Glenealy Plantations 1Q earnings up 165% to RM19m

KUALA LUMPUR (Nov 2): Glenealy PLANTATION []s (Malaya) Bhd’s earnings jumped 165% to RM19.01 million in the first quarter ended Sept 30, 2011 from RM7.41 million a year ago but it was cautious on the outlook for palm oil price.

It said on Wednesday its pre-tax profit was RM31.55 million, up 122% from RM14.20 million. Its revenue increased by 68.2% to RM17.67 million from RM42.60 million while earnings per share were 16.67 sen compared with 6.50 sen

Glenealy said fresh fruit bunches (FFB) production for 1QFY2012 was 89,721 tonnes. In terms of segmental results, Sabah and Sarawak operations achieved an operating profit of RM22.9 million and RM10.0 million, respectively.

The company said it planted an additional 377 ha of oil palm plantation in Sarawak, increasing total planted area in East Malaysia to 29,723 ha, of which 21,166 ha were matured as at Sep 30.

On the outlook, it said crude palm oil price broke lower to below RM3,000 per tonne during the quarter due to a combination of factors.

Glenealy said the contagion effect from the worsening debt crisis in Europe and the stalling US economy pulled prices lower across most assets classes including commodities like palm oil.

It added that a recovery in palm oil production and a change in duties in Indonesia with lower taxes on refined palm oil exports as compared to crude palm oil exports dampened market sentiment further.

“With the change in the tax structure in Indonesia, downstream companies in Malaysia will find it tougher to compete against Indonesian downstream companies as the Indonesian downstream companies will have an advantage in lower local crude palm oil price.

“We have a cautious outlook for palm oil price due to uncertainties in the global economy and the long term effect of the change in the tax structure in Indonesia on the Malaysian palm oil industry,” it said.

However, improving yields from the group’s maturing plantations would enable it to achieve satisfactory results for the full year, it said.

Guinness Anchor 1Q earnings up 42.6% to RM55.2m

KUALA LUMPUR (Nov 2): GUINNESS ANCHOR BHD []’s (GAB) earnings rose 42.6% to RM55.21 million in the first quarter ended Sept 30, 2011 from RM38.69 million a year ago, as it recorded higher sales and share gains in the domestic malt liquor market.

It said on Wednesday revenue rose 21.2% to RM444.62 million from RM366.63 million while earnings per share were 18.28 sen compared with 12.81 sen.

GAB said revenue growth was due to volume and share gains in the domestic malt liquor market and timing differences of trade purchases versus prior year. This was partially off-set by the significant planned reduction of duty-free and export volume.

“Pre-tax profit grew by 42.7%, reflecting revenue growth plus favourable brand and channel mix and good cost control,” it said.

GAB also said group revenue was 27.5% higher when compared with the preceding quarter.

It added the first quarter ending Sept 30, for seasonal reasons, traditionally had higher sales compared to the fourth quarter ending June 30.

At the pre-tax profit level, there was 95.1% increase to RM73.6 million, due to the factors and the non-recurrence of one-off costs incurred in the fourth quarter of the previous year.

Zelan wins bid to build campus in Pahang

KUALA LUMPUR, (Nov 2): Loss-making ZELAN BHD [] has won a bid to develop the International Islamic University Malaysia's Centre for Foundation Studies in Pahang.

It said on Wednesday, it was selected by the Public Private Partnership Unit of the Prime Minister's Department to implement Phase 3 of the centre's development in Gambang, Pahang.

The project will be funded by a private finance initiative and is subject to terms and conditions between the government and Zelan.

Last Friday, Zelan said Mudajaya confirmed its intention to subcontract part of the civil works for the CONSTRUCTION [] of the 1,000 MW Tanjung Bin coal fired power plant in Johor.

However, this was subject to the consortium, comprising of Alstom, Mudajaya and Eversendai Corp Bhd, being appointed the main engineering, procurement and construction contractor (EPCC) by Malakoff Corporation Bhd for the power plant expansion.

In the first quarter ended June 30, 2011, it posted net losses of RM8.04 million on the back of RM12.80 million in revenue. As at June 30, the group’s current liabilities exceeded the current assets by RM206.42 million.

MF Global causes havoc

KUALA LUMPUR: The collapse of MF Global Holdings Ltd sent repercussions throughout global markets yesterday causing the US dollar to spike sharply, driving up European sovereign bond yields, and forcing the Australian Stock Exchange (ASX) to suspend trading of agricultural futures.

The Malaysian stock market was relatively less scathed with the FBM KLCI falling by 1.08% or 16.25 points to 1,475.64 on the back of the news. On the other side of the world, the Dow Jones and S&P 500 indices fell 2.26% and 2.47% respectively on Monday, and European bourses were deep in the red yesterday.

When contacted by The Edge Financial Daily, Bursa Malaysia replied in a statement that “MF Global’s exposure in Malaysia is negligible and therefore, has no impact on the market.”

Channel checks by The Edge Financial Daily suggests that the local bourse has little direct exposure to MF Global, and most brokers have reacted quickly to close out their positions.

However, since MF Global’s assets have been frozen, some brokers may still have funds locked up in MF Global margin accounts.

Stephen Noel Kwong, executive director and head of AmFutures Sdn Bhd told The Edge Financial Daily, “We knew about MF Global filing for Chapter 11 bankruptcy since midday on Monday and we subsequently managed to close out all our positions with MF Global.”

“In fact, MF Global has been in the news for about six weeks and we have been steadily reducing our exposure accordingly,” said Kwong.

“As of today (yesterday), we managed to close out all of MF Global’s positions with us,” said Kwong who added that AmBank did not make losses when it closed its positions with MF Global.

Kwong, however, acknowledged that AmBank still had funds in MF Global margin accounts that have been frozen but pointed out, “MF Global has funds with AmBank as well. As a result, our overall net position is positive, so we are not too worried.”

On Oct 31, MF Global officially filed for bankruptcy after its US$6.3 billion (RM19.59 billion) wager on European government debt triggered its collapse.

The financial firm had been exposed to Italian, Spanish, Belgian, Portuguese and Irish debt .

When the firm filed for Chapter 11 bankruptcy at the US Bankruptcy Court in Manhattan on Monday, it listed debt of US$39.7 billion and assets worth US$41 billion and according to BankruptcyData.com is the fifth-largest financial-industry public company bankruptcy by assets behind the likes of Lehman Brothers Holdings and Washington Mutual Inc.

The financial firm has offices in seven countries including Singapore and Australia, and trades heavily in futures.

Given its size, global reach and counter-party dealings with other financial institutions, some have compared the extent of its collapse to that of Lehman Brothers in late 2008.

On a darker note, federal regulators in the US yesterday began investigating million of dollars in MF Global customer funds which have gone missing.

Australia’s bourse operator the ASX suspended trading of grain and wool futures options yesterday in response to MF Global’s collapse.

MF Global had been one of the largest players in Australia’s agricultural futures market, and there are concerns about its big open positions in the market.

Jupiter Securities’ head of research Pong Teng Siew told The Edge Financial Daily that while the direct effects of the collapse will be minimal, the local market could be affected indirectly.

“There is a clear feed through impact from bond yields into equity markets. We have observed that when European government bond yields rise, it has a depressing effect on our equities,” Pong said and highlighted the fact that Italian sovereign debt yields have crept past the 6.00% mark.

“Bond prices will tumble when MF Global is forced to sell down its assets, which will in turn drive bond yields up,” explained Pong.

“MF Global is relatively small and the contagion risk will be limited,” noted Pong, but he did not rule out the possibility of a domino effect arising from MF Global’s collapse.

“There will be a ripple effect and the sovereign bond market is vulnerable. A disorganised or unruly retreat will send yields climbing,” added Pong.

The greenback has since strengthened sharply against the ringgit by 1.89% from 3.0655 to 3.1233.

Pong pinned this on a flight to safety and said, “Cash is the safest asset and the US dollar will always be the safest form of cash. Even gold is not a riskless asset as many people might think. There is price and liquidity risk.”

Pong stressed the important role of the bond markets, saying, “The equity market is a poor predictor of prices. It is largely driven by emotion and market sentiment. Bond markets tend to be more down to earth, mathematical and unaffected by sentiment.”

“I’ve expected financial institutions to fail given the volatility in the market, especially those with exposure to sovereign bonds,” said Pong, “and I do not think MF Global will be the last to do so.”


This article appeared in The Edge Financial Daily, November 2, 2011.

SapuraCrest secures US$1.4b Petrobras contract

KUALA LUMPUR: SapuraCrest Petroleum Bhd has secured a massive US$1.4 billion (RM4.35 billion) contract from Petróleo Brasileiro SA (Petrobras) for the charter and operations of three pipe-laying support vessels (PLSV), the single-largest contract by value that the group has won in recent years.

In an announcement to Bursa Malaysia yesterday, SapuraCrest said the contract is expected to generate revenue for the group by the fourth quarter of 2014.

It is also anticipated to “contribute positively” to the group’s earnings and net assets for the financial year ending Jan 31, 2015 and beyond, SapuraCrest said.

SapuraCrest said its wholly-owned subsidiary TL Offshore Sdn Bhd will construct two PLSVs outside Brazil and the other will be built in Brazil.

TL Offshore will be tasked with project management, procedures and operations of the PLSVs for Petrobras. The vessels will be deployed to perform oil and gas (O&G) marine construction projects in Brazilian waters.

SapuraCrest executive vice-chairman and president Datuk Seri Shahril Shamsuddin said in a statement the group’s entry into the Brazilian market is part of its long-term global expansion strategy.

“This contract is a significant milestone as it marks our entry into the vast, dynamic yet technologically challenging O&G market in Brazil. It is a definitive acknowledgement of SapuraCrest as a global player,” Shahril said.

Petrobras is a public-listed company in which the Brazilian government holds a majority stake.

The mega award comes in the midst of SapuraCrest’s merger with Kencana Petroleum Bhd via Integral Key Sdn Bhd, a special purpose vehicle established by Mayban Ventures Sdn Bhd.

Announced on July 11, the proposed merger values SapuraCrest at RM5.87 billion and Kencana at RM5.98 billion, with shareholders of the respective companies to get cash and Integral Key shares if they choose to accept the offer.

The merged entity will create the world’s fourth-largest integrated O&G services provider.

While the latest US$1.4 billion award provides a big boost to SapuraCrest’s future earnings, industry observers have raised questions if Mayban Ventures’ proposed merger of SapuraCrest and Kencana has undervalued SapuraCrest.

“Although the terms of the merger would more or less be fixed, it is debatable whether the deal gives enough weight to SapuraCrest’s tender book and future earnings potential,” said one industry observer.

Since the proposed merger was unveiled on July 11, SapuraCrest has secured several contracts with a combined value of RM5.16 billion.

To recap, SapuraCrest’s 50%-owned associate, Labuan Shipyard and Engineering Sdn Bhd, on Sept 30 was awarded a RM99.5 million shipbuilding contract from Tanjung Offshore Bhd.

On Sept 22, SapuraCrest’s unit TL Offshore was also awarded a US$227 million contract to construct two pipelay cum heavylift offshore construction vessels for Cosco Nantong Shipyard Co Ltd.

Kencana has yet to announce any new contract secured since July when the proposed merger with SapuraCrest was announced.

Earlier this year before the merger deal was struck, Kencana’s unit, Kencana HL Sdn Bhd, was given contracts worth over RM539 million.

These included a RM115 million contract from Petrofac E&C Sdn Bhd to construct a mobile offshore production unit and well head support structure for the Sepat early production system off the coast of Terengganu and a RM208 million job for the fabrication of a Kebabangan substructure for the Kebabangan northern hub development project off the coast of Sabah.

Kencana HL had in March also won a RM216 million contract from Petrofac Ltd for the engineering, procurement and construction of two well head platforms for the Cendor oil field off the coast of Terengganu.

Kencana’s wholly-owned subsidiary, Kencana Energy Sdn Bhd, had on Jan 31 entered into contracts to jointly develop and operate an oil and gas field from the Berantai field offshore Terengganu.

SapuraCrest yesterday shed six sen to close at RM4.00 with 543,000 shares traded. The stock surged 8.18% to RM4.10 on Oct 27 from RM3.79 on Oct 25, its steepest one-day gain in six months.


This article appeared in The Edge Financial Daily, November 2, 2011.

Zeti: Malaysia’s 3Q GDP shows improvements

KUALA LUMPUR: Malaysia’s third quarter (3Q) GDP growth has shown improvements based on domestic and external indicators during the period, Bank Negara Malaysia (BNM) governor Tan Sri Dr Zeti Akhtar Aziz noted.

Zeti said external trade indicators apart from data on domestic consumption, implementation of government projects here, and strong financing patterns had helped the country achieve a better year-on-year (y-o-y) growth in its 3Q GDP compared to 2Q.

“There is improvement but we have to see to what extent the growth is,” Zeti told reporters on the sidelines of the Asian Central Banks’ Watchers Conference here yesterday. She declined to elaborate, only indicating that Malaysia’s full-year GDP was expected to expand by some 5% this year.

BNM will announce the country’s 3Q GDP numbers on Nov 18.

In 2Q this year, the country’s GDP rose at a slower rate of 4% y-o-y as domestic demand growth moderated during the quarter amid a volatile external landscape as weaker fundamentals in advanced economies in the US and Europe hurt global trade.

Malaysia’s 1Q GDP had expanded at a revised 4.9% y-o-y.

Looking ahead, Zeti said it was pivotal for the central bank to strike a balance in its assessment of the country’s growth and inflation risks to ensure economic expansion is sustainable in the next three years.

Zeti said BNM would carefully assess the current situation and that its policies would not be tailored solely to spur GDP growth. This is because rising inflation would curb domestic consumption and stifle the country’s economic expansion, according to her.

Zeti says rising inflation would curb domestic consumption
and stifle the country's economic expansion.

“We look at both economic growth and inflation risks,” Zeti said.

Asked whether BNM is more concerned about growth or inflation risks, the governor said the central bank has to determine whether inflation here has peaked.

The country’s inflation as measured by the consumer price index (CPI) rose 3.4% y-o-y in September. In August, the CPI climbed 3.3%.

Economists have, however, said inflation was seen to be on a declining trend towards year-end. This comes against a backdrop of easing cost-push and demand-pull factors amid weaker global economic fundamentals.

This is due to falling prices of commodities such as crude oil and food crops, and slower domestic and external demand factors as debt-laden advanced economies with high jobless rates trigger slower growth prospects across the globe, they said.

Zeti said across Asia, regional economies are still resilient and the region would still post economic expansion, albeit, at a slower rate.

She expects Asia’s GDP growth this year to come in less than the average of 6% to 7%. Growth in the region would be supported by domestic consumption as rising income, positive employment numbers and private sector investment boosted demand.

“Asian economies have prudent fiscal policies and are not over-leveraged,” Zeti said. She said Asia has seen less impact from weaker fundamentals across advanced economies as Asian countries have regional economic and financial linkages which helped boost intra-regional trade.

In her speech earlier, Zeti said Asian policymakers have emphasised on building their respective economies resilience to better mitigate external shocks and sustain economic growth.

For central banks, she said the focus is on preserving monetary and financial stability, apart from domestic financial infrastructure.

“Every financial crisis has prompted the review of the role, function and authority of central banks. Indeed developments in this recent four years have had profound implications on the central banks of crisis-affected countries.

“The mandate of central banks for financial stability has generally been strengthened considerably to deal more effectively with risks in the financial system and economy,” she said.

A crucial aspect for central banks’ policies is that they are “anticipatory”, according to Zeti, as delays in policy action or exit will result in higher costs and unintended consequences.


This article appeared in The Edge Financial Daily, November 2, 2011.

Country could go bankrupt if growth falters and debt rises, says Jala

KUALA LUMPUR : Malaysia could still go bankrupt by 2019 if the annual growth rate is constantly below 4% while debt increases at 12% a year, and the country continues to spend borrowed money on operational expenditure such as subsidies, warned Datuk Seri Idris Jala, CEO of Performance Management and Delivery Unit (Pemandu) yesterday.

Over the past several years, the government’s budget deficit has persistently stayed above 5% of GDP, taking its toll on government finances as it would need to borrow to cover expenses. As at end of fiscal year 2010, the federal government debt stood at RM407 billion, or 53.1% of GDP, and is fast approaching the government debt ceiling of 55% of GDP.

“If our economy grows in the next 10 years at the rate of less than 4% (annually) and we do not curb our operating expenditure, we would have to increase borrowings by 12% (annually). Then, we will arrive at the position where our debt level will be 100% of GDP in 2019,” he said.

“Of course, we in the government will not allow that to happen. We will do everything in our power to stop that from happening,” he added.

According to Jala, the government is committed to the plan to rationalise subsidies. However, it will only be done gradually, in small amounts over a spread-out period of between five and seven years, he said, so that the removal (of subsidies) will not introduce shocks into the system.

“The price of RON 97 has been brought up to market price, and we have increased the price of RON 95 three times since the rationalisation began,” he cited.

Jala said the subsidy rationalisation programme would have to take into account the impact on the lower-income group so that the increase in cost of living will not adversely affect the bottom 40%. Citing the rise in electricity tariffs as an example, the hike did not affect 70% of household consumers who consume below 300kWh of electricity per month.

Other than cutting down on the subsidy bill, Jala also said the government should not delay implementing the goods and services tax (GST). This is because out of the 28 million Malaysians, only one million are currently paying taxes.

He said that by introducing the GST at 5%, the government’s revenue would increase by RM6 billion. If the rate is fixed at 7%, which is on par with Singapore, Jala estimated that the revenue collected would increase by RM13 billion.


This article appeared in The Edge Financial Daily, November 2, 2011.

Puncak Niaga sells debt notes to PAAB for RM328m

KUALA LUMPUR: Puncak Niaga Holdings Bhd is selling all its Puncak Niaga (M) Sdn Bhd (PNSB) debt notes to Pengurusan Aset Air Bhd (PAAB) for RM328.12 million.

Puncak Niaga said yesterday it had signed a conditional sale and purchase agreement with PAAB’s special purpose vehicle — Acqua SPV Bhd — to sell all its redeemable, unsecured, coupon bearing notes.

PAAB is a unit of Minister of Finance Inc that was set up in May 2006 to restructure the water services industry in the country.

To recap, PNSB had issued the debt notes of up to RM546.87 million in May 2001, with the notes issued solely to Puncak Niaga.

On Nov 20, 2010, Puncak Niaga had in turn issued redeemable, secured, coupon bearing notes of up to RM546.87 million in nominal value and the proceeds were used to subscribe for the notes issued by PNSB.

The holders of the Puncak Niaga notes can exercise a put option to Puncak Niaga to repurchase all or some of these notes on the put date of Nov 18.

Puncak Niaga also has a call option to redeem all outstanding notes at the full amount. The outstanding principal amount, including the fifth mandatory partial repayment of RM54.68 million, amounts to RM328.12 million.


This article appeared in The Edge Financial Daily, November 2, 2011.

MAS CFO Azha Jalil resigns

KUALA LUMPUR: Malaysian Airline System Bhd (MAS) chief financial officer (CFO) Mohd Azha Abdul Jalil has resigned from his position but will remain with the national carrier until Dec 31 to ensure a smooth handover and business continuity.

In a filing with Bursa Malaysia yesterday, MAS said Azha was ending his tenure as CFO after a 4½-year stint in the group to pursue “new challenges and personal goals”.

MAS, however, did not disclose who would fill the position.

According to MAS, Azha served a major oil and gas company for 17 years before joining MAS in July 2007 as senior general manager of finance.

He was promoted to CFO in 2009 and had “contributed significantly” to the implementation of MAS Business Transformation Plan since January 2008, MAS said.

MAS said Azha’s achievements included raising some RM4 billion in aircraft financing for 36 various new aircraft under the fleet renewal programme and implementing an integrated enterprise resource planning system which will cut over from the start of 2012.

Azha’s departure comes in the wake of several board and management changes in MAS in the last four months.

Azha to pursue new challenges and personal goals.

In September, MAS appointed low-profile corporate figure Ahmad Jauhari Yahya managing director, replacing Tengku Datuk Seri Azmil Zahruddin Raja Abdul Aziz.

Tengku Azmil had resigned on Aug 9 just as MAS and low-cost carrier AirAsia Bhd embarked on a strategic tie-up via a share swap exercise.

Following that, AirAsia founders Tan Sri Tony Fernandes and Datuk Kamaruddin Meranun were appointed to MAS’ board as non-independent non-executive directors, effective Aug 11.

Prior to that, Tan Sri Dr Mohamed Munir Majid had in July resigned as MAS chairman after a seven-year tenure.


This article appeared in The Edge Financial Daily, November 2, 2011.

News in brief

Supermax eyes 1-for-1 bonus issue
KUALA LUMPUR: Supermax Corp Bhd has proposed a one-for-one bonus issue and a share buyback scheme.

The company said yesterday the bonus issue will add 340.07 million new shares to its paid-up capital.

It said the proposed share buyback, if implemented, would enable it to utilise its surplus financial resources, which is not immediately required for other uses, to purchase its own shares from the market.

“The proposed share buyback is expected to stabilise the supply and demand, as well as the price of the Supermax shares,” it said.


Scomi to exit US, Mexico, sells US$35m assets
KUALA LUMPUR: Scomi Group Bhd is selling its waste management business in the US and Mexico for US$35 million (RM108.8 million) as it seeks to refocus on Asia.

The company said yesterday the assets would be disposed off to National Oilwell Varco Inc’s subsidiaries. Scomi said it was repositioning itself in Malaysia by increasing its products and services portfolio within the upstream oil and gas industry.


DiGi on track for payback to shareholders
KUALA LUMPUR: Digi.Com Bhd is expected to distribute about RM509 million to its shareholders by the first half of 2012 (1H12) under the proposed capital distribution.

It said yesterday its unit DiGi Telecommunications Sdn Bhd (DiGiTel) had issued 100,000 redeemable preference shares (RPS) to DiGi.

The RPS will be redeemed by DiGiTel on March 7, 2012. Upon redemption of the RPS, DiGi will receive about RM509 million and is expected to distribute such amount (less expenses) to DiGi shareholders by 1H12.


SunREIT 1Q net profit at RM43.86m
KUALA LUMPUR: Sunway Real Estate Investment Trust (SunREIT) posted net profit of RM43.86 million in 1QFY11 ended Sept 30 on revenue of RM95.04 million.

SunREIT proposed an interim income distribution of about 100% of the realisable income amounting to RM47.1 million or 1.75 sen per unit. This amount includes surplus cash arising from 50% manager’s fee payable in units of RM2.7 million.

SunREIT said the revenue was an increase of 31.2% from RM72.44 million a year ago.

“The initial portfolio of eight properties and Sunway Putra Place contributed to the increase by RM14.4 million and RM8.2 million respectively,” it said.

SunREIT said the retail properties from the initial portfolio had contributed an increase of RM9.8 million compared with 1Q11 mainly due to rental revision from Sunway Pyramid Shopping Mall.


This article appeared in The Edge Financial Daily, November 2, 2011.

Shell Malaysia posts wider 3Q net loss, expects 4Q to improve

KUALA LUMPUR: Shell Refining Co (Federation of Malaya) Bhd (Shell Malaysia) posted a wider net loss of RM134.07 million in its third quarter ended Sept 30, 2011 (3QFY11) compared with a net loss of RM19.46 million a year ago.

In a filing with Bursa Malaysia yesterday, Shell Malaysia attributed the higher quarterly losses to weak refining margins and lower production following the group’s statutory major turnaround completed in July.

Pre-tax loss in 3QFY11 was also significantly higher at RM200.06 million compared with a pre-tax loss of RM26.4 million a year ago despite revenue growth of 15.99% to RM3.069 billion.

For its total nine months ended Sept 30, Shell Malaysia posted a net loss of RM26 million against a net loss of RM7 million a year earlier. Revenue for the cumulative three quarters grew marginally by 0.65% to RM7.889 billion from RM7.838 billion a year ago.

Shell Malaysia noted that it expects its refining margins to improve in 4QFY11, driven by stronger motor gasoline demand.

“Operational and processing flexibility will continue to remain the refinery’s key focus area to maximise margin opportunities,” Shell Malaysia said.

Quarter-on-quarter, its net loss widened to RM134.07 million from RM27.71 million in 2QFY11.


Shell Malaysia also noted that the construction of its diesel processing unit — with a daily capacity of 6,000 tonnes — was progressing on schedule.

With the new processing unit, the oil company said it would be able to vary its feedstock options, increase diesel production and improve refining margins.

Shell Malaysia also said its refinery had processed 7.1 million barrels of crude oil and sold 8.5 million barrels of product in 3QFY11.

The stock yesterday closed down two sen to RM9.60 with 202,100 shares traded. Its net assets per share stood at RM6.51 as at Sept 30.


This article appeared in The Edge Financial Daily, November 2, 2011.

Cupboard getting bare

Banking sector
Maintain neutral
Banks unexpectedly hit a new high of 13.8% year-on-year (y-o-y) for loan growth in September, topping August’s already brisk 13.4% y-o-y. The September growth was the strongest since April 1998.

This was primarily driven by the acceleration of business loan growth from 13.1% y-o-y in July and 14.2% y-o-y in August to a sterling 15.4% y-o-y in September.

We suspect that there were some chunky disbursements of corporate loans which lifted the real estate loans by RM2.1 billion and finance loans by RM1.8 billion in September.

These two segments expanded by 25%-29% y-o-y. The momentum for two other business loan segments moderated — from 14.6% y-o-y in August to 13.3% y-o-y for manufacturing loans and from 17.5% y-o-y to 15.7% y-o-y for utility loans.

On the other hand, consumer loan growth fell marginally from 12.7% y-o-y in August to 12.5% y-o-y in September. The performance was mixed with a slight pick-up in the growth of residential mortgages (from 12.8% y-o-y in August to 13.1% y-o-y in September) and personal loans (from 18.2% y-o-y to 19% y-o-y) but a softening of auto loans (from 8% y-o-y to 7.8%) and credit card receivables (from 10.1% y-o-y to 9% y-o-y).

Loan applications: The industry’s loan applications fell by 5% to 7% month-on-month (m-o-m) in July to September. On a y-o-y basis, although applications reversed the 2.9% drop in August, the momentum remained weak at only 6.1% in September vs a 20%-37% pace in March to June.

The growth in applications for residential mortgages slowed down from 9.8% y-o-y in July and 4.8% y-o-y in August to a mere 2.4% y-o-y in September. Applications for working capital loans inched up 1% y-o-y in September, after falling by 10% to 17% y-o-y in the preceding two months.

Loan approvals: Loan approvals also showed signs of weakening, with the pace moderating from 10% y-o-y in August to 8% y-o-y in September. The momentum was even stronger at 24%-45% y-o-y in March to May, which helped to explain the swift loan growth in August to September.

As in the case of loan applications, the growth in approvals was supported by the 34.3% y-o-y jump in “other” loans in September.

On the other hand, auto loan applications pulled back by 7% y-o-y in September while growth in applications for residential mortgages moderated from 18.2% y-o-y in August to 4.3% y-o-y in September.

Applications for working capital financing expanded by 6.8% y-o-y in September, reversing the 27.1% y-o-y plunge in August.

Moderating loan momentum: We envisage a moderation of loan growth from a swift 13.8% y-o-y in September to 12% to 13% in view of (1) external uncertainties and (2) the slowing trend for loan applications, which points to a depleting loan pipeline.

Furthermore, we gathered that most banks have turned conservative in their lending practices as a precautionary measure against a rise in delinquencies.

We are projecting a gross impaired loan ratio of 2.6% to 2.8% for end-2011 vs 2.8% in September. We see limited risk of a spike in impaired loan ratios in the event of any economic slowdown given Malaysian banks’ track record of managing their NPLs. For instance, in 2009, the industry reduced its gross NPL ratio from 4.8% to 2.7% even though GDP contracted by 1.7%.

We remain “neutral” on the sector in the light of increased external uncertainties. A pullback in the equity market since mid-2011 with increased volatility does not bode well for investment banking deal flow. Loan growth is set to soften and the margin squeeze will persist though it should not be as severe as in the past one to two years.

On the flip side, we are still positive on (1) financing opportunities for projects under the Economic Transformation Programme (2) the sector’s undemanding CY12 P/E of 10.7 times and (3) attractive dividend yield of about 5%. — CIMB Equities Research, Nov 1


This article appeared in The Edge Financial Daily, November 2, 2011.

GPRO, Maxbiz get UMA query

KUALA LUMPUR: The spike in the share prices of Maxbiz Corp Bhd and GPRO Technologies Bhd prompted Bursa Malaysia to query the two companies on the unusual market activity (UMA).

GPRO was the most actively traded stock yesterday, bucking the downtrend on the broad market with a gain of about 29%. The stock hit an intra-day high of 25.5 sen before retreating to close at a six-year high of 24.5 sen yesterday. Some 47.9 million shares changed hands yesterday.

Shortly after the opening bell, Maxbiz surged 83% or 7.5 sen to an intraday high of 16.5 sen from Monday’s closing price of 9 sen.

Maxbiz ended 33.3% higher to 12 sen, the highest level since March. About 33.9 million shares were traded yesterday, making it the third most active counter on Bursa.

In reply to Bursa yesterday, both Maxbiz and GPRO said their boards were not aware of any material activities that would have contributed to the UMA yesterday.

Interestingly, the two companies recently saw some movements in their boardrooms.

Last Friday, garment maker Maxbiz told Bursa it had appointed two new directors — Datuk Mohamad Taufik Omar and Wong Kam Wah.

GPRO's RFID solutions for garment professionals.
GPRO has been in the red since FY05 ended Dec 31.

A director at Vasseti Bhd, Taufik was made chairman and audit committee chairman of Maxbiz while Wong was appointed executive director. Wong is currently managing director of Container Link Sdn Bhd and Serai Makmur Container Depot Sdn Bhd.

Maxbiz is still bidding to recover what it alleges are “missing” assets after it took over the listing status of Geahin Engineering Bhd via a reverse takeover exercise.

In late June, Maxbiz filed suit against 18 defendants including accounting firm Ernst & Young, Public Investment Bank Bhd and Pacific Trustees Bhd.

The PN17 firm Maxbiz is claiming damages to the tune of RM163.48 million from the defendants along with general and exemplary damages, interest, legal costs and other relief deemed proper by the court.

Maxbiz, which is also categorised as PN1, defaulted on RM3 million of redeemable unsecured loan stocks (RULS) and RM22.62 million of redeemable convertible secured loan stocks (RCSLS)

GPRO, which develops IT solutions for textile and apparel manufacturers, on Oct 14 appointed Christian Kwok-Leun Yau Heilesen executive director.

Shares in GPRO have been heavily traded since early September after Heilesen surfaced as a substantial shareholder in the company.

It is not known what the new shareholder has in the pipeline for GRPO.

But the stock has gained nearly 160% or 15 sen after Heilesin bought into the ACE Market-listed firm, whose market capitalisation was only RM20 million at end-August.

Heilesen, who is founder and CEO of Funmobile Holding Ltd (a Hong Kong-based mobile content developer), has increased his stake in GPRO to 24.89% on Oct 15 from 15.29% oan Sept 12.

Coincidentally, GPRO’s single largest shareholder Vital Research Sdn Bhd had substantially reduced its stake to 10.79% on Sept 8 from about 20% in March.

Its executive chairman Tang Tiong Seng, who held interest via Vital Research, has also trimmed his indirect stake in the company from 14.92% on Sept 6 to 0.12% on Sept 13.

This is the second ACE Market- listed loss-making company that Heilesen has bought into in less than two months. The first was DVM Technology Bhd, which he later sold down under three weeks.

GPRO has been in the red since FY05 ended Dec 31. For the six months ended June 30, it incurred a net loss of RM1.34 million or 0.54 sen per share, compared with RM1.59 million or 0.64 sen per share a year earlier. Revenue was at RM503,000 versus RM246,000 a year ago.


This article appeared in The Edge Financial Daily, November 2, 2011.

Unisem expects difficult year-end after posting lower 3Q earnings

KUALA LUMPUR: Semiconductor assembly and test services firm Unisem (M) Bhd is expecting a challenging run-up to the year-end after posting lacklustre earnings for the first three quarters of this year.

In a filing with Bursa Malaysia yesterday, Unisem said net profit for its third quarter (3Q) ended Sept 30 plunged 89.77% to RM5.26 million from RM51.53 million a year ago. Revenue was down 22% to RM288.2 million in the same period.

In the notes to its financial results, Unisem said the lower turnover and earnings were mainly due to the weaker US dollar to ringgit exchange rate in the 3Q and lower sales volume for its products.

“The directors expect demand for the group’s products and services to remain weak for the next quarter (4Q) ending Dec 31 due to global economic uncertainty,” Unisem said.

Pre-tax profit similarly fell 96% to RM2.21 million from RM55.63 million while revenue declined 22.25% to RM288.19 million from RM370.69 million.

Earnings per share was 0.78 sen while net assets per share was RM1.61.

For the cumulative nine months, net profit dropped 84.14% to RM22.38 million from RM141.21 million. Revenue slid 16.21% to RM887.68 million from RM1.059 billion a year ago.

Quarter-on-quarter, Unisem’s net profit halved to RM5.26 million from RM12.02 million while revenue fell 6.28% to RM288.19 million.

Unisem said the lower earnings for 3Q compared with 2Q were due to lower sales volume and higher unrealised foreign exchange losses.

Unisem yesterday ended unchanged at RM1.26 with 496,000 shares traded.


This article appeared in The Edge Financial Daily, November 2, 2011.

MRCB: What property slowdown?

Malaysian Resources Corp Bhd (Nov 1: RM1.95)
Reiterate buy, with target price of RM3.25: Despite concerns over a slowing property market, MRCB’s two key launches — Q Sentral and Sentral Residences were runaway successes with RM1.3 billion sales. Q Sentral strata offices (gross development value or GDV of RM1.2 billion) is 80% sold at RM1,350 psf average sale price (ASP) vs RM1,250 psf expectation. The first tower of Sentral Residences (GDV RM1.4 billion, ASP RM1,100 psf), which is next to St Regis (ASP RM2,200 psf), is 70% sold.

We believe the strong property sales at KL Sentral are due to its maturing franchise there, and established partners and clients such as Quill, CapitaLand and Daol.

With new launches next year in Batu Ferringhi (GDV RM185 million), Jalan Kia Peng (GDV RM324 million) and Setapak (RM2 billion), property will contribute 51% of FY12F earnings before interest and tax vs 35% in FY10.

MRCB’s RM2.6 billion order book ensures earnings visibility over next two years. It is one of 11 contractors prequalified for mass rapid transit elevated civil works and also a project delivery partner for the River of Life Project with Ekovest.

After winning the RM47 million Sungai Pahang rehabilitation project, we expect it to secure more environmental-related jobs, which carry high 15% pre-tax margins.


It is also negotiating for several projects with the government possibly on a private finance initiative basis. Our RM800 million per annum new order win targets for FY12F to FY13F are more conservative than MRCB’s RM1 billion guidance.

Currently trading at mean levels (vs peak of +2 standard deviation). MRCB is attractively priced for exposure to a growing GLC-linked developer with improving earnings delivery and visible share price catalysts.

Our target price is based on sum-of-parts valuation. Other key catalysts are formal participation in the Rubber Research Institute Malaysia land and later launching a RM2.5 billion real estate investment trust. — Hwang DBS Vickers Research


This article appeared in The Edge Financial Daily, November 2, 2011.

Pantech expects demand to gain momentum

Pantech Group Holdings (47.5 sen) is upbeat on the outlook going forward and that its expansion plans are progressing on track. The recovery in demand for the company’s pipes, fittings and flow control (PFF) products is expected to gain traction, both in the domestic and export markets.

The company’s earnings results for 2QFebFY12 were broadly in line with our expectations.

Turnover improved to RM100.6 million, up 3.5% from the previous corresponding quarter and up 5.5% quarter-on-quarter (q-o-q). Trading sales accounted for roughly 60% of total turnover while the manufacturing arm contributed to the balance.

The recovery in domestic demand, which accounts for the bulk of the company’s trading sales, is still sluggish — although off the lows. As a result, margins from the trading arm are still at the lower end of its historical range.

Positively, we expect demand and profitability to gradually pick up steam over the next few quarters on the rollout of oil and gas (O&G) projects under the various government initiatives, including the Economic Transformation Programme (ETP).

The manufacturing arm, on the other hand, is doing comparatively better on strong recovery in overseas markets. Sales continued to trend higher to RM40.6 million in 2QFY12, up from RM30.2 million in 1QFY12 and RM25 million in 2QFY11.

The carbon steel manufacturing facility in Klang is operating at full capacity. Operations at the new stainless steel manufacturing plant in Johor Bahru are also progressing well. All six initial production lines are up and running at almost full capacity. The lines broke even at end-2QFY12 and should start to contribute positively in 2HFY12.

Lower losses from the new manufacturing plant more than offset the slight contraction in trading earnings before interest and tax (Ebit). Ebit for the manufacturing arm improved to about RM3.4 million in 2QFY12, up from RM1.3 million in the immediate preceding quarter.

As a result, net profit improved to RM7.2 million in the latest quarter, up from RM6.2 million in 1QFY12.


Cautiously optimistic on strengthening demand
Despite prevailing uncertainties over the global economic outlook, the company is maintaining its cautious optimism. Global economic growth is still positive, albeit revised lower from previously forecast numbers.

Prices of crude oil have held up well through the volatility in financial markets. Crude oil futures on the New York Mercantile Exchange are currently hovering around US$93 (RM289) per barrel, a level that is supportive of exploration and production activities in the O&G sector.

Even though prices of crude palm oil (CPO) have weakened, demand is still expected to remain fairly resilient. CPO futures on the Bursa Derivatives market are currently trading just under RM3,000 per tonne — well above the average production costs for plantation companies and thus, should continue to drive acreage expansion plans underpinned by expectations of rising demand.

The O&G and oil palm-related sectors collectively account for the bulk of Pantech’s sales for PFF control products.

Domestic demand to gain traction on robust O&G spending
As mentioned above, the recovery in domestic demand is still somewhat sluggish. Nevertheless, capital spending in the domestic O&G sector is expected to be quite robust for the foreseeable future.

The Malaysian government has pinpointed the sector as one of the key focus areas under its ETP, accounting for a substantial share of the total value of the projects that have been announced so far.

National oil company Petroliam Nasional Bhd intends to spend RM250 billion over the next five years to develop new projects, including marginal oilfields, as well as undertake enhanced oil recovery from existing oil fields.

Elsewhere, private sector projects such as Dialog Group Bhd’s Pengerang deepwater petroleum terminal are also expected to spur greater investment in the O&G-related sectors in the country going forward.

The gradual rollout of these projects will translate into greater demand for downstream support services, including demand for Pantech’s PFF products.

Manufacturing plants running near full capacity
Pantech’s manufacturing arm has recovered quite smartly from the slump in overseas demand in the aftermath of the global financial crisis. Sales hit a trough in 2QFY10 and have been trending higher since — despite the strengthening of the ringgit. The weaker US dollar translates into lower sales for the company in ringgit terms.

The company’s carbon steel PFF manufacturing facility in Klang is effectively running at full capacity. To cater to the expected demand growth, a factory is being built on a piece of land adjacent to its existing plant. The additional machinery to manufacture, primarily, high frequency induction long bends, are slated to commission by end-2011. The factory will also house a heat treatment facility.

Pantech is in the midst of adding machinery for another four lines at its new stainless steel facility. The additional lines will expand the current production range to include bigger-sized pipes and also fittings.

If all goes to plan, rated production capacity at this plant will rise to 13,500 tonnes per annum by early 2012 from the current 7,000 tonnes and will be reflected in the company’s FY13 earnings. Total capex is estimated at RM40 million and RM50 million for FY12-FY13 respectively.

The manufacturing arm has already secured a full order book for the rest of the current financial year. Plus, we expect margins to gradually widen — the initial six lines have broken even while the new lines should start to contribute positively by 2HFY13. They will also enjoy better economies of scale.

Looking to expand range to higher value alloy products
Looking further ahead into 2013, Pantech is actively exploring various options to further expand its range to encompass higher value and margin alloy products such as copper-nickel, duplex and super duplex pipes and fittings that are corrosion resistant.

The move would expand its customer base and market reach and is the final piece in Pantech’s five-year plan to hit the sales target of RM1 billion by FY15. The company expects manufacturing sales to account for at least 40% of total sales. Domestic demand will also account for a higher percentage of manufacturing sales, currently derived mainly from exports, as a result of import substitution.

Attractive valuations on growth prospects
Pantech’s well-laid out strategy should enable it to achieve double-digit annual growth over the next few years — based on the expected strengthening in demand that is supported by the company’s expansion plans.

Net profit is rising, albeit still at a gradual pace. This is due to pricing competition as there is currently excess capacity in the industry with demand just starting to pick up pace. Margins were also weighed down by startup costs at the company’s new stainless steel plant.

We believe that Pantech’s earnings will be much stronger in 2HFY12 compared with the RM13.5 million reported in the first half of its financial year. Net profit for the full year is estimated at RM37.7 million — up 30% from the RM29.4 million in FY11 — and is expected to grow further to RM46 million by FY13.

Based on our forecast, the stock is trading at very modest P/E valuations of only 5.7 and 4.6 times respectively for the two years. Plus, the stock is trading below its net asset of 72 sen per share as at end-August 2011.

Pantech’s valuations compare very favourably against most O&G stocks listed on the local bourse, as well as the broader market’s average valuations. Thus, we believe there is significant upside potential for Pantech, particularly for valuations with a slightly longer investment horizon.

Investors can also expect attractive yields
On top of potential capital gains, shareholders can also look forward to attractive yields.

Dividends totalled 3.3 sen per share in FY11. With stronger earnings going forward, we believe Pantech will gradually raise its dividends. We estimate dividends will rise to 3.5 sen per share in FY12, which will earn shareholders an attractive net yield of 7.4% at the current share price. This is well above the average yield for the broader market and prevailing interest rates on bank deposits.


Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.


This article appeared in The Edge Financial Daily, November 2, 2011.

MBSB scaling new heights

Malaysia Building Society Bhd (Nov 1, RM1.78)
Maintain buy with a new fair value of RM2.70: MBSB group’s earnings were ahead of consensus and our full-year forecasts by 16.2% and 16.4% respectively.

Net profit surged 81.4% year-on-year (y-o-y) boosted by: i) Islamic banking income soaring by a hefty 207% y-o-y, well supported by a 98% year-to-date (YTD) growth in personal loans for civil servants and ii) stronger other income (+71.8 y-o-y) arising from higher transaction and processing fees, which expanded in tandem with the enlarged loans base. Consequently, total income increased by 100.5% y-o-y.

The group’s gross loans rose 22.5% YTD, translating into an annualised loans growth of 30%.

The main loans contributor, personal financing (PF-i), expanded by 98% YTD as MBSB provided PF-i to civil servants at more attractive terms including bundling it with will writing and takaful products.

However, mortgage and corporate loans contracted by 2.1% and 11.2% respectively due to aggressive industry competition.

Annualised deposits growth came in at 38.4%, which was higher than the industry average while the cost-to-income ratio (CIR) remained at a favourable 18.1% vs 25.9% 9MFY10 due to efficient cost control and a fast-growing top line. Meanwhile, net impaired loans trended lower to 11% from 16% in FY10.


Besides the retail segment, the company plans to grow its mortgage and corporate loans by launching new products and engaging agents to bring in new business.

It has opened one full-fledged branch and two new representative offices in Selangor, Johor and Perak to extend its network and expand its customer base.

We are tweaking up our FY11 and FY12 earnings by 13.6% and 5.1% respectively after taking into account the strong Islamic banking income from PF-i.

We maintain our “buy” call on the stock, with a revised fair value of RM2.70 as we roll over our valuation from FY11 to FY12, based on 2.6 times FY12 price-to-book value (4% growth rate, cost of equity of 11% and returns on equity of 22.4%). — OSK Research


This article appeared in The Edge Financial Daily, November 2, 2011.

First successful tender for Score

Hock Seng Lee (Nov 1, RM1.43)
Maintain neutral with target price of RM1.50: Hock Seng Lee Bhd (HSL) secured a contract worth RM90.3 million from the Regional Corridor Development Authority (Recoda) of Score (the Sarawak Corridor of Renewable Energy) with a contract period of 17 months.

The contract was HSL’s first successful tender for a project to be directly awarded by Recoda.

The scope of work for the project includes substantial mechanical and electrical works, earthworks, drainage and retaining structures, piling, piping and actual construction of the treatment plant and associated works.

The associated works involve the construction and commissioning of a pump house, chemical house, aerators, flocculation tanks, sedimentation tanks and other filtration process facilities.

One of the beneficiaries of Budget 2012, HSL’s current outstanding order book stands at RM1.1 billion. To date, HSL has secured RM243.2 million worth of projects. Moving forward, we will maintain our RM400 million order book replenishment assumption for HSL as it could be one of the beneficiaries of Budget 2012.

Under Budget 2012, the prime minister announced a RM5 billion allocation to provide basic rural infrastructure including roads, power and water supply.

The prime minister made particular mention of the government’s concern over clean water supply to communities in the remote areas of Sabah and Sarawak.

Rural water supply is a field that HSL is keen to pursue, drawing on its marine engineering skills.

We are maintaining our earnings projection as total project value secured is still within our order book replenishment assumption.

We are maintaining our “neutral” recommendation with target price of RM1.50 for HSL by ascribing price-to-earnings ratio of 8.2 times against FY12 earnings per share of 18.4 sen. — MIDF Research


This article appeared in The Edge Financial Daily, November 2, 2011.

Market Commentary

The FBM KLCI index lost 4.69 points or 0.32% on Wednesday. The Finance Index fell 1.18% to 13274.38 points, the Properties Index up 0.66% to 954.06 points and the Plantation Index rose 0.45% to 7519.01 points. The market traded within a range of 15.63 points between an intra-day high of 1473.13 and a low of 1457.50 during the session.

Actively traded stocks include KBUNAI, SAAG, HARVEST, ASIAEP, HARVEST-WA, UEMLAND, FOCUS, TRINITY, HWGB and MBSB-WA. Trading volume increased to 1564.93 mil shares worth RM1693.74 mil as compared to Tuesday’s 1193.45 mil shares worth RM1293.60 mil.

Leading Movers were GENM (+18 sen to RM3.87), DIGI (+60 sen to RM32.30), IOICORP (+5 sen to RM5.14), TENAGA (+5 sen to RM5.86) and YTL (+4 sen to RM1.49). Lagging Movers were CIMB (-18 sen to RM7.31), MAYBANK (-9 sen to RM8.28), PETCHEM (-13 sen to RM6.24), GENTING (-14 sen to RM10.26) and SIME (-7 sen to RM8.78). Market breadth was positive with 374 gainers as compared to 363 losers.-- JF Apex Securities Bhd

Hong Leong offers staff voluntary separation

Hong Leong Bank (HLB) is offering a voluntary separation scheme (VSS) to all permanent employees of the bank and MIMB Investment Bank as part of its consolidation exercise towards growing its newly-enlarged entity.

"The exercise is to consolidate its position as a fully-integrated financial group as the banking industry landscape has evolved and the level of competition is becoming more challenging and intense," said Hong Leong Bank managing director Yvonne Chia in a statement today.

The VSS scheme, which is on a voluntary basis, is a financial package computed based on factors including the length of service or months to retirement, basic salary and staff categories.

In addition, the bank is also offering medical relief of up to RM1,000, reimbursable for a period of six months from the date of separation, and continuation of housing and motor vehicle loans at staff preferential rates for a period of 12 months from the date of separation. -- Bernama

Asia-Pac REITS can withstand volatile conditions

KUALA LUMPUR, (Nov 2): Asia-Pacific rated real estate investment trusts and real estate operating companies (REITs) are well prepared to face higher volatility in global conditions, says Standard & Poor's Ratings Services.

It said on Wednesday the REITs have made positive steps by reducing their debt burdens and also diversifying their funding sources away from the banking sector.

The ratings agency said in an article, “Asia-Pacific REITs stand in good stead to face shaky conditions", hat these measures have enable them to withstand the volatile conditions, including higher funding costs.

"Funding costs could become more expensive for rated Asia-Pacific REITs, as seen in the widening of credit default swap spreads," S&Poor's credit analyst Craig Parker said.

"Combined with stricter bank regulations, bank debt costs could push higher, affecting Asia-Pacific REITs who remain dependent on bank debt for short-to-medium term funding. In addition, fragile consumer sentiment in the region could result in lower leasing demand and retail sales."

S&P noted that the REITs had adopted more conservative financial profiles and maintained high occupancy levels in their portfolios.

“With prudent portfolio management, REITs are well placed to counter the potentially tougher conditions, in our opinion," it said.

Indeed, Asia-Pacific real estate entities rated by S&P's, whose assets range from malls to skyscrapers, remain largely entrenched in the investment-grade rating category. The ratings agency said most of the 38 issuers rated in the region were around the “A” category.

SapuraCrest secures US$1.4b Petrobras contract

KUALA LUMPUR: SapuraCrest Petroleum Bhd has secured a massive US$1.4 billion (RM4.35 billion) contract from Petróleo Brasileiro SA (Petrobras) for the charter and operations of three pipe-laying support vessels (PLSV), the single-largest contract by value that the group has won in recent years.

In an announcement to Bursa Malaysia yesterday, SapuraCrest said the contract is expected to generate revenue for the group by the fourth quarter of 2014.

It is also anticipated to “contribute positively” to the group’s earnings and net assets for the financial year ending Jan 31, 2015 and beyond, SapuraCrest said.

SapuraCrest said its wholly-owned subsidiary TL Offshore Sdn Bhd will construct two PLSVs outside Brazil and the other will be built in Brazil.

TL Offshore will be tasked with project management, procedures and operations of the PLSVs for Petrobas. The vessels will be deployed to perform oil and gas (O&G) marine construction projects in Brazilian waters.

SapuraCrest executive vice-chairman and president Datuk Seri Shahril Shamsuddin said in a statement the group’s entry into the Brazilian market is part of its long-term global expansion strategy.

“This contract is a significant milestone as it marks our entry into the vast, dynamic yet technologically challenging O&G market in Brazil. It is a definitive acknowledgement of SapuraCrest as a global player,” Shahril said.

Petrobras is a public-listed company in which the Brazilian government holds a majority stake.

The mega award comes in the midst of SapuraCrest’s merger with Kencana Petroleum Bhd via Integral Key Sdn Bhd, a special purpose vehicle established by Mayban Ventures Sdn Bhd.

Announced on July 11, the proposed merger values SapuraCrest at RM5.87 billion and Kencana at RM5.98 billion, with shareholders of the respective companies to get cash and Integral Key shares if they choose to accept the offer.

The merged entity will create the world’s fourth-largest integrated O&G services provider.

While the latest US$1.4 billion award provides a big boost to SapuraCrest’s future earnings, industry observers have raised questions if Mayban Ventures’ proposed merger of SapuraCrest and Kencana has undervalued SapuraCrest.

“Although the terms of the merger would more or less be fixed, it is debatable whether the deal gives enough weight to SapuraCrest’s tender book and future earnings potential,” said one industry observer.

Since the proposed merger was unveiled on July 11, SapuraCrest has secured several contracts with a combined value of RM5.16 billion.

To recap, SapuraCrest’s 50%-owned associate, Labuan Shipyard and Engineering Sdn Bhd, on Sept 30 was awarded a RM99.5 million shipbuilding contract from Tanjung Offshore Bhd.

On Sept 22, SapuraCrest’s unit TL Offshore was also awarded a US$227 million contract to construct two pipelay cum heavylift offshore construction vessels for Cosco Nantong Shipyard Co Ltd.

Kencana has yet to announce any new contract secured since July when the proposed merger with SapuraCrest was announced.

Earlier this year before the merger deal was struck, Kencana’s unit, Kencana HL Sdn Bhd, was given contracts worth over RM539 million.

These included a RM115 million contract from Petrofac E&C Sdn Bhd to construct a mobile offshore production unit and well head support structure for the Sepat early production system off the coast of Terengganu and a RM208 million job for the fabrication of a Kebabangan substructure for the Kebabangan northern hub development project off the coast of Sabah.

Kencana HL had in March also won a RM216 million contract from Petrofac Ltd for the engineering, procurement and construction of two well head platforms for the Cendor oil field off the coast of Terengganu.

Kencana’s wholly-owned subsidiary, Kencana Energy Sdn Bhd, had on Jan 31 entered into contracts to jointly develop and operate an oil and gas field from the Berantai field offshore Terengganu.

SapuraCrest yesterday shed six sen to close at RM4.00 with 543,000 shares traded. The stock surged 8.18% to RM4.10 on Oct 27 from RM3.79 on Oct 25, its steepest one-day gain in six months.


This article appeared in The Edge Financial Daily, November 2, 2011.
MF Global causes havoc< Prev Next >Zeti: Malaysia’s 3Q GDP shows improvements

DRB-Hicom plans RM1.8b sukuk programme

KUALA LUMPUR (Nov 2): DRB-HICOM BHD [] plans to establish a medium term note sukuk programme of up to RM1.80 billion in nominal value to finance working capital requirements, projects and refinance borrowings.

It said on Wednesday it had appointed Maybank Investment Bank Bhd as, amongst others, the principal adviser, lead arranger and lead manager for the Sukuk programme.

DRB-Hicom said that Malaysian Rating Corporation Bhd has assigned a preliminary rating of AA-IS to the Sukuk programme with a stable outlook.

“The Sukuk under the Sukuk programme shall be issued under the Shariah principle of Murabahah via Tawarruq arrangement. The tenure of the Sukuk programme is up to 15 years from the date of first issuance,” it said.

The company said the proceeds from the Sukuk programme would be used to finance working capital requirements; to finance current and/or future projects and/or investments and/or capital expenditure; tTo refinance borrowings.

DRB-Hicom said the Securities Commission Malaysia had on Monday approved the establishment of the Sukuk programme.

ING Insurance gets mandatory offer exemption

The Securities Commission (SC) has granted an exemption to ING Insurance Asia N.V. from making a mandatory offer for the remaining equity stakes in ING Public Takaful Ehsan Bhd and ING Funds Bhd.

In a statement today, ING Insurance Asia said the mandatory offer obligation arose in connection with a proposed internal corporate restructuring and streamlining of ING Group's insurance operations in the US and the European-Asian region.

In conjunction with this proposed corporate restructuring exercise, ING Insurance International B.V. proposes to transfer its 100 per cent equity interest in ING Management Holdings (Malaysia) Sdn Bhd to ING Insurance Asia.

After the proposed transfer, ING Insurance Asia will hold an indirect 60 per cent equity interest in ING Public Takaful and an indirect 70 per cent equity interest in ING Funds.

The remaining shareholders of ING Public Takaful (namely Public Islamic Bank Bhd and Public Bank Bhd) and of ING Funds (namely TAB Inter-Asia Services Sdn Bhd) had provided undertaking letters that they would not accept a takeover offer, if such an offer is made.

"On that basis, ING Insurance Asia made an application to the SC on September 14 seeking the exemption. The exemption was granted by the SC on October 25," the company said. -- Bernama

KL shares sharply lower at mid-afternoon

Share prices on Bursa Malaysia were sharply lower at mid-afternoon today, but bargain-hunting helped recoup part of the early losses, dealers said.

At 3pm, the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) was 6.42 points lower at 1,469.22, after opening 7.84 points lower at 1,467.8.

In a bearish market, losers led gainers 423 to 238 while 259 counters were unchanged, 550 untraded and 20 others suspended.

A total of 838.8 million shares worth RM980.27 million were traded.

The Finance Index fell 148.63 points to 13,284.74, the Plantation Index rose 9.86 points to 7,494.82 and the Industrial Index lost 1.81 points to 2,690.43.

The FBM Emas Index decreased 36.66 points to 10,016.05, the FBM Mid 70 Index fell 19.521 points to 10,787.26 and the FBM ACE Index added 19.41 points to 4,002.78.

Among active stocks, AsiaEp Resources gained 0.5 sen to 8 sen, UEM Land rose 4 sen to RM2.13 and Focus Dynamics increased 1 sen to 10 sen.

For the heavyweights, Maybank lost 8 sen to RM8.29, CIMB fell 19 sen to RM7.30 and Sime Darby slipped 6 sen to RM8.79. -- Bernama

Rafidah: No monopolistic practices in AirAsia-MAS tie-up

KUALA LUMPUR (Nov 2): AirAsia X Bhd chairman Tan Sri Rafidah Aziz sought to quash fears that a tie-up between Malaysia Airlines Systems (MAS) Bhd and AIRASIA BHD [] will result in monopolistic practices between the two carriers following the share swap exercise.

Rafidah said on Wednesday that the share swap agreement between the shareholders of both airlines will not result in any behavior that would violate anti-trust laws.

"Nobody should have undue worries, have no fear of monopoly. We (AirAsia and MAS) are guided by very strict anti-trust laws overseas and in Malaysia when the competition laws come into force next year," Rafidah told a press conference at the Malaysia Europe Forum, of which she is patron.

The Malaysian Competition Commission is currently reviewing the possible impact of the MAS-AirAsia collaboration on the local market, and would advise both airlines on the possible do's and dont's.

CIMB tops Maybank as leading sukuk arranger

CIMB Group Holdings Bhd is poised to overtake Malayan Banking Bhd as the lead arranger for Islamic bonds this year after helping manage Malaysia’s second-biggest offering in 2011.

The lender co-arranged power producer Tenaga Nasional Bhd’s sale of RM4.85 billion (US$1.6 billion) of syariah-compliant debt in conjunction with Kuala Lumpur-based Bank Islam Malaysia Bhd. That offering took the bank’s total to US$4.5 billion, compared with Maybank’s US$3.8 billion, according to data compiled by Bloomberg. Sales of Islamic bonds doubled in October as yields at a seven-week low and the resolution to Europe’s debt crisis encouraged borrowers.

CIMB will focus on attracting Middle East issuers to Malaysia and clinching more deals at home as part of its strategy for 2012, said deputy chief executive officer Lee Kok Kwan.

Maybank’s investment arm said the lender plans to concentrate on markets in Singapore, Indonesia and China.

“The Middle East will continue to be an important market,” Lee said in an interview in Kuala Lumpur yesterday. “We have mandates on hand and will continue to pitch for more deals there.”

Maybank and CIMB, Malaysia’s two-biggest banks, respectively, managed a combined 40 per cent of global sukuk issued this year, data compiled by Bloomberg show. The lenders handled a RM5.9 billion sale from Pengurusan Air SPV Bhd, a state-owned water-asset management company, in June, the biggest domestic offering this year. They were also among four underwriters of the country’s US$2 billion sovereign Islamic bonds in June. -- Bloomberg

KL shares mostly lower at midday

Share prices on Bursa Malaysia were mostly lower at the end of the morning session today, led by the consumer sector, dealers said.

At 12.30pm, the benchmark FTSE Bursa Malaysia KLCI was 11.59 points lower at 1,464.05, after opening 7.84 points lower at 1,467.8.

In a bearish market, 18 of the 30 counters in the key index were lower today, led by Genting, which was down 22 sen to RM10.18, while five counters were flat.

However, further losses were capped by another seven counters headed by BAT which gained 42 sen to RM46.00 and DiGi, up 38 sen to RM32.08.

HwangDBS Vickers Research said the key index is expected to dip below the immediate support level of 1,475 and towards 1,445 moving ahead.

"Essentially, sentiment will be clouded by a bearish external backdrop," the research house added, referring to the Greek government's decision to call for a referendum on its latest bailout package.

Back home, the market breathed negative as losers led gainers 470 to 151 while 245 counters were unchanged, 604 untraded and 20 others suspended.

A total of 652.3 million shares worth RM750.32 million were traded.

The Finance Index fell 165.48 points to 13,267.89, the Plantation Index declined 46.37 points to 7,438.59 and the Industrial Index lost 5.24 points to 2,687.

The FBM Emas Index decreased 73.26 points to 9,979.45, the FBM Mid 70 Index fell 70.12 points to 10,736.66 and the FBM Ace Index lost 4.63 points to 3,978.74.

Among the active stocks, AsiaEp Resources gained half-a-sen to eight sen, Compugates was flat at 6.5 sen and UEM Land slipped three sen to RM2.06.

Among the heavyweights, Maybank lost nine sen to RM8.28, CIMB fell 19 sen to RM7.30 and Sime Darby slipped six sen to RM8.79 - Bernama

Mah Sing, Central Pattana ink pact

Mah Sing Group Bhd today signed a memorandum of understanding (MOU) with Central Pattana Public Co Ltd, to jointly study the potential investment of developing and managing a one million sq ft retail mall, within Icon City in Petaling Jaya, through a joint venture and or partnership.

"We believe the potential joint venture with Central Pattana will add vibrancy and further uplift the overall appeal of Icon City with the latest in retail offerings and shopping experiences of world-class standards," said Mah Sing's Group

Managing Director cum Group Chief Executive, Tan Sri Leong Hoy Kum, in a statement today.

Icon City is Mah Sing’s flagship integrated commercial project with an estimated gross development value of about RM3.2 billion.

The integrated development comprises shop offices, retail lots, small office versatile offices and serviced residences in Phase 1.

It also comprises the retail mall, hotel, serviced residences, boutique offices and corporate office towers in the second phase.

Central Pattana is Thailand's largest retail developer currently managing 16 shopping centres, six office buildings, two hotels and two residential projects. -- Bernama

MEGB advances despite caution over rising competition

KUALA LUMPUR (Nov 2): Shares of Masterskill Education Group Bhd (MEGB) bucked the overall cautious market sentiment to climb 13 sen to RM1.42 at the midday break on Wednesday.

The FBM KLCI was down 11.08 points to 1,464.56. Turnover was 652.31 million shares valued at RM750.32 million. Losers beat gainers three to one with 470 decliners to 151 advancers and 245 stocks unchanged.

However, OSK Research was cautious about the outlook for MEGB and reduced its recommendation from Trading Buy to Neutral due to rising downside risks to earnings.

The research house said there could be a potential shortfall in the student enrolment. It believed the risks to earnings were likely to sap investors’ sentiment and trading interest in the near term.

“Following our earnings revision, our FV now stands at RM1.30 based on a more conservative 9.0 times FY12 price-to-earnings ratio (from 10 times FY12 PER previously),” it said.

OSK Research was concerned about the possible increasing competition in the healthcare education universe and expected a bumpy ride ahead, especially with its peers ramping up capacity.

“We are also becoming increasingly cautious on the stock maintaining its dividend yield of over 7% given that high capex on the proposed RM150 million Bangi campus is likely to cap payout in the near term,” it said.

DRB-HICOM to undertake sukuk programme worth RM1.8bil

KUALA LUMPUR: DRB-HICOM Bhd will undertake an Islamic medium-term notes (sukuk) programme of up to RM1.8 billion.

In a filing to Bursa Malaysia today, the company said it has mandated Maybank Investment Bank Bhd as principal adviser, lead arranger and lead manager for the programme.

DRB-HICOM said Malaysian Rating Corp Bhd has assigned a preliminary rating of 'AA-IS' to the programme with a stable outlook.

"The tenure of the programme, which will be issued under the syariah principle of Murabahah via Tawarruq arrangement, is up to 15 years from the date of first issuance," it said.

The company said the proceeds from the programme would be used to finance working capital requirements; current and future projects; investments; capital expenditure; and, refinance borrowings.

It said the Securities Commission Malaysia had on Oct 31, 2011 approved the establishment of the programme. - BERNAMA

Kimlun plans foray into property devt

KUALA LUMPUR (Nov 2): Kimlun Corp Bhd plans to venture into the property development with the proposed acquisition of 17.2 ha of agricultural land in Negeri Sembilan for RM27.36 million.

The company said on Wednesday its planned to build factories on the land, once it had received approval from the authorities for the conversion.

Its unit Kimlun Land Sdn Bhd had signed four sale and purchase agreements with the vwndors to buy the land in the Setul district in Seremban.

It said the property were within the area zoned for industrial activities in Nilai, Seremban, Negeri Sembilan.

“The proposed acquisition is in-line with the group’s strategy to move up-stream into property development to diversify its source of revenue,” it said.

Mah Sing, Thailand developer plan mall in Icon City

KUALA LUMPUR (Nov 2): MAH SING GROUP BHD [] is teaming up with Thailand's largest retail developer Central Pattana plc to look into the proposed development and management of a shopping mall in Icon City, Petaling Jaya.

Mah Sing said on Wednesday, its unit Sierra Peninsular Development Sdn Bhd had signed an MoU with Central Pattana to exchange general information to look into the shopping mall project via a joint venture and/or partnership.

Sierra Peninsular is the developer of Icon City - Mah Sing Group’s flagship commercial project with an estimated gross development value of RM3.2billion.

“The potential joint cooperation with Central Pattana represents a strategic opportunity for Mah Sing to venture into commercial and retail property investment and management, which will complement its property development core competencies,” Mah Sing said.

The integrated development comprises shop offices, retail lots, small office versatile offices and serviced residences in Phase 1, as well as the Mall, hotel, serviced residences, boutique offices and corporate office towers in Phase 2.

Mah Sing said the first phase of Icon City, launched in July, saw overwhelming response for its commercial small office versatile office units, 30 Jewels (7&8 storey shop offices) and Gourmet Street (1&2 storey retail shops).

“To date, PROPERTIES [] in excess of RM 600 million in gross development value has been taken up,” it said.

Greek woes snuff out November rally hopes

KUALA LUMPUR (Nov 2): Investors saw their hopes for a November rally evaporate after Greece's surprise call for a referendum on a European bailout with regional markets falling up to 1.6% at midday on Wednesday.

At 12.30pm, the FBM KLCI was down 11.08 points to 1,464.56. Turnover was 652.31 million shares valued at RM750.32 million. Losers beat gainers three to one with 470 decliners to 151 advancers and 245 stocks unchanged.

The ringgit weakened further against the US dollar to RM3.1293, US light crude oil fell 67 cents to US$91.52 while Brent crude lost 59 cents to US$108.95 a barrel. The prices rose 6.6% in October. However, crude palm oil third-month futures rose RM12 to RM2,932 a tonne

Japan’s Nikkei 225 fell 1.6% to 8,694.30, Hong Kong’s Hang Seng Index slipped 0.92% to 19,192.72, Shanghai’s Composite Index 1% to 2,445.40 but Singapore’s Straits Times Index bucked the gloomy market sentiment, eking out a gain of 0.48% to 2,802.73.

Meanwhile, Reuters reported that Bank of Japan board member Sayuri Shirai warned that global financial markets are likely to remain under intense strain as there is little chance that Europe's debt problems will be resolved soon.

Shirai said she was particularly mindful of the risk that Europe's deepening debt woes would hurt Japan's economy by spurring further gains in the yen and falls in stock prices as global investors flee to safer assets.

At Bursa Malaysia, banks were among the major decliners and also GENTING BHD []. CIMB fell 19 sen to RM7.30, dragging the KLCI down 3.27 points, Maybank lost nine sen to RM8.28 and AMMB 11 sen to RM5.83.

Genting’s decline of 22 sen dragged the index down 1.88points and Petronas Chemicals 16 sen fall to RM6.21 pushed the index down by another 1.58 points. Other index stocks which fell were Petronas Chemicals, down 16 sen to RM6.21, Axiata two sen to RM4.85 while among PLANTATION []s-related counters, Sime fell six sen to RM8.79 and IOI five sen to RM5.04.

Genting Malaysia rose 10 sen to RM3.79 as investors were upbeat about its outlook after the huge turnout on the opening of Genting Malaysia’s New York casino.

Nestle fell 80 sen to RM49.60, Panasonic Malaysia 36 sen t RM19.10, Dutch Lady 34 sen to RM19.80 and Carlsberg 18 sen to RM6.85.

However, BAT was up 42 sen to RM46, DiGi 38 sen to RM32.08 and SapuraCrest seven sen to RM4.07.

Felda mulls opening estates in Cambodia

Felda, with two estates in Indonesia, is considering an offer to open estates in Cambodia.

Its Chairman Tan Sri Mohamed Isa Abdul Samad said Felda management was currently negotiating with the Cambodian authorities following an offer to open up 160,000 hectares (400,000 acres) in that country.

He said the Federal Land Development Authority has been provided with the necessary documents, relevant details and study findings of Malaysian organisations for consideration.

"I believe we will study the offer as it is a good opportunity," he said.

Mohamed Isa said Cambodian Prime Minister Hun Sen, duiring his visit to Malaysia, had suggested to Prime Minister Datuk Seri Najib Tun Razak that Felda open estates in Cambodia. -- Bernama

Foreign funds buy RM1.5b KL shares in Oct

Overseas investors bought Malaysian stocks in October after two months of outflows, according to data compiled by the Kuala Lumpur stock exchange.

Foreign funds bought RM1.5 billion of Malaysian shares last month, the exchange said on its website. In September, RM300 million flowed out of equities and RM3.8 billion exited in August. -- Bloomberg

KL shares stay easier at midmorning

Share prices on Bursa Malaysia remained lower at mid-morning today with further selling activities dragging down the FTSE Bursa Malaysia KLCI (FBM KLCI) by 1.2 per cent, dealers said.

At 11am, the benchmark index fell 17.5 points to 1,458.14, after opening 7.84 points lower at 1,467.8.

Losers led gainers 499 to 82 while 173 counters were unchanged, 716 untraded and 20 others suspended.

A total of 386.02 million shares worth RM416.61 million were traded.

The Finance Index fell 189.88 points to 13,243.49, the Plantation Index declined 76.86 points to 7,408.1 and the Industrial Index lost 17.65 points to 2,674.59.

The FBM Emas Index decreased 115.88 points to 9,936.83, the FBM Mid 70 Index fell 111.84 points to 10,694.94 and the FBM Ace Index erased 24.2 points to 3,959.17.

Among the active stocks, Compugates was flat at 6.5 sen, Sumatec lost 1.5 sen to 11.5 sen and UEM Land slipped seven sen to RM2.02.

Among the heavyweights, Maybank lost 10 sen to RM8.27, CIMB fell 20 sen to RM7.29 and Sime Darby dipped 16 sen to RM8.69. - Bernama

KL shares sharply lower in early trade

KUALA LUMPUR: Share prices on Bursa Malaysia opened sharply lower today as the market extended selling pressure for the second day on the back of a bearish external backdrop, dealers said.

At 9.35am, the benchmark FTSE Bursa Malaysia KLCI was down 17.78 points or 1.2 per cent to 1,457.86 after opening 7.84 points lower at 1,467.8.

Market breathe negative as losers led gainers 411 to 57 while 113 counters were unchanged, 889 untraded and 20 others were suspended.

Trading was relatively thin with volume amounting to 195.3 million shares worth RM195 million.

The Finance Index fell 178.24 points to 13,255.13, the Plantation Index declined 63.53 points to 7,421.43 and the Industrial Index lost 21.41 points to 2,670.83.

The FBM Emas Index dwindled 116.41 points to 9,936.3, the FBM Mid 70 Index tumbled 104.46 points to 10,702.32 and the FBM Ace Index shed 32.6 points to 3,950.77.

Among active stocks, Compugates was flat at 6.5 sen, Sumatec lost half a sen to 12.5 sen and UEM Land slipped six sen to RM2.03.

For heavyweights, Maybank lost 10 sen to RM8.27, CIMB fell 17 sen to RM7.32 and Sime Darby dropped 11 sen to RM8.74. - Bernama

APM Automotive rises on IAC ventures

APM Automotive Holdings Bhd, a Malaysian auto-parts supplier, rose the most in more than two weeks in Kuala Lumpur trading after forming two joint ventures with International Automotive Components Group.

The stock climbed 3.4 percent to RM4.55 at 9:47 a.m. local time, set for its steepest gain since Oct. 17. -- Bloomberg

Unisem slides on Q3 profit decline

Unisem (M) Bhd, a Malaysian semiconductor assembler, fell the most in more than a month in Kuala Lumpur trading after it said third-quarter profit dropped 90 percent to RM5.27 million.

The stock slid 5.6 percent to RM1.19 at 9:02 a.m. local time, set for its steepest decline since Sept. 26. -- Bloomberg

UMW dips on weak market, OSK maintains sell

KUALA LUMPUR (Nov 2): Shares of UMW HOLDINGS BHD [] slipped marginally on Wednesday, weighed down by the weak overall market, after winning a US$72 million contract from Petronas Carigali Sdn Bhd.

At 10.01am, UMW was down one sen to RM6.59. There were 77,200 shares done at prices ranging from RM6.57 to RM6.60.

The company announced on Tuesday its 85%-owned UMW JDC Drilling Rig Sdn Bhd, announced on Bursa it would provide a semi-submersible drilling rig, Hakuryu–5 for Petronas Carigali’s drilling programme.

However, OSK Research said it was maintaining its Sell call on UMW. It trimmed UMW’s oil and gas earnings from the non drilling side, from an aggressive earnings growth of 15% to a contraction of 15% considering the weaker macro outlook for the global economy, which will dent oil demand.

“After incorporating earnings from the Hakuryu–5, we are trimming our FY12 and FY13 earnings by 1.75% and 2.25% respectively. This lowers our sum of parts valuation for UMW to RM6.18,” it said.

Unisem slips on disappointing 3Q results

KUALA LUMPUR (Nov 2): Shares of UNISEM (M) BHD [] fell on Wednesday as investors were disappointed with the weak third quarter results, which saw earnings tumble by nearly 90% to RM5.27 million.

At 9.49am, it was down six sen to RM1.20. There were 2.11 million shares done at prices ranging from RM1.18 to RM1.22.

On Tuesday, Unisem reported earnings fell 89.7% to RM5.27 million in the third quarter ended Sept 30, 2011 from RM51.53 million a year ago. Its revenue fell 22.2% to RM288.19 million from RM370.69 million.

CIMB Equities Research said it was maintaining its Underperform call on Unisem following the results, which it described were a “letdown” and the outlook was not expected to improve.

The poor demand and low utilisation were the de-rating catalysts.

Telekom's tough procurement policy saves RM1bil

PETALING JAYA: The massive RM11.3bil high-speed broadband (HSBB) project may eventually cost Telekom Malaysia Bhd (TM) at least RM1bil less in expenditure than its original costing because it has implemented a tough procurement policy, according to sources.

“It is a form of savings as TM will not need to invest as much as it had earlier anticipated and that also means it does not have to borrow that much as well,'' said a source.

As it is, TM is rushing to wire up 1.1 million premises by the end of this year out of the 1.3 million premises it is supposed to connect under the HSBB.

Those in the know claimed TM was currently finalising the numbers but it declined to comment on the potential savings of RM1bil from the HSBB project. However, in reply to queries from StarBiz, it did say that “the PPP (public-private partnership) agreement itself provides for cost-savings sharing with the Government and there was mutual incentive (by the Government and TM) to achieve efficiencies and this seems to have worked.''

Essentially, it was about “efficient design architecture, good vendor relations, more cost-efficient roll-out plans, optimisation of resources,'' TM said.

Three years ago TM entered into a PPP with the Government for the HSBB which was about deploying fibre to 1.3 million premises within three years at a cost of RM11.3bil. The 10-year project also includes provision for expansion of the international connectivity, IP/core network improvements for nationwide reach.

The Government forked out RM2.4bil for the HSBB and TM's portion was RM8.9bil. After three years, TM has 184,000 residential and business subscribers and nearly 1.1 million premises passed.

Sources claimed that the investments made for the HSBB thus far by the parties were close to RM5bil. Based on the RM1bil savings, it translated into about 10% of the total cost of the project.

However, they claimed that if TM continued with its tough procurement policy, it could even save up to 20% upon completion of the project and that could mean savings of RM2bil. This could bring the original cost down from RM11.3bil to RM9.3bil.

“When the project was announced it was based on certain budgets but as they got going they realised there were some efficiency gains. Then there was much hue and cry about the project cost as some had thought that it was inflated.

If they manage to bring the cost down it is good, but the question that begs answering is what are they going to do with the savings?

“Will they give the money back to the Government or do they have the buy-in from the Government to expand coverage into new areas?'' asked a source.

TM said: “Suffice to say, whatever savings gained along the way may be ploughed back into the long-term project to increase the reach and expansion plans, and this will also be subject to further discussions with the Government and the PPP agreement.

“Rest assured, the mutually-shared objectives of the HSBB project as part of this historic PPP will be on the minds of all parties involved towards the future benefit of Malaysia and all Malaysians.''

The telco said it “would continue to strive towards improving its efficiencies in the project and also other parts of TM.”

“In line with our commitment towards good corporate governance, we also continue to be fully transparent on our spending for the project.

“As agreed with the Government, TM is reimbursed on the project expense based on an incurred claims basis depending on the project milestones reached by TM. All the reimbursements are done after stringent verification exercises by an independent auditor appointed by the Government. However, we are not in the position to disclose details as we are governed under the Official Secrets Act 1972 since this involves an agreement with the Government,'' TM said.

In its reply to StarBiz it cited a report by BT Teleconsult saying that “the capex cost of the TM network is one of the lowest in the world and this is due to choice of cascaded architecture, high proportion of overhead distribution and low labour costs and residential geotype allowing high-density homes to be served from rear service alleys.''

KLCI falls more than 16 pts in early trade

KUALA LUMPUR (Nov 2): Stocks fell at the open on Wednesday, sending the FBM KLCI down more than 16 points following the selldown on Wall Street and key regional markets.

Investors were spooked by Greece's surprise call for a referendum on an European bailout plan that investors had hoped would be the solution to that region's sovereign debt woes, Reuters reported.

The Nikkei average lost 1.5% to 8,706.72, while the broader Topix index dropped 1.4 percent to 744.22.

At Bursa Malaysia, the KLCI fell 16.25 points to 1,459.39 at 9.22am. Turnover was 147.44 million shares done valued at RM141.62 million. Losers hammered gainers 372 to 48 while 97 stocks were unchanged.

Panasonic Malaysia continued to fall, down 44 sen to RM19.02, GENTING BHD [] 22 sen to RM10.18, JTI 20 sen to RM6.20 while Tradewinds fell 19 sen to RM8.80.

IJM fell 18 sen to RM5.50 while Hong Leong Bank and Petronas Chemical gave up 16 sen each to RM10.56 and RM6.21.

CIMB Research maintains Underperform on Unisem

KUALA LUMPUR (Nov 2): CIMB Equities Research is retaining its Underperform on UNISEM (M) BHD [] as its results for the third quarter ended Sept 30, 2011 were a letdown and the outlook is not expected to improve.

It said on Wednesday that poor demand and low utilisation were the de-rating catalysts.

“Revenue and margin disappointment led to a 9M11 net profit that was only 46% of our full-year forecast and 36% of consensus forecast.

“We slash our EPS, which trims our target price, still based on a 20% discount to its five-year historical average P/BV of 1.0 times. Retain Underperform,” it said.

Unisem reported on Tuesday its 3Q earnings fell 89.7% to RM5.27 million in the third quarter from RM51.53 million a year ago and cautioned demand for the group’s products and services to remain weak for the next quarter due to global economic uncertainty. Its revenue dropped 22.2% to RM288.19 million from RM370.69 million.

Billionaire Ross' IAC enters Malaysia

International Automotive Components Group, the auto-parts maker owned by billionaire Wilbur Ross, said it is expanding in Asia through joint ventures with a Malaysian supplier in its home country and in Thailand.

IAC will own 60 percent of a venture in Thailand with APM Automotive Holdings Bhd, while in Malaysia, IAC will hold a 40 percent stake, Ross’s company said yesterday in a statement. IAC and APM said they will design, engineer and manufacture instrument and door panels, floor consoles, flooring and acoustics, package trays and rocker panels for global automakers and domestic companies in the region.

“IAC considers the ASEAN region to be very important,” Jim Kamsickas president of IAC North America and Asia, said in the statement. “APM and IAC share similar visions for business, along with core competencies and experience in automotive interiors, comprehensive manufacturing capability and commitment to providing exceptional customer satisfaction.”

Ross assembled IAC through 14 takeovers starting in 2006. IAC, which makes instrument displays, door panels and headliners, had sales of about US$3.75 billion in 2010, 6 percent of it in Asia. The company employs about 22,000 people in 16 countries. It had net income of US$25 million last year and US$3 million in this year’s first half, according to a registration statement Luxembourg-based IAC filed with the U.S. Securities and Exchange commission.

In September, IAC delayed a planned initial public offering of its stock until at least January because of market turmoil in the U.S. and Europe, two people familiar with the matter said last month.

IAC’s North American headquarters are in Southfield, Michigan. Jens Hohnel, president of the Europe division, is co- chief executive officer with Kamsickas. -- Bloomberg

AirAsia Japan to add long-haul flights in 2013

AirAsia Japan Co, the start-up airline backed by the region’s biggest low-cost carrier, will add long-distance flights in 2013 as it seeks to lure holidaymakers and budget travelers with cheap flights.

The airline may offer services to Thailand, Indonesia and Singapore after introducing widebody Airbus SAS A330 planes, Chief Executive Officer Kazuyuki Iwakata said in interview yesterday. The company will begin short-haul routes from Tokyo’s Narita airport in August with single-aisle A320s.

AirAsia Japan may order the A330s with part-owner AirAsia Bhd. to help win lower prices, Iwakata said without elaboration. The Japanese carrier is also counting on AirAsia’s regionwide operations and marketing to help it carry 10 million passengers annually within five years.

“We don’t view our competitors as ANA and JAL as much as resorts such as Tokyo Disney Resort,” Iwakata said, referring to full-service carriers All Nippon Airways Co and Japan Airlines Co. “We’re aiming at families who want to enjoy the weekend or people who play Pachinko -- we want them to be able to think about taking a flight as easily as they would hop on a bus.”

The new airline, part-owned by ANA, intends to lure passengers with fares as much as two-thirds cheaper than traditional carriers. It will compete with Skymark Airlines Inc, Japan’s biggest budget carrier, and Jetstar Japan, a low- cost venture being set up by JAL and Qantas Airways Ltd.’s budget unit. ANA is also backing Peach Aviation Ltd, another planned no-frills carrier that will serve western Japan.

Separately, Singapore Airlines Ltd also yesterday detailed plans for a new long-haul discount carrier, Scoot, which will begin flights next year. -- Bloomberg