What Falling Oil Prices Mean For Malaysian Economy, Petronnas & O&G Players ?

The OPEC decision on 27 Nov 2014 to maintain the crude oil production ceiling at 30 million barrels a day, implies that oil prices would stay low for a while. OPEC will meet again in June.

For The Malaysian Economy …

If crude oil prices remain at current levels (Nov 2014) in 2015, the upside to inflation from the introduction of GST could be contained.

The implementation of GST is expected to cause a one off inflation hike to about 4% in 2015. However the managed float mechanism would introduce more volatility to the transport component of the CPI, hence indirectly impacting inflation calculations, as fluctuations in crude oil prices will affect fuel prices.

For The Malaysian Government Coffers …

The managed float mechanism would help Malaysia achieve its fiscal deficit target of 3% of GDP for 2015 via the savings it makes on petrol subsidies. It was reported that the saving could be between rm10 billion and rm15 billion in subsidies under a managed float mechanism at Nov 2014 crude oil prices.

It should also be highlighted that Malaysia derives about 30% of its revenue from oil related sources. This means that the government revenue would see a reduction from June 2014.

The last time crude oil fell below USD70 per barrel was in Oct 2008. At the time, it was trading at USD69.60 a barrel. It fell to USD38.37 a barrel in late Dec of that year. After that it took about six months until June 2009 for it to recover to USD68.34 a barrel.

It is believed that under duress, the government would rather slash development spending than other subsidies. The government could also trim those projects that are not a priority.

For Petronas …
Malaysia is best known for its thriving oil and gas industry that is supported by Petronas that spends an average RM60bil per year on capital expenditure. But the spending will be cut by up to 20% from 2015 onwards until the international price of Brent crude has settled down at more than US$80.

Petronas’ contribution to Government coffers in the form of dividends, taxes and oil royalty for next year will dive by 37% to RM43bil, assuming the Brent crude settles at US$75 per barrel;

Petronas will not proceed with contracts to award new marginal oil fields unless oil settles at levels above US$80 per barrel;

Projects in Pengerang that have yet to receive the final investment decision (FID) will be affected by the cut-backs. Projects worth US$27bil that have received FID will not be affected, but Petronas does not have 100% equity in all the projects approved;

The capex crunch is expected to send chills down the spine of the already fragile O&G sector, nearly all depend on Petronas for jobs.

Petronas is also reviewing the feasibility of some of its projects and could shelve projects that are no longer viable and for which Petronas has yet to make its FID.

It also has to review its capex plans for 2015 onwards and have to assess the feasibility of projects. At current oil price levels (Nov 2014), marginal oil fields are no longer feasible for Petronas to get involved in.

Meanwhile, Petronas still needs to keep investing in new technology, in overseas projects and increasing its oil reserves in order to maintain its growth, considering that current production levels decline by some 10% every year, naturally.

At present (Nov 2014), Petronas produces some two million barrels of oil equivalent per day. In five years, if it does not replenish its production, its production will be down to half of what it is now (Nov 2014).

For Marginal Oil Fields Players …

Petronas will not proceed with the awarding of new marginal oil fields unless the price of Brent crude settles above US$80 per barrel.

Although the breakeven for marginal oil fields is US$65 per barrel, they will not look into any such proposals until the global price situation stabilises. It would be comfortable to embark on marginal oil fields only when the price settles down at more than US$80 per barrel.

Marginal oil fields were once a hot topic for the investment community. In fact, these projects were touted as a re-rating catalyst for some listed oil and gas players seeking to venture into the upstream segment.

These oil fields are essentially small and old oil fields belonging to Petronas, for which the oil giant sought to partner with international players together with a local partner, to enter into ‘risk service contracts’ (RSC) that would expose the local players into the world of oil exploration. Under the terms, the joint venture between the local and foreign oil and gas companies are responsible for producing the oil.

For meeting the production targets, the joint venture gets paid. However the RSC contractror does not enjoy any upside from the oil prices nor carry any risk should there be a slide in oil prices.

So far among the companies awarded RSC contracts to develop marginal oil fields are SapuraKencana Petroleum Bhd, Dialog Group Bhd and Petra Energy Bhd.

Petronas had in the past identified more than 100 marginal oil fields to pursue RSCs. It was a strategy to grow its reserves. That was when oil prices were much higher. These contracts were awarded when oil prices were above US$100 per barrel. In today’s (Nov 2014) environment of plunging oil prices, RSCs are hardly viable.

The breakeven production for marginal oil fields is US$65 per barrel. If Brent crude is below this level, it is left to be seen if the operations of the existing fields will continue.

Going forward …the Malaysian O&G industry is going through a consolidation.

The contractors and service providers will have to realign themselves to cope with lower oil prices.

Malaysia is best known for its thriving oil and gas industry that is supported by Petronas that spends an average RM60bil per year on capital expenditure. But the spending will be cut by up to 20% from 2015 onwards until the international price of Brent crude has settled down at more than US$80.

A shrinking pie implies that weaker players might be weeded out.

Also lower valuations present attractive entry for some investments especially if there are synergistic propositions. The biggest hurdle, however, is the issue of ownership and corporate structure.

It makes sense for companies to acquire other O&G companies that have synergies.

CLS (Complete Logistics) ... Lowest Valuations Among Its Peers !!!

It offers a range of shipping, land transportation and warehousing logistics services. The company began operations in 1995. It currently owns a fleet of eight ships and over 200 trucks.

The jewel in CLS’ crown is the Nilai Inland Port which contributes 30% to 40% of revenue, It taps on Nilai’s growing industrial base and provides convenient clearing and bonded warehousing logistics.

Going forward, it plans to expand the Nilai facility and use its expertise to provide complete warehousing and transportation solutions for large corporations.

It trades at a trailing 12 month PER of 8.7 times and a PER of 0.9 times. By comparison, GDEX trades at a trailing 12 month PER of 74.5 times and price to book value of 17.9 times while Tiong Nam Logistics trades at a trailing 12 month PER of 6.2 times and a price to book of 1.1 times but with earnings increasingly driven by cyclical property development.

CSL has seen steadily rising revenue since FY March 2011. In FY2014, revenue increased 17.8% to rm120.6 million while net profit rose 16.7% to rm14.0 million. In FY2012, it cleaned up its balance sheet and posted a net loss of rm16.2 million due to impairments on its ships of rm18.6 million.

Its gearing stood at 3.5% as at 30 June 2014.

There were no dividends in the previous four years prior to Nov 2014 as it invested in new assets to grow its business and diversify away from shipping.

Jobstreet: Dividend RM2.6675!!

What a fruitful result after a long wait since Jun 2014. From a purchase price RM2.44 @ Jun 2014 until RM2.62 @ August 2014 and closing price RM2.89 at this moment with a cash repayment of RM2.6675. Do not forget there are a few more dividend payout during this period as well.

At this stage, the return is 14.2% within 6 months. I believe there is more to come because their major shareholders are buying back market share actively recently.

After cash repayment, company net asset is still have around RM0.36.

About Privasia

It is an IT player specializing in consultancy, system integration services, IT outsourcing, E bidding and E procurement for the port and logistics industry. The company also provides wireless and satellite based communication solutions business.

Over the last five years, it has seen its revenue double from rm27.2 million to rm58.5 million while net profit rose from rm1 million to rm5.4 million. In 2013, revenue dropped by 3.6% to rm58.5 million but net profit but net profit increased by 8.5% to rm5.4 million. For 1HFy2014, revenue declined 6.6% to rm27.5 million while net profit fell 28.9% to rm2.3 million due to slower billings and higher operating costs.

It has a total order book of rm131 million in mid 2014 which is higher than the combined revenue for 2012 and 2013.

It is modestly geared. Its gearing ratio started to improve since 2011 to 9.8% in 2013. Borrowings were reduced to rm15.7 million in 2013 from rm24.1 million a year ago.

It is currently trading at 1.3 times book value, with a trailing 12 month PER of 20.8 times.

MFCB ... Re Rating Catalyst From 256MW Hydropower Project.

It is trading at a price to book of 0.8 times and trailing 12 month PER of 8.1 times.

Its net cash stood at rm110 million plus some rm68 million in quoted shares at end June 2014.

Its strong balance sheet and recurring income from the power generation business should support its future dividends.

About 69% of its pre tax earnings were derived from power generation. It partially owns and operates a 83MW coal fired heat and power plant in Shaoxing, China as well as a 36MW diesel plant in Tawau, Sabah. The PPAs for these projects are set to expire in 2017 to 2018.

A major re rating catalyst could come from the 256MW Don Sahong hydropower project in Laos. The project estimated to cost rm1.5 billion is slated for completion in 2019. It would replace the loss of income from the above mentioned projects a(if their concessions are not extended) and more …

The resources arm accounted for roughly 14% of pre tax profit in 2013. This encompasses quarrying of limestone, manufacturing and trading of calcium carbonate powder, lime based products and bricks.

It is one of Malaysia’s largest producers of lime products.

It owns investment properties, primarily PJ8 in PJ, worth come rm121 million from which the company earns recurring rental income. It has also diversified into property development.

About Genetec

Earnings and revenue for the company have been at an uneven pace. Except for the FY2013 which posted a net loss of rm32 million, it had posted net profit from FY2010 to FY2015. However its first two quarters of FY2015 earnings had slowed down tremendously.

At rm0.175, it trades at 1.1 times book value of rm0.16 with a 12 month trailing PER of 20.1 times.

It posted a net loss of RM32 million for its financial year ended March 31, 2013 (FY13) after the group decided to exit from its US operations.

The discontinuation of its US subsidiaries contributed a net loss of RM24.2 million for FY13. This comprised of one-off write-off expenses on goodwill of RM4.3 million and bad debts and other assets written-off amounting to RM4.1 million.

In addition, the group has also written off RM13.3 million in relation to its investment in the US subsidiaries. Another RM1.1 million was incurred for legal and professional fees, and compensation costs in relation to the cessation of the US operation.

The group had secured new orders amounting to RM31.1 million of which RM25.2 million was from the hard disk drive (HDD) industry. The new orders boosted its order book for the current financial year ending March 31, 2014 (FY14) to RM69 million, which represents 56% of revenue recorded in FY13.

Of the RM69 million order book, 39% of the orders are from the automotive industry which is expected to provide the group with a more balanced portfolio other than its main staple in HDD. The orders are expected to contribute positively to group's earnings in the next few quarters.

Apollo Food .

It is a leading manufacturer of compound chocolate confectionery products and layer cakes. For FY April 2013, some 56% of its sales were sold locally and the balance of 44% exported, mostly to the Asia Pacific region.

It has a solid cash rich balance sheet. As at 1QFY2015, net cash stood at rm86.6 million or rm1.08 per share. The company pays consistently high dividends.

From FY2010 to FY2014, its sales grew by a CAGR of 8.4% to rm221 million while pre tax profit grew by a CAGR of 7.8% to rm43.6 million. During the same period, shareholders’ equity increased by a CAGR of only 4.3%, implying a large portion of earnings are returned to shareholders.

The company is majority owned by its MD, Singaporean Liang with a 51% stake followed by ASB with a 20% stake.

The company has been hit by rising cocoa prices which surged over 50% in the last 18 months prior to Nov 2014 and falling demand. For 1QFy2015 sales fell by 10% year on year to rm51.6 million while pre tax profit slumped by 40.5% year on year to rm8.3 million.

It is trading at a 12 month PER of 14.3 times and a price to book of 1.6 times.

About TDEX... Erratic Earnings.

It had proposed a 10% private placement exercise on Oct 2014.

It had acquired stakes in several private companies. Among them is the proposed acquisition of a 55% stake in IdealSeed Resources Sdn Bhd, an employment consultancy services for rm2.2 million.

The company profit margins has been erratic over the past years, ending in losses of about rm437000 for FYApril 2014. In 1QFY2015, it has managed to return to the black with a modest net profit of rm89000 on the back of rm3.7 million revenue. Its pioneer status will expire in FY2015.

The company had net cash of rm6 million at end 1QFY2015 after managing to reduce its trade receivables to rm4.9 million from rm7.1 million at end FY2013.

Its client concentration risk given that 80% of its trade receivables are from three customers.

It trades at 3.8 times book value with a 12 month trailing PER of 305 times.

Homeritz (Net Cash, Good Dividend & Earnings Growth)

It is a manufacturer of upholstered home furniture – dining chairs, sofas and bed frames – under Original Design and OEM. Almost all of its products are exported to over 40 countries. Key markets are Asia, Australia, Europe and US.

Its revenue growth annually from rm90 million in FYAug 2011 to rm113 million in FY2013 while net profit increased an outsized 40% from rm10.8 million to rm15.1 million during this period. Operating margins has been expanding on economies of scale and increased productivity and efficiency.

For FY2014 the company posted revenue of rm126.8 million boosted by recovery in demand from the eurozone. Net profit was rm20.3 million, a significant 34.3% increased from the previous year.

It also stands to gain from the strengthening in USD as an exporter.

It trades at a trailing 12 month PER of 7.9 times. ROE is high at 24.5%, It has a net cash of rm50 million. That is equivalent to 24.5 sen per share.

It offers good yields. It has a minimum 40% dividend payout policy.

Investors can look forward to increasing dividends in the future, in line with earnings growth.

About Farlim ... Erratic Earnings.

It appears to be a good candidate for a privatization exercise based on prevailing valuations.

The company is involved in property development. It also does marketing and distribution of building materials. It has completed various residential and commercial properties in Kajang, KL and Penang and is currently (Nov 2014) developing the Bandar Baru Ayer Itam township.

It has not been very aggressive in undertaking new projects. Property development cost had been flattish between rm17 million and rm20 million in the past four years. Meanwhile, revenue has more than halved half since 2010, totaling a mere rm22 million in 2013.

Its profitability has declined from rm4.7 million in 2010 to a net loss of rm4.7 million in 2012 which widened further to rm11.5 million in 2013.

Profits in 1QFy2014 surged to rm46.6 million due to the one off gain on land disposal of rm54.9 million. It fell back into the red in 2QFy2014, with a loss of rm603000 before turning a net profit of rm1.7 million in 3QFy2014. Outlook is uncertain given its erratic earnings record.

Its book value stood at rm1.08 per share. Its assets understated as it holds land bought at low prices. The company has 208 acres of land in Terengannu with a book cost of rm1.6 million or 17.7 sen psf and 2.23 acres in Penang carried at rm4.2 million or rm43.3 psf. Both plots have not been revalued since 1998.

Farlim Holding Sdn Bhd owns a 43.2% stake. To privatize the company would only cost an additional rm43 million.

Muhibbah ... Tender For RAPID Subcontract Remain Intact !!

The firm was not named as the builder for Petroliam Nasional Bhd's (Petronas) planned RM2.7 billion regasification facilities. The fact that MEB did not benefit from the award of the regassification plant in Pengerang, Johor should not be a major concern as the group did not tender for the job. The Pengerang project and the Refinery and Petrochemical Integrated Development (Rapid), which is also located in Pengerang, are two different tender areas.

The drop in Muhibbah's share price was due to "confusion" over the winning party for the regasification facilities contract given out by Petronas. It did not go to Muhibbah, but they did not mention that they were bidding to begin with. They are concentrating on other parts of Pengerang, Johor – the construction of refinery and petrochemical facilities instead.

Sources also say the drop might also be due to a “prominent” fund management company selling its stake across its O&G holdings.

On 14 Nov 2014 Dialog Group Bhd had signed a shareholders’ agreement with Petronas Gas Bhd to undertake the regasification project. The project comprises a a regasification unit and two liquefied natural gas storage tanks.

Management clarified that the group’s tenders in Rapid for more than one refinery subcontract works remain intact. Expect it to land a contract in the short term, worth up to RM500mil. Muhibbah could be in the running for up to about RM1bil worth of projects in Rapid.

MEB is involved in the downstream side of the oil and gas sector, providing infrastructure jobs.

MEB currently boost an orderbook of RM2.3bil of which RM875mil are from construction, RM1.2bil from crane and RM257 from shipyard division

With Petronas license and marine based expertise, it is poised to clinch a sizeable share of contracts at RAPID. Out of the five RAPID packages, it appears to be the strongest contender for civil and fabrication works for Package 3 which was awarded to Techniques Rrunidas SA to build a refinery and steam cracker plant.

Muhibbah is also in the running for three other packages. Assuming a rm500 million win, this would lift its current infra order book to rm1.4 billion. This does not yet include the deepwater jetty worth rm1 billion.

'Cautious' - MMSV (In Highly Cyclical LED Industry) !!!

The company improving fundamentals seem to be the direct result of a major change in strategic direction initiated three years ago (2011).

In 2011, it switched from semiconductors to automation solutions for the LED lighting industry from which it now (Nov 2014) derives about 80% of its revenue. Products offer by the group include LED testers and automated handlers, which are essential components of the lighting industry.

The LED industry will be the key earnings driver for the company in the coming years….

The hike in demand will force major LED makers to expand their production capacity which bodes well for automation solution providers such as MMSV. It is believed that Philips Lumileds Lighting Co and OSRAM Licht AG are MMSV’s clients.

It plans to focus on LED manufacturing process with a view to establishing a market in high power LED production.

It has zero borrowings and is light on assets except for a 55000 ft factory in Penang. Its revenue of rm26.68 million for FY2013 was nearly equal to the group’s total assets of rm26.75 million as at Dec 31 2013.

The company has a diversified customer base with the domestic market accounting for 39% of sales in 2013 followed by the US (35%) and Asia (26%).

For 1HFY2014 revenue jumped 40% to rm16.5 million while net profit almost doubled from rm2.1 million to rm4.0 million. However it is also worth nothing that in the same period, trade receivables almost tripled to rm12.6 million outpacing a 1.5 times increase in trade payables to rm5.4 million.

It is trading at 4 times book and a trailing 12 month PER of 14.3 times.

Its cash balance stood at rm3.57 million as at June 30 2014. It may raise funds to realize its ambitions.

It is liked for its strong CAGR of 32% over FY2013 to FY2016, its net cash position and superior margins of above 24% and high ROE of above 28%.

Despite that, the company is still exposed to the LED industry’s environment which can be both cyclical and dependent on economic growth.

About CView

It is a Johor based property developer for its vast 1082 acre township development, Taman Universiti in JB.

It is currently (Nov 2014) developing properties in Taman Nusa Sentral at Bandar Nusajaya, Johor. Its projects are more insulated as they are mainly landed projects catering for the local middle income population.

It holds assets which are carried in its books at very low prices. It is trading at 1.01 times book value.

Its landbank includes 295.8 acres in Bandar Nusajaya carried at rm156 million or just rm1.21 psf; 364.8 acres in Daerah Hulu Selangor carried at rm54 million or rm3.41 psf and 550.7 acres in Kulim. Kedah carried at rm27.4 million or rm1.14 psf.

Its balances sheet has shown significant improvement over the years. As of 3QFY2014, net gearing stood at 13% down from 81.4% in FY2010. From Fy2010 to FY2013, total assets increased by a CAGR of 14.2% to rm372 million.

It is trading at 12 month PER of 3.4 times although future earnings will depend on the timing and sales of new launches.

Armada ... Price Keep Falling, Anymore Hope !!!

It has yet to finalise the execution of the USD1.18 billion contract to supply one FPSO vessel to HCML after several delays. The contract will be terminated should both parties fail to sign by Nov 272014 unless another extension is agreed upon.

The further delay in the execution of the contract does not paint a positive picture of Armada, whose order book is currently (Nov 2014) at rm31.7 billion.

Hit by declining oil prices till 13 Nov 2014, and the untimely listing in Oct 2014 of its rights shares, its share price has fallen by 43% YTD.

It has a rm18.5 billion in long term FPSO, T&I businesses as well as a strong footing in the Caspian Sea T&I market.

T&I should be anchored by recurring work orders from Petronas and Russia’s Lukoil.

The FPSO segment is its earnings driver, making up 85% of its order book and contributing 60% of its 2015 earnings.

The drop in oil price has had no impact on the group’s existing contracts as they are long term in nature, with pre agreed chartering fees.

Expect the FPSO contracts to provide the group with stable earnings stream up to 2018, regardless of oil price movements.

Weak oil price may prompt oil companies to cut spending on exploration drilling and the development of higher cost projects, expect the impact of FPSO market to be muted, as FPSO is a proven technology for oilfield development.

The company has six FPSO contracts in Africa and Brazil.

Armada Installer will continue to anchor earnings for Bumi’s T&I segment.

Unlike FPSO and T&I businesses, expect the group’s OSV segment especially AHS fleet, to suffer from lower oil prices.

It is looking to dispose seven vessels and redeploy some vessels to the Brazil and Africa markets.

It has yet to secure any contracts for its OFS division. There will be additional setback for Bumi’s OFS segment as oil companies are re evaluating their capex plans due to lower oil prices

The company has cash of rm9 billion proceeds from the group’s rights issue in Aug 2014. The rm50 million in net interest savings should more than offset lower OSV and OFS earnings.

Armada’s share base has increased 100% following the listing of the bonus and rights shares.

The group is a proxy for the global FPSO and Caspian Sea T&I markets. These markets segments are relatively insulated from the current (Nov 2014) oil price weakness.

Yinson ... NEXT After Awarded 3 Licenses By Petronas...

Its 30% owned associate company has been awarded three licenses by Petronas for floating offshore facilities, mobile offshore facilities and naval architecture and marine engineering. The licenses would be a new sources of income and Yinson can now directly tender for works relating to FPSO vessels, floating storage and offloading vessels and mobile offshore production units for Petronas and other oil and gas companies in Malaysia.

Earlier 2014 the potential license awards were seen as a catalyst for Yinson to participate more in the domestic oil and gas industry. Globally, it is the sixth largest FPSO player in terms of fleet size. It has been active in Vietnam and West Africa but not on the home front as it did not have a Petronas license to bid for jobs.

At rm2.60, its market cap was rm2.71 billion or at a forward PER of 23 times. The rich PER is backed by anticipated earnings growth in the financial year ending Jan 31 2016 and FY2017 after it has realized the full potential of its current fleet of FPSOs.

With oil prices below USD80 per barrel, observers do not see the Petronas licenses doing Yinson much good in the near term. The tumbling crude prices will cause oil companies to cut back on exploration thus reducing the need for FPSOs. Only when new fields are discovered and enter the production phase will there be a need for new deployment of FPSOs.

Moreover the new FPSO contracts will likely have depressed rates because oil companies are expected to squeeze the rates for their IRR.

Also do not expect to see Yinson to secure jobs within Malaysia anytime soon as project rollouts have been delayed or have slowed down amid the low oil prices.

More attractive catalyst for Yinson is its ongoing bids for overseas projects. Catalysts for the group stem from additional FPSO contracts, which the group is currently bidding for in West Africa and SEA.

Nevertheless the Petronas licenses will open up new opportunities for Yinson on the home front. Apart from allowing the company to bid for Petronas jobs, the licenses will also serve as strong credentials for the group.

Lim is the major shareholder of Yinson with a 35.5% stake followed by Tan Sri Mokhzani Mahathir’s Kencana Capital Sdn Bhd with 18.55% and the EPF with 5.83%. The EPF has been trimming its holdings in Yinson in Oct 2014.

Yinson has grown substantially over the past few years and some quarters believe that the group will expand its business in the oil and gas industry further.

The game changing acquisition of Fred Olsen Production in June 2013 marked a turning point for the group.

Currently (Nov 2014), Yinson has an order book of rm7.8 billion which is expected to last it till 2013.

After the acquisition of Fred Olsen, Yinson has grown immensely. In terms of fleet size Yinson is just three vessels behind Bumi Armada. In Malaysia, Bumi Armada is the largest FPSO player with five FPSOs and three under construction, followed by Yinson with four FPSOs and one under construction.

Perisai ... Price Kept Plunging ... Anymore HOPE!!!

Its MD said Perisai will return to the black as its venture into the highly lucrative drilling business is expected to make up for the near-term earnings slack. Following the launch of its first jack-up rig, it hopes to turn the company around as it starts contributing to the group’s revenue from August 2014.

The company’s first jack-up rig – the Perisai Pacific 101 – had cost RM650mil to build. It is now operational off the coast of Terengganu and is expected to contribute RM20mil in revenue during the current year ending Dec 31, 2014 (FY14). The rig is on a three-year contract worth RM503mil awarded by Petronas Carigali Sdn Bhd in May.

The company will focus on the jack-up drilling segment over the next three years from 2014.

It will take delivery of two additional, high-spec jack-up drilling rigs worth a combined RM1.2bil to bring its fleet size to three jack-up rigs by mid-2016. It has started negotiations with potential clients for jack-up Perisai Pacific 102 (PP102), which is scheduled for delivery in April and May 2015. PP103 is expected to join the fleet in June 2016.

With its second rig, Perisai will widen its reach to the Asean market while maintaining its focus in Malaysia.

At present (Aug 2014), there are 15 jack-up drilling rigs operating in Malaysian waters, of which only two are locally-owned.

Perisai is well-positioned to bag more drilling jobs, as there are more than 10 foreign jack-up drilling rig contracts due for expiry in the next one to two years from Aug 2014. A jack-up drilling rig has a life span of between 25 and 30 years.

On the regional front, it has been reported that over 40 jack-up rig contracts in South-East Asia will expire between mid-2013 and 2015.

Perisai is targeting for its drilling segment to contribute about 60% of revenue within three years from Aug 2014.

Perisai’s quick turnaround will be propelled by the commencement of Perisai Pacific 101 and positive contribution from its floating, production, storage and offloading (FPSO) vessel - Perisai Kamelia.

The new assets are the game changer for Perisai, as the company evolve from a charterer to asset operator.

While upbeat about Perisai’s drilling venture, which will ride on Petroliam Nasional Bhd’s (Petronas) asset localisation policy that favours domestically-flagged vessels, however that there are concerns charter rates for such assets could soften given the new rigs that will enter the market within the next 21 to 24 months from Aug 2014.

That means Perisai may need more time to recoup its investments.

Revenue during the quarter plunged 65% to RM10.87mil from RM31.69mil.

Rubicone and E3 are likely to remain unemployed for the rest of 2014.
Look beyond the anticipated soft FY14 performance caused by the downtime of Rubicone and E3, FY15 and FY16 are set to be substantially stronger years as all the assets to be fully deployed,
Moving forward, Perisai aims to narrow its focus on drilling and production, and expects to exercise a put option to sell its derrick pipe-lay barge in two to three years from Aug 2014.

Rapid expansion in the drilling business is putting some strain on the company’s finances. Perisai’s total borrowings currently (Nov 2014) stand at RM1.1bil, taking its gearing level to 0.91 time. Management guided that its medium-term notes incurred an interest cost of RM5mil year-to-date.

With the purchase of all three jack-up drilling rigs, Perisai’s net gearing will be ballooned.

Perisai did not pay out any dividends in 2013 due to its high capex needs.

It has put down a 20% deposit for the construction Perisai 102 and Perisai 103, with the remaining 80% to be satisfied via external borrowings.

It had issued a S$102mil (RM261.43mil) in principal amount of fixed rate notes due 2016.

The group owns and operates a fleet of eight offshore support vessel (OSV), of which eight are chartered out till August 2015.

Its OSV business provides a steady of income as it expand into the drilling segment.

The company expects to add another one OSV fleet by the end of the third quarter 2014

The OSVs are held under the Intan Group, a 51% owned subsidiary of Perisai

Sunway ... GIC Disposed rm400 mil Shares !

Its intention to list its construction arm by 2QFY2015 and is poised to benefit from the Malaysia’s major infra spending. The company plans to distribute part of the listing proceeds in the form of a special dividend.

It is one of Malaysia’s largest property and construction companies and has a solid track record. It has a total land bank of 3376 acres with potential GDV of rm50 billion. It has a land bank of over 1800 acres in Iskandar Johor, where it is poised to replicate its successful Sunway Resort City concept with a rm30 billion project.

It is trading at a trailing 12 month PER of 3.9 times and just 1.08 times book. Excluding revaluations gains, its normalized PER is 11.8 times.

Singapore's sovereign wealth fund, GIC Pte Ltd, is selling a stake worth more than 400 million ringgit ($120 million) in Sunway Bhd are being priced in a range between 3.20 and 3.30 ringgit each.

Sunway, controlled by Malaysian tycoon Jeffrey Cheah, in September 2014 announced plans to re-list its construction business by the second quarter of 2015, a move would further unclock value and reward Sunway shareholders in the form of cash dividends.

Ajinomoto (Undervalued)

Ajinomoto is valued for its strong brand names, steady earnings and dividends.

Nestle, F&N and DLady are commanding at a premium valuations, with the three stocks trailing 12 month PER of between 21 and 29 times and price to book ratio of between 3.6 times and 22.2 times.

However Ajinomoto trades at under half of these valuations. It is currently trading at just 1.3 times book with trailing 12 month PER of 12.5 times.

Between FY March 2010 and FY2014, revenue increased from rm285 million to rm346 million while net profit rose from rm24 million to rm28 million. In 1QFY2015, revenue decreased slightly to rm86.2 million or 1.8% while net profit fell to rm8.2 million or 1.0%. Potential earnings growth drivers include lower key raw material costs and its new Tumix range of flavor seasoning.

It has a strong balance sheet with net cash holding of rm106.7 million as at 30 June 2014 or rm1.75 per share.

Sunway ... GIC Disposed rm400 mil Shares

Its intention to list its construction arm by 2QFY2015 and is poised to benefit from the Malaysia’s major infra spending. The company plans to distribute part of the listing proceeds in the form of a special dividend.

It is one of Malaysia’s largest property and construction companies and has a solid track record. It has a total land bank of 3376 acres with potential GDV of rm50 billion. It has a land bank of over 1800 acres in Iskandar Johor, where it is poised to replicate its successful Sunway Resort City concept with a rm30 billion project.

It is trading at a trailing 12 month PER of 3.9 times and just 1.08 times book. Excluding revaluations gains, its normalized PER is 11.8 times.

Singapore's sovereign wealth fund, GIC Pte Ltd, is selling a stake worth more than 400 million ringgit ($120 million) in Sunway Bhd are being priced in a range between 3.20 and 3.30 ringgit each.

Sunway, controlled by Malaysian tycoon Jeffrey Cheah, in September 2014 announced plans to re-list its construction business by the second quarter of 2015, a move would further unclock value and reward Sunway shareholders in the form of cash dividends.

FarEast - cash rich oil palm plantation company

It is a cash rich oil palm plantation company.

It has managed to maintain stable profits margins of about 21% to 23% from 2010 to 2013. Despite a slump in oil palm prices in 2014, the company managed to achieve higher net margins of 19.3% in 1HFY2014 compared to 11.9% in 1HFY2013.

It has a planted land bank of 20768 ha in Pahang of which 16927 are matured. It is majority owned by the Pahang state government, with its biggest shareholder being LKPP with a 25.2% stake.

It is currently trading at 1.05 times book with a trailing 12 month PER of 12 times.

The price to book discount could discount further as the company is expected to undertake an asset revaluation exercise in 2015. The company has a net cash of rm229 million. This is equivalent to tm1.62 per share. As a result, the company pays decent dividends with the latest yield being 3.1%.

Growth drivers for the company include a young tree profile and it had a JV to develop 1416ha of plantation land in Pahang. Only 28% of its trees are old palms, 31% are prime palms, while a significant 41% are young and immature palms.

It remains to be seen if the company may consider boosting liquidity by undertaking corporate exercises.

Latitude - a hidden GEM

Latitude: It is one Malaysia’s largest more profitable and attractively priced furniture player. Despite the industry volatile, the company has been consistently profitable since its listing in 2001 and as a result built up a large cash pile.

It manufactures rubber wood furniture with three manufacturing plants in Malaysia, two in Vietnam and one in Thailand. The company exports over 99% of its products, with the US taking over 90% of its sales. With a strong US housing recovery, prospects for Latitude are looking even more positive while the strengthening of the USD against the ringgit will boost revenues.

For FY June 2014 sales surged 32% to rm651 million while pre tax profit doubled to rm72 million. Its cash stood at rm42.6 million or 44 sen per share at end June 2014.

It is currently (30 Oct 2014) trading at a 12 month trailing PER of 6.4 times and a price to book ratio of 1.1 times.

Its sales are mostly on cash terms and as a result, the company has very low receivables. Inventories turnover was at a respectable 5.9 times in 2014.

It is focusing on expanding its profitable Vietnam operations while scaling down its loss making Malaysian production. The company has 100 acres of land in Vietnam, purchased at USD25 per sq m in 2001. Today the land is selling at over USD100 per sq m.

Gopeng (Net Cash Of rm0.61/share)

It is a Perak based cement player with a stake in Perak Hanjong Simen as its key asset. Its 35.2% stake in the cement company was sold for rm200 million cash to YTL Cement in 2010 and Gopeng has since turned into a cash rich company with a small plantation and property arms.

It has also diversified into other business such as quarrying, management of water treatment plants and manufacturing and sale of cement. Nonetheless, all of its revenue in 2013 was generated from palm oil.

The company revenue has been declining, from rm17.5 million in 2011 to rm10.2 million in 2013. Net profit in 2013 rose to 37% to rm3.6 million but was largely due to rm4.95 million in fair value gains from investment properties and short term investments.

The main attraction of Gopeng is not is not its plantation or properties assets, or its earnings which are unexciting. Indeed, its total plantation land bank is very small totaling just under 1000 ha and lack economies of scale.

Rather the key attraction is it is very strong cash rich balance sheet – a legacy from the disposal of its cement business – which perks up the potential for future corporate exercises or higher dividends.

As at June 2014, it had net cash of rm110 million as at June 30 2014 or rm0.61 per share. Its net cash is just slightly below current market cap of rm132 million (29 Oct 2014).
The stock is trading at 0.4 times its net asset value of rm1.64 with trailing 12 month PER of 63 times.

KEN ... One Of Highest Margins Among Devepers !!!

It is highly profitable developer that has carved out a reputation for building environmentally friendly green properties which are affordable priced in well located areas.

It is also one of the highest margins among developers, with pre tax margins of above 36% for the last five years.

In 2000, it had ventured into property development with the Ken Damansara project.

Its major ongoing project is the rm1.03 billion Ken Rimba township in Shah Alam, where the company is currently (Oct 2014) completing double storey terrace houses, and is launching condo.

For its future, it is planning a mixed development in JB with estimated GDV of rm1.22 billion. The projects sits on a 22.8 acre plot of land acquired in 2012 for rm56.2 million.

The company also has 19.4 acres of land in Genting, 10 acres in Malacca city centre and 2.5 acres in Batu Ferringhi, Penang.

It expects recurring income of rm15 million per year starting 2015 from the rm120 million Ken TTDI.

It is debt free. It has net cash of rm6.1 million as at end June 2014.

It is currently trading at a PER of 7.7 times and price to book of 0.97 times.

Ivory ... Why Its Share Price Is Underperforming?

A Penang based developer teamed with Aspen Vision Development Sdn Bhd to ink a purchase and development agreement with PDC for an rm8 billion, mixed development project on 98ha of freehold land in Bandar Cassia, Batu Kawan over the next decade. Ivory owns a 49% stake in the JV company with Aspen Vision.

In addition, the parties sealed a partnership with Ikano Pte Ltd to jointly develop an integrated regional shopping centre there.

It also announced another development in JB, its first project off home teaming with JB Lee Properties Sdn Bhd, the development at Plentong will be spread over 2.84ha to 3.56ha and have a GDV of rm2 billion.

Nevertheless, industry observers say investors could be waiting for the sidelines for the release of salient terms pertaining to the two JV exercises. So far, critical information such as the cost of structure of the projects has not been made publicly available.

Its officials said that more information will be released once details have been made.

As for the Johor project, the execution of the agreement depends on approval from the authorities for land conversion and ascertaining a final land size.

Industry are also concerned about Ivory’s financial muscle for the two mega projects given its current cash hoard of rm35 million as well as total liabilities of rm489 million as at June 30 2014. Its debt to equity ratio decreased to 1.24 times for the period.

The group needs to raise cash from the market in future in view of its stretched gearing.

In addition, its net gearing of 0.7 times as of June 2014 is higher than the 0.5 time industry average.

This also explains why the group favors JVs with other developers for future projects.