wistron Corp now owning a 28% stake, after the latter acquired 69.26 million shares on March 17 2014 from several parties at rm0.80 per share.

With the purchase of the shares, Wistron is now (March 2014) FPI’s largest shareholder after PNB which holds a 21.64% stake.

Market observers said the emergence of Wistron – the world’s third largest contract manufacturer of laptops – could channel new businesses to FPI given the Taiwanese group’s large scale of operations.

Its cash and short term funds stood at rm137.9 million with negligible borrowings of rm50000.

Formosa is run by Taiwanese and there are four Taiwanese individuals who sit on the board of FPI.

While FPI is expected to gain business from Wistron with clients including DELL and HP, Wistron is also likely to benefit from FPI’s strong client base comprising largely Japanese MNCs such as Sony and JVC.