Its rights share is priced at rm1.35 per share.
The selldown may be due to institutional investors unwilling to take up the rights shares in anticipation of earnings dilution as the proposed rights issue which is undertaken together with a bonus share exercise, involves new shares which will expand Armada’s share base.
Prospects for Armada’s earnings remain bleak. Its earnings performance in the last two quarters were below expectations. Hence with the rights share issue, the EPS is expected to be diluted even more.
The rights issue price was expected to raise gross proceeds of up to rm1.997 billion.
Hit by double whammy of anti dumping duty imposed by the US and weaker domestic demand from the O&G sector, steel pipe manufacturer expects to rebound via project flow from RAPID.
The project flow in the domestic O&G market will improve in the second half of 2014 supported by RAPID.
It is believed that some 15% of RAPID’s total project value will be allocated to the installation of pipes, valve and fittings which is expected to benefit Pantech.
Pantaech is being a market leader in PVF and expect good revenue generation from RAPID.
Industry observers expect potential sales of rm3 billion accruing to Pantech from the RAPID project. Given that RAPID will be launched by Early 2019, expect contract flows of rm750 million per year for Pantech over years 2014 to 2018.
EPF had raised its stake to 5.34%.
For the first quarter of FY2015 its financial results continued to be under pressure from lower local sales at its trading division and lower export demand at the manufacturing division.
Revenue has yet to recover from the cessation of stainless steel exports to the US . However its new stainless steel factory grows out its gestation stage.
The US Department of Commerce started investigations in 2013 and anti dumping duties for exports of welded stainless steel pipes from Malaysia , Thailand and Vietnam were imposed in June 2014. The investigations and subsequent anti dumping duties hit Pantech’s stainless steel pipe volumes and the company had no sales of stainless steel pipes to the US in the second half of 2014.
That setback spurred the company to focus on stainless steel fittings in addition to stainless steel pipes. Since the final decision of the International Trade Commission in June 2014 which was not in its favor, Pantech has diversified its sales from pipes to the production of stainless steel fittings.
For FY2015 it is looking forward to an increased contributions from its subsidiary Pantech Stainless & Alloy Industries Sdn Bhd buoyed by its production focus on stainless steel fittings.
Pantech has been producing more fittings since anti dumping duties were imposed on stainless steel pipes. Though it was not able to compensate fully for the loss of revenue from the sale of stainless steel pipes, the fittings have better margins.
Pantech’s stainless fittings are finding market acceptance overseas, with 70% of its production exported compared with only 40% of its fittings exported in FY2013.
It is actively exploring potential export markets for stainless steel products in South American and Europe .
The revenue ratio between trading and manufacturing was 54:46 in FY2014. It is moving towards 50:50 revenue ratio by 2015.
Oversupply Issue …
Palm oil tumbled below RM2,000 a tonne for the first time in more than five years as forecasts for a record US harvest of soybeans used to produce an alternative oil threaten to curb demand.
Palm entered a bear market in July 2014 as favourable weather boosted the outlook for US soybean crops, estimated to be the largest ever. Futures also slumped as demand for biofuels missed expectations and forecasts for an El Nino weather, which can disrupt supplies, were scaled back.
The biggest supply for US soybeans is weighing on other oilseeds, and palm is indirectly affected by this.
Production in Malaysia may reach a record 19.7 million to 19.9 million tonnes, while Indonesia’s output may total an all-time high of 30.5 million tonnes or more in 2014. The two producers together account for 86% of world supplies.
Indonesian Restrictions …
Malaysian firms with large holdings in Indonesian estates may be significantly impacted by the country’s lawmakers plant to cap foreign ownership in oil palm plantations to a maximum 30% from the current (Aug 2014) limit.
It was still uncertain if the ruling would be retrospective, and whether the plantation bill would be passed.
The proposed law, firms will given five years to comply with the rules, and those that refused to comply may face fine, temporary suspension and the revocation of permits.
This uncertainty, coupled with the 100000ha in limitation rules, may lead to slower new plantings in Indonesia, and negatively impact future supply growth from the country.
The proposed foreign ownership limit may also spur affected firms to venture into other regions like Africa or Papua New Guinea or expand downstream.
At rm6.00 it is currently (25 Aug 2014) trading at 200 times historical earnings.
Market observers said it has the potential to be turned into a real estate play.
The company’s largest assets are in its investment properties, which include a shopping mall in Teluk Intan, Perak with 127000 sq ft of floor space. It also has a 135504 sq ft hypermarket in Majung, Perak, and an office block in Damansara Uptonw, PJ (5899 sq ft, carried at its 1997 price of rm1.77 million).
Other properties include a 21000 sq ft vacant freehold parcel and 2257 sq m car park in Sri Hartamas, KL, which were carried at 2001 and 2004 prices of rm3.08 million and rm3.09 million respectively. These properties are among those earmarked for development into investment property.
Using a rm200 to rm500 psf range for land in Sri Hartama, which can vary depending on location, the 21000 sqf land should be worth at least rm4.2 million.
80% of RAPID’s operating profits in FY2013 were from investment holding versus the precision tools business. Its loss making retailing business has since been discontinued.
For the 1QFY2014 ended March 31, RAPID’s net profit jumped to rm3.9 million from rm106000 in the previous corresponding period, on the back of a 25% jump in revenue to rm7.65 million.
Its net asset per share stood at rm1.44.
Its cash balance is rm4.47 million as at end March 2014. Its borrowings and payables stood at rm31 million and rm111 million in long term loans.
Its investment properties are carried at rm238 million.
The group continues to look for opportunities to acquire properties that generate long term recurring income as well as capital appreciation.
Meanwhile Datuk Dr Yu Kuan Chon has been busy buying into precision tools specialist Rapid Synergy Bhd, a company in which he has been the single largest shareholder.
Yu’s flagship is YNH Property Bhd, a Perak-based property developer.
Market talk has also surfaced that Yu has been nibbling shares of MUI.
Yu has cleverly traded HLCap shares in such a way that it hasn’t suffered a prolonged breach of the minimum 10% free-float threshold required for active trading, which could have led to an automatic suspension of the shares by the exchange. But listing rules also dictate that listed companies have to maintain a minimum 25% public shareholding spread requirement.
Since early August 2014, Datuk Dr Yu Kuan Chon has been mopping up shares of semiconductor firm Rapid Synergy Bhd, which he believes the company has growth potential.
Similarly, in the case of YNH Property Bhd, YNH Property will continue to develop its landbank in the foreseeable future and it is looking at a real estate investment trust structure for its investment assets under the group.
As at Aug 20 2014, Yu had a 20.25% direct interest In Rapid Synergy, with another 8.61% being held indirectly. These shares were bought from the open market and off-market at prices between RM5.97 and RM6.00.
Yu has been buying when other directors of Rapid Synergy are selling their shares. Yu has been a long-time shareholder of Rapid Synergy and a non-executive director since 1998.
Over the last few years prior to 2014, Yu has been buying up shares of his flagship property company, also on the belief that it is undervalued. Currently (Aug 2014), he controls close to one-third of it as opposed to four years ago, when his stake was under 20%.
YNH Property is currently (Aug 2014) embarking on three new projects, one being the proposed RM3.4bil mixed development along Jalan Sultan Ismail in Kuala Lumpur.
With the ongoing orders for the group’s RF products due to resilient demand for smartphones and tablets, the group is believed to utilize part of its proceeds from its rights issue with warrants amounting to between rm100.3 million and rm133.2 million to expand its RF assembly capacity and repayment of bank borrowings.
Assume another RF plant pos the announcement of its new land acquisition at Batu Kawan Industrial Park … the group’s net group could see additional rm25 million on a utilization rate of about 85%.
Expect Ametron to (Inari acquired Ametron Global Inc in June 2013) to post decent earnings. Also expect its 51% owned subsidiary Ceedtec Sdn Bhd to see double digit growth in financial year 2015 ending June 30 (FY2015) (from a low base), with the new pipeline of products to be introduced.
While the group’s earnings prospects remain resilient with higher visibility post its Main Market Listing, in terms of valuation, however, Inari is currently (Aug 2014) of 16.0 times, which is a 24% premium to the FBM Small Cap forward PER of 12.9 times and only a mere 8% discount to its peers’ forward PER.
Including all parameters, there is not much capital upside from 19 Aug 2014.
Meanwhile Inari will report its results for the fourth quarter ended June 30 of financial year 2014 on Aug 26 2014.
The group is on track to deliver another set of record earnings in FY2014. This is largely underpinned by the consolidation of Amertron’s accounts in FY2014 and its ability to leverage on its Avago strengthen in the RD space. In addition management guided that Amertron’s margins have improved to 6% to 8% versus 4% in mid 2013.
To recap, Inari proposed to undertake a 1 for 8 rights issue which could potentially raise up to rm133.2 million. With Inari running at its full manufacturing capacity at its full manufacturing capacity due to the increasing demand from the RF segment, the group has plans to expand its current manufacturing capacity. Management intends to utilize rm60 million to rm80 million of the proceeds from the proposed rights issue to fund its expansion plan, which includes the acquisition of a piece of land and a manufacturing plant.
In view of the expansion plan, do not expect the group to pay up to 40% of its FY2014 earnings as dividend.
Its prospect remained positive …
Key risks include a slowdown in global demand for smart devices, rapid erosion in average selling prices, loss of customer base and introduction of new technology.
KSL has shown a strong set of financial figures in the past three years as its projects in Johor Bahru and Klang took off.
Providing that significant boost to the numbers was also its rental income from its KSL City integrated development just 10 minutes away from the Johor Bahru Customs, Immigration and Quarantine Complex.
The group also has rental income from two properties leased to grocery chain, Giant in Muar and Nusa Bestari.
In its 2013 financial results, KSL recorded earnings of RM172.4mil, 35% higher than a year ago. Its revenue for the year was RM688.2mil. Of that, RM135mil was from rental while RM551mil came from property sales.
For 2014, its first quarter ended March 31 continued its upward momentum, recording RM61.03mil in net profits, 27.5% higher than the corresponding period a year back.
Revenue more than doubled to RM207.92mil.
Its second quarter results would be good as well, and the outlook for the second half of 2014 positive.
At the moment, KSL has several ongoing high-rise and landed property projects in Johor Bahru.
KSL has low land cost in addition to the reasonably good take-up rate. Looking at its segmentised earnings, KSL has an estimated profit after tax margin of 28% to 29% from its property development business.
To date (Aug 2014), the group has an unbilled sales of just over RM1bil.
KSL’s remaining GDV is estimated to be RM4bil to RM5bil.
KSL does not embark on aggressive landbanking.
KSL would appear to be a good alternative to UEM Sunrise Bhd, especially for investors who want exposure in the Johor property market but believe that the principal developer of Iskandar Malaysia is already overexposed among investors.
A source says that funds have been taking note of the undervalued counter; among those who were said to be interested were Permodalan Nasional Bhd, Pelaburan Mara Bhd and some insurance firms.
KSL has a market capitalisation of RM1.4bil and is trading on a current (15 Aug 2014) price-to-earnings of 7.54 times.
KSL has been able to beat the newcomers with its advantage as a Johor-grown property group. Another of KSL’s winning point is its low land cost from as far back as the early 2000s, before Johor was marketed as Iskandar Malaysia.
The cost for the group’s land bank accumulated in and around Johor Bahru over 10 years ago (2013-2014) were between RM3 to RM6.50 per sq ft.
Latest purchase of a small piece of land in Kangkar Tebrau was RM150 per sq ft. This was adjacent to KSL’s land which transacted at RM8 per sq ft 10 years ago (2014). Today (Aug 2014), land prices in coveted areas within the Iskandar Malaysia development blueprint could cost as high as RM1,000 per sq ft.
KSL’s products are targeted at a slightly different market, mostly of Johoreans and Singaporeans. Many of the latest developments in the Iskandar Malaysia region are priced beyond RM1mil.
Although Iskandar Malaysia has attracted a number of competitors, KSL has also benefitted from the attention on its homeground. For one, it has pushed Johor’s property market onto the portfolios of many foreign investors from Singapore as well as China, Hong Kong and Taiwan.
Foreign buyers make up nearly 20% of KSL’s total purchasers and the bulk of that comes from across the Causeway. Though most buy to invest, a fraction of KSL’s Singaporean customers are homebuyers who prefer to live in Johor Bahru and commuting to Singapore for work.
As at December 31, 2013, the group’s land bank spans 2,100 acres held for current and future development strategically located in Johor Bahru, Batu Pahat, Kluang, Segamat, Muar, Mersing, Klang and Kuala Lumpur.
The group is not actively looking to replenish land bank in areas it is not already in. Most of these properties will help sustain the group’s medium to long-term development and profitability. The properties are available for immediate development as they have been granted approval for sub-division.
For the rest of 2014, it aims to launch three new projects including the low-density serviced apartment, 18 Madge in Kuala Lumpur city centre, and continues with its repeat launches for ongoing projects
Going forward, the group plans to build more high-rise residentials as “the trend is that now, that is what the market wants”.
The group, which has faced some challenges in the past relating to its projects, has just completed a couple of major corporate exercises that helped remove its accumulated losses.
It is banking on growth in the construction sector - Zelan’s mainstay - to remain “strong” as Malaysia continues to be on a growth trajectory, suggesting a strong construction job flow domestically.
Zelan currently (Aug 2014) has an orderbook of about RM1.15bil. This will last us until the first half of 2017.
The company is 39.25% controlled by conglomerate MMC Corp Bhd.
Of the current (Aug 2014) projects on the plate, three are local, one of which is ongoing, with the other two about to commence soon.
Another two jobs were just obtained in Aug 2014, of which the first is a contract from the East Coast Economic Region Development Council for the construction of a RM248.73mil drawbridge connecting Muara North and Muara South in the Kuala Terengganu city centre.
Additionally, Zelan is also one of the companies that was recently awarded a contract involving Petroliam Nasional Bhd’s Pengerang Integrated Complex (PIC). Under this, its job involves the basic design, detail engineering, procurement, construction and commissioning of the material off-loading facilities jetty at Tanjung Setapa, Johor.
Zelan’s current (Aug 2014) overseas focus is a mixed development project in Abu Dhabi. Notably, this is not a new contract as it was supposed to be completed some time back.
In April 2014, the company reached an amicable settlement with Meena Holdings LLC, which is the owner of the Meena Plaza Mixed Use development project that Zelan was supposed to complete but didn’t due to certain disputes.
It was agreed that Zelan would continue work on the development project, slated to start Sept 20124 in addition to being paid some RM107.4mil as part of the agreement. The balance of its work on the Abu Dhabi project is worth some RM464mil and is expected to be completed within 15 months.
This “will certainly put Zelan on a firmer footing on its route of recovery and growth”.
Zelan made a net profit of RM35.2mil or 5.77 sen per share in FY14. compared with a net loss of RM77.8mil for the same period a year earlier.
The company raised a total of RM327mil after selling its shares in IJM Corp Bhd in its concluded financial year ended March 31 (FY14).
Of the amount generated, Zelan has used some RM268mil to pay off its term loans while the remaining was used to help partially settle a loan as a result of the wrongful liquidation of the performance bond for the Meena Plaza project by Meena Holdings, according to its latest annual report.
Zelan also had a rights issue exercise which raised RM42.2mil.
Zelan just completed the corporate exercises that have resulted in the elimination of accumulated losses and now (Aug 2014) it has a small amount of retained earnings at company level.
As for dividends to shareholders, the company has to first build up its retained earnings.
Zelan’s plate is a plan to “reactivate” its property and development unit without losing focus on its immediate goal of re-strengthening its engineering and construction segment. This unit generated sales of RM800,000 in FY14, a small amount compared with the group’s total revenue of over RM250mil. With the improved financial position of Zelan, it intends to explore opportunities in this segment.
Among Zelan’s completed work is RM179.3mil worth of jobs involving berth and back of wharf construction at Pelabuhan Tanjung Pelepas in Johor, a port controlled by MMC.
It is currently (Aug 2014) working on a RM391.6mil job involving the construction of the Centre for Foundation Studies (Phase 3) at the International Islamic University Malaysia in Gambang, Pahang which should be completed by January 2016 on top of two subcontract packages at Tanjung Bin’s coal fired power plant in Johor.
The other two projects that the company should soon start work on are the Gombak Integrated Transport Terminal, Selangor and the construction of the Integrated Immigration, Custom, Quarantine and Security Complex in Kedah.
Lembaga Tabung Haji (LTH), Koperasi Permodalan Felda Malaysia Bhd and Pelaburan Mara Bhd have taken stakes In Reach Energy Bhd.
Prior to this, GLICs do not have the mandate to invest in Spacs. Spacs are shell companies with no operations or income-generating business at its point of listing.
Spacs undertake the listing for the purpose of raising funds to acquire businesses or assets, otherwise known as the qualifying acquisition (QA).
It appears that LTH, Felda and Mara obtained the mandate to invest in Reach, an oil and gas Spac, after the new guidelines were released earlier 2014, as they took comfort mainly in the investor protection clause.
Malaysian oil and gas services firm Daya Material Bhd is only an initial investor in Reach Energy. Daya’s ownership will be only 1.74% after the IPO.
Some of the other cornerstone investors include tycoon Tan Sri Chua Mah Yu’s son Chua Sai Men, Lembaga Tabung Haji, fund managers CIMB-Principal Asset Management Bhd and Hong Leong Asset Management Bhd, MKW Jaya Sdn Bhd, MTD Capital Bhd and Paul Poh, a close associate of Hong Leong Group chairman Tan Sri Quek Leng Chan.
The investors, who are not subject to a lock-up period, will take up a combined 210 million shares and warrants, or 16.45% of Reach’s enlarged share base.
Poh is a lieutenant of banking tycoon Tan Sri Quek Leng Chan. Quek and Poh have been heavily investing in oil and gas companies. Meanwhile, Sai Men is the son of tycoon and savvy investor Tan Sri Chua Ma Yu.
MTD Capital is a listed bumiputra investment holding company with interests in infrastructure development.
As for state-owned Pelaburan Mara, it came into the limelight in April 2014 when it bought a 27% stake in shipping firm PDZ Holdings Bhd for RM41mil.
The cornerstones make up some 20% of Reach Energy’s share base while institutions make up some 15%. The remainder shareholders are made up of corporate and individuals.
Other asset managers that have taken up stakes in Reach Energy include Kenanga Investors, Norway’s sovereign fund Norges, Areca Asset Management and Allianz Investment.
What attracted the bumi funds was the investor protection. Reach was putting in 94.75% of its funds into the trust fund, instead of the stipulated 90%. Should a QA not be executed in 3 years time, the 75 sen per share put in by the investors actually becomes 76 sen, based on the existing interest rate.
The fact that Reach was a syariah-compliant company, also helps the investing case. Certainly, Reach is the first Spac to be listed under the Securities Commission’s new strict guidelines, with many people touting it to be the safest Spac.
The management of Reach, led by Shahul Hamid Mohd Ismail has put in a significantly higher amount of money than the three previous Spacs – Hibiscus Petroleum Bhd, Cliq Energy Bhd and Sona Petroleum Bhd.
Under the new guidelines, it is stipulated that the management team’s shares should be issued at no less than 10% of the IPO price. The subscription price per share for the management of Hibiscus, Cliq and Sona was 1 sen, while Reach had to put in 7.5 sen based on the IPO price of 75 sen.
The management of Reach ended up putting in a total of RM20mil for its management shares. The management of the other Spacs put in between RM1mil and RM3mil, while is significantly lesser. With the kind of money the management of Reach was putting in, there is certainly a greater urgency to make the business work.
Furthermore, Shahul and team will not be able to cash out their shares even after they make their QA. Another new guideline of the SC is that Reach Energy’s moratorium on the shares held by management will be in place up to one full year of audited operating revenue. Following that, the management will be allowed to dispose its shares up to a maximum of 50% per annum on a straight line basis.
Reach’s IPO comprises 1 billion shares at an issue price of 75 sen each. The offer comes with 1 billion free detachable warrants on the basis of one warrant for one share subscribed.
SPACs are shell companies with no operations or income-generating business at the point of listing.
SPACs undertake an IPO to raise funds to acquire businesses or assets, otherwise known as QA.
Reach Energy aims to clinch a brownfield asset in the Asia-Pacific region with the ability to generate early revenue within two years of acquisition.
Reach Energy can raise a further RM958mil when the warrants are exercised in full. The free warrants are issued on a one-for-one basis per Reach Energy share.
It could be in for a bumper profit for the second quarter ended June 2014. The maiden contribution from the JV with Malton has started flowing into its property development division.
Part of phase 1 of the JV project between Malton and Ho Hup over 50 acres of land near the Bukit Jalil have been fully sold out.
Under the joint development agreement, Ho Hup enjoys 18% share in GDV of the project. Based on the sale proceeds of rm403 million, Ho Hup is expected to recognize rm72.6 million in revenue in 2Q.
This share of revenue is almost as good as profit because the land owner Ho Hup does not bear any development costs. Malton is bearing the entire development cost while Ho Hup is providing the land.
The stock had been uplifted from its PN17 status in May 2014.
The market is now (Aug 2014) awaiting to see how well Ho Hup generate earnings from the joint development with Malton.
The JV with Malton is set to be Ho Hup’s growth driver. The company’s property development segment is expected to contribute close to half of its revenue in 2014.
Malton has yet to officially launch Pavilion 2 and its has been reported that details will be out by 3QFY2014. First phase of the development has received a good response.
There are four faces in the freehold integrated development with a total GDV which has been revised to an estimated rm4.2 billion from rm2.1 billion previously. Of this, Phase 1 is estimated to account for 20% with a GDV of about rm800 million.
Industry observers are positive on the location of Pavilion 2 in Bukit Jalil nothing the shopping mall would anchor the area as the first real commercial hub in Bukit Jalil.
Insas controlled by Datuk Thing has been accumulating shares in Ho Hup. Insas currently (Aug 2014) holds 8.33% stake in Ho Hup.
IJM Corp’s plan to acquire the 37km as Kajang Dispersal Ring Road or SILK Highway from SILK Bhd for rm398 could stall because bondholders want a slice of the pie.
Industry observers say the existing holders of some rm864 million worth of sukuk attached to the highway are seeking from SILK Holdings a cut from the deal.
In May 2014, IJM Corp offered to acquire the assets and liabilities of SILK Holdings’ subsidiary SILK Sdn Bhd for rm398 million. Combined with debts this values the highway at about rm1.26 billion.
The corporate guarantee of the bonds is SILK Holdings while the bonds were issued under SILK Sdn Bhd.
For the deal to proceed, the corporate guarantee must be transferred to IJM Corp. However this requires 75% approval from the existing bondholders.
The bondholders are said to be seeking at least a rm250 million to rm300 million cut from the rm398 million sale. SILK Holdings is expected to reject their demand but it may negotiate an arrangement with them to ensure the deal goes through.
An alternative would be for SILK Holdings to buy back the outstanding sukuk at a premium but could prove expensive.
Industry observers point out that the highway’s debts had to be restructured in the past when traffic volume did not meet earlier projections resulting in a cash flow shortfall. The highway was opened in 2004 but it has not been profitable since. To keep SILK Sdn Bhd solvent the bonds were restructured so that a substantial portion of the coupon payments on the highway was deferred to 2016.
From the bondholders’ perspective, when 2016 comes around, SILK Holdings will have to fork out all the deferred coupon payments. If the asset becomes distressed and goes into receivership, the bondholders would effectively take control of the highway which is worth rm398 million.
Note that SILK Holdings is heavily geared with a net debt position of rm1.58 billion and a net gearing ratio of 7.5 times.
SILK Holdings were controlled by Johan Zainuddin with a 33.5% stake followed by Abdul Rahman with a 21.7% and Datuk Mohd Azlan Hashim with 19.6%.
Its unit, KNM Process System Sdn Bhd and its bidding partner SINOPEC Engineering Co Ltd have received a LOA worth USD1.33 billion from Petronas.
The contract is one package relating to Petronas’ RAPID project.
It is believed that KNM’s effective portion is circa USD280 million. Works are likely to start in early 2015, over 2 years. This is positive development for KNM.
KNM also has exposure to other packages such as CITC, Technicas, Reunidaf, Petrof and Toyo which had won the other four RAPID related packages.
In total, observers expect KNM to secure about USD800 million to USD1 billion worth of jobs from RAPID alone over the next three years from 2014. Expect subsequent contract flows on RAPID works over the next few months from Aug 2014 in favour of KNM.
Industry observers also expect higher backlog orders over the two years from 2014.
Sources say its foreign partner have put in aggressive bids for the process equipment jobs at RAPID project worth in excess of US$1bil (RM3.21bil). It is learnt that KNM’s share in the joint venture is 33% and that the foreign partner was also a company with technical expertise in the oil and gas field.
Any possible wins would boost investors’ confidence towards the local process equipment manufacturer as it works towards gaining investors interest in the company.
Estimated that for every RM100mil in revenue from Rapid-related works would contribute RM10mil per annum to its earnings assuming that its pre-tax margin is 10%.
Should KNM secure a consistent RM600mil to RM1bil worth of Rapid-related contracts annually from 2015 to 2018, it would contribute RM45mil to RM75mil to its net profit.
The company made net profits of RM23.84mil in FY13 and RM72.28mil in FY12.
Estimated that KNM could bid for jobs related to process equipment from the Rapid project that ranged from RM10bil to RM18bil over four to five years from 2014.
The outlook for the company had improved tremendously on the back of the refinancing of its debts, disposal of its loss making Brazilian arm and the go-ahead given to the Rapid project.
KNM’s restructuring of its borrowings helped it to save RM13mil in interest cost per year.
Going forward, KNM’s Peterborough project in the United Kingdom is viewed as another positive catalyst that would provide recurring income for the company. The execution of the waste-to-energy project in three years’ time could add RM40mil to RM50mil in net profit per annum from FY17 based on an internal rate of return of 10% and 80% equity stake.
The outlook for Kawan Food is expected to be positive as the frozen pastry food maker expands its manufacturing capacity in Malaysia.
At rm2.53 per share, it is trading at about 18 times PER for the financial year 2013 ended Dec 13.
The group’s business prospect is underpinned by its new manufacturing facility on Pulau Indah which is expected to come online by 3QFY2015. It will increase its production capacity fivefold.
It is spending rm100 million to relocate its manufacturing operations in Shah Alam which will improve efficiency.
The group had launched a new brand in the US to cater for different segment of the market. It also has a manufacturing facility in China to cater for the local market.
It also plans to penetrate some new ones like South America and Africa.
A port operator will benefit from Tenaga’s 1000MW Manjung 4 power plant in Manjung, Perak, commencing operations in Aug 2014. Another catalyst will be the possibility of Integrax inking an agreement for the Manjung 5 power plant, which is slated for completion in Oct 2017.
While the terms for the supply of coal to Manjung 4 was concluded in July 2012 and will last until March 2040, Integarx is now said to be finalizing the details of the supply agreement with Tenaga for Manjung 5. Considering Tenaga is a 22.1% stake of Integrax.
Integarx should get the supply agreement for Manjung 5….
The new plant Manjung 4 should translate into better earnings for Integarx, considering that the feedstock for the Manjung power plants is coal.
Integarx handles the offloading of Tenaga’s coal shipments.
However while the earnings from Manjung 4 will positively impact the port operator’s bottom line, it will only buffer the loss of earnings from the expiration of a fixed facility payment arrangement, as per the Jetty Terminal Usage Agreement 1 signed in 1999 with Tenaga.
The real growth for Integrax will only kick in after Manjung 5.
As at March 2014 the port operator had cash and bank balances of rm179 million. It had short term debt amounting to rm18.1 million and long term borrowings of rm4.1 million.
Other than Tenaga, substantial shareholders are Amin Halim Rasip with a 21.4% stake and Perak Corp Bhd largely controlled by Perbadanan Kemajuan Negeri Perak with 15.7% stake.
Another shareholder is Lim Kheng Yew has close to 4% stake.
The top 12 or so shareholders have about 80% of the company’s 300 million share base …
For one, Integrax has only one major client … Tenaga.
While Integrax has held talks with mining giant Vale for the latter to use its port facilities, the negotiations seem to have made little headway. Vale is building an iron ore distribution hub in Teluk Rubiah, Perak right next door to Integrax’s 80% owned Lekir Bukl Terminal Sdn Bhd.
However, up unitl now Vale has not come with any plans to use Integrax’s facilities, opting instead to use a specific purpose jetty on its own land.
Integrax is also torn between catering to Tenaga’s whims and fancies, and the Perak state’s aspirations.
The Perak state government wants Integrax to be more than just a coal terminal for Tenaga while Tenaga wants Integrax to merely serve Tenaga as coal terminal.
It plans to become a maintenance, repair and overhaul service provider for Airasia Bhd. The group is at base negotiations with the Airasia Bhd and may be able to secure the MRO contract in 2015.
The group has also been eyeing MRO jobs from other aviation companies. Destini plans could only be realized after the EASA certification which is in the process of being finalized.
It is worth nothing that Datuk Kamarudin Meranum, Airasia’s non independent non executive director is listed among Destini’s top 30 shareholders. He held a 1.94% stake as at May 6 2014.
Kamarudin used to hold about 5% stake in Destini but his shareholding has been diluted since the acquisition of Samudra Oil Services Sdn Bhd.
Destini acquired Samudra Oil from Kejuruterran Samudra Timur earlier 2014 for rm80 million via the issuance of 228.6 million new shares at rm0.35 each.
Destini’s new focus for its aviation MRO division is to get more contracts from the private sector to diversify its revenue base.
Destimi specializes in the MRO of safety and survival products for the aviation, marine and oil and gas industries.
Its revenue has been driven by government contracts, especially for its aviation division which made up more than half of the group’s revenue of rm56.83 million.
Destini via its subsidiaries provides products and services, including the distribution and supply of defense, commercial aviation and marine equipment and accessories, the maintenance and repair safety and survival equipment, and the maintenance and repair of aviation electronics.
The group intends the aviation division to contribute 25% of revenue. The remainder will come from its marine division (25%) and oil and gas (50%).
Currently (Aug 2014), most of Destini’s aviation division’s contracts are from the government, while its marine division has gone totally commercial.
In April 2014, it secured a LOA from the Mindef for appointment to the panel to supply spare parts for non proprietary aircraft for the RMAF worth rm99 million.
In Dec 2013, the group was awarded a LOA by Mindef to supply defence equipment to the RMAF for rm46.31 million.
In Nov 2013, it secured an rm95 million contract from Mindef to provide first line and above maintenance services for safety and survival equipment for three years.
The company’s balance sheet remains in good shape and gearing is among the lowest in the steel sector. Gearing stood at 41% as at end 2013.
Year on year, its 1QFY2014 earnings improved 84% to rm3.1 million on higher operating margins due to slightly better scrap prices and helped by improvements in production methods.
Quarter on quarter its core net profit rose 18% to rm5.7 million despite a mile decline in revenues due to margin expansion and lower net interest expense.
From a valuation standpoint, it appears that the negatives have been priced into the share price (29 May 2014), as MASTEEL is currently (May 2014) trading at 0.38 times forward price to book value.
The stellar 1QFY2014 core net profit growth of 84% year on year should serve as a near term catalyst.
Domestic steelmakers have been going through a tough patch in recent years amid the global economic slowdown, resulting in excess capacity and weak selling prices. Moreover persistent overproduction in China continues to dampen selling prices.
Indeed, dumping by Chinese manufactures has pressured margins in select segments of the domestic market. There is also anecdotal evidence of cheap imports of steel bars although to a far lesser degree.
Against this backdrop, Masteel has fared comparatively well. The company stayed profitable in the past four years prior to 2014 though earnings were somewhat range bound.
Positively volume demand has been trending higher on the back of increased activities in the domestic construction and property sectors.
Many of the projects are centered within the greater Klang Valley, which benefits Masteel given the proximity to its plants and therefore lower transport costs.
To meet demand increases, the company has been inching production capacity higher through process improvements, helping to boost economies of scale and overall margins.
The company’s sales are mostly domestic centric where selling prices have been comparatively resilient. The cost for scrap steel has trended lower through 2013 helping boost margins slightly.
By comparison, China uses iron ore and coking coal as feedstock for some 90% of its mills.
On the other hand, the weaker ringgit will raise the cost of the raw material, the portion that is imported. Any savings from cheaper scrap steel will also likely be offset by increases in other expenses driven by higher electricity and fuel prices.
Expecting higher turnover for MaSteel in 2014 but flattish margins.
Masteel is pushing ahead with its capacity expansion plans.
Going forward, due to weak prevailing sentiment for steel stocks, upside gains for Masteel will be limited in the near to medium term.
Masteel is a comparatively safer bet for those looking for steel exposure.
Its current (June 2014) PER stood at about 8.2 times and 7.3 times estimated earnings for 2014 and 2015 respectively.
It is also trading at only 0.4 times book value of rm2.51.
The rm1.23 billion intercity rail transit system project in Iskandar Malaysia, Johor which was jointly developed by Masteel/KUB is back on the government’s radar, following the appointment of a permanent transport minister.
The rail project was to be linked to Singapore’s MRT system, and would have up to 25 commuter stations in major towns along the Iskandar economic corridor in the initial stage.
Obtaining the rest of the approval to carry out the project would also give a boost to Masteel’s earnings as this would be the group’s first diversification into infra development.
Disclaimer:
Please note that all data given are merely blogger's opinion. It is strongly recommended that you do your own analysis and research before investing.
