KPS - A 'Shell' Co Post Disposal Of Its Water Operators .

The last hurdle in the Selangor government’s effort to consolidate the state’s water assets are two of the shareholders of SP:ASH – Gamuda and The Sweetwater Alliance Sdn Bhd.

KPS had already accepted the Selangor government offer in March 2014. The Selangor government has a 57.6% stake in KPS.

If SPLASH gets a higher equity value of more than 10% which means KPS will also get 30% of the restated net gains.

To recap, Gamuda had previously stated that the net gain for SPLASH from the Selangor government’s current (June 2014) amounts to rm250 million or just 10% of SPLASH’s equity value of rm2.54 billion.

Based on KPS’s 30% stake in SPLASH, it stands to realsie a net gain of 75.18 million from the rm250.6 million.

If the offer to SPLASH were to be revised higher, KPS may well find its cash coffers expanding substantially.

The divestment of KPS’s property development business in 2013 added rm21.8 million to its war chest. It sold its 56.57% stake in KHSB to KDEB.

Despite the large cash pile, KPS has experienced stagnating earnings growth.

KPS has a 40% stake in NGC Energy Sdn Bhd, which it acquired for rm40 million in June 2012. NGC is involved in the distribution of LPG under the Mira Gas brand, commands a 20% market share.

Apart from the LPG business, KPS is involved in the telecommunications via a 30% stake in Ceres Telekom Sdn Bhd which was acquired for rm24.2 million.

The proposed disposal of its equity in two water operators – SPLASH and Konsortium Abbas Sdn Bhd – would eliminate the bulk of the revenue generated from its infra and utilities division.

Some say that the exit of such a large revenue contributor would make KPS a shell company. This raises the question of whether it should be hoarding the cash to look out for new businesses, instead of returning the proceeds to shareholders.

GDEX - A Whopping 77.5x Projected Earnings, Is It Justify !!

The purchase of a 10.35% stake in Singapore Post Ltd (SingPost), GDex’s second-largest shareholder, by Chinese e-commerce giant Alibaba Group Holdings Ltd makes GDex possibly the only Malaysian company to count Alibaba as a shareholder, albeit indirectly.

The collaboration between Alibaba and SingPost could have spillover benefits for GDex in terms of higher volumes of parcel deliveries.

It is at a tipping point as retailers in the region increasingly look to sell their wares online. Trust in electronic payment has also grown substantially, while logistics players have built the infrastructure needed to make express delivery a reliable option.

For GDex, which is ramping up capacity in anticipation of higher volumes, the bulk of its growth will be driven by e-commerce.

Going forward, it may grow at a speed that not seen before. Year 2013/2014 is the inflection point for Internet penetration and e-commerce in Asean. The region has reached its ‘mobile moment’, with the majority of traffic coming from mobile devices”.

E-commerce will also require more sophisticated supply chain solutions and warehousing capacity in order to ensure next-day delivery, as well as demand spikes from “flash sales”. This is driving logistics outsourcing to third-party logistics providers, as is the need for additional warehousing capacity, especially out of key metropolitan areas where there has been a lack of investment”.

At rm1.76 GDex’s valuations were rich at 61.5 times and 51.2 times its estimated earnings per share of 2.9 sen and 3.4 sen for financial year 2015 (FY15) and FY16. At RM2.17, the stock was trading at a whopping 77.5 times projected earnings, compared to 18.6 times for Pos Malaysia Bhd.

Nevertheless the valuations were conservative and excluded potential upside from regional expansion and strategic alliances.

With a bigger profile now (June 2014), GDex is casting its net wider in the Asean region. It will set up a representative office in Indonesia by year-end 2014, its first foray outside of Malaysia and Singapore. In the longer term, GDex hopes to establish a presence in every Asean city.

Growth will be exponential with the free flow in intra-Asean trade.

GDex will also grow its higher-margin logistics arm, which includes services such as warehousing and freight forwarding. Its customers are increasingly outsourcing their logistics needs, as they do not see it as a core part of their operations.

SingPost has a 26% stake in GDex. The Temasek-owned postal services group emerged as a substantial shareholder of GDex in March 2011. Teong remains the firm’s single-largest shareholder with a 42.1% holding.

Their collaboration, however, has not extended beyond GDex providing last-mile delivery services for SingPost in Malaysia.

About Aeon Credit ...

It will tap the strong card base of AEON Big and cross sell its personal financing, credit cards, insurance and general easy payment scheme.

AEON Credit is committed to complying with the obligatory debt to equity ratio of less than 5.25 and a net cost of capital below 5%.

On a segmental basis, AEON Credit’s transaction volume in FY2014 for the vehicle easy payment segment, credit card business and personal financing recorded a growth of 77%, 15% and 3%.

SME segment is another operation that AEON Credit will strengthen.

AEON Credit max tenure for its financing portfolio is five years.

Its 1QFY2013 ended May 31 core profit of rm56 million was within market expectations.

Its interest income surged along with 44% receivables growth. Vehicle financing, which combines the motor, used car and new car segments, was the top performer with 108% year on year growth in receivables.

AEON Credit’s capital adequacy ratio, at some 19% was above the minimum 19% was also above the minimum 16% requirement due to the rm143 million perpetual notes.

Net interest margins continued to be compressed at 15.6% versus 16.7% a year ago.

Asset quality deteriorated further as its NPL ratio reached a five year high of 2.18% from 1.56% in 1QFY2014. It was noted that collection ratios fro some segments within the vehicle easy payment scheme dropped due to its exposure to low income customers.

The company is enhancing its credit scoring system and tightening its approval criteria.

NEXT For Genting Bhd ... Still In Expansionary Mode !

It is aggressively expanding its gaming footprint in key markets while eyeing lucrative casino licenses in NY and Japan.

Its expansionary mode for 2014 may continue to weigh down its share price.

Genting remains busy in seeking out new casino resort projects and even uses resources to build its USD4 billion Resorts LV and a USD2.2 billion casino resort in Jeju Island.

Year 2014 as an expansionary year for Genting as it needs funds and time to turn its active plans into business contributions. This in the near term, its share price may continue to lag behind those of regional peers.

Another key reason for the underperformance prior to June 2014 could be the group being subjected to overseas contributions. Its share price could also be dragged down by Genting Singapore as it hold close to 52% of its Singapore unit.

In the case of Genting Malaysia, also not expecting to perform well given the refurbishment of its theme park in Genting Highlands is ongoing.

As at March 2014, Genting Mal has rm3.7 billion in cash.

The construction of the Vegas casino is expected to start in 2HFY2014 and it will take two to three years from 2014 to complete.

Genting also faces an uphill battle for four coveted casino resort licenses being issued by NY state. If Genting is unable to get a license in NY, there could be some weakness in sentiment among investors.

Genting has always plans to have some of its assets listed in Malaysia such as the power business. The energy business will also be unlikely to give a revenue contribution now (June 2014). They are continuing with their exploration phase.

The most obvious listing choice is left over is O&G and small investments in Power assets.

Overall the industry observes are positive about Genting given the encouraging volume in Genting Singapore and its potential ventures in Japan and Korea.

Genting Malaysia, will not see any near term catalyst and any boost to Genting Malaysia will come only in 2016 onwards after the opening of its Twentieth Century Fox Outdoor Theme Park in Genting Highlands, an additional hotel as well as improvements

Also does not expect any news from US and UK to significantly boost the group’s share prices unless revenue from its expansion plans kicks in or the company hears from new developments from Japan and Korea.

The gaming sectors in the US, UK and Macau are mature and the group may face competition to bring the business to the next level. In contrast, Japan and Korea are considered new markets with better growth potential.

About BStead Plantation

The “illustrative” retail price of RM1.60 per IPO share was based on an approximate 16 times price earnings multiple (P/E) on an earnings per share (EPS) of about 10 sen.

The EPS took into account Boustead Plantations’ after-tax profit of RM159.7mil for the financial year 2013 estimate.

The indicative offer price was at a discount to the prevailing valuations of comparable plantation firms such as Sarawak Plantation Bhd at a P/E of 18.24 times, IJM Plantations Bhd at 22 times and Hap Seng Plantations Holdings Bhd at 21 times.

It aims to provide a dividend payout ratio of at least 60% of its after-tax profit in the coming financial years.

BStead Plantations is the plantation arm of Boustead Holdings Bhd.

Boustead Plantations expects to raise up to RM1.05bil from its initial public offering (IPO) based on an indicative price of RM1.60 per share.

Boustead Plantations is offering up to 656 million shares to investors, out of which 163.57 million will be offered to institutional investors, while the remaining 492.43 million will be offered to retail investors, including unitholders of Al-Hadharah Boustead Reit, Boustead Holdings and eligible directors and employees. Only 64 million shares will be opened to the public.

Upon listing, the total enlarged and paid-up share capital of Boustead Plantations will be RM800mil, comprising 1.6 billion shares.

RM420mil or 45.3% of the total gross proceeds would be used to beef up Boustead Plantations’ landbank, RM390mil or 42% for the repayment related to Boustead REIT’s (BREIT) privatisation, and the rest for replanting and capital expenditure as well as to pay for the IPO expenses.

The company was looking to expand Boustead Plantations’ landbank, both greenfield and brownfield, mainly in Sabah and Sarawak. Boustead Plantations plans to grow its landbank by 20,000ha from its current (June 2014) total planted area of 71,092ha within five years.

A replanting exercise is critical for BStead Plantations as currently (June 2014) 59% of its oil palm trees are in the prime mature stage, which generates peak yields. Almost 16% are past prime, which another 17% are young mature palms that will enter the maturity stage beginning 2015.

A maturity profile of 77% peak or soon-to-be peak production trees implies that Boustead Plantations will soon have to scout for new green or brownfield landbank to stem any decline in its FFB output in the years to come.
Market observers opine that Boustead Plantations has to act fast, following on from its purchase of 2,400ha from Harn Lern Corp Bhd in Lahad Datu, Sabah, in 2013.

The group’s land bank expansion programme would be achieved through the acquisition of existing plantations and plantation reserve land, primarily in Malaysia.

Its priority is to focus on Malaysia, but if good opportunities emerge in Indonesia or Papua New Guinea, it will certainly consider them.

Boustead Plantations would allocate up to RM420mil from its IPO proceeds to acquire plantation land, and a further RM96mil for replanting exercise and capital expenditure. The remainder would be used for the repayment of bank borrowings and listing expenses

Besides being a large-cap proxy to the domestic plantation sector, Boustead Plantations is a pure upstream play, given that almost all of its revenue comes from crude palm oil (CPO) sales.

Boustead Plantations, which primarily sells CPO and palm kernel locally, is also exploring the export market. Nonetheless, it has no shortage of customers on home soil, with 54 palm oil refineries in Malaysia that buy CPO as feedstock for oleochemical and edible oil products.

Boustead Plantations’ operating statistics show that it not the most productive planter. While its overall FFB yields have improved from 16.6 metric tonne per ha (MT/ha) in 2010 to 17.5 MT/ha in 2012, Boustead Plantations consistently lags the national average FFB yield, which in 2012 stood at 18.9 MT/ha.

Notably, its FFB yield, a key measure of a planter’s efficiency, trails that of its blue chips peers on Bursa Malaysia.

IJM Plantations Bhd’s Malaysian operations deliver a FFB yield of 26.5 MT/ha, ahead of IOI Corp Bhd’s 24.5 MT/ha, Genting Plantations’ 23 MT/ha, KLK’s 22.5 MT/ha and Sime Darby Bhd’s 21.5 MT/ha.

Boustead Plantations’ FFB yield is weighed down by its Sabah and Sarawak estates, which saw only a yield of 17.2 MT/ha and 13.6 MT/ha in 2012 versus its Peninsular Malaysia FFB yield of 20.9 MT/ha. Its Sarawak estates have also had to contend with disputes from native customary rights landowners and unauthorised harvesting of its FFB.

On the flipside, its oil extraction rate from FFB processed to CPO is better than the Malaysian Palm Oil Board benchmark at 20.9% as at July 31, 2013.

Narra - Can Narra Still Fetch Such High Valuation Post Exercise?

Tan Sri Quek is injecting HL Group’s building material assets into struggling furniture maker. This is expected to revive Narra’s financial health.

After the corporate exercise that involves an injection of HL’s cement and concrete manufacturing business into it, Narra will have a pro forma historical EPS of 3.11 sen for the financial year 2014 ended June 30.

Based on this, Narra’s shares are currently (20 June 2014) trading at a PER of 148 times on the enlarged share base which is above the industry average of 19.79 times.

Surely Narra will reap value from the backdoor listing of Hume Ind and Hume Cement.

However Narra’s accumulated losses would increase to rm151 million after the asset injection due to goodwill paid for the two companies.

Nevertheless it was reported that Narra’s earning are set to surge after the proposed exercise with HCement contributing nearly 90% of its earnings in FY2015 ending June 30 and the rest from its concrete business.

Estimated that Narra’s profit will jump to rm72 million in FY2015, the first financial year that the company will recognize earnings from the concrete and cement business. In that case, NARRA’s EPS will be 15.03 sen.

At rm2.20 and post consolidation price of rm4.60, NARRA’s shares would have been traded at a forward PER of 30.61 times.

Will Narra can still fetch such high valuation post exercise?

MPHBCap/Malton: Tan Sri Desmond Lim has set its eyes on two adjacent parcels of land in Ampang to build another integrated project.

He wants to buy Flamingo Hotel By The Lake and Plaza Flamingo from Tan Sri Surin’s MPHB Cap Bhd to redevelop the area into a mega project.

Sources say Lim is in talks with MPB Cap which owns the land, lake and the buildings. The parties may seal the deal for an estimated rm500 million.

It remains unclear whether Lim will purchase the property in his personal capacity or via Malton Bhd. Lim is the executive chairman of Malton with a 37.9% stake in the company as at Sept 2013.

Plantation Stocks - High Valuations Already Priced In EL Nino Impact

With the El Nino phenomenon looming in the next coming months from June 2014, plantation stocks remain well supported even though CPO prices have been trading lower (June 2014).

Traders expect CPO prices to rebound in view of the deteriorating weather conditions, which would translate into better earnings for plantation companies.

The current (June 2014) dry and hot weather is actually caused by Southeast monsoon and the much talked about Ei Nino has not arrived yet. Nevertheless, expects the weather to have an impact on CPO prices.

The past few months prior to June 2014 weakness in CPO prices was partly due to the rain, which removed concerns about Ei Nino. Now (June 2014) the weather has gotten hot and dry again – the same conditions that drove the market higher in the 1QFY12014.

There will be some immediate effect on production but main impact will only be see n in 12 months from June 2014. The extent of the impact will depend on the severity of the dry spell.

Malaysian’s palm oil inventory has been rising these past three months prior to June 2014.

Industry observers expect CPO prices to rise towards the end of 2014, underpinned by lower CPO production and better export performances which is normally seen in the second half of 2014.

In addition, expect the impending Ei Nino in 2HFy2014 will exert upward pressure on CPO prices in anticipation of lower production in 2015.

The will translate into better earnings for plantation companies. However most plantation companies are trading at a high valuations, a sign that the EL Nino impact has been factored in by the market (20 June 2014). Even if there is a rebound in CPO prices, plantation companies’ price have factored it in already unless CPO price moves beyond rm300 per tone.

KSL (UnderValued)

Its property sales have been brisk as evidenced by its staggering revenue growth from RM186 million in FY2009 to RM689 million in FY2013.

It is one of the proxy for the property market in Johor, particularly in Johor, Iskandar Malaysia and the Klang Valley.

KSL’s assets boasting a book value of rm3.86 per share. In fact its assets could be worth a lot more than their book value. It has growing recurring income that will improve its earnings profile.

KSL’s 2100 acres are likely to be worth substantially more than their book value due to escalating land prices in both Johor and Klang Valley. Many of the company’s parcels have not been revalued to reflect current (June 2014) market prices.

For example, its 148.66ha in Klang are carried at rm178 million or rm11 psf in its books. The land was valued in 2007. In the meantime, nearby tracts are worth rm20 psf more than current prices (June 2014) which means that a revaluation of the Klang land would add hundreds of millions to KSL’s asset value.

KSL’s advantage lies in the quality of its projects. Its shopping mall in Johor has been quite successful. KSL City is the company jewel in the crown, earnings steady recurring income of at least rm100 million a year.

With more than a third of its pre tax profit coming from a recurring income source, fund managers believe the company will be cushioned from the adverse effects of a property downcycle to a large extent.

Nonetheless, property development remaining KSL’s main contribution with property sales of rm550 million in FY2013 – the bulk of total group revenue of rm669 million.

The company is better known for its new housing estates in Johor, namely Bestari Indah and Taman Nusa Bestari, which were both well received.

KSL is undertaking at least seven major property projects in Johor and the Klang Valley.

A major development is a 448 acre township in Klang called Bandar Bestari.

Based on rm2.16, it has a historical PER of 4.5 times. KSL has a realized net asset value of rm3.86 per share. To use the benchmark earnings multiple for the property sector of 7.9 times, KSL’s shares should theoretically be worth rm3.53 based on its EPS of 44.6 sen in FY2013.

KSL is controlled by the Ku family, which holds a 32.74% stake,

Glomac - launch at least 4 new developments in 2014

It is acquiring 62.6 acres of leashold land from PPKKS for rm23 million.

The land is located in Sungai Buloh within its existing township of Bdr Saujana Utama and is currently (June 2014) designed for agricultural use. The proposed acquisition is expected to be completed in the financial year ending April 30 2015 and Glomac does not expect any earnings impact in FY2015. The estimated GDV of he land was no disclosed.

There will not be no near term earnings impact. Glomac may also not commence development in FY2016 given that it has rm800 million worth of launches for the extension phase of BSU. The balance sheet impact will also be minimal as the rm23 million land cost would only cause net gearing to rise from 0.20 times. Moreover Glomac is expected to pay the balance 90% of the rm23 million only in FY2015.

This move is viewed positively as it allows Glomac to continue its highly successful rm1.7 billion GDV township.

BSU has been fully launched, following the launch of rm35 million worth of commercial projects in the first half of FY2014. Glomac intends to develop BSU’s extension phase in FY2015.

The risks are slowdown in sales. The positives will be the strong landbanking, branding and execution track record. The negatives are the lack of liquidity/free float.

Going forward, it is seeing a challenging year ahead (2014 & Beyond) as the impact of BNM;s cooling measures sinks in curbing speculative demand.

Glomac had scaled down its GDV target for property launches from rm1 billion to rm700 million in the financial year April 30 2014 due to cooling measures introduced by BNM.

But FY2014 it is targeting to launch developments with a total GDV of rm1 billion.

All those cooling measures have not affected Glomac as they are landed properties and are priced below rm500000. Nevertheless, the GST which will come into force on April 2015 will have an impact on its sales in FY2015.

It is believed that before the start of GST in 2015, there would be a pent up demand for properties especially residential.

By looking at the trends for countries that introduced GST, looked at HK , Japan and Singapore. Six months before the GST was introduced in Japan from 5% to 8%, there is a lot of demand for properties.

Depending on the reaction to GST, Glomac would decide on whether to adjust some of its property launch dates at the end of 2014.

For 2014, it will launch at least four new developments.

Mitrajaya - 1.5 billion order book target

It remains on track to meet its rm1.5 billion order book target for its construction division in its financial year ending Dec 31 2014.

Its outstanding order book stood at rm1.1 billion as at June 2014. It is expected to rake in rm30 million to rm40 million in revenue per month just from the construction division.

Currently (June 2014), the group’s two biggest projects are the MCC building in Putrajaya worth rm428 million and a condo project for UEM Sunruse Bhd worth rm277.4 million.

As for the property division, the group plans to launch its luxury condo development in Wangsa Maju, KL before end of July 2014 with a GDV of rm650 million.

It also plans to develop 15 acres of land in Puchong Prima into a mixed development in 2015 with a GDV of rm1.5 billion.

On the group’s healthcare division, which comes under its 51% owned Optimax Eye Specialist Centre Sdn Bhd.

LBAlum ... Lowest PER Versus Its Peers ...

Semenyih-based LB Aluminium Bhd is looking to undertake another major expansion exercise in 2014, in line with the growing aluminium extrusion industry in Malaysia.

It is currently (May 2014) in the midst of preparing the budget for the expansion. However, details of its expansion will only be finalised by the end of July 2014. Three years ago (2011), the company underwent a major expansion of capacity, which cost about RM40mil.

The company’s expansion will either be by way of capacity, new products, and or, new markets. It has no plans to go into the upstream side of the industry.

Any expansion will be internally funded. LB Aluminium’s 2013 net debt to earnings before interest, tax, depreciation, and amortisation ratio stands at 1.46.

It is primarily cater for the building and construction industry. Most builders are moving towards green index buildings. Typically a green building would use more for aluminium, which works out as a bonus for LB Aluminium.

The company also caters to other industries such as electrical and electronic, transportation, engineering, solar, household tools, and furniture among others.

It also serves as a one-stop solution centre for its clients, in providing value-added services such as cutting, degreasing, hole punching, stamping, and tapping among others.

The company currently holds 25% of the market share in Malaysia. While it predominantly caters to the domestic market, it exports some 30% of its products to the UK, Australia, North America, South-East Asia and Japan.

It will diversify its customers rather than regions it supplies to.

It currently (end May 2014) trades at around 7.6 times its historical earnings, compared with its peers like Press Metal Bhd and Tong Herr Resources Bhd, which trade at 100 times and 13.3 times respectively.
Its net asset value is more than RM1.

In the third quarter of 2014, the company saw slight decline in net profit and revenue to RM4.88mil and RM96.62mil respectively on the back of lower business volume following the festivities during the quarter.

LB Aluminium is position where it can afford to pay more dividends

Airasia X - Price So Low ... Can BUY ah!!!

It reported 2014 first-quarter net loss of RM11.3mil, compared with first quarter 2013 net profit of RM50.2mil. In the preceding quarter, AAX had a net loss of RM131.3mil.

Excluding exceptional items such as forex (foreign exchange) gain or loss and tax incentives, its first-quarter core net loss was RM40mil. (First quarter 2013 core net profit was RM14.8mil).

The loss was hit by stiff competition from MAS, particularly on the Australian routes.

While passenger load factor improved to 85.8% in the first quarter 2014, revenue per available seat kilometer fell 12.4% year-on-year to 12.1 sen amid a 63.1% jump in seat capacity.

While some stabilisation signs are seen in AAX’s first-quarter 2014 performance, continued fare dumping by MAS would weigh down AAX’s earnings, particularly on the Australian routes.

Going forward AXX’s results should be in positive territory by the third quarter 2014 onwards.
AAX’s performance will continue to be unilaterally linked to its performance in Australia, which is an extremely challenging market at this stage (May 2014).

Expect second quarter 2014 losses to be larger than the first quarter 2014 as it is a seasonally weak quarter.

Industry observers expect the airline company to benefit from MAS potential restructuring as it would invariably involve capacity rationalization especially MAS’ loss making routes in the Australia segment.

This would remove excess capacity and alleviate pressure on yields which would allow Airasia X to turnaround its operations.

Airasia X’s near term focus would be to capture a larger share of the one stop North Asia Australia segment, where it targeted to double its market share to 20% in 2014.

The airline planned to achieve this by improving connectivity to cut layover time, increase product visibility on third party global distribution system platforms and online travel and implement origin destination in order to maintain competiveness.

Critics however opine MAS’ restructuring could potentially come in as late as 2015 thereby keeping Airasia X yields under pressure until then.

Meanwhile its CEO is optimistic that its newly added capacity in 2013 will start to bear fruit and help turn around its financial performance as early as the second half of 2014.

Airasia X embarked on a big expansion path in the third quarter of 2013 and 60% in the first quarter of 2014m before scaling back.

CEO opine that Airasia X is now (June 2014) similar to how Airasia was operating back in 2008, when its revenue and margins were similar in size to where Airasia was then, with similar pressure on the share price that traded below its IPO.

The company also does not foresee the airline’s other Japan based cornerstone investor.

Airasia X had applied for the final air operator’s certificate license to operate in Indonesia and hopes to obtain it by end 2014.

About BCB

A public listed Kedah state government-linked company is expected to continue to generate most of its revenue from the property sector in the next few years from 2014.

In 2013 the company's property division was the biggest earnings contributor - RM105.2 million in revenue and RM13.3 million in profit - which made up 45% of the total profit.

Darulaman Utama in Kuala Ketil and Darulaman Perdana in Sungai Petani are among the company's projects which hold excellent prospects and are set to boost the group's future growth, considering their strategic locations and easy access to Kulim, Baling and Penang .

Besides property, BDB also relies on the road and quarry sector, which continues to become a stable contributor to the company's revenue and profit.

Meanwhile, the construction sector contributed a lower RM11.1 million profit last year, compared with RM15.4 million in 2012. It is learnt that the division's lower revenue and profit were due to the slow progress of ongoing projects. In 2012, the Kolej Universiti Insaniah's main campus project in Kuala Ketil was the biggest contributor to the group's performance.

Kamdar Group ... What's Going On !!!

It has appointed Messrs Morison Anuarul Azizan Chew to assist in its investigation into an alleged withdrawal of rm8.7 million from its subsidiary Kamdar Sdn Bhd in 2005.

The special audit shall commence on April 22 2014, and is expected to be completed within two weeks from the commencement date. The company shall make an announcement on the findings of the special audit upon its completion.


The appointment of special auditor followed a meeting between the stock exchange regulator and Kamdar Group MD Kamal Kumar on a probe into a dispute among Kamdar Group’s shareholders to recover a sum of rm8.7 million that was allegedly withdrawn from the subsidiary more than eight years ago.

It was reported earlier on March 24 2014 that a sum of rm8.7 million had allegedly been withdrawn from Kamdar Sdn Bhd in 2005, of which rm5.7 million was used to purchase Kamdar Group shares under the name of one Eric Yap Kim Hong, during its IPO.

After the withdrawal was discovered, certain family members of Kamdar Group contributed their own money to cover the rm8.7 million hole. But now they want to recover what they had put in.

It was also reported that Yap asserted that he had only acted as a proxy for a former director of Kamdar Group to hold the shares.

The Kamdar Group had taken legal advice on the matter and was in the process of investigating and gathering evidence of any wrong doing.

SKPRes - Owner Acquired More Shares

SKPRES is an EMS provider. Its new plant will increase its production capacity by 75% in the pipeline.

Skeptics pointed to its 24% drop in the its net profit in FY2014 ended March 31which was attributed to lower orders from its biggest customer, premium household appliance marker Dyson Inc.

Its CEO said SKPREs is moving on from a temporary blip in its growth and cities the year on year jump of 17% in net profit and 39.92% in revenue in 4QFY2013 as proof that the company has bounced back.

Its relationship with Dyson grew which turned it into a fully integrated EMS provider. Now (June 2014) its involvement with Dyson extends to R&D, manufacturing Dyson’s products in house and finally shipping them.

The company’s other clients include Sony, HP and Pioner.

Dyson is the company biggest contributor to the its revenue account for 50% to 55% of it. However market observers have criticized SKPRes dependence on Dyson.

SKPRes is looking to grow its clientele and is talking to more electronics players to grow its product base.

Its new rm34 million plant could be ready by the final quarter of 2014.

SKPRes had not borrowings as at March 31 2014 while its cash stood at rm93.13 million.

SKPRes had secured a major contract from Dyson to produce vacuum cleaners and a new product line from the British brand.

Datuk Gan Kin Huat had purchased 52 million SKP Res shares or a 5.78% stake in the company. Kin Huat is the executive chairman and MD of SKP Res. In 2014 alone, he had acquired and raised his holding by 7.41% to 17.45%. He also holds an indirect stake of 49.51% stake, making him the largest shareholder the company.

It a dividend policy of 50% of annual net profit.

TamBun Indah - Largest Listed Land Owner In Penang

The acquisition of 209.5 acres in Simpang Ampat in Seberang Perai will turn TamBun Indah into the largest landowner in Penang, boosting its profile as a major property player up north while addressing its depleting landbank.

The land purchase is a catalyst for Tambun Indah’s shares.

The land acquisition will boost Tambun Indah’s landbank by an estimated 40%. As a good proxy for Penang, the company will continue to capture the investment spillover from Batu Kawan where many high profile projects are taking shape.

The company will become largest listed land owner in Penang, overtaking GOB (with 350 acres), Malton (300 acres) and potentially Eco World (300 to 400 acres).

The price it pays for the land – about rm16 psf – is relatively lower than that in other transactions in Seberang Perai of between rm40 and rm55 psf.

This will enable the company to maintain its 30% to 35% development margin.

Nevertheless, its share price have nearly tripled in value in the past 18 months to June 2014.

The development of the 209 acres will only begin in late 2020. This is because Tambun Indah still has 385 acres of undeveloped land in Pearl City. Thus the new land will not contribute to the developer’s bottom line until then.

IDEAL

An engineering outfit involved in the oil and gas business is believed to be undertaking a RTO of label manufacturer IDEAL. The company is said to be making an offer of not less than 45 sen per share.

It will make an announcement in the next few days.

IDEAL’s cash and cash equivalents stood at rm9.07 million as at March 31 2014 while its borrowings stood at rm4.42 million.

Major shareholders of IDEAL are Andrew Conrad Jacobs with a 30.38% stake. Company’s CEO Foo and spouse owns a 14.53% stake while s executive director Khairul Azwan and Foo Chong Ming have 6% and 5.87% respectively as of May 8 2014.

Menang/Crest Builder

Both are likely to be main beneficiaries of the rm635 million sought by the Education Ministry in a supplementary budget to cover concession costs at six UITM campuses.

The government has sought an extra rm4.112 billion under the Supplementary Bill (2014) Bill 2014 table for first reading in the Dewan Rakyat on June 9 2014.

Menang Corp, one of the main concession holders of UITM is likely to get a major share of the proposed rm635 million allocation as the company is embarking on several UITM campus projects in Seremban and in Puncak Alam, and will likely be awarded more cleaning and safety service contracts.

On May 2012, Menang Corp was reported to have entered into a concession agreement with the higher Education Ministry and UITM to build the UITM Campus Satelit C at Puncak Alam. It is estimated currently (May 2014) to be about 25% completed. On completion, the campus will be leased to UITM for 20 years with Menang corp maintaining the facilities and infra of the campus for 20 years.

Crest Builder secured its first concession project – UITM Tapah Campus II – in 2010. The project was completed and delivered to UITM in Jan 2014.

This concession project with the Ministry of Education and UITM secured Crest Builder a recurring cashflow of about rm45.2 million per annum until 2034.

Sealink - Its Worst Is Over After Kitchen Sinking

Its net profit hit a peak in 2008 – at rm57.9 million before falling sharply with the onset of the global financial crisis. Earnings deteriorated over the next few years culminating in a net loss of rm10 million in 2012, weighted down by losses in shipbuilding arm. The net loss was attributed to a slew impairments and provisions. Its earnings finally recovered in 2013 though net profit of rm12.5 million remains well below the pre crisis high.

Going forward, Sealink is cautiously optimistic that the worst is over and that 2013’s recovery will continue to unfold and strengthen , underpinned by the chartering of offshore support vessels business for the oil and gas sector.

In fact, the chartering business had held up fairly well over the past few years prior to 2014 even as the shipbuilding arm floundered. The company currently (April 2014) operates a fleet of some 42 vessels that include anchor handling tugs/supply, landing craft, multi-purpose platform supply vessels, tug boats and barges.

Sealink has undertaken a fair number of kitchen sinking exercises in 2012 and 2013. This included nearly rm26 million in impairments of fixed assets, related to a ship building contract with BStead Penang Shipyard for two uncompleted vessels. As the company is upbeat that the clean slate will translate into better growth going forward.

The commissioning of two hybrid multipurpose platform supply vessels cum anchor handling tugs in the 2H2013 will underpin earnings in the current year.

It is planning to add two more similar vessels to its fleet by 2015 – 2016 as part of its fleet expansion and modernization programme.

The chartering business will be the key earnings driver going forward. The ship building arm is likely to continue to underperform for the foreseeable future.

It had two ship yards in Miri. But since the global financial crisis, utilization has fallen sharply and the activities are now consolidated in one location.

The company expects to break even in the current year and plans to start work on several vessels – for both in house and external sales – to be completed over 2015 – 2016 but the total value and contribution is not expected to be significant.

In the absence of additional provision, estimate its net profit to improve in 2014 and further in 2015 and 2016…

The company may resume dividend payments to shareholders should its outlook continue to improve.

Inari Amertron - Earnings Base To Be Diversified

It is involved in the electronics manufacturing systems industry. The group provides semiconductor components, packaging and testing services as well as manufacturing optoelectronic equipment. In addition, it had diversified into the electronics test and measurement segment as well as fibre optics components manufacturing.

It had established a partnership with Avago Technologies. Avago is Inari Amertron’s single largest customer contributing 70% of its current (June 2014) total sales. These mainly comprise key services like package assembly and testing. Of note, Avago RFICs are among the most reliable in the world and Inari Amertron is poised to benefit from this by virtue of being one of Avago’s three main RFIC assembling and testing contractors. Meanwhile under its optoelectronics arm, the group manufactures products like LED amd IR sensors for Avago.

To diversify its earnings base, Inari had ventured into the ETM business via its 51% owned Ceedtec Sdn Bhd. The latter is being incubated to become an ODM for Agilent Technologies. The group has also moved into research, design and manufacturing of fibreoptics related products through its 100% owned Inari South Kytech Sdm Bhd. The latter commenced production of a new fibreoptics component for Avago in Jan 2014.

Estimate that these two new divisions should contribute 15% to 20% of Inari Amerton’s total revenue by financial year 2016.

The group is comparable to a number of semiconductor manufacturing.

Its prospects are exciting going forward due to its new business ventures mature and bear fruit at the right time.

Its current valuations (06 June 2014) also implies a 21% premium to its listed peers like Gtronics, MPI and Unisem. However it is justified given that Inari Amertron’s heavier on the smartphone and tablet segment via its relationship with Avago as well as the relatively more exciting growth prospects due to new business opportunities.

IPO - Econpile

Issue Price: rm0.54
Closing Date: 18 June 2014
Listing Date: 30 June 2014

The listing will see Econpile issue 90 million new shares and sell 55 million existing shares under the offer for sale.

Of the 90 million new shares, 27 million shares have been earmarked for the Malaysian public, 3.5 million shares for eligible staff, 47.5 million shares for identified investors through a private placement, and 12 million shares for Bumiputera investors approved by the International Trade and Industry Ministry (Miti).

The remaining 55 million offer for sale shares will be placed out to Miti-approved bumiputra investors.

Due to the limited amount of shares available, fund managers say the placement portion is all but snapped up.

Econpile is run by The as group managing director, Pang and The’s daughter The Kun Ann as executive director. The and Pang will control over 70% of the company post-listing.

The piling sector is on the cusp of a “supercycle”, backed by the onset of major infrastructure, high rise and oil and gas projects. There is also a “chronic shortage” of piling capacity locally.

Things were so bad that when the Kelana Jaya and Ampang LRT line extensions got underway a couple of years ago, some viaduct main contractors had to resort to buying their own bored piling machines.

This was only exacerbated by the first line of the MRT, which went into full swing last year.

Construction projects such as Kwasa Damansara, Petronas’ Rapid, the West Coast Expressway, Langat 2 and Warisan Merdeka are expected to kick off this year, while the estimated RM25bil MRT line 2 could start work as soon as the fourth quarter of 2015.

Econpile has two core business, namely piling and foundation services. Under its piling segment, the firm provides bored, driven and jack-in piles. It specialises in bored piling, which is the most efficient of the three piling techniques.

Bored piling entails drilling a hole in the ground until the required depth. Once the earth is removed by the boring process, concrete and steel bars are used to fill the hole. This method is best suited to high-rise, bridge construction and other heavy engineering works.

Although it is more expensive, there will always be demand for bored piling, especially in the city and urban areas due to the increase in high-rises and smaller footprint of buildings.

For substructure and basement works, Econpile offers both the conventional bottom-up construction as well as top-down. With the top-down method, both the underground substructure and above ground superstructure can proceed simultaneously.

Econpile had bagged two of the seven piling packages for the MRT.

The group’s orderbook as of October 2013 stood at RM453.49mil.

It is currently (May 2014) busy with Selangor Dredging Bhd’s The Hub in Petaling Jaya SS2, the 50-storey Elite Pavilion tower in Jalan Bukit Bintang, and an underground pedestrian crossing that will link Pavilion KL to Fahrenheit 88.

Econpile has a 13% share of Malaysia’s piling and foundation services market, which was valued at RM2.83bil as of end-2012.

Besides property-related projects, Econpile has also done work for power plants such Manjung 4, Tanjung Bin and Jimah.

The firm gets most of its jobs from the Klang Valley, although Penang and Johor are catching up. The proposed Malaysia-Singapore high speed rail is likely to need strong piers. In Penang island, buildings are getting taller.

The upcoming highways like the Kinrara-Damansara Expressway and East Klang Valley Expressway will require extensive piling.

Econpile’s only listed rival is Pintaras Jaya Bhd. Besides Econpile and Pintaras Jaya, other key piling players include unlisted Geopancar Sdn Bhd and the Sunway group’s Sunway Geotechnics (M) Sdn Bhd.

There is a huge gap in their profit margins. Pintaras Jaya posted a net profit of RM52.32mil in the year to June 30, 2013 (FY13) on revenue of RM172.85mil, which translates to a net margin of 30.3%. Econpile, meanwhile, raked in FY13 net profit of RM27.87mil and sales of RM386.07mil, giving it a profit after tax margin of only 7.2%.

This means Pintaras Jaya has almost double the net profit and four times the profitability of Econpile with less than half the sales.

Be that as it may, Econpile’s profit after tax and revenue had expanded by a robust compound annual growth rate of 35.1% and 23%, respectively, in the three years through FY13.

Its gearing ratio as of October 2013 stood at 0.38 times. Pintaras Jaya, in contrast, is debt-free with cash of RM104.7mil.

Econpile had lost out to Pintaras Jaya on the RM74mil contract to provide foundation works for Permodalan Nasional Bhd’s 118-storey Menara Warisan Merdeka.

The 19-acre development will also reportedly feature a mall, luxury hotels, and residences. At over 500 metres, the tower alone is estimated to cost between RM2.5bil and RM3bil, and the entire project, RM5bil.

Econpile had inked on Tuesday a RM75mil job for piling and basement works for the Nusmetro Group’s Arte residence in Jalan Ampang.

SKpetro - Despite Gas Discovery Price Still Not Doing Well !!!

The gas discovery by SKPetro is viewed positively. The firm and its consortium partners, Petronas Carigali Sdn Bhd and Sarawak Sheel Bhd has made four significant discoveries of non associated natural gas in the SK408 Production Sharing Contract area, offshore Sarawak.

The capex for the four gas wells could total up an approximate rm112.8 million based on SKPetro’s 40% stake.

The commercialization of the resources of SK408 will likely only be achieved in later years.

SKPetro is schedule to begin the new campaign for Pan Malaysia transport and installation contract.

Meanwhile it was reported that SKPetro will have its Shariah compliant status revoked in Nov 2014 due to its rising non Shariah compliant borrowings.

The latest list of Shariah compliant stocks, with SKPEtro retaining its place in the list despite its non Shariah compliant borrowings rising above the threshold of 33% of total assets.

The next review by the SC would be in Nov 2014.

Althouhg SKPEtro’s conventional debt of rm12.4 billion accounted for 46% of total assets of rm26.6 billion as at Jan 31 2014, its audited FY2014 had not been finalized yet.

The exclusion of the company was only a matter of time as reported as its rm16.5 billion refinancing programme comprised conventional loan facilities, while its acquisition of Newfield International’s assets for rm2.8 billion would be funded by USD based borrowings.

Eng Kah - Substantial Shareholder Emerged

Tan Thiam Hock emerged as a substantial shareholder in Eng Kah Corp, has dismissed any potential alliance between the manufacturer of personal care and household products and privately held Alliance Cosmetics Group which Tan founded.

He emerged with a 5.03% stake in Eng Kah Corp.

ACG owns the Silky Girl, Stage and SG Men Brands and distributes. ACG is currently (June 2014) a customer of Eng Kah, contributing several % to its revenue. Private equity funds Ekuiti Nasional Bhd and Navis Capital Partners own an 80% stake in ACG. While Tan is no longer the head of ACG which he has a seat on the board.

Its revenue in FY2013 was the lowest in the past five years while profit also came in second lowest slightly above FY2009’s.

At current price (June 2014), it is trading at a 21.48 times to FY2013 earnings.

As at March 2013, it had zero borrowings and had a net cash of rm17.8 million.

It had a 30:70 JV with Cosway China Co Ltd. Cosway Malaysia is currently (June 2014) its major customer.

Other major shareholders of Eng Kah include CAM-GTF Ltd and Raffles-Asia Investment Co, which held a 9.59% stake and 5.31% stake respectively as at May 5 2014. Ewe Eng Kah and Neoh Lay Hwa holds 39.55% stake in the company.

IHH - Trades At 41x Historical Earnings

It has seen strong backing from its institutional shareholders. At its current (05 June 2014) share price of RM4.18, IHH trades at a whopping 51 times historical earnings, with a market capitalisation of RM34.04bil.

It is the second largest hospital group in the world, only to the US-focused Hospital Corporation of America. It runs 37 hospitals with a combined capacity of more than 6,000 beds; employing more than 25,000 people.

It hopes to excel in high growth markets and are targeting India, China, Indo-China, Asean and the Middle East. And with IHH’s Turkish partnership through Acibadem Holding will tap into the rapidly emerging economies of Central Eastern Europe, Central Asia and North Africa.

Notwithstanding its plans, IHH is already quite well-established in its home markets in Singapore, Malaysia and Turkey which contribute 37.4%, 17.5% and 35.6% of its revenues respectively in its first quarter for the financial year 2014 (FY14) ended March 31.

These markets constitute a chunk or 90% to its overall topline. The markets have seen strong growth of late with the average revenue per inpatient admission (ARIA) and inpatient admission volumes (IAV) recording year-on-year (yoy) growth in its first quarter FY14. The Malaysian market’s ARIA and IAV had outperformed the rest of the group’s home markets with first quarter y-o-y growth of 8.5% and 9.3% respectively.

IHH shares are trading at a PE valuation of 51 times and an enterprise value to sales of 5.27 times that is deemed hefty to some. The story of premium valuations for IHH is not new either. During its IPO in July 2012, financial reports had noted that IHH had sought a valuation of 93 times PE on FY11’s financial performance.

Since then, IHH’s shares have risen by an impressive 49% from its IPO reference price of RM2.80.

Other than the FBM KLCI, IHH is also a constituent of Singapore’s FTSE Straits Times STI where it is also listed, the FTSE All-World Index, FTSE All-Emerging Index, FTSE Global Style Index and the MSCI Global Standard Indices (large cap segment) that carries with it the weightage and investment recognition from international fund managers.

The stock is widely held by fund managers (June 2014) from across the globe with a tight institutional shareholding structure of 93% that also includes majority shareholder Khazanah Nasional Bhd’s stake of 43.9%.

Its cornerstone investors include the Employees Provident Fund, the Kuwait Sovereign Wealth Fund and Singapore Sovereign Wealth Fund.

The high valuations by investors today (June 2014) may also be reflective of the global strong demand for quality private healthcare. IHH which has presence in 10 countries expects to tap into this demand and it notes that the breakeven periods for new hospitals have been shortened significantly.

In the 80s, if you build a hospital it took 10 years to break even; in the 90s this has shortened to about seven to eight years. In the 2000s, it takes about three years to break even.

IHH is committing a capex requirement of RM3.39bil from the second quarter of 2014 till FY16 compared with its capex of RM1.69bil in FY13 and RM1.1bil in FY12 respectively. Half of the allocated capex until 2016 of RM1.5bil will be ploughed into its Gleneagles Hong Kong Hospital that will be 60% funded through its bank facility while RM926.7mil is allocated for hospital expansions in Malaysia that will be sourced with operating cashflows and new bank facilities if required. A total of RM954.8mil would be channeled into expanding its Turkey Acibadem operations that would be funded internally and through Acibadem’s bank facilities.

However IHH’s capex appetite may eventually hold back earnings growth.

IHH has net debt to equity ratio of 0.11 times and a net debt to net tangible assets of 0.33 times as of March 31 2014.
It is sitting on RM1bil of funds as at June 2014. Its debt ratio is low with one time EBITDA debt service ratio and IHH could potentially go up to four times. There are some expectations that it may pare down some debt because of such a huge pile of cash.

New projects are evaluated and only considered on the basis that there is a sound pent-up demand for it to minimise the breakeven times as much as possible.

With the present (June 2014) development and expansion plans, IHH is on track to delivery and double its bed-count to 9,000 by 2018 from about 4,900 beds during its IPO.

Prestariang (Earnings Growth Intact)

It is expected to register stronger results in the second half ending Dec 31 due to spillover earnings once delayed projects were finalised and approved.

Its first-quarter revenue and net profit results registered declined growth of -17.4% year-on-year (to RM20.6mil) and -28.9% (to RM6.4mil), caused chiefly by project delays such as its IC Citizen extension, ProELT and SmartGreen projects.

Prestariang’s education farm, UniMy, continued to incur pre-tax loss of RM1.74mil and that management had identified an equity partner, believed to be one of the government bodies, which would be injected to grow student enrolment and minimise the losses.

Further details of this new shareholder would be announced by the third quarter 2014.

Its management was targeting to break even by year-end (2014).

Prestariang’s oil and gas training firm remained intact and was expected to train a total of 500 students with an internationally-recognised certificate. Once it developed its in-house programme, subsequent profit to be made was lucrative.

Besides that, management was targeting to have this division to contribute 20% of the group revenue for the financial year ending Dec 31, 2015 (FY15).

There was also huge potential for Prestariang to tap into Petronas-related jobs as all local and foreign workers were required to obtain the health, safety and environment certification.

Prestariang was apparently in the midst of bidding for a substantial concession-based project, which would provide the company recurring revenue and serve as a re-rating catalyst to the stock.

Overall, with all its projects approved and remaining intact, observers expect Prestariang to stage improving earnings growth in FY15.

IBhd

Its major development ,i-City in Shah Alam launches its maiden projects i-Residences and i-SOVO achieved an overwhelming response with close to 100% take up rates. The good market response will augur well for the remaining phases of the development, further underpinned by its theme park in i-City.

The group has planned projects with GDV of rm9 billion in i-City, which can sustain it until 2020.

Current (June 2014) unbilled sales of rm405 million also render earnings visibility for coming years from 2014, equivalent to 4.3 times property development revenue of rm95 million which will be recognized over the next three years from 2014.

Also expect the group to experience explosive earnings growth from 2014 onwards…

YTL Corp - expanding its footprint abroad

After many years of expanding its footprint abroad, it has shifted its focus hack to the home from to reap the value of its investment across Malaysiua’s infra infra cycle, spurred by the ETP.

YTL is shifting its focus from growth via acquisition abroad to growth via execution at home.

Construction is poised to be a new potential earnings catalyst for YTL Corp, kicking off with the award of the Track 4A project. Its order book could also swell further with the possible award of the RM8 billion ERL extension to Melaka and rm30 billion HSR link to Singapore.

At 10.3 times FY2015 PER, YTL’s valuations are the cheapest among the conglomerates not just in Malaysia but also in the region. Further potential earnings upside come from a growing order book, higher passenger numbers on the ERL to KLIA2 and the turnaround of its 4G mobile broadband division with the roll out of its time division LTE services over the next two years from 2014.

E&O - STP2's Pricing Land Values Trigger Its NAV Upgrades

Its net asset value per share stood at rm4.61 which include assumed land value of rm250 psf for Phase 2 of the company’s Seri Tanjung Pinang (STP2) project.

Observers see a more balanced shareholding structure after E&O MD Datuk Tham increased his stake in the company.

Tham’s higher stake in E&O should demonstrate the management’s commitment to ensuring a smooth execution of STP2.

Management’s reaffirmed that STP2’s master plan is expected to be endorsed by the Penang government in June 2014. E&O is currently (June 2014) exploring funding options for the reclamation of land for STP2.

Management also alluded that there is little need for equity fund raising given E&O’s strong balance sheet – net gearing of 30% as at financial year 2014 ended March 31 and the strong development potential of STP2.

Land was transacted at rm600 and rm700 psf in Tanjung Tokong area (June 2014) in Penang where STP2 will be developed. At the moment, there is a range of imputed land values for STP2 in the market.

It is believed that E&O may carve out select parcels for commercial developments, which will be sold to reputable global//regional developers once it commences reclamation works for STP2. Such a move will not only set a precedent in pricing land values in STP2 but also trigger significant NAV upgrades. This is crucial share price driver.

Meanwhile E&O is looking to step in prices for the remaining 250 terraced units at Avira in Iskandar Malaysia, Johor.

TSH (Planted Land Filled With Young & Immature Trees)

Sabah based TSH expects to complete the rm150 million acquisition of a 60% stake in Sg Kalabanak Estate Sdn Bhd in July 2014 which will increase its existing oil palm plantation area in Sabah by an additional 26794ha. Of the total land area of 26794ha, 2979ha has been planted, with 23851ha available for future planting.

When completed, the proposed acquisition will bring TSH’s unplanted landbank to some 82000ha and total landbank in both Indonesia and Malaysia to 132000ha.

The proposed acquisition comes with assumption of liabilities of not more than rm30 million from Ratus Awansari Sdn Bhd.

The deal is in line with TSH’s strategy to expand its landbank to ensure sustainability of its plantation business and comes just months after TSH’s purchase of Casa Logitstics Sdn Bhd in Oct 2013 which gives TSH access to 5084h of plantation land in Kalimantan Timur, Indonesia.

It is targeting continued sustained growth for the group of 20% per year for the next three years from 2014 in terms of FFB production.

The double digit growth target is possible as 82% of its planted land is filled with young and immature trees which was either coming into fruition or reaching their peak in two to three years from 2014.

TSH is planting 4000ha to 5000ha each year and will be kept busy for the next 10 years from 2014 with the vast unplanted land.

Further, new mills are being planned to be built on a biannual basis costing rm50 million.

TSH’s 2014 will be a better year than 2013 based on the group’s performance in the first quarter of ended March 31 2014 where its net profit and EPS more than doubled to rm52.17 million and 5.82 sen respectively from 1QFY2013.

Its cost of production in Sabah are like something like rm800 per tone to rm900 per tone. In Indonesia, the cost of production is rm1100 per tone but expects this to decline in the next few years from 2014 as the plantation grows.

The company is less susceptible to the changing CPO prices due to its level of efficiency.

It will reward shareholders by the group’s internal policy of paying out 20% to 30% of its profits as dividends.

Its officials did not rule out the possibility that the group will increase dividend payout as well as bonus issue as TSH’s profits increase.

Meanwhile TSH expects its Ekowood Intl Bhd to turn profitable by 2016. Ekowood is focus on its wood flooring business in SEA.

Neutral - Property Developers (Earnings In Downtrend But Largely Priced in)

Developer’s results fort he first quarter ended march 31 2014 were mixed. Developers’ earnings were on a downtrend with most of them reporting weaker earnings on lower revenue and lower profit margins.

Developers with a stronger focus on landed properties or mid range condominiums fared better than their counterparts who focused on mid to high end condominiums or integrated.

Developers are facing margin squeeze – cost pressure is rising (higher land prices and higher building material, labor and compliance costs) but the ability to pass on the higher costs is limited by stiff competition, tightening of banks lending policy and weaker property market sentiment.

The developers’ 1QFY2014 earnings margin was generally weaker quarter on quarter.

The developers’ 1QFY2014 property sales were modest. However against a low based in 1QFY2013 the developers’ 1QFY2014 property sales were generally higher year on tear.

It is worth nothing that 1QFY2014 sales were the weakest quarterly sales since 2QFY2013. The introduction of new property cooling measures in Budget 2014 affected the availability of credit, property market sentiment and the number of new property launches.

Industry observers expect sales to pickup slightly in 2HFY2014 as developers adjust their pricing strategy and step up new property launches in 2HFY2014.

It is believed that the negatives are largely priced in (03 June 2014) and the downside risk to share prices is limited given that developers are now (03 June 2014) trading at 0.6 times to 0.7 times price to revised net asset value, broadly within their historical trading ranges, 2015 PER of 10.4 times, developers balance sheets are strong and their 2014 to 2015 earnings are still resilient.

FGV - full control of FHB

It will benefit from its plantation acquisition of PUP and full control of FHB in 2014. The coming year will see the group harvesting the low hanging fruits of its recent acquisitions.

The PUP acquisition has already started contributing to FGV’s bottom line in the fourth quarter of 2013. As most of its trees are at a prime age of 13 years, there will be minimal replanting costs incurred for the next 10 years from 2014.

PUP accounted for 20% of FGV’s plantations business in Feb 2014.

The current year will also see the plantation group book earnings from FHB, whose status has changed from an associate to a fully owned unit on Dec 27 2013.

FHB generated a consolidated profit before tax of rm383 million in 2013 and had a net cash position of rm1656.6 million.

The full year earnings of FHB will be reflected in FGV’s financial performance in 2014.

As FGV still has a balance of rm1.33 billion from its IPO coffers and cash reserves of rm3.7 billion, it is in a strong position to pursue M&As.

Kinsteel - Still In Dire Shape ..

It reported a higher net loss of rm94.6 million in the latest quarter ended March 31 of the FY2014. It was attributed to zero production by its subsidiary Perwaja Holdings Bhd with the curtailment of gas and electricity supply to the latter and lower sales revenue.

Also contributing to the loss was the write down of inventory of rm90 million at Perwaja. The subsidiary assets of rm90 million were also written off.

Cumulative losses for the 15 month period (15MFY2014 from Jan 2013 to March 2014) came in wider. For the period the group reported a loss of rm300 million.

Perwaja’s restructuring scheme is still in progress. Expect it to be protracted as it may take time to get all of its creditors to agree to the restructuring scheme to uplift its PN17 status. Even if the creditors were to agree to the restructuring proposal, the group will still need a cash injection or additional equity capital to carry on its business operations. Securing additional capital will be a big hurdle for the group.

Its business operations have continued ti face challenges due to weak steel prices and demand. Dumping cheaper steel products by China mills has caused prices of steel products to soften.

In addition, global overcapacity in China is likely to impact steel product prices as production continues to outpace demand.

Zhulian - uncertainty

While Zhulian Corp Bhd has seen its share price plunge to a year low, there are still concerns that the selling pressure has yet to dry up amid expectations of further drop in earnings in the coming quarters.

Thai political unrest had reversed the MLM firm’s growth streak. The coming’s quarterly net profit had been between rm13 million and rm17 million for the past two financial quarters.

This could mean that Zhulian’s earnings are probably at around this level with contraction of contribution from Thailand. Thailand made up nearly 60% of its revenue for the financial year ended Nov 30 2013. The scrapping of the rice subsidy has affected the income of the farmers who are Zhulian’s target market.

At current PER of 11 times (assuming an annual net profit of rm80 million for FY2014) or 17.9 sen per share, its share price (01 June 2014) should be around rm1.90.

Zhulian had a dividend payout policy of up to 60^ of its annual net profit.

Going forward, Zhulian could face more selling pressure if the stock were to adhere to its current valuations (01 June 2014). Investors had been expecting too much from the company after seeing strong growths in the past. The muted share price (May 2014) performance is because of investors’ high expectations and Zhulian’s lower contribution from its Thailand market.

Zhulian is still seeking growth from its Thailand market despite the political unrest there stemming from a failed rice subsidy scheme which had impeded many a rice farmer’s income stream.

Zhulian will see growth in its Indonesian and Myanmar markets.

WCT - RM10 million boost from KLIA2

Its property investment and management division is expected to get at least a rm10 million boost in net profit per year from the opening of Gateway@KLIA2, the retail section of the new LCCT in Sepang.

The additional contribution will help the group meet its target for its property investment and management divisions, under which its mall operations fall, to increase its contribution to 25% of WCT’s net profit by 2015 from 10% currently (May 2014).

However this would see contributions from its contribution division dropping to 45% and property development to 30% contribution to its net profit.

Its future will be on the property investment and management businesses,

WCT’s construction order book remains sufficient at rm2 billion and it will attempt to replenish its order book in the coming years from 2014.

Talam - Asset Sales Come To An End ..

Its roughly 2000 acres in Selangor may be one of the reasons Tan Sri Surin bought an indirect stake in Talam in Oct 2013.

The estimated GDV will be more than rm5 billion.

It had 1861 acres in Selangor – in Ampang, Bukit Jalil, Puchong, Sepang and Rawang – with a net book value of rm862 million as at Jan 31 2013.

Along with three properties in KL and in China, the top 10 list had an NBV of rm1.16 billion.

It is worth nothing that Talam sought to dispose of some of these properties. It had proposed to sell a piece of vacant commercial land in Bdr Bukit Beruntung for rm45.4 million, its 85% equity interest in Maxcourt Hotel Ltd in China for rm122 million and 173.4 acres of leasehold vacant land in Mukim Batang Berjuntai, Kuala Selangor for rm26 million.

Talam has returned to the black for the financial year 2014 ended Jan 31 contributed by gains made on disposals of land.

While most of the company’s FY2015 earnings will still come from asset sales, going forward, however, Talam plans to retain most of what remains of its land. Its asset sales have more or less come to an end with one or two more to go as it had already sold most of what it wanted to sell.

Talam had rm360 million of assets held for sale in its FY2014 accounts.

Surin emerged as a shareholder in Talam through his acquisition of a 24.68% stake in KEURO through MWE which he controls. KEURO is the largest shareholder of Talam with 29.89% stake.

There has been talk that MPHB Cap Bhd, which is controlled by Surin, may emerge as a JV partner or investor in Talam through a disposal by KEURO. He has an indirect stake of 37.19% in MPHB.

Talam turned around in FY2014 after making losses for three straight years.

As at Jan 31 2014, Talam’s debt to equity ratio stood at 0.6 times while total liabilities amounted to rm340 million.

Its net asset per share was 13.9 sen.

Pintaras - winning contract for the 118-storey Warisan Merdeka

Pintaras Jaya Bhd is commanding a market share of 10% to 15%. The other public piling companies then, like Pilecon Engineering Bhd, UCP Resources Bhd, L&M Corp Bhd, General Soil Engineering Holdings Bhd did not last long after the 1997 financial crisis.

At present (May 2014), other key piling players in the market include unlisted Geopancar Sdn Bhd, Sunway Group’s Sunway Geotechnics (M) Sdn Bhd and Econpile Holdings Bhd, which is en route to the Main Market.

Pintaras’ 30% profit margin speaks volumes on how well the company is run.

Pintaras Jaya is sitting on RM104.7mil cash, which translates to 16% of its market cap. Pintaras Jaya does not have definite plans of utilising the money but may consider a merger and acquisition for its manufacturing arm should a good deal come by.

The company has also been paying out 38% of its profit as dividend diligently.

It is bidding for works valued between RM2bil and RM3bil while its orderbook stands at RM300mil, almost double from a year ago.

Underpinned by the exuberant construction scene in Malaysia, which counts mega projects like Klang Valley Mass Rapid Transit Line 2, Kinrara Damansara Expressway, West Coast Expressway, Petroliam Nasional Bhd’s refinery and petrochemical integrated development (Rapid) in the pipeline, it is optimistic of Pintaras Jaya replenishing its orderbook.

Traditionally, a huge chunk of the piling specialist’s revenue is derived from the private sector primarily for high rise residential and commercial buildings. However, jobs from the public sector and government-linked project are beginning to contribute much more significantly to its topline, which now (May 2014) stands at 40%.


Winning the RM74mil contract to carry out foundation works for the 118-storey Warisan Merdeka marks a milestone for the company as it was involved in the construction of an iconic building.

Clinching the project means a lot to Pintaras as it proves that local piling players are able to compete with the multi-national companies. Notably, piling works for the country’s tallest building Petronas Twin Towers was awarded to Soletanche Bachy from France.

Jobs are aplenty as the trend of big construction players taking up the role as managing contractors, hence creating opportunities for piling works to be awarded to sub-contractors.

CBIP

Contributions from its plantation and milling divisions will be increasingly significant in future.

It has a plantation development plan over the next 10 to 15 years from 2014 to develop 6000ha of land per year to create more stable future income.

It is already a landlord of 65000ha of land in Kalimantan Tengah Indonesia, CBIP is also planning an expansion of its plantation land bank to 80000ha.

Meanwhile the equipment and engineering division will continue to be the biggest contributor to the company’s earnings at 56% in 2013.

CBIP hopes to extend its lead in the global market with a 30% increase in palm oil mills by acquiring clients.

The company is also planning to use its engineering expertise to venture into a very special area of the oil and gas sector, having acquired a 100% stake in TPG Oil & Gas Sdn Bhd in Jan 2014.

It expects the oil and gas segment will contribute positively to the company’s earnings as early as 2015.