Thursday, 10 November 2011

Bursa Malaysia’s trading volume surges to 2.6b

KUALA LUMPUR (Nov 10): Heavy trading of penny stocks pushed the overall volume on Bursa Malaysia to multi-months high of 2.64 billion units on Thursday as traders switched in and out of stocks which had been under the radar screen of investors for months.

At the close, the FBM KLCI fell 16.99 points or 1.14% to 1,472.65. Turnover was 2.64 billion shares valued at RM1.46 billion. There were 227 gainers, 568 losers and 212 stocks unchanged.

Other key regional markets fared worse, with Hong Kong shares down more than 5%, wiping out almost a week's gains, as Europe's escalating debt crisis and weak results from the likes of HSBC Holdings sent investors rushing for the exits, Reuters reported.

Financials bore the brunt of the sell-off, with Chinese banks under additional pressure after Goldman Sachs' sold parts of its stake in top lender Industrial & Commercial Bank of China .

The Hong Kong benchmark index ended 5.3% lower or down 1,050.54 points to 18,963.89, while the Shanghai Composite fell 1.8% to 2,480. The Nikkei 225 lost 2.91% to 8,500.80, South Korea’s Kospi 4.94% to 1,813.25 and Singapore’s Straits Times Index 2.51% lower at 2,786.90.

At Bursa Malaysia, Genting fell 32 sen to RM10.68, dragging the KLCI down 2.74 points while IOI lost 12 sen to RM5.05, pushing the index down 1.78 points.

Nestle and BAT fell 50 sen each to RM49 and RM46.10 while KLK and Genting lost 32 sen each to Rm20.82 and RM10.68. PPB declined 30 sen to RM16.84, United PLANTATION []s 28 sen to RM17.60.

MISC fell 17 sen to RM6.78, Tenaga 13 sen to RM5.79 and CIMB 10 sen to RM7.26 while Petronas Chemicals shed nine sen to RM6.39 and Sime six sen to RM8.86.

Among the penny stocks, Patimas rose two sen to 7.5 sen with 106.91 million shares done in the absence of any corporate developments. Sumatec added 5.5 sen to 19.5 sen and the warrants 5.5 sen to 14 sen while SAAG edged up five sen to eight sen.

Market Commentary

The FBM KLCI index lost 16.99 points or 1.14% on Thursday. The Finance Index fell 0.74% to 13183.47 points, the Properties Index dropped 1.52% to 945 points and the Plantation Index down 1.31% to 7486.92 points. The market traded within a range of 8.48 points between an intra-day high of 1474.73 and a low of 1466.25 during the session.

Actively traded stocks include PATIMAS, ESCERAM, SUMATEC, SAAG, SUMATEC-WA, TRINITY, TIGER, HUBLINE, DATAPRP and IRIS. Trading volume decreased to 2644.11 mil shares worth RM1462.10 mil as compared to Wednesday’s 2677.72 mil shares worth RM1818.10 mil.

Leading Movers were MAYBANK (+2 sen to RM8.24) and MAXIS (+1 sen to RM5.27). Lagging Movers were GENTING (-32 sen to RM10.68), IOICORP (-12 sen to RM5.05), CIMB (-10 sen to RM7.26), TENAGA (-13 sen to RM5.79) and AXIATA (-6 sen to RM4.90). Market breadth was negative with 227 gainers as compared to 568 losers.-- JF Apex Securities Bhd

Eversendai posts net profit RM26.4m for 3Q, order book RM1b

KUALA LUMPUR (Nov 10): Eversendai Corporation Bhd posted net profit of RM26.44 million in the third quarter ended Sept 30, 2011 and was upbeat about the prospects, armed with a order book of more than RM1 billion.

It said on Thursday that revenue was RM254.41 million while earnings per share were 4.13 sen. For the nine-months ended Sept 30, its earnings were RM83.03 million on the back of RM720.41 million in revenue.

With the diverse and strong order book, the group was strategically positioned to perform well in FY 2011 and going forward, it said.

Eversendai added the wide geographical spread, number of projects and large client base of the current order book minimises the risk profile of the group substantially as it is not dependent solely on any specific sector and or client.

The company said 88.5% of the group’s revenue was from its Middle East operations in UAE, Saudi Arabia and Qatar.

The current major projects in the Middle East included the New Doha International Airport and Doha Convention Center & Tower in Qatar, King Abdullah Petroleum Studies & Research Center (KAPSARC) and CMA Towers in Saudi Arabia.

The group’s India and Malaysia operations contributed 5.0% and 6.5% respectively to the group revenue.

“The current profit for the financial period was arrived at after expensing RM51.18 million of operating and administration expenses and RM14.76 million of finance cost. Total expenditure for the financial period was mainly from staff related expenses and lease rental of RM20.42 million and RM7.67 million respectively,” it said.

Benalec gets Johor govt reclamation projects

KUALA LUMPUR (Nov 10): Benalec Holdings Bhd has secured the go-ahead from the Johor government to undertake two reclamation projects along the state’s coastline.

The company told Bursa Malaysia on Thursday the first reclamation project would be at the coast of Pengerang measuring 1,760 acres and the second project of the coast of Tanjung Piai measuring 3,485 acres.

It said its sub-subsidiaries Spektrum Budi Sdn Bhd and Spektrum Kukuh Sdn Bhd had received approval letters from Johor state economic planning unit on the proposed projects.

“The projects will be undertaken to facilitate the development of the petroleum and petrochemical hubs and maritime industrial parks situated at the coasts of Pengerang and Tanjung Piai,” it said.

Benalec to get Johor project?

KUALA LUMPUR: Benalec Holdings Bhd has suspended the trading of its shares today, ahead of a likely announcement of a major land reclamation project in Johor.

In a statement to Bursa Malaysia asking for the suspension, the company said it intends to release an announcement on a material contract today.

Sources said Benalec is likely to announce a land reclamation project to create a large oil and gas (O&G) hub in the Pengerang area, on the southern tip of Johor.

Pengerang is home to Dialog Group Bhd’s project to develop a deepwater petroleum terminal and tankage facilities. Dialog’s terminal involves tankage facilities for handling, storing, blending and distribution of crude oil and petroleum products, together with marine facilities capable of handling large crude carriers with a water depth of up to 26 metres.

Benalec’s project, it is believed, will likely involve reclaiming land to house a major industrial park for companies and facilities serving the O&G industry there. The park is expected to cater for businesses spanning the entire value chain of the oil and gas industry, including oil terminals, steel industries and shipyards.

Benalec, whose niche is in marine construction and reclamation works, is likely to undertake the job and will develop part or all of the land.

The project will also be one of the biggest reclamation jobs for Benalac outside its traditional base of Melaka, where it has since reclaimed over 2,000 acres, mostly for mixed development use.

Benalec group MD Vincent Leaw Seng Hai.

The company undertook its first reclamation job in Langkawi, Kedah in 2000, followed by one in Port Klang in 2003, but has since focused mostly on Melaka.

A week ago, Benalec announced to Bursa Malaysia that its wholly-owned units Pengerang Maritime Industries Sdn Bhd and Tanjung Piai Maritime Industries Sdn Bhd had acquired equity stakes of 70% in Spektrum Kukuh Sdn Bhd and Spektrum Budi Sdn Bhd respectively for RM7,000 each.

While the amounts involved were small, it is interesting to note that Benalec’s partner in these ventures is the crown prince of Johor — Tunku Ismail Idris Tunku Ibrahim.

Tunku Ismail Daing A Malek Daing A Rahaman are directors of Spektrum Kukuh and Spektrum Budi and they hold the remaining stakes of 21% and 9% respectively in the two companies.

Both companies were incorporated in April 2011 and listed their principal activities as property investment holding. Besides Tunku Ismail and Daing A Malek , other directors are Leaw Seng Hai, Datuk Leaw Tua Choon and Leaw Ah Chye, according to Benalec’s announcement to Bursa Malaysia.

Prior to this, Benalac announced on Oct 31 that it had sealed a RM36.60 million contract to reclaim 60 acres of land on the coast of Pulau Konet, Alor Gajah, Malacca. Benalec said its unit Benalec Sdn Bhd had sealed an agreement with Anzeco Coal Terminal Bhd, a unit of Anzeco Corporations (M) Sdn Bhd, to undertake the reclamation.

“The contract sum for the reclamation works to be executed by Benalec shall be at RM36.60 million only which shall include all costs, expenses and payments,” it said.

To recap, on Feb 1, 2010, the Melaka state government had signed a reclamation agreement with Anzeco Corporations where the latter was given the right to reclaim that portion of the coast of Pulau Konet measuring 60 acres.

Benalec said the reclamation would start within four weeks from the date of the agreement or upon Anzeco obtaining all necessary approvals, whichever is later. The reclamation was expected to be completed within 18 months.

Among the projects Benalac delivered previously were the turnkey designing-and-building of the jetty, helipad and associated works at Pulau Perak, Kedah; construction of a marina at Puteri Harbour, Nusajaya Johor; and land reclamation and soil improvement works for Glenmarie Cove, Port Klang.

Besides marine construction, the company is also involved in the vessel-chartering and marine-transportation businesses.

It currently owns around 93 vessels, which are mainly used to support its marine construction activities. The vessels are also deployed for chartering services for third-party clients such as dredging and reclamation contractors, and for the oil and gas, offshore construction, general cargo, and bulk cargo industries.

For the financial year ended June 2011, Benalec posted a net profit of RM96.08 million on the back of RM214.49 million in revenue.

The stock closed 5 sen higher at RM1.43 with 15.29 million shares traded yesterday.

This article appeared in The Edge Financial Daily, November 10, 2011.

Caterham Jet unlikely to hurt MAS, say analysts

KUALA LUMPUR: While analysts remain sceptical on AirAsia Bhd’s boss Tan Sri Tony Fernandes’ purported plans for a new super-premium regional airline, some analysts opine that existing carriers will not be impacted if the plans come to be.

A daily newspaper yesterday reported that Fernandes’ new super-premium full-service carrier (FSC), likely to be named Caterham Jet, could commence operations out of Subang airport in May next year.

Some aviation analysts have questioned the need for a new airline, which they argue could hurt Malaysian Airline System Bhd (MAS) by piling on the competition.

After a recent share-swap deal with MAS’ major shareholder Khazanah Nasional Bhd, Fernandes is now a substantial shareholder in MAS and its unit Firefly, as well as AirAsia and AirAsia X Bhd.

Says one analyst: “Why set up a new airplane? It will make life difficult for everyone and cannibalise MAS and AirAsia. It is a zero sum game so who will benefit?”

OSK Research analyst Ahmad Maghfur Usman however said that the plans, if it comes to be, will unlikely hurt MAS or AirAsia as Caterham Jet is targeting a different market segment.

“Caterham Jet is looking at a niche market, targeting the super rich so it shouldn’t hurt MAS too much.

The proposed Caterham Jet is viewed as not directly competing with Malaysia Airlines or AirAsia as it will target a different market segment.

“It is a new thing in the Asean market and it could be something that Tony would like to pioneer for this region,” Ahmad Maghfur said.

Caterham Jet is said to be a direct competitor with Qantas Airways Ltd’s upcoming Asia-based super-premium FSC, RedQ.

Ahmad Maghfur also opined that a sufficient capacity for the proposed super-premium jet would for three aircraft to be operated on a charter basis for the moment.

However, Ahmad Maghfur added that before the Caterham Jet plans can take off, Fernandes will first have to sort out the details of the collaboration agreement entered into by MAS and AirAsia following the share-swap deal.

MAS shares yesterday shed one sen to RM1.41 with 1.92 million shares exchanged. AirAsia shares meanwhile gained three sen to RM3.84 with 4.51 million shares traded.

A Maybank Investment Bank Research analyst noted that Caterham Jet would unlikely impact AirAsia, which operates in the budget segment, but could have a small impact on MAS’ first class segment.

“What is your definition of super premium? If it’s like what you see in the movies, where you can drive your car up to the plane and it’s a luxury flight, the real competition is with private charter jets and not so much MAS,” said the analyst.

Some analysts have also cautioned that Fernandes’ plans hinge on whether the new airline can obtain the necessary government and regulatory approvals.

The report, quoting unnamed aviation sources, also said the airline had yet to be granted an operating licence but has secured several Bombardier CRJ aircraft which have been sent for retrofitting.

However, the Maybank IB Research analyst noted that there should be no reason why the government should deny Fernandes the licence as long as the airline meets all the safety requirements.

“I think the government is not in the position to agree or disagree with a person’s business plan,” said the analyst.

But with the global economy still wracked with uncertainty, there remains a question mark over whether Fernandes’ aspiration for the super-premium airline can take off in current conditions.

“There is really no rush to move into the super premium market. With the global uncertainties, even the super-rich are keeping a watch on global markets and their net asset values,” Ahmad Maghfur said.

This article appeared in The Edge Financial Daily, November 10, 2011.

Updated: IOI Corp, Dutaland rescind RM830m estate deal

KUALA LUMPUR: IOI Corp Bhd and Dutaland Bhd have agreed to mutually rescind the sale and purchase agreement (SPA) over the disputed RM830 million oil palm plantation deal.

IOI Corp said yesterday that its unit Sri Mayvin Plantation Sdn Bhd and Dutaland’s Pertama Land & Development Sdn Bhd had entered into a deed of rescission in a move to resolve all the issues and disputes relating to the SPA.

It added that with immediate effect, the parties are released from all obligations and liabilities in connection with the SPA and neither party shall have any further claim against the other.

IOI Corp said following the execution of the deed of rescission, OSK Trustees Bhd, being the stakeholder jointly appointed by the parties, will proceed to refund the deposit earlier paid by Sri Mayvin pursuant to the terms of the SPA together with all interest accrued thereon.

To recap, on Oct 25, IOI Corp terminated its proposed acquisition of the land from Dutaland, citing the cancellation was “due to non-compliance of certain terms and conditions”.

However, in a separate statement, Dutaland said it did not accept the reasons for termination of the SPA and directed the stakeholder, OSK Trustees Bhd, not to remit the 10% deposit of RM83 million paid.

In a separate statement on Wednesday, Dutaland said that with the rescission, Sri Mayvin has retracted all its allegations and assertions made against Pertama Land as contained in Sri Mayvin’s letters dated Oct 4, 20 and the 21.

"Pursuant to the deed, Sri Mayvin has further confirmed that it has not lodged and will not lodge any private caveat(s) or any encumbrances(s) over the properties," it said.

Dutaland also said its board having sought legal advice and after taking into consideration all relevant aspects of the termination of the SPA, was of the view that protracted litigation would hinder any future sales of the properties.

"Furthermore, the outcome of litigation can be uncertain and this may have adverse implications on the group. In the meantime, the group shall continue to manage the properties to generate positive returns," it added.

This article appeared in The Edge Financial Daily, November 10, 2011.

Emico suspended as stock price doubles

KUALA LUMPUR: Trading for yesterday’s top gainer Emico Holdings Bhd’s stock was suspended but not before the stock almost doubled in value.

The penny stock jumped 97.5% from 20 sen to 39.5 sen in 4½ hours of trading before trading was halted at 3.35pm.

The price spike, which began at 9.26am, saw a total of 89.36 million shares traded. The traded volume amounted to a significant 93% of Emico’s issued share capital of 95.93 million shares.

The controlling Lim family and two other shareholders collectively own about 36% of the company, according to its 2010 annual report.

As at April 29, the Lim family collectively held about 21.5% of the company, while Affin Bank Bhd held 7.4% and Danaharta Urus Sdn Bhd owned 7.3%.

The company is headed by executive chairman Lim Teik Hian.

Emico was the fifth most actively traded counter on Bursa Malaysia yesterday. Prior to yesterday’s surge in volume, its year-to-date average daily traded volume was just 17,010 shares.

Bursa had queried Emico earlier yesterday about the unusual jump in its share price and volume. Emico’s board of directors managed to respond on the same day before the suspension of the trading of the stock and announced that they were unaware of the cause of the unusual market activity (UMA).

The company is involved in the manufacture of trophies, trading of furniture and property development.

For the financial year ended Dec 31, 2010, it posted a net profit of RM1.05 million, down from RM1.25 million in FY09. For the first six months of 2011, Emico slipped into the red with a net loss of RM585,000.

Another company that was queried for UMA yesterday was Hibiscus Petroleum Bhd, which rose 1.96% to 78 sen on the back of 63.11 million shares traded to be the sixth most active counter. The traded volume represented 15.09% of Hibiscus’ total issued shares.

The UMA query came a few hours into trading when Hibiscus’ share price climbed 2.6% to a record 78.5 sen at 11.32am following a 17.7% jump on Tuesday.
Hibiscus warrants topped the most actively traded list with 1.62 billion units.

The oil and gas special purpose acquisition company (Spac) had agreed to buy a 35% stake in Lime Petroleum Plc for US$55 million (RM171.05 million) last month.

It responded to Bursa’s query, highlighting the Lime Petroleum deal and crude oil futures hitting a 3-month high on Nov 7 of above US$95 per barrel, as possible reasons for the surge in the price and trading volume of its shares.

Another penny stock that made huge gains was Dataprep Holdings Bhd which rose sharply by 75% to 42 sen from 24 sen on a volume of 91.49 million shares, which represented 23.99% of its total issued shares. The IT company was the fourth most actively traded stock yesterday.

On a broader note, penny stocks made up 24 of the 28 most actively traded stocks by volume on the local exchange yesterday. With the exception of Harvest Court Industries Bhd, the top 28 percentage gainers in the market yesterday were also all penny stocks, with a share price of less than RM1 each.

An analyst pointed out that this was indicative of the highly speculative behaviour in the market with some investors trying to take advantage of the low-price and small-cap stocks to make huge margins.

Meanwhile, Harvest Court continued its ascent, gaining 22.88% to close at RM1.45 yesterday with 24.21 million shares traded.

The top five gainers yesterday were Emico (97.5%), followed by Dataprep Holdings Bhd (75%), Edaran Bhd (36.67%), PUC Founder MSC Bhd (33.33%) and LFE Corp Bhd (30.43%).

This article appeared in The Edge Financial Daily, November 10, 2011.

UEM Land extends rebound on positive newsflow

PETALING JAYA : Shares in UEM Land Holdings Bhd extended their rebound after falling sharply in September, buoyed by positive newsflow on its projects and bargain hunting activities after a bout of heavy foreign selling.

Since hitting a 52-week low of RM1.58 on Sept 26, shares of the government-linked property developer has been rebounding strongly, gaining some 35.4% to close at RM2.14 yesterday.

Yesterday the stock added three sen to RM2.14 on heavy volume of 10.56 million shares, following the unveiling on Tuesday of its latest project, Angkasa Raya, opposite the Petronas Twin Towers in the heart of the Kuala Lumpur City Centre (KLCC) area.

Despite the recent rally though, the stock remains 15% down year-to-date, and is trading 37% lower than the year high of RM3.40 chalked up on Jan 13, 2011.

The stock price slump in September coincided with the global sell-down in the wake of the US credit downgrade and European debt problems. As UEM Land was gaining favour with foreign investors throughout this year, following the acquisition of Sunrise Bhd, it was among the stocks that foreigners held — and decided to sell.

While the global uncertainties had created concerns over the outlook of the property sector, UEM Land continued to enjoy brisk sales for its most recently launched project, Arcoris Suites Mont’Kiara, developed by its subsidiary Sunrise.

(From left) Tong, Buro Ole Scheeren partner Eric Chang, Ole Scheeren founding principal Ole Scheeren, UEM Group group MD/CEO Datuk Izzaddin Idris and UEM Land MD/CEO Datuk Wan Abdullah Wan Ibrahim with a model of Angkasa Raya at the project's launch on Tuesday

Sunrise had already sold most of the units in Arcoris Suites ahead of the official launch at the end of October. Some 90% of the available 262 units were sold following an earlier preview ahead of the launch, and the project was fully sold out after the launch.

The business suites are priced from RM383,000 or RM660 psf, with built-ups ranging from 660 sq ft to 850 sq ft.

The good response, despite the external uncertainties and concerns over an oversupply of office space in Kuala Lumpur and overbuilding in Mont’Kiara, is a strong testament to the Sunrise brand, industry observers said. The strong sales of Arcoris Suites followed the sell-out of the first phase of Summer Suites in Kuala Lumpur earlier this year, and Quintet in Richmond, Canada, which were all developed by Sunrise.

Analysts had earlier given the thumbs up for UEM Land’s acquisition of Sunrise, as Sunrise would give the former a strong brand, technical expertise and a strong pool of near term earnings from unbilled sales and a pipeline of ready-to-launch projects in the Klang Valley.

Sunrise’s latest project, Angkasa Raya, is a RM1.3 billion mixed development project designed by world renowned architect Ole Scheeren.

Situated at the intersection of Jalan Ampang and Jalan P Ramlee, the building will be on the 1.59-acre site of the former Wisma Angkasa Raya, which was demolished in August 2011. It will be standing at 268 metres with 65 floors, and comprise grade A premium office space, a luxury hotel, over 280 high-end serviced residences, signature retail spaces and three sky levels.

“There are obviously challenges in the world and the property market now but we believe that this building will not only be iconic in Malaysia but also the world over. Everywhere in the world, the primest of prime properties will always be sought after,” said Datuk Tong Kooi Ong, chairman of Sunrise at the unveiling of the building’s design on Tuesday.

The project is expected to bring an estimated net profit of RM30 million per year to UEM Land’s bottom line for the financial years 2013 to 2017, according to UOB Kay Hian’s research note yesterday. The research firm has a “buy” call on UEM Land, valuing the stock at RM2.68, a 25% discount to its revalued net assets value per share (RNAV/share) of RM3.57.

“The project would add about two sen to our fully-diluted RNAV/share. We maintain our earnings forecasts for now. A back-of-the-envelop calculation shows that the development could add RM30 million to UEM Land’s bottom line for FY13-17, or about 9% of its FY12 net profit. We maintain our buy call with a target price of RM2.68.

“This new valuation takes into account the lingering uncertainty of the property market as well as the gloomy outlook of the macro picture,” the research house said.

Over the longer term, UEM Land’s vast land bank in Iskandar Malaysia will be a bigger attraction for investors, as the land is seen as proxy for warming Malaysia-Singapore bilateral relations, growing cross-border investments to Johor and narrowing gap between Singapore and Johor land prices.

In June, UEM Land was appointed the project manager for M+S Pte Ltd, a joint venture company 60% owned by Khazanah Nasional and 40% by Temasek. M+S was set up to undertake the development of several prime plots of land in Singapore — Ophir-Rochor and Marina South — in exchange for the KTM Bhd land in Tanjong Pagar.

“We are excited over UEM Land’s appointment as project manager for the S$11 billion (RM26.7 billion) Marina South and Ophir-Rochor government land developments in Singapore.

“The earnings impact for a project manager role is minimal, at 3%-4% of our Ebit (earnings before interest and tax) estimates, but we believe its presence in Singapore has a more positive impact — in promoting UEM Land’s RM19 billion of properties in Nusajaya,” according to Maybank Investment Bank in an earlier research report.

For the six months ended June 30, UEM Land’s net profit more than doubled to RM106.54 million from RM43.49 million a year earlier. Its net assets per share on June 30 stood at RM1.03, placing the stock’s price-to-book at 2.08 times.

This article appeared in The Edge Financial Daily, November 10, 2011.

Masterskill says won’t be affected by PTPTN proposal

KUALA LUMPUR: Masterskill Education Group Bhd says it will not be affected by the National Higher Education Fund Corp’s (PTPTN) proposal to restrict loans if it is approved.

“Masterskill University College of Health Sciences is not involved and thus we will not be affected by the PTPTN move to stop providing loans for the expenses of students,” the group said in an email reply to The Edge Financial Daily.

“Masterskill students are only given RM45,000 [in loans by] PTPTN, and this only covers the tuition fees.

“As such, we will not be affected by this proposal,” said the group, adding that the proposal would affect universities or colleges that receive loans of RM60,000 from PTPTN.

The statement was made after speculation the education group will face headwinds if the proposal is approved, especially since its enrolment is already showing signs of decline.

CIMB Research, in a report released earlier this week, has cut its FY11 to FY13 student numbers forecast for Masterskill by 1% to 5% to between 17,000 and 19,000.

It expects student growth to be 6% to 7% (compared with 8% to 9% previously) for the next three years.

This article appeared in The Edge Financial Daily, November 10, 2011.

Deleum signs joint commercialisation agreement

PETALING JAYA: Deleum Bhd’s wholly owned unit Delcom Chemicals Sdn Bhd (DCSB) has entered into a commercialisation agreement with Petronas Technology Venture Sdn Bhd (PTVSB) to jointly undertake commercialisation activities of the Solid Deposition Treatment Technology (SDTT).

Deleum said under the agreement, PTVSB, the technology commercialisation arm of Petronas, is authorised to license the intellectual property rights of this technology to DCSB. It is a result of a joint effort between Deleum and Petronas following a collaborative research and development work which was undertaken by DCSB and Petronas Research Sdn Bhd.

The technology has been able to reduce operation costs by increasing the sustainability of the well production and is also compatible with formation hydrocarbon and well completion system.

This article appeared in The Edge Financial Daily, November 10, 2011.

UAC 3Q profit slumps

PETALING JAYA : UAC Bhd’s net profit plunged to RM116,000 for 3QFY11 ended Sept 30 from RM2.48 million a year ago, on lower revenue of RM44.8 million.

The concrete product manufacturer attributed the lower revenue to weaker demand for building products in the domestic market as well as pressure on its selling price due to domestic competition and also imports from Thailand and Indonesia.

Year-to-date, group revenue was 3% lower at RM144.3 million from RM148.7 million a year ago. However, year-to-date net profit was much lower at RM5.4 million, a 47.4% decrease from RM10.3 million a year ago. The group stated that its gross profit margin was eroded by lower selling prices and the weaker US dollar. UAC said it continues to face severe challenges in 4Q as the domestic market is not expected to pick up substantially.

This article appeared in The Edge Financial Daily, November 10, 2011.

SEGi’s 3QFY11 profit up 69%

KUALA LUMPUR: SEG International Bhd (SEGi) saw a 68.5% year-on-year (y-o-y) jump in net profit for 3QFY11 ended Sept 30, and declared a second interim dividend of 10 sen yesterday. The group’s 3QFY11 net profit was RM18.2 million from RM10.8 million in 3QFY10. Revenue was up 24% to RM69.95 million for the period. The improved performance was due to the increase in student enrolment.

Its nine-month cumulative net profit of RM54.7 million has already exceeded its entire FY10 net profit of RM43.1 million.

“You can see that we’re very consistent over the quarters,” CEO Lee Kok Cheng said at a briefing yesterday. “There will be no surprises for investors.”

“We should be performing as well as our earlier quarters,” said Cheryl Chong, executive vice-president of corporate planning and services for the group, adding that SEGi is “definitely” on track to meet its internal financial targets.

Lee highlighted several key areas which SEGi will focus on to meet its internal targets for the rest of the year.

“We’ll still focus on international student arrivals. That is one of the key growth areas this year and in the years to come,” he said. Currently, the international student population originates from over 60 countries and represents 10% of SEGi’s 26,000 students across its six branches.

Lee said the group hopes to see the international student population grow to 30% to 35% within the next few years.

He said the group is also focusing on rolling out new programmes to increase the student count.

Lee: We are very consistent over the quarters.
There will be no surprises for investors.

He noted that the launching of its “big ticket programmes” which include a Bachelor of Medicine, Bachelor of Surgery, and Masters in Pharmacy over the last financial year contributed heavily to the increase in net margins.

“We no longer launch lower-end programmes. The courses we offer now are high-priced, which affect our margins,” said Chong, adding, “We always have new areas to go into and that is where our strength is. We’re very diversified.”

Lee said the group is also focusing on tapping into the working adult learners’ market by investing money in improving its online portals to provide access to classes and materials, as well as providing flexible payment options. Currently, 10% of the student population are working adult learners.

On the recent proposal by the National Higher Education Fund Corp (PTPTN) to exclude loans for living expenses, the group said this would not affect its numbers as its students who take PTPTN loans use them for tuition fees.

The group is looking at building another campus in Ipoh, which Chong said will hopefully begin operating in 2014. The investment in this development, she said, will be very little as SEGi has contracted a developer to build the facility and rent it to the group.

“We would rather be asset light,” she said, adding that the group would rather focus on being an education provider.

In a separate announcement yesterday, SEGi said it had entered into a memorandum of agreement with the Vietnamese ministry of labour, war invalids and social affairs to explore areas of cooperation in vocational training. This is to help the Vietnamese government to meet its immediate and long-term needs in terms of human capital development.

The initiative is a part of SkillsMalaysia INVITE, a national initiative to draw international students and trainees to pursue technical and vocational education in Malaysia.

The group has been in talks with parties in Indochina and Russia, but its initiative in Vietnam has seen the most progress. The group said the programme would only impact its financials next year.

SEGi’s stock ended yesterday at RM1.86, 3.91% higher than the previous day’s close of RM1.79. The company’s net assets per share as at Sept 30 stood at 41 sen.

This article appeared in The Edge Financial Daily, November 10, 2011.

More telco partnerships due to take place

KUALA LUMPUR: The collaboration between DiGi.Com Bhd and Axiata Group Bhd, inked earlier this year, may be a precursor to more tie-ups in the local telecommunications sector, as players strive to push costs down in order to remain competitive, said DiGi CEO Henrik Clausen.

“I think you can [expect similar partnerships] because that is what we have seen in the news lately. Driving costs down and making our service more affordable for our customers is an ongoing challenge, for both the company and the industry, and I think we are on the right track,” he noted after the company’s EGM yesterday.

In addition to new tie-ups being established, present partnerships may be extended, he added.

The agreement with Celcom, signed in January, involves the in-depth sharing of network resources comprising telecommunications sites, access transmission (microwave links), aggregation transmission and trunk fibre transmission.

The partnership is expected to result in cost savings of RM2.2 billion over 10 years, beginning with savings of between RM100 million to RM200 million as early as 2012 and a gradual increase of savings to RM200 million to RM250 million from 2015.

The collaboration took off with the first phase this year.

“We have been doing phase one of the project, which basically entails working with Celcom to develop a methodology to consolidate the sites. Planning it is quite a big logistical task, but we need to find a way to do it efficiently,” said Clausen.

For the current year, he said savings from the agreement would be minimal.

The company previously said the projected cash savings would involve both capital and operating expenditure.

“There will be relatively sizable savings when we start gaining momentum. Basically we will save on rent, power, operation and maintenance, but we also plan to build new coverage jointly so there will be savings in capital expenditure too,” he said.

The company previously allocated an annual capital expenditure of RM700 million for the three years from 2010.

The investment will go towards modernising its current network in order for it to undertake more coverage and capacity.

Clausen said the company has invested RM300 million as at 3QFY11 ended Sept 30 and will only invest RM550 million of the annual allocation this year.

“We will invest roughly RM550 million, which is less than previously communicated because we have been delaying some activities. This amount will flow into next year,” he said.

He added that the capex investments will be self-funded, as the company has accumulated RM1.7 billion in operating free cash flow as at 3QFY11.

DiGi’s EGM was to propose a share split, every existing ordinary 10 sen share will be divided into 10 ordinary shares of one sen each.

“When we proposed this, our aim was to make it more affordable for investors to take a stake in the company,” said CFO Terje Borge.

This article appeared in The Edge Financial Daily, November 10, 2011.

S&P lowers TNB outlook to negative

KUALA LUMPUR: Standard & Poor’s Ratings Services has revised downwards its outlook on Tenaga Nasional Bhd to negative from stable on weakened profitability.

The ratings agency said yesterday that it affirmed its BBB+ long-term corporate credit rating and the axA+/axA-1 Asean regional scale rating on the company. It also affirmed the BBB+ issue rating on TNB senior unsecured notes.

“We revised the outlook to negative because we expect TNB’s weakened profitability and higher operating costs to continue to weaken its significant financial risk profile,” said S&P credit analyst Rajiv Vishwanathan.

“Our view is based on our anticipation that higher fuel prices stemming from a shortage of gas will continue to burden the company’s cash flows. Moreover, the company is likely to incur capital expenditure on its hydroelectric and thermal power projects over the next 12 months.”

He said the standalone credit profile of TNB is bbb-. The ratings agency incorporated its opinion of a “high” likelihood the government of Malaysia (foreign currency A-/Stable/A-2; local currency A/Stable/A-1; axAA+/axA-1) would provide timely and sufficient extraordinary support to the company in the event of financial distress.

However, Rajiv cautioned that it could downgrade TNB if its relationship with the government changes materially or if there is a likelihood the extraordinary support could be reduced.

Another factor is if TNB’s credit protection ratios weaken due to lower than expected demand for power, high fuel costs, or debt-funded investments in generation projects.

A ratio of funds from operations (FFO) to adjusted debt that falls below 10% on a sustained basis would indicate such weakness.

S&P said it could revise the outlook to stable if the Malaysian government provides some fuel price relief that enables TNB to recover losses from fuel supply shortages.

“We believe that a more transparent and defined tariff regime could improve the company’s financial risk profile sustainably, such that its ratio of FFO to adjusted debt remains above 10%,” Rajiv said.

“We view TNB’s business risk profile as satisfactory. The company is vulnerable to increases in costs, which it is unable to fully pass through to consumers,” he added.

Of concern is that TNB’s gas supply was severely curtailed over the six months ended Aug 31. The company’s fuel costs have risen because it has had to use expensive alternative fuels.

Rajiv said TNB expects the shortage to reduce following partial restoration of its gas supplier Petroliam Nasional Bhd’s (foreign currency A-/Stable/-; local currency A/Stable/-; axAA+/-) Bekok C unit.

“However, TNB anticipates some shortfall until Petronas completely restores the unit or commissions a new liquefied natural gas terminal.

“We expect TNB’s financial risk profile to remain significant over the next two to three years. Any interim cost-sharing solution from the government to compensate TNB for the losses due to curtailment of gas supply will likely reduce some pressure on cash flows in the next 12 months,” Rajiv said.

This article appeared in The Edge Financial Daily, November 10, 2011.

Top Glove expects better year ahead

KUALA LUMPUR: Top Glove Corp Bhd expects a better year ahead with a bigger profit margin amid expectations of lower raw material costs and stronger US dollar, said chairman Tan Sri Lim Wee-Chai.

Lim said latex prices had dropped from as high as RM11 per kg to RM7 and the floods in Thailand would not affect rubber plantations in the southern region. He does not expect the massive floods to have a significant impact on latex production there.

“We expect our profit margin on sales to be back to normal, about 8%, next year,” he told the media after the luncheon talk hosted by the Federation of Malaysian Manufacturers (FMM) yesterday.

In terms of profit margins, Lim said Top Glove’s best year was in FY10 ended Aug 31, which was 12% to 13%, and its worst year in FY11 at 5% to 6%.

For FY11, the group posted a net profit of RM113.1 million, down 54% from RM245.2 million, despite the marginal fall in revenue to RM2.05 billion from RM2.08 billion.

Top Glove’s net profit more than halved to RM26 million for 4QFY11 ended Aug 31, against RM45 million previously, due mainly to volatile latex prices, strong ringgit against the greenback and oversupply of rubber gloves.

(From left) MOX-Linde Gases Sdn Bhd managing director Wong Siew Yap,
FMM vice-president Datuk Andy Seo and Lim after the luncheon talk yesterday.

Despite the oversupply in the industry, Top Glove, however, will continue to expand its capacity. The company intends to spend RM100 million to build 24 or 25 factories, raising its production by about 10%, according to Lim, and also to expand its upstream activities in rubber plantation.

He said the company is in the process of acquiring rubber plantations in Malaysia, Indonesia and Cambodia, adding that RM150 million has been allocated for land acquisition and development over the next seven years.

Lim said Top Glove will focus on organic instead of external growth because of cost efficiency and the lower risk involved.

During the luncheon talk, Lim shared some practices he adopted in running Top Glove, the world’s largest rubber glove manufacturer in terms of capacity.

One of them is promoting honesty, integrity and transparency. He prevents corruption by having his employees around the world wear a badge with the words “to prevent and against corruption, be honest, no cheating”.

Visitors to the factory wear the badge, too, and a notice with the similar message is also found at the entrance of some of its factories, Lim said.

Another practice is promoting good health. On a quarterly basis, Top Glove monitors the body weight of its employees, be it over or under weight. “Prevention is the best doctor,” he said.

The company provides free toothbrushes and toothpastes to its employees. Lim said company statistics showed that the most common sickness is related to throat infection, which gets worse in the country’s hot climate.

Top Glove promotes a continuous learning culture by advising its employees to read books ranging from management to health, Lim said. They are required to give at least one suggestion a month to the company.

By doing so, he said this cultivates them to be “thinkers”, adding that the suggestions can sometimes be useful and valuable.

This article appeared in The Edge Financial Daily, November 10, 2011.

iDimension to debut on ACE Market tomorrow

KUALA LUMPUR: Integrated manufacturing software solutions provider iDimension Consolidated Bhd will make its debut tomorrow on the ACE Market, according to managing director and co-founder Daniel Boo.

With software solutions in enterprise resource planning (ERP), manufacturing execution systems (MES), advanced planning and scheduling (APS), and equipment automation (EA), Boo said iDimension is a one-stop supplier of manufacturing software solutions, which makes it different from a normal software solutions provider.

“We are probably the only one in Southeast Asia doing what we are doing,” Boo said in a recent interview with The Edge Financial Daily.

With the four software solutions, ERP, MES, APS and EA combined, he said the company “is the most complete puzzle for a factory”.

“It is difficult to find one company which could house all these resources,” he added.

At an offer price of 38 sen, the company aims to raise RM14.53 million via a public issue of 38.23 million new shares of 10 sen each.

It reported a revenue of RM14.95 million in 2010 with a profit after tax of RM8.24 million. Based on its IPO price and enlarged issued and paid-up capital of 142 million shares, its market capitalisation upon listing will be RM53.96 million.

Based on this, its IPO price of 38 sen translates into a historical price-to-earnings ratio (PER) of 6.55 times.

iDimension’s focus is on the semiconductor industry, with customers such as Unisem (M) Bhd, but its software solutions are able to cater to most manufacturing environments, Boo said.

“The reason for our focus on semiconductor is because apart from the oil and gas sector, which pays top money, I think the next big buck is in the semiconductor sector,” he said.

Boo said the company’s services also entail consultation on its customers’ operations, which will then be implemented into the development of the software.

The companies which offer a complete range of services similar to iDimension’s are located in the US and Europe, according to Boo.

“The closest ones [in comparison to iDimension’s services] are HP and IBM, but they don’t offer here in Malaysia. HP and IBM are big consulting houses. They get the contracts, after which they will split among four vendors. But they are the main project managers,” he explained.

Boo said iDimension has a cost competitive advantage in Southeast Asia over the bigger companies such as HP and IBM.

“They win because of their brand, not because of their price,” he said.

iDimension owns the intellectual properties (IP) of their software solutions which are developed in-house, enabling the company to export the software with minor modifications.

Apart from software solutions, the company also receives recurrent revenue in the form of software maintenance, which contributed 4.9% to its revenue in 2010, according to the prospectus.

iDimension currently exports its software solutions to Indonesia, Singapore, China, the US, the Philippines, Japan and Thailand. Revenue from overseas markets contributed 48.25% to total revenue last year.

Boo said the listing will raise the platform for iDimension to venture and expand abroad.

As iDimension is not involved in selling capacity to the manufacturing sector, Boo said he is not worried of the cyclical nature of the sector.

Moving forward, he said, the company would look into the development of plantation management solutions for the oil palm sector. It will improve efficiency and productivity such as increasing the oil extraction rate and yield per hectare, he added.

Boo said Kuala Lumpur Kepong Bhd has developed such a software and has appointed iDimension to market it.

For 2QFY11 ended June 30, iDimension posted a net profit of RM409,000 on RM2.19 million in revenue.

This article appeared in The Edge Financial Daily, November 10, 2011.

Northport injects RM135m worth of investments

KUALA LUMPUR: Northport (M) Bhd, the wholly owned subsidiary of NCB Holdings Bhd, announced yesterday that it plans to inject RM135 million into various investments.

“The largest portion from the approved sum will be spent on the development of a rubber tyre gantry (RTG)-supported container stacking yard that will replace one that was previously designed for operation using straddle carriers,” said group chairman Tun Ahmad Sarji Abdul Hamid yesterday.

“The conversion will pave the way for higher density RTG-assisted stacking of containers. The parcel of work forms part of the phased programme to progressively convert the straddle carrier-based stacking yard behind Container Terminal 1 into an area for RTG operation,” it said.

The group said the investments are aimed at further enhancing the capacity and efficiency of its container-handling facilities, especially at Container Terminal 1. Both this container terminal and Container Terminal 3 provide service to most of the container vessels that call at Northport.

Other investments include increasing its fleet. Its RTG fleet will be increased with 10 new Japanese manufactured units, which will be delivered within 11 months.

There were also 61 new prime movers purchased by the group to both replace and enhance its current fleet. The delivery of the movers will be completed within the next six to eight months.

Northport is currently working on completing Wharf 8A, which is next to Wharf 8. Construction commenced in July and is expected to be completed in 2013.

Other programmes are said to be in the pipeline, which will enhance the handling capacity of the group’s container berths to accommodate larger vessels.

This article appeared in The Edge Financial Daily, November 10, 2011.

TSH Resources shows strong sustainability

TSH Resources Bhd (Nov 9, RM3.20)
Maintain buy with target price RM3.70: Our visit to TSH’s Sabah operations last week reaffirmed our confidence that TSH will deliver our estimated robust 20% growth in fresh fruit bunches (FFB) production, and we see further upside from its new commercial planting of the Wakuba clones.

TSH also demonstrated strong sustainability with its effective estate management and support from its ancillary incomes. We reiterate our “buy” call on TSH with an unchanged target price (TP) of RM3.70 based on 15 times FY13 price earnings-ratio (PER).

The preliminary results from its trial planting of Wakuba clones are encouraging, producing 13.9 tonnes per hectare year-to-date in its third year. TSH obtained approvals to plant Wakuba in Indonesia recently and will begin large-scale planting in 2012. We estimate that 2015 to 2020 FFB production could be enhanced gradually by 0.7% to 7.2%. Further upside in FFB production could emanate from stronger yields due to first generation soil in Kalimantan and accelerated planting plans.

TSH replaced buffalos with “mechanical buffalos” to speed up collection and transport of FFB in its Sabah estates and increased land harvested per worker from 1.2ha per day to 1.7 to 2ha per day. TSH plans to introduce mechanical buffalos in its Indonesia estates soon. In addition, TSH utilises GPS to monitor estate operations and fine-tune management practices.

The government may raise the renewable energy (RE) tariff from 21.25 sen per kWh to 29 sen per kWh soon. If approved, we estimate a 3% increase in earnings before interest and taxes (Ebit) from the tariff hike. TSH also expects RM6 million to RM7 million in Ebit contribution per year from selling carbon credits (CERs). Management guided that Eko Pulp and Paper Sdn Bhd will commission in 1H12 but expects minor earnings contribution for now.

We expect a reduction in liquidity discount soon, as TSH’s proposed one-for-one bonus issue will go ex after the EGM to be held on Nov 21. TSH’s 2013 PER of 12.7 times is relatively cheap for its young palm age profile of 6.6 years average and an expected 20% growth in FFB. We have yet to factor in the RE tariff hike and CERs sales into our earnings estimates which could provide further upside to earnings. Our TP of RM3.70 offers 18% upside from the current price. — Maybank IB Research, Nov 9

This article appeared in The Edge Financial Daily, November 10, 2011.

Rain dampens plantation output

Maintain neutral: The Malaysian Palm Oil Board (MPOB) is due to release its October statistics today. We are expecting crude palm oil (CPO) output in October to be slightly lower than September’s 1.87 million tonnes.

We estimate that CPO output in October fell by 4.1% month-on-month (m-o-m) to 1.79 million tonnes, mainly due to wet weather conditions in northern Peninsular Malaysia and Sabah and Sarawak.

However, cumulative CPO output is expected to be 9.6% year-on-year (y-o-y) higher to 15.7 million tonnes and full-year output may touch 18 million tonnes for the first time.

Total exports in October are likely to have increased as lower CPO prices spurred buying interest. We estimate 1.69 million tonnes of total exports in October, an increase of 9.5% m-o-m and 15.7% y-o-y.

Independent cargo surveyor Societe Generale de Surveillance (SGS) estimates that total exports in October increased by 11.9% m-o-m to 1.68 million tonnes, mainly due to higher exports to EU countries and Pakistan. SGS estimates that on a sequential month basis, total exports in October to EU countries increased 27% to 317,000 tonnes while exports to Pakistan almost tripled to 201,750 tonnes.

Despite the higher expected export figure for October, we are maintaining our “neutral” recommendation on the sector given that: (i) Export growth is not keeping pace with CPO production growth. This will cause the inventory level to remain at its current high level of two million tonnes; and (ii) Narrowing discount of CPO price to soyabean price. Currently, CPO is trading at a 14.5% discount to the soyabean price, which is 0.8 of a percentage point lower than its five-year average discount of 15.3%. The narrowing of the discount implies the CPO price is probably running ahead of its fundamentals. We do not discount the possibility it will retrace in the weeks ahead.

We are keeping our average CPO price forecast of RM3,200 per tonne for 2011 and RM2,700 per tonne for 2012 and maintaining our “buy” calls for Sime Darby Bhd (target price: RM9.05), TSH Resources Bhd (TP: RM3.54) and TH Plantations Bhd (TP RM2.26). — MIDF Research, Nov 9

This article appeared in The Edge Financial Daily, November 10, 2011.

Hartalega feeling the pressure from competitors

Hartalega Holdings Bhd (Nov 9, RM5.55)
Maintain buy with target price RM7.33: Hartalega’s 1HFY12 revenue grew 26.7% year-on-year (y-o-y) to RM448.9 million. The strong top line growth was attributed to: (i) higher average selling prices (ASP), in tandem with higher nitrile latex prices; and (ii) 28.8% y-o-y increase in glove volume sales. Earnings before interest and taxes (Ebit) margin was slightly lower at 31.1% against 31.9% in 1HFY11. This is most likely attributed to stronger competition from increased nitrile glove production by other glove manufacturers.

Overall, 1HFY12 headline net profit grew by 13.9% y-o-y to RM100.9 million. This includes a RM8.7 million loss on foreign exchange and changes in fair value for forward foreign exchange contracts (1HFY11 saw a gain of RM3.1 million).
Stripping out extraordinary income, 1HFY12 core net profit grew by a sharper 28.1% y-o-y to RM109.6 million. Results were within expectations, accounting for 53% and 52% of our and consensus full-year estimates. Hartalega also declared a first interim dividend of six sen per share.

Sales volume in 2QFY12 slipped by 1.6% q-o-q, offset by higher ASP for nitrile gloves (+8.5% q-o-q). Overall, 2QFY12 revenue grew by 4.6% q-o-q to RM229.5 million, while bottom line declined by 15.8% q-o-q to RM46.1 million. Excluding the forex losses, 2QFY12 net profit was flat q-o-q at RM54.8 million.

On a y-o-y basis, 2QFY12 net profit surged 20.4%, on the back of a 24.5% increase in revenue. The strong performance was attributed to: (i) 23.2% y-o-y increase in volume sales; and (ii) higher ASP for natural rubber and nitrile gloves (+10.6% y-o-y and +1.8% y-o-y, respectively).

In terms of geographical breakdown, sales to North America remained steady, accounting for 55.3% of total revenue in 2QFY12 (1QFY12: 55.5%). Demand from Europe continued to grow strongly, with its proportion of revenue contribution rising from 27.6% in 1QFY12 to 33.2% in 2QFY12. We expect demand from Europe to remain robust as the demand switch to nitrile gloves is still gathering momentum.

No change to our FY12 to FY14 net earnings forecasts. We have already factored in weaker margins from stronger price competition. We continue to like Hartalega for: (i) reduced exposure to volatile latex prices; (ii) strong technological and operational efficiencies; and (iii) attractive valuations (CY12 price-earnings ratio of 8.6 times against the sector average of 10 times).

Hartalega also offers high dividend yields of 5% to 6%. Maintain “buy”, with an unchanged target price of RM7.33. — Affin Investment Bank, Nov 9

This article appeared in The Edge Financial Daily, November 10, 2011.

Malaysian Pacific Industries missing the mark

Malaysian Pacific Industries Bhd (Nov 9, RM3.22)
Maintain underperform with revised target price of RM2.57 from RM2.75: A shortfall in revenue and margins was behind MPI’s 1QFY12 ending June results miss. This cannot be fully offset by the dividend, which was below expectations. The market is likely to react negatively to the poor demand and low utilisation that these results denote.

MPI turned in a 1QFY12 loss as opposed to our and consensus forecast of a full-year profit. We slash our earnings and dividends as a result. This reduces our target price, based on a 60% discount to its five-year historical adjusted average price-to-book value. We reiterate our “underperform” call.

MPI’s revenue fell by 8% quarter-on-quarter (q-o-q) and 15% year-on-year (y-o-y), thanks to lower revenue for all business segments and a more challenging external environment which crimped demand and order flows. We believe that MPI did not resort to price cutting to fill up capacity as it had in 4QFY11. This probably led to lower utilisation rates on a q-o-q basis. Earnings before interest, tax, depreciation and amortisation (Ebitda) margins fell by a sharp 3.6 percentage pts q-o-q due to lower capacity utilisation and pricier inputs.

Despite the loss-making quarter, MPI declared a dividend per share (DPS) of five sen, which, though positive, is below our previous forecast of 23 sen net DPS for FY12 and is only half of last year’s rate. It does not, we believe, make up fully for the 1QFY12 earnings letdown.

MPI expects a challenging FY12 given the softening demand and uncertain macro outlook, much like its customers which forecast 4Q top line declines of 9% to 13% q-o-q in the case of Intersil, 3% to 9% for Maxim and 8% for ST Micro. For MPI, we now forecast narrower profits for FY12 to reflect this. Note that there is downside risk to our forecast. — CIMB IB Research, Nov 9

This article appeared in The Edge Financial Daily, November 10, 2011.

Parkson Retail Asia bullish on growth

Alfred Cheng, managing director of Parkson Retail Asia, was all smiles during the listing ceremony of his company at the Singapore Exchange on Nov 3. Shares of the department store operator got off to a good start that morning, commencing trade on the Mainboard at S$1.04 (RM2.52) each, 10.6% above their IPO price against a 1.1% drop in the Straits Times Index.

That makes Parkson Retail Asia one of the few companies in the world to have braved a listing on the local bourse this year. Others — such as gym operator Fitness First and celebrity soccer club Manchester United — have either delayed or cancelled their plans to go public in the light of the financial uncertainty plaguing the global economy. Meanwhile, others that have listed, including port operator Hutchison Port Holdings Trust, continue to trade below their IPO valuations.

Cheng is confident, however, that Parkson has what it takes to ride the volatility and grow. “We are in the retail business, which is one of the industries that is less susceptible to financial volatility,” he tells The Edge Singapore in an exclusive interview.

“Retail trade is about domestic consumption and we are operating in developing countries where per capita income is rising with the middle and upper-middle classes. This gives us the foundation to do very good business.”

With 158.2 million shares offered to institutional investors and the public at 94 cents apiece, Parkson Retail Asia has raised proceeds amounting to S$148.7 million, about half of which Cheng intends to use to expand his business in Southeast Asia, where domestic consumption is on the rise.

The company had initially planned an IPO of 147 million shares, but exercised the option to issue an additional 22 million shares because of the high demand. Over the next three years, Parkson plans to open eight to 10 stores a year in Malaysia, Vietnam and Indonesia, where domestic consumption as well as tourist demand is on the rise.

According to market consultancy Euromonitor, retail sales by value in the department store sector are projected to grow 4.5%, 9.1% and 10.7% for Malaysia, Vietnam and Indonesia respectively between now and 2015.

Parkson plans to open eight to 10 stores a year in Malaysia, Vietnam
and Indonesia over the next three years.

Cheng: We were the first to introduce a brand with a personality in China.

Established 24 years ago in Malaysia, Parkson is now the nation’s second largest department store operator, with a chain of 36 stores in 24 cities and a market share of about 20%. It also operates stores in Vietnam, where it controls about 36% of the department store sector.

Earlier this year, it entered the Indonesian market through the acquisition of Centro Retail, a local chain of department stores focused on the middle class. Cheng expects to see “dramatic growth” in Indonesia over the next few years, and plans have already been drawn up for more Parkson stores across a dozen cities in the country.

Indonesian expansion
With a current market share of just 2.5% in Indonesia, however, Parkson Retail Asia could face a tough time establishing a foothold in the middle- to upper-middle-class consumer market there.

Indeed, it faces head-on competition with other department store operators such as Sogo, Debenhams and Metro as well as local players such as Matahari and Ramayana and other specialty stores or standalone outlets offering the same products. That could see Parkson Retail Asia struggle to gain headway in the world’s fourth most populous nation.

Cheng isn’t worried, though. To take on his rivals, he intends to have the company focus on fashion and cosmetics for a young, contemporary market, particularly in Jakarta and Bali.

Meanwhile, he plans to pursue a dual-brand strategy in Indonesia, which will see it leveraging on the widely known Centro brand to capture the “underserved” middle-class market and expand its network to at least 12 or 13 cities in Indonesia.

Cheng will also open new Parkson department stores to meet the demands of the Indonesian upper class in first-tier cities such as Jakarta, Medan and Surabaya.

Cheng believes that Parkson’s size and reputation will enable it to attract a wider base of international brands into its fold.

“We have a large network of stores across our markets that will give us an advantage with Indonesian customers and international retailers as well because they know that, by placing their brands with us, they get to be more visible,” he says.

“Also, the Indonesians already know our brand, since they tend to travel a lot in Malaysia and they have been asking for our brand for a while now. So, that will shorten our brand-building process in Indonesia.”

Lessons from China
To successfully enter the Indonesian market, Parkson can also use the experience gained from its operations in China, which is controlled under a separate company listed in Hong Kong — Parkson Retail Group — of which Cheng is also managing director.

Parkson is the first department store operator to set up successfully in China, where it is now the largest player in the sector. It set up its first store in 1994 in Beijing and now operates 50 outlets in 23 provinces across the country.

How did Cheng manage to build this Malaysian brand into the most successful department store operator in China? “One of our advantages was being there early,” he says.

To be sure, when Cheng brought Parkson to China, the department store sector in the country comprised a handful of fragmented operators.

“We were the first to introduce a brand with a personality and, over the years, we have developed standards of consistency and ser­vice that set us apart from our rivals.”

Parkson also hires mainly local talent, which allows it to better understand the needs of each market and tailor the merchandise according to customer demands.

Indeed, even differences in the weather in each city in China plays a part in influencing the size and colour of the apparel customers look for. Parkson currently hires some 13,000 staff across China, of whom just 40 are expatriates.

“At the end of the day, it’s the merchandise that draws the consumer and we have the platform and experience to offer our customers what they need,” says Cheng.

“Understanding your customers better than your competitors is the key to success in this sector. Coming out on top in the Chinese market gives us the confidence to operate in other countries.”

That experience will certainly help Singapore-listed Parkson Retail Asia, which will hold all of its department stores outside China. Indeed, Parkson is also exploring opportunities for growth in other Southeast Asia markets and will become the first department store operator to enter Cambodia when it opens its first outlet in Phnom Penh in 2013.

In total, Parkson runs about 50 outlets across Southeast Asia, with profits hitting S$36 million for FY ended June 30, up about 60% year-on-year (y-o-y) on the back of S$367 million in revenues, up 10% y-o-y.

“We have branded ourselves as a fashionable, family department store targeting the middle to upper-middle classes in the markets that we are in,” Cheng says.

“In each country, we have tailored our merchandise to appeal to the local consumer, even though certain more high-profile stores such as the Parkson outlets in [Suria] KLCC and Pavilion Kuala Lumpur see a higher volume of tourists.”

Parkson Retail Asia closed its first day of trading at S$1.13, with 35.5 million shares changing hands. At these levels, the stock has a market capitalisation of S$765 million, or 19 times earnings.

After the listing, parent company Parkson Holdings Bhd — which is controlled by Parkson Retail Asia chairman Cheng Heng Jem — will hold a 70.5% stake in the company.

“Listing in Singapore at this time is the right thing to do because we have just entered Indonesia and announced a new store in Cambodia,” Cheng says.

“Based on our growth profile and ability to execute, we are bullish on the longer term and believe our equity value will be worth a lot more when the market recovers.” — The Edge Singapore

This article appeared in The Edge Financial Daily, November 10, 2011.

No plan to up stake in E&O: Sime

Sime Darby Bhd has no plans to increase its 30 per cent stake in property developer Eastern & Oriental Bhd (E&O).

However, the company is looking forward to a potential collaboration with E&O, Sime Darby president and group chief executive Mohd Bakke Salleh told the media after the company's annual general meeting here today.

"At the moment we are happy to have the 30 per cent stake in E&O, and the future will depend on developments that will take place," he said.

On Nov 25, Sime Darby will announce its 2012 first quarter results and key performance index as well as its outlook for next year, Mohd Bakke said.

He said the company is targeting crude palm oil prices to stay at around RM3,000 per tonne until year-end, in line with the target prices of most plantation players and plantation research houses.

The company posted a higher pre-tax profit of RM5.45 billion for the financial year ended June 30, 2011 from RM2.82 billion recorded last year, while its revenue rose to RM41.86 billion compared to RM32.51 billion previously. -- Bernama

KPJ Healthcare to invest RM763m on 5 hospitals

KPJ Healthcare Bhd will invest RM763 million to build five hospitals in Malaysia over the next three years, the country’s government said in a statement today. They will be located in Johor, Sabah, Selangor and Pahang states offering a total 822 beds, it said. -- Bloomberg

IOI Corp to invest RM130m on Prai plant

IOI Corp, Malaysia’s second-biggest palm oil producer, will invest RM130 million on a new oleochemicals facility by 2013, the government said in a statement today. It will build a new fatty ester and speciality oleo derivative production center with a capacity of 20,000 metric tons per year at Prai Industrial Complex in Penang, it said. -- Bloomberg

Benalec awarded reclamation jobs

Benalec Holdings Bhd, a Malaysian marine construction company, said it won approval from the country’s Johor state government to conduct reclamation works.

The Shah Alam-based company will reclaim 1,760 acres of the coast off Pengerang and 3,485 acres off Tanjung Piai in Johor, Benalec said in a statement today. The land will be for petroleum and petrochemicals projects as well as maritime industrial parks, it said. -- Bloomberg

'Parkson to get two commitments for loan increase'

Parkson Retail Group Ltd has received two commitments to increase a loan taken out in 2010 to US$400 million from US$250 million, said a person familiar with the matter.

The loan is likely to be oversubscribed and the borrower is targeting to sign the increased facility on Nov. 24, said the person who asked not to be identified because the details are private. The two commitments come from existing lenders on the original facility, said the person.

The parent company, Parkson Holdings Bhd, operates department stores in China, Vietnam and Malaysia. Parkson Retail is seeking an increase by US$150 million on the US$250 million loan maturing in 2013, people with direct knowledge of the deal said on Oct 13.

DBS Bank Ltd, JPMorgan Chase & Co, Malayan Banking Bhd, Natixis and Standard Chartered Plc are arranging the facility, the people said.

The additional portion of the loan pays a margin of 215 basis points over the London interbank offered rate and a so-called all-in rate, which includes fees, of 250 basis points, for commitments of US$20 million or more, according to the people who spoke in Oct. The original US$250 million loan signed in November 2010 pays a margin of 215 basis points over Libor and an all-in rate of around 240 basis points, said the person with knowledge of the deal. -- Bloomberg

Interest in IPO market remains strong, says Bursa Malaysia CEO

KUALA LUMPUR (Nov 10): Interest in initial public offering (IPO) market remains strong, reflecting the economic fundamentals which are still resilient, says Bursa Malaysia chief executive officer, Datuk Tajuddin Atan.

Tajudin said interest in the IPO market was there but it would depend on timing.

"The index is holding up very well despite the volatility. "When the market comes back they will rebound well," he told reporters on the sidelines of the fifth International Islamic Capital Market Forum here on Thursday.

He said the listing of big companies like Petronas Chemicals and Felda Global Ventures, which would be listed by middle of next year, would augur well for the capital market to attract investors both domestic and abroad.

"They (foreign investors) look at big companies as a benchmark for them to come in (the local stock market)," he said.

Tajuddin said investors were watching developments in Europe and the US as they wanted confidence, while on the other hand, the economy's fundamentals were also important. - Bernama

MRCB to build affordable homes for medium-income group

KUALA LUMPUR (Nov 10): Malaysian Resources Corporation Bhd (MRCB) plans to build affordable houses in one of its projects to serve the medium-income populace, its chief executive officer Datuk Mohamed Razeek Hussain said on Thursday.

He said his property development and investment company supported the government's Projek Perumahan Rumah 1Malaysia as it was an excellent way to help the people who have not achieved the requisite income level to buy high-value PROPERTIES [].

"We are supportive of the housing scheme and plan to include such houses in one of our projects soon. We hope to get approval and assistance from the government," he told reporters after the company's corporate social responsibility event themed

"Promoting Intelligence, Nurturing Talent, Advocating Responsibility" here.

On another note, Mohamed Razeek said the group had done the soft launch for its two blocks of condominiums at Kuala Lumpur Sentral.

Known as "The Sentral Residences", the project received good public response.

"We've almost sold all the units on the first block and when we opened the second block (for booking), it was a brisk sale," he added. - Bernama

KL shares lower at mid-afternoon

Share prices on Bursa Malaysia remained in negative territory at midafternoon today on continued selling pressure in heavyweights, dealers said.

The dealers also said the market lost ground after three days of advances in tandem with the overnight losses on Wall Street and regional markets, on renewed fears over unresolved debt problems in Italy, which is pressuring the country to seek a bailout.

As at 3.06 pm,, the FTSE Bursa Malaysia KLCI (FBM KLCI) declined 18.90 points to 1,470.74, after opening 20.41 points lower at 1,469.23.

The Finance Index fell 115.979 points to 13,166.19, the Plantation Index declined 100.02 points to 7,486.02 and the Industrial Index eased 31.24 points to 2,695.

The FBM Emas Index slid 117 points to 10,036.61, the FBM Mid 70 Index eased 116.45 points to 10,794.58 and the FBM ACE Index shed 14.44 points to 4,262.45.

Losers led gainers 552 to 182 with 177 counters unchanged, 564 counters untraded and 22 others suspended. Turnover stood at 1.913 billion shares worth RM888.969 million.

For the actives, Patimas Computers gained two sen to 7.5 sen while SAAG Consolidated, ES Ceramics Technology and Iris Corporation, all increased half-a-sen each to eight sen, 13 sen and 17.5 sen respectively.

Among heavyweights, Maybank fell one sen to RM8.21, CIMB decreased nine sen to RM7.27, Sime Darby slipped six sen to RM8.86 and Petronas Chemicals eased 13 sen to RM6.35. -- Bernama

SC reviewing all trading data on MAS-AirAsia swap

KUALA LUMPUR (Nov 10): The Securites Commission (SC) is reviewing all the trading data on the swap deal between state investment arm Khazanah Nasional Bhd and Tune Air Sdn Bhd of shares in MALAYSIAN AIRLINE SYSTEM BHD [] (MAS) and AIRASIA BHD [].

"We are reviewing all the trading data and we will make a decision upon our review and determination of our findings," its chairman Tan Sri Zarinah Anwar
told reporters after her keynote address at the fifth International Islamic Capital Market Forum, here on Thursday.

She, however, said there was no time frame for the investigation.

Last week, Deputy Finance Minister Datuk Dr Awang Adek Hussin told the Dewan Rakyat that SC and Bursa Malaysia have launched an investigation into the swap deal between MAS and AirAsia.

He said the probe would also look into the possibility of insider trading and will take time because it involved many accounts and a huge value.

He also said if the probe by the SC and Bursa Malaysia found evidence of insider trading, the Malaysian Anti-Corruption Commission (MACC) could also be
invited to investigate.

On a separate issues, Zarinah said SC and Bursa Malaysia have surveillance systems in place to monitor price movements of all counters listed on the
stock exchange.

"Necessary action will be taken depending on the outcome of our surveillance activities," she said when asked on the speculation in penny stocks recently,

Zarinah also called on investors to exercise caution and make informed investment decisions.- Bernama

OSK Investment Bank resigns as Hirotako independent adviser

KUALA LUMPUR (Nov 10): OSK Investment Bank Bhd has resigned as independent adviser to HIROTAKO HOLDINGS BHD [] over the conditional take-over offer by MBM RESOURCES BHD [].

Hirotako said on Thursday that OSK had resigned in relation to the offer on Wednesday as it had acted as the adviser for a recent corporate exercise.

MBM Resources had offered to 97 per share and 5.0 sen per warrant to acquire the Hirotako stake in a RM412.5 million deal as it sought to expand its automotive manufacturing division.

IOI Corp group finance director retires

KUALA LUMPUR (Nov 10): IOI CORPORATION BHD []’s group finance director Rupert Koh Hock Joo retired with effect from Nov 7.

The PLANTATION [] group said on Thursday, the group financial controller would undertake the role and responsibilities of the group finance director.

IOI Corp said this would be the interim measure pending the appointment of a new group finance director.

Italy’s crisis hammers markets, KLCI dn 18pts

KUALA LUMPUR (Nov 10): Italy’s escalating crisis hammered key regional markets, especially Hong Kong where its benchmark index fell 4.5% while Bursa Malaysia was also not spared on Thursday.

At midday, the penny stocks which attracted huge speculative interest over the week, seemed to be holding on to much of their gains despite the fall in blue chips.

A sharper decline in market sentiment could have an adverse impact as margin calls kick in. While interest waned slightly among the recent penny stocks, traders shifted their interest to others like Iris, Patimas, Trinity and SAAG.

However, investors would have to watch how the European bourses fare when they opened later this afternoon. Of concern would be the huge volume of shares traded, among the highest at midday in recent months.

At 12.30pm, the KLCI was down 18.22 points or 1.22% to 1,471.42. Turnover was 1.62 billion shares valued at RM710.23 million. There were 169 gainers to 252 losers while 173 stocks were unchanged.

In Hong Kong, the Hang Seng Index fell 4.5% or 896.9 points to end the morning session at 19,117.5, weighed by the fall in HSBC and Industrial & Commercial Bank of China.

Japan’s Nikkei 225 lost 2.67% to 8,521.81, South Korea’s Kospi 3.77% to 1,835.60 and Singapore’s Straits Times Index 3.02% to 2,772.23.

At Bursa Malaysia, Hibiscus fell 1.5 sen to 76.5 sen but its warrants edged up one sen to 48 sen, Harvest Court Industries was down four sen to RM1.40 and the warrants, eight sen lower to RM1.18, Emico shed one sen lower at 38.5 sen after its price doubled on Wednesday before trading was halted.

Among the blue chips, BAT fell 56 sen to RM46.04 and Nestle 50 sen to RM49 while Dutch Lady gave up 18 sen to RM20.82 and Panasonic Malaysia 16 sen to RM19.20.

PPB lost 38 sen to RM1676, KLK 20 sen to RM20.84, HLFG 26 sen to RM11.62 and Genting 20 sen to RM10.80. Tenaga, which saw its outlook downgraded by Standards and Poor’s, fell 16 sen to RM5.76.

KL shares sharply lower at midday

Share prices on Bursa Malaysia extended the downtrend at midday today on continued selling pressure in heavyweights, dealers said.

The dealers also said the market moved in tandem with the overnight losses on Wall Street and renewed fears over unresolved debt problems in Italy, which is pressuring the country to seek a bailout.

At midday, the FTSE Bursa Malaysia KLCI (FBM KLCI) declined 17.73 points to 1,471.91 after opening 20.41 points lower at 1,469.23.

The Finance Index fell 118.31 points to 13,163.51, the Plantation Index declined 107.74 points to 7,478.30 and the Industrial Index eased 31.46 points to 2,694.78.

The FBM Emas Index slid 116.08 points to 10,037.39, the FBM Mid 70 Index eased 125.23 points to 10,785.80 and the FBM ACE Index shed 13.24 points to 4,263.65.

Losers led gainers 525 to 169 with 173 counters unchanged, 608 counters untraded and 22 others suspended. Turnover stood at 1.618 billion shares worth RM710.229 million.

For the actives, Patimas Computers gained 2.5 sen to eight sen, SAAG Consolidated increased half-a-sen to eight sen, ES Ceramics Technology rose one sen to 13.5 sen and Iris Corporation gained half-a-sen to 17.5 sen.

Among heavyweights, Maybank fell two sen to RM8.20, CIMB declined seven sen to RM7.29, Sime Darby slipped nine sen to RM8.83 and Petronas Chemicals eased 13 sen to RM6.35. -- Bernama

KL shares sharply lower at midmorning

At 10.30 am today, there were 130 gainers, 454 losers and 143 counters traded unchanged on the Bursa

The FBM-KLCI was at 1,474.25 down 15.39 points, the FBMACE was at
4,299.92 up 23.03 points, and the FBMEmas was at 10,051.01 down 102.60 points.

Turnover was at 1.133 billion shares valued at RM396.388 million.
-- Bernama

Tenaga falls on outlook downgrade, weak sentiment

KUALA LUMPUR (Nov 10): Shares of TENAGA NASIONAL BHD [] fell on Thursday in line with the weak markets but the decline was also affected by the downgrade by Standard & Poor's Ratings Services.

At 10.55am, Tenaga was down 14 sen to RM5.78 with 251,600 shares done.

The rating agency had revised downwards its outlook on Tenaga to negative from stable because it expected Tenaga's weakened profitability and higher operating costs to continue to weaken its significant financial risk profile.

However, S&P said it could revise the outlook to stable if the Malaysian government provides some fuel price relief that enables Tenaga to recover losses from fuel supply shortages.

RHB Research Institute said the downgrade on Tenaga’s outlook could increase financing costs for borrowings related to the two hydroelectric projects costing a combined RM3.75 billion.

“For the extension of its Janamanjung power plant, we note that Tenaga issued RM5 billion sukuk prior to the outlook downgrade,” it said.

Perwaja likely to get iron ore mining concession in Terengganu

PETALING JAYA: Perwaja Holdings Bhd is expected to secure a sizeable iron ore mining concession from the Terengganu government “anytime soon”, according to industry sources.

To enable economies of scale, sources said, Perwaja's unit Perwaja Steel Sdn Bhd should ideally be given about 500ha in Bukit Besi to mine iron ore with a mining lease running for at least 10 years, which later will be subject to renewal.

The 2,400ha Bukit Besi area is believed to hold 50 million tonnes of iron ore reserves, which has the highest quality in Malaysia at 70% Fe (iron), the sources added.

PETALING JAYA: Perwaja Holdings Bhd is expected to secure a sizeable iron ore mining concession from the Terengganu government “anytime soon”, according to industry sources.

To enable economies of scale, sources said, Perwaja's unit Perwaja Steel Sdn Bhd should ideally be given about 500ha in Bukit Besi to mine iron ore with a mining lease running for at least 10 years, which later will be subject to renewal.

The 2,400ha Bukit Besi area is believed to hold 50 million tonnes of iron ore reserves, which has the highest quality in Malaysia at 70% Fe (iron), the sources added.

Benalec set to win Johor job

PETALING JAYA: Benalec Holdings Bhd, which has requested for its stock to be suspended pending an announcement, is close to securing a land reclamation project that will cover about 5,000 acres in Tanjung Piai in the southwestern tip of Johor, sources said.

The sources added that the contract was being awarded by the Johor government to Spektrum Kukuh Sdn Bhd and Spektrum Budi Sdn Bhd, both of which are 70:30 joint ventures between Benalec and certain individuals.

The blocks of land were divided into two parcels one in the southwest of Tanjung Piai measuring 3,485 acres while the other is in the southeast measuring 1,700 acres, the sources said, adding that Benalec was likely to announce the deal this week.

According to sources, Benalec will undertake a private placement soon to raise funds for the project. Benalec declined to comment when contacted by StarBiz.

The source said the parcel at the southwest of Tanjung Piai was some 17km or 9 nautical miles from the major petrochemical complex on Jurong Island in Singapore. That part of Tanjung Piai is also suitable to be a deepwater petroleum terminal facility, similar to what Dialog Group Bhd is developing in Pengerang, Johor.

“The anchorage in that area is deep and shielded from monsoon,” said the source.

Meanwhile, the land to be reclaimed in the southeast of Tanjung Piai may include a container port to serve Petroliam Nasional Bhd's planned RM60bil refinery and petrochemical integrated development complex in Pengerang.

Sources also said it was likely that Singapore's Jurong International, the master planner for Jurong petrochemical complex, would be appointed the master planner for the reclaimed land in Tanjung Piai.

Benalec is an integrated maritime construction company. Its main activities are land reclamation works, dredging and other services like marine structure and breakwater construction.

Benalec is working on several reclamation projects like Arab City in Malacca, Glenmarie Cove in Port Klang and dredging for the Kapar power station. Its contracts in hand are valued at about RM800mil.

Payment for Benalec's services comes in two forms cash or payment in kind where Benalec is granted some portion of the reclaimed land. The company is currently the largest “land manufacturer” in Malacca with an entitlement of some 1,360 acres. The bulk of this was secured in the form of payment-in-kind from Oriental Holdings Bhd for reclamation works done.

As at June, Benalec has reclaimed and sold 330 acres in Malacca. Out of the outstanding 1,030 acres, 270 acres have been reclaimed and already come with land titles.

AmResearch said in a report that the balance 760 acres would be reclaimed over the next four to five years. A major portion will consist of a sizeable reclamation contract in Klebang where works had commenced since March.

Recently, Benalec won a RM36.6mil contract to reclaim 60 acres on the coast of Pulau Konet, Alor Gajah, Malacca.

MPI falls on 'persistent' inventory glut

Malaysian Pacific Industries Bhd, the nation’s second-biggest listed chip-maker by market value, fell the most in three months in Kuala Lumpur trading after RHB Capital Bhd analyst Yap Huey Chiang warned of a “persistent” inventory glut in the industry.

Its shares fell 3.7 percent to RM3.10 at 9:28 a.m. local time, set for their biggest drop since Aug. 9.

The company reported a first-quarter loss of RM9.6 million on Nov. 8.

RHB has an “underperform” call on the stock, according to a report today. -- Bloomberg

RHB Research maintains Underperform on Lafarge

KUALA LUMPUR (Nov 10): RHB Research Institute is maintaining its Underperform on Lafarge Malayan Cement as competition heats up in the domestic market.

It said on Thursday Lafarge estimates domestic cement demand to grow by 6%-8% in 2011 and 3%-5% in 2012, underpinned by key on-going large-scale infrastructure projects.

“Rebates given by cement players have surprisingly trended higher recently, while margins are under pressure due to high coal prices and hike in electricity tariff. The higher rebates mainly reflect increased competition in the industry, as certain players are trying to capture additional market share ahead of the imminent capacity expansion in the industry by mid-2013,” it said.

RHB Research said Lafarge has no plans to increase production capacity, but is looking for ways to de-bottleneck its production process. With minimal capex spending going forward, Lafarge’s strong operating cashflow will be sufficient to support its dividend payout (estimated 34sen/share in FY11, translating to a decent yield of 4.9%).

“We cut our FY11-13F earnings forecasts by 3-7%, having adjusted our domestic cement demand growth assumptions, domestic vs. export sales ratio, domestic net selling price, and coal price assumptions.

“Indicative fair value is reduced to RM6.02 (from RM6.36) based on 14x revised FY12/12 EPS of 43.0 sen, in line with our one-year forward target PER for the cement sub-sector,” it said.

RHB Research maintains Outperform on SEGi

KUALA LUMPUR (Nov 10): RHB Research Institute is maintaining its Outperform recommendation on SEG International with a fair value of RM2.15, based on unchanged target 17 times FY12 price-to-earnings ratio (PER).

It said on Thursday that recent concerns with regards to the possible PTPTN loan reduction will have a minimal impact on SEGi as only about 27% of its students are under the PTPTN loans.

SEGi’s earnings rose 66.3% to RM18.32 million in the third quarter ended Sept 30, 2011 from RM11.01 million a year ago. Revenue increased by 24.1% to RM69.95 million from RM56.36 million while earnings per share were 3.50 sen versus 2.22 sen.

For the nine-month period, its net profit increased by 74.2% to Rm54.57 million from RM31.32 million while revenue saw a 28.8% rise to RM207.65 million from RM161.23 million.

RHB Research said the 3Q11 net profit was within expectations. A dividend of 10 sen per share was declared.

“ Although sequential performance was flattish, revenue grew by 24.1% on-year due to higher student enrolment that we estimate grew 19-20% on-year. As operating costs are mostly fixed, the improved top line resulted in EBIT growing 70.3% on-year. Effective tax rate increased to 21% in 3Q11 (vs. 18.4% in 3Q10), but the stronger EBIT led to an overall increase in the net profit margin to 26.5% (from 19.5% in 3Q10),” it said.

SEGi also inked an agreement with the Vietnam government to finalise the MoU that was signed in Aug. These collaborations will fall under the SkillsMalaysia INVITE project and SEGi will be responsible for providing skill-based training to the Vietnam vocational instructors and students.

“An initial batch of 600 Vietnam students will commence training in 2011. With average revenue of about RM20,000 per student, we believe that the SkillsMalaysia INVITE programme will contribute about 8% to the top line in the longer term,” said RHB Research.

CIMB Research has technical buy on Hexagon

KUALA LUMPUR (Nov 10): CIMB Equities Research has a technical buy on Hexagon Holdings at 23.5 sen at which it is trading at a price-to-book value of 0.6 times.

It said on Thursday that Hexagon also took out its long term downtrend line recently and has been building a base just above it.

Wednesday’s long white candle on rising volume could potentially be the signal that suggests it is again on the move.

“Technical landscape is improving with its MACD doing a rollover and its RSI has also hooked upwards. And since its RSI is not yet overbought, there is still room on the upside.

“Traders should remain cautious though and place a stop below yesterday’s low of 20 sen just in case. A push past the 25 sen level would send prices climbing towards 30 sen to 32 sen next,” it said.

CIMB Research has technical buy on Scomi Group

KUALA LUMPUR (Nov 10): CIMB Equities Research has a technical buy on Scomi Group at 30 sen at which it is trading at a price-to-book value of 0.4 times.

It said on Thursday that Scomi Group tried to break out of its huge descending wedge pattern yesterday but selling pressure was strong.

“This breakout could still take place as long as prices can hold above its moving averages at 28 sen,” it said.

CIMB Research said aggressive traders may buy on weakness with a stop placed below RM0.28. Others should wait for a close above its 200-day SMA before going long. Buying momentum should pick up given the rise in trading volume recently.

“Anything above 28 sen would keep the odds in favour of the bulls. On the upside, prices should re-rate towards 33.5 sen and 36.5 sen to 38 sen next,” it said.

S&P revises Tenaga outlook to negative

Tenaga Nasional Bhd, Malaysia’s biggest power producer, fell the most in a week in Kuala Lumpur trading after its outlook was revised to negative by rating company Standard & Poor’s.

The stock dropped 2.2 percent to RM5.79 at 9:09 a.m. local time, set for its biggest decline since Nov. 3. -- Bloomberg

IOI Corp falls on scrapping land buy plan

IOI Corp, a Malaysian palm oil producer, fell to a two-week low in Kuala Lumpur trading after scrapping plans to buy plantation land for RM830 million.

The stock dropped 1.9 percent to RM5.07 at 9:01 a.m. local time, set for its lowest close since Oct. 24. -- Bloomberg
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