Coffee Chat - Etitech

Four ex-directors of ETI Tech Corporation Bhd have been fined a total of rm22800.00 by Bursa Malaysia late Feb 2015 today for breaching market listing requirements. The four directors who were fined are Datuk Ahmad Shukri bin Tajuddin, Lee Kah Kheng, Khor Yee Kwang and Nordin bin Mohamad Desa. ETI Tech had failed to announce its audited financial statements (AFS) for the financial period from Sept 1 2011 to Feb 28 2013. The firm had only announced the AFS 2013 on Aug 1 2013 after a delay of 24 market days. ETI Tech had failed to demonstrate reasonable steps/efforts taken to ensure the outstanding audit issues were resolved expeditiously, to enable timely announcement of the audited financial statements 2013.

Meanwhile the Hong Leong Group has emerged as a substantial shareholder in Eti Tech Corporation Bhd with a 9.51% stake. Via Hong Realty (Private) Ltd, was deemed interest in the 95.01 million shares stake in Eti Tech. This followed the issuance of new shares with warrants to the group to settle the debt under Section 176 of the Companies Act, 1965 (Scheme of Arrangement).Eti Tech’s current paid-up is 998.66 million shares of 10 sen each.

Two largest shareholders each held only 4.81% as at Aug 5 2013. They are Nor Ashikin Khamis and Siti Munajat Md Ghazali. Airasia Bhd executive chairman Datuk Kamarudin Meranun

To recap in June 2014, it was reported that construction Zenith BUCG Sdn Bhd may well have struck god after gaining about 48ha of prime land estimated to be worth rm6.2 billion in exchange for undertaking the 6.5km tunnel infra project in Penang.

This will catapult the SPV, comprising Zenith Construction Sdn Bhd and Urban Construction Group of China into one of the major property players on the island, as it will get 24.3ha of reclaimed land form Sri Tanjung Pinang Phase 2 man made island and 20.2ha from the extended Gurney Drive.

Both plots are prime locations worth rm6.2 billion.

E&O is required to surrender 44.5ha to the Penang government after STP2 is reclaimed which would be vested to Consortium Zenith BUCG.

The consortium is getting an additional two parcels of land at Bandar Tanjung Pinang within the Northeast district – a 1.48ha plot and 2.32ha piece – although 0.58ha is to be set aside for TNB.

The 110 acres given to Zenith will generate the necessary funds to carry out projects.

Consortium is posed to be a significant developer in Penang’s most prime waterfront property.

There is speculation that Consortium Zenith BUCG is seeking a backdoor listing. Reports include that ETITECH controlled by Airasia Bhd co founder Datuk Kamarudin is rumored to be a RTO target of Zenith Construction Sdn Bhd following the appointment of two Zenith directors, Zarul Ikhwan Zarul Ahmad and Datuk Mohamad Amin to the ETITech board.

Reports say Zarul Ikhwan who is Zarul Ahmad’s son and people aligned to him have gained control of ETITECH after taking over the 10% new shares issued by the company via HK vehicle. The biggest block is held by Kamarudin.

If an RTO does takes place, ETITECH would take likely pickup as Consortium Zenith BUCG is a prime beneficiary of infra development in Penang and for the latter, there is also a compelling factor to go for ETITECH’s listing status for future fund raising.

However Consortium Zenith BUCG denies that there is an RTO.

GKent ... 'Well Connected" !!

It is an engineering company involved in primarily, the water and construction industries. It is also a leading player in the supply of control instrumentation, telemetry, valves and fittings as well as industrial and domestic water meters. For FYJan 2014, construction accounted for 74% of sales, followed by manufacturing and trading (23%) and infra investment (3%).

It is well connected as evidenced by its project wins which include the rm317.6 million Package 3A of the Pahang Selangor inter state raw water transfer project (in a JV with Loh & Loh and Hazma), the rm102.7 million contract to supply pumping equipment instrumentation and valves for the Sungei Selangor Water Project, and the rm97.75 million contract form the MOH to design, build, complete, commission and maintain upgrading works for the Kuala Lipis Hospital in Pahang. It won a rm57 million contract design and build Phase II of the Kuala Lipis Hospital.

From FY2010 to FY2014 sales grew by a CAGR of 42% to rm507 million while pre tax profits rose by a CAGR of 18.3% to rm51.1 million.

It has a strong balance sheet. Net cash stood at rm114.1 million or rm0.38 per share. Over the last four years prior to 2015, its book value has grown by a CAGR of 13.7% to rm247.2 million. ROE was a solid 15.1% in FY2014.

It is now (23 Feb 2015) trading at a trailing 12 month OER of 9.9 times and price to book of 1.36 times.

HHGroup

The group which converts oil palm EFB into biomass materials and coconut husk into longfibres for industrial use, sees opportunities in moving further downstream to improve its margins.

The group which manufactures mattresses made with long fibres targets to commercialize a new geotextile product – palm fibre mat – by end 2014.

It plans to set up a subsidiary in China by 1QFy2015.

The group exports to China comprising EFB fibre. In FY2013, exports to China accounted for 55.2% of the group’s revenue of rm73.7 million

However a risk Heng Huat faces is its dependence on major customers. One of its clients, Shenzhen Yuemao, contributed about 30.14% to group revenue in FY2013.

It is allocating the bulk of the gross proceeds, rm9.38 million to the repayment of bank borrowings, rm4.55 million to working capital, rm4 million to capex and rm3 million to defraying of listing expenses.

The group envisages a dividend payout ratio of up to 20% of its net profit to its shareholders in each financial year.

At rm0.47 per share, it is trading at a trailing 12 month PER of 11.09 times or 1.24 times book value

HiapTeck

Its integrated steel mill in Kemaman, Terengganu, is currently undergoing a trial-run which should start producing before year end (2014).

Revenue and profit contribution from the plant will kick-in 2015.

The integrated steel mill is a joint-venture project between Hiap Teck and China Shougang International Trade and Engineering Corp. Shougang is also substantial shareholder of Hiap Teck, with an equity stake of 9.09%.

Hiaptek’s main earnings contributor will be its manufacturing arm.

The plant will likely have 700000 slab production capacity. Expects the plant to incur start up losses in the first and second quarters in FY2015 possibly break even in 3Q and report profit by 4Q.

Expect the initial losses to be around rm15 million.

It has taken step toward iron ore mining by subscribing to a 55% stake in Vista Mining Sdn Bhd.

Management expects the operation in Bukit Besi to start in early 2015. It would help the company to sustain the war material supply to its blast furnace plant and enable cost savings to improve the plant’s profit margin.

Going forward, industry observers believe domestic demand will remain buoyant on the back of existing and upcoming construction and infra projects. This is despite expectations that international prices of steel will remain under pressure on the back of a moderating global economic growth.

'Like' - AWC

It provides integrated facilities management services including electrical distribution, lighting and security as well as pneumatic waste conveying systems.

The company has three main divisions – Facilities, Environment and Engineering. The Facilities division mainly derives income from a facilities management concession with the Federal Government which provides a stable stream of income. It is also venturing into facilities management for hospitals.

The Environment division provides design, installation and commission services for projects in Malaysia, Singapore and the Middle East. The Engineering division provides building control, heating and cooking systems for buildings.

Its net profit declined from FY June 2010 to FY2012 followed by a recovery in FY2013 to FY2014. Its net profit for FY2014 was at rm5.9 million after stripping out a gain on disposal of assets.

It is trading at near its book value of rm0.38 with a trailing 12 month PER of 4.27 times. It is backed by a net cash of rm40.5 million.

'Turnaround' - Frontkn

It posted a net profit tripled year-on-year to RM5.26 million in third quarter financial year ending on Dec 31, 2014 (3QFY14) from RM1.57 million. This was on the back of 65.3% increase in revenue to RM85.55 million in 3QFY14, from RM50.54 million in previous corresponding quarter.

The group attributed the improved performances from subsidiaries’ contribution in Taiwan and Malaysia. There was a ramp up in the semi-conductor business in Taiwan due to improved outlook in this sector. In Malaysia, it was mainly due to the recognition of progressive revenue from ATT Tanjung Bin Sdn Bhd’s project in Tanjung Bin (Johor) coupled with higher revenue from the oil and gas division.

The disposal of investment in an associate company also significantly reduced the group’s share of losses in 3QFY14 compared with the previous corresponding period.

In the cumulative nine-month period, Frontken’s net profit ballooned to RM11.62 million, from a mere RM127,000 in preceding corresponding period; whilst revenue grew 50.35% to RM204.79 million, compared with RM136.21 million last year.

Its acquisition of 45% stake in TTES Team & Specialist Sdn Bhd (TTES) in 2QFY14 has brought in positive contribution to the group in 3QFY14 and thus enhance its confidence that the synergised effects from acquisition of TTES will continue to improve the group’s performance in 2014.

Frontken provide surface metamorphosis technology which is basically for the maintenance of equipment in the semiconductor, oil and gas and other industries.

To recap in Aug 2014 it was reported that a corporate exercise is brewing in the company which could see the engineering firm being taken private by its single largest shareholder.

Jorg Helmut Hohnloser who owns 28.82% stake is believed making an offer of between 18 sen and 20 sen per share to take the company private.

The second largest shareholder is LTH with a 6.03% stake.

The company has a piece of undervalued land in Tuas, Singapore. It is probably worth much more if the piece of land is revalued.

It has a 11154 sqm land at Gul Circle in Singapore that was acquired in 2001 while its subsidiary has a 16966 sqm land in Tainan City, Taiwan, which was acquired in 2004. As at Dec 31 2012 the audited net book value of the two parcels of land in Singapore and Taiwan were rm18.14 million and rm37.92 million.

Its net assets per share was 22 sen as at March 31 2014.

About WCT ... Potential Turnaround In Earnings From 2015-2016.

In the long term, its investment property portfolio will look promising, with over rm2.5 billion in assets by mid 2016. However near term earnings momentum is weak mainly due to the lack of contract wins in the past two years…

From 2015 onwards, we will see a potential turnaround in earnings growth mainly driven by growth in investment property income. By 2016, expects 30% to 35% of the group’s earnings to come from recurring incomes.

WCT has the upper hand in both the earthworks package as TRX and the infra jobs at Pengerang.

It is targeting for a tender win for its infra jobs in Qatar.

Its undeveloped land bank stands at about 1426 acres worth about rm25 billion in GDV.

The Paradigm Mall in Johor Bahru is constructing and expected to be operational by the third quarter of 2016. Its 70% owned Paradigm Mall in Kelana Jaya is about 98% tenanted.

It is operating a concession of the gateway@klia2 shopping mall for a period of 25 + 10 years. The mall is expected to break even in 2015.

The company has about rm2.4 billion in planned launches for 2014.

Although the company is packed with property investment value, it is believed that the value will be more appreciated only once the company begins to show stronger earnings growth that is expected to come in 2015/2016.

The REIT exercise would enable WCT to unlock values on its matured retail malls and its Gateway@KLIA2 mall concession.

WCT intends to REIT its three existing malls, which have an estimated total asset value of RM2bil, in 2015.

Proceeds from the REIT would ease WCT’s financing of its new shopping malls. Also, shareholders could benefit via a distribution of shares in the REIT.

WCT is tendering for RM4bil worth of jobs and its orderbook would be supported by internal construction works.

The property developer is also re-strategising its future property launches to suit current market demand.

About LTKM

It has one of the strongest balance sheets amongst poultry related companies in Malaysia. Net cash stood at rm8.3 million or rm0.192 per share at end Sept 2014, in an industry where most players are highly geared.

The company has since expanded into a 400 acre highly automated bio secure farm in Malacca and is the single largest layer farm in Malaysia. LKTM remains tightly held by its founders (61% stake).

Current capacity totals 1.4 million eggs per day, including its famous Omega 3 eggs marketed under LTK Omega Plus brand. Over 40% of eggs produced are exported to Singapore and HK with the balance sold to local wholesalers.

It is trading at a trailing 12 month PER of 6.8 times and price to book of 1.25 times.

It has been able to maintain relatively consistent dividends even when earnings dipped sharply in FY March 2012.

Earnings can be volatile due to the volatility of major raw materials, corn and soybean. For 1HFY2015 sales increased 8.4% year on year to rm93.4 million while pre tax profit rose 38.7% to rm21.0 million.

The outsized increases in profit and margin were due to higher selling prices for eggs and lower raw materials costs. The weak ringgit may raise costs in the near to medium term.

'Dislike' - Caring ...

It will take time for the retailer to reap the benefits of its revamp plan to improve sales.

For its second quarter ended Nov 30 2014, its posted revenue and net profit for the quarter improved 5.4% and 14.8% from a year ago, for the cumulative six months to Nov 30 net profit shrank 63.4% to rm2.64 million compared with the previous year.

Caring’s revenue expanded 5.8% to rm177.4 million for the six months due to improved contributions from its new outlets.

The sharp decline in earnings to the increasingly intense price war between pharmacies such as Watson and Guardian.

The group financial statements show that a large chunk of its expenses stemmed from selling and distribution which contributed 18.5% of it revenue in 2QFY2015 and 16.8% in 1QFY2015. This could mean that the current (Jan 2015) promotional and marketing activities are not brining the desired results given its weak performance.

Furthermore, net margins appear to be slim for the group – 0.9% and 2.4% for its 1QFY2015 and 2QFY2015.

Silver lining for Caring could be the drug dispensing policy to separate prescription and dispensing of medicine. The policy of introduced may allow Caring’s pharmacies stationed at its outlets to dispense medicine to patients thereby raising the group’s revenue.

However it is said to be introduced in the next three to five years from now (Jan 2015).

For now only time will tell whether Carign can weather the tough operating conditions to ensure its outlets remain financially sustainable on the back of management’s proposals to revamp its marketing strategies.

About Pentamaster ..

A semiconductor equipment manufacturer is expecting a strong double-digit percentage growth for the second half of 2014 over the same period a year ago.

On new products, Pentamaster had started delivering semiconductor test equipment that were capable of checking micro-electromechanical systems (MEMs) sensors used in smart mobile devices. The orders are for the group’s Japanese, South Korean and American integrated circuit (IC) and micro-electromechanical system (MEMs) sensor manufacturing customers.

This new range of semiconductor test equipment is expected to generate the bulk of the semiconductor test equipment contribution to the group.

The semiconductor segment generates about 50% of the group’s revenue annually.

On the group’s light-emitting diode (LED) test equipment business, it would focus more on the automotive segment than the general lighting market.

For 2014 the LED test equipment segment is expected to generate about 15% of the group’s revenue.

On its glove manufacturing machine business, the segment would contribute about 20% of the group’s business in 2014, compared to less than 10% in 2013.

For the second quarter ended June 30, 2014, the group posted RM2.2mil in net profit on the back of RM26.6mil in revenue, compared to RM778,000 and RM17.2mil achieved in the same period last year respectively.

Mitrajaya ... Its Landbank Alone Worth rm1.88/share !!!

It was awarded a RM229.9 million affordable housing contract by Putrajaya Holdings Sdn Bhd. The contract involves the construction of three blocks of 20-storey (1,062 units) apartments in Precinct 5, Putrajaya. The contract duration is for three years and is expected to be completed by February 2018.

This job win reinforces the view that Mitrajaya has a strong working relationship with Putrajaya Holdings. Over the years, it has managed to secure various contracts from the latter.

Including this contract, estimate Mitrajaya’s order book to currently (Jan 2015) stand at RM1.8 billion (assuming a RM150 million burn rate in the fourth quarter of its financial year ended Dec 31, 2014 [4QFY14]).

There is potential upside to job wins in 2015 as it is only the month of January 2015.

Mitrajaya is targeting for RM1 billion in new job wins for 2015.

Mitrajaya’s superior earnings growth is priced at cheap valuations (28 Jan 2015) of six times and five times FY15 to FY16 price-earnings ratio and decent yields of 3% to 6%.

For an alternate valuation perspective, the net value of its land bank alone is already worth RM1.88 per share.

Gunung - what NEXT?

It has a three year contract to provide bus services for the NS Programme. The RM164.95 million contract was for a three year duration up to Dec 2017. The deferment of the 2015 NS programme means Gunung will have to forgo the income from two batches for 2015.

Gunung is expecting its NS transport charter contract to rake in rm14 million to rm16 million per year once it is back on track.

It has posted stable earnings in the last few years relying on government contracts. However it has set in motion a plan to diversify into hydropower projects since 2013.

It had initiated a JV with Perak hydro Renewable Energy Corp Sdn Bhd for two mini hydro projects of 10MW each. PHREC is the master and overall developer of mini hydro plants in Perak.

Under the WRA with the state government of Perak, there are an additional 10 viable Greenfield sites that have been pre identified with an installed capacity of about 50 MW. These sites will be developed under Gunung Hydropower Sdn Bhd n stages.

Once all the sites have been commissioned, Gunung expects to have a total installed capacity of 245MW.

Every 10MW installed capacity that comes onstream will generate an average rm15 million to rm17 million annual revenue for 21 years from the sales of energy to Tenaga.

Contributions commencement to Gunug’s earnings will start in FY2017/FY2018 and then grew over the remaining 19 to 20 years tenure of the renewable energy purchase agreements.

Gunung holds a 60% in the JV.

The substantial shareholders of Gunung are Datuk Syed Abu Hussin who is the company’s CEO with 16.33% stake. Erayear Equity Sdn Bhd holds a 11.79% and Ooi Hock Lai has a 8.4%.

Its net assets stood at rm37.73 million as at Sept 2014 or rm0.725 per share.

Cash and cash equivalents came to rm18.88 million and short term borrowings of rm16.7 million.

Ivory - what NEXT?

Its land disposals got the market talking. This is because the group seems to be cashing out from its home base in Penang and venturing into Iskandar Malaysia.

The move comes amid high land prices in Penang and the rising visibility of Iskandar Malaysia as a vibrant development corridor in the south.

It had entered into a JV agreement with JB Lee Properties Sdn Bhd to develop a mixed use project on a 7.1 acre parcel in Teluk Jawa, JB, with a DGV of about rm2 billion.

On Jan 14 2015 it had entered into a sales and purchase agreement with Jesselton Land Sdn Bhd for the disposal of its land in the northeast district of the Penang Island for rm150 million.

On Jan 22 it had also entered into a share sale agreement to divest its 49% stake in Aspen Vision Land Sdn Bhd for rm55 million.

Proceeds from the disposal totaling rm205 million will be partially utilized to reduce the group’s gearing level and fund future projects. It will net gain of rm73 million or rm0.1645 per share from the disposals by Dec 2016 when both deals are expected to be completed.

As at Sept 30 2014 its short long term debts stood at rm318.2 million. Its gearing stood at 0.81 times.

By selling the land, Ivory will now (Jan 2015) miss out on future profits though the proceeds can be used to reduce its gearing.

What is more perplexing is the fact that Ivory is venturing into Iskandar, a region which is said to be facing a surplus of property.

'Love It' - QE From Europe and Japan (Hot Money Back To Emerging Markets) !!!

The rm4.5 trillion asset purchase programme, which will involve up to 50 billion euro in monthly bond buys until end 2016 is indicative of the prevailing macroeconomic environment in which central banks are willing to inject massive liquidity to boost economic growth as well as stock price.

The ECB’s move indirectly benefits emerging market equities, including Asian ones as foreign capital continues to search for high yields. There has been a reversal in capital flows in anticipation of the central bank’s QE announcement with net inflows of some USD3 billion seen in Asian markets as at Jan 23 2015.

In Malaysia, the rate of outflow has declined sharply in line with the return of foreign capital to Asia. On Jan 23 2015 the day after the ECB announcement the stock market recorded a net inflow of rm260 million in foreign funds.

The outflow abruptly sharply late Jan 2015 as global funds returned to this region and the weekly net inflows were quite steep. While foreign money continued to exit Malaysia on a net basis, the rm41 million in net outflow between Jan 19 and 23 2015 was the smallest since the start of 2015.

The argument for foreign capital to return to emerging markets is strong, given the prevailing market conditions in Europe and the US. In Europe, the QE programme is expected to drive sovereign debt yields to new lows.

The prospect of prolonged deflationary environment in Europe, coupled with weak commodity prices, means that equities are still expected to offer the highest yields.

With global economic growth diverging – with the US and ASEAN economic growing while Japan and the eurozone struggle with deflation – central banks will continue to pursue a growth driven mandate. This implies that they are likely to keep interest rates low as part of a loose monetary policy, geared toward simulating their countries economies and in turn benefit their capital markets.

The days of easy monetary policies are likely to continue for a long time, as shown by the ECB and the BOJ. So this will result in a lot of money flowing around, and it will be a key driver for equities to outperform other asset classes.

The magnitude of inflows of foreign capital into ASEAN countries provides a clue on the markets that investors are most optimistic about.

Given the relative stability of its stock market, foreign investors who are seeking higher than average yields and are averse to volatility may still consider Malaysia a promising investment destination.