Monday 21 November 2011

Wijaya to pay RM255m for Suffolk, Wealth

Wijaya Baru Global Bhd will acquire Suffolk Pte Ltd and Wealth Gate Pte Ltd for RM255.2 million, which represents a discount of 1.2 per cent or RM3.1 million, to 90 per cent of the total market value of the properties valued at about RM258.3 million.

In October, the company said it was buying the two companies with rights to extract timber in Papua Province in Indonesia.

The market value has been revised downwards to RM287 million as a result of an update in the rate of extractable timber within the said properties, it said in a filing to Bursa Malaysia today. -- Bernama



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Bina Puri grows 9-month revenue to RM888m

Bina Puri Holdings Bhd posted a higher pre-tax profit of RM13.2 million for the nine months ended Sept 30, 2011, from RM11.2 million in the same period last year.

Its revenue increased to RM888.3 million compared with RM860.9 million in the corresponding period of 2011.

Bina Puri's group managing director, Tan Sri Tee Hock Seng said the company was pleased with the performance, with all its divisions recording increases in revenue.

"Notably, our construction division remains robust with new projects, secured year-to-date worth RM970 million and an outstanding order book of RM2.78 billion," Tee said in a statement today.

He added, with the projects in hand currently progressing smoothly, the company was cautiously optimistic of their performance for the rest of the year. -- Bernama



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Mah Sing beats 2011 RM2b sales target

Mah Sing Group Bhd has surpassed its 2011 full year sales target of RM2 billion by achieving RM2.04 billion sales as at Nov 15, 2011.

The property developer also has very strong earnings visibility with unbilled sales of RM2.14 billion as at Sept 30, 2011.

"This is more than two times the revenue we recognised from property development for the whole financial year 2010," Group Managing Director/Group Chief Executive Tan Sri Leong Hoy Kum said in a statement today.

"We have met and exceeded market expectations on both sales and financial performance, and we shall continue to outperform market expectations by riding on our strong branding, good concepts and design as well as right products," he said.

For first nine months of 2011, the group recorded a 42 per cent increase in revenue to RM1.1 billion and a 47 per cent jump in net profit to RM127.5 million.

For the third quarter, its revenue rose 48 per cent to RM420.7 million while net profit grew 46 per cent to RM43.2 million.

Revenue and profit for the financial period are attributable to property development activities carried out in Kuala Lumpur, Klang Valley, Penang Island and Johor Baharu.

The strong sales achieved and timely execution provide steady cashflow and liquidity to the group’s balance sheets which remain healthy with net gearing ratio at 0.38 times as at Sept 30, 2011.

"Our net gearing has gone up from 0.21 times as at June 30, 2011 as our construction works are moving full swing in tandem with our strong sales," Leong said.

With its cash pile of close to RM600 million and the management’s target to maintain an optimal gearing level of 0.5 times, the group has a healthy warchest which will allow it to continue acquiring prime land or joint ventures for its aggressive expansion strategy.

With 36 projects in its portfolio, the group's unbilled locked in sales and remaining gross development value (GDV) is estimated at more than RM15 billion which should last the group five to seven years.

As for next year, the group’s launch pipeline in 2012 will include several projects offering residential and commercial properties in the range of RM500,000 onwards.

This would include new phases in existing projects like Icon City (Petaling Jaya), M City (Jalan Ampang), and Garden Plaza (Cyberjaya) as well as new projects like M Sentral (Kuala Lumpur) and M Residence@Rawang.

"We have set a sales target of RM2.5 billion for 2012, and we are optimistic that we can continue our strong sales momentum as our products cater to market needs and are well sited in strategic locations," said Leong. -- Bernama



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Eversendai order book RM1.6b, with RM132m Manjung job

KUALA LUMPUR (Nov 21): Eversendai Corporation Bhd’s order book has increased to RM1.60 billion with the latest contract secured by its subsidiary Shin Eversendai Engineering (M) Sdn Bhd to build part of the Manjung power plant.

It said on Monday the contract was for the boiler and auxiliary equipment for the Manjung Unit 4, which was awarded by Alstom Services Sdn Bhd.

“The contract value of this particular package is RM132 million and there are several other packages within this project that Shin Eversendai and Alstom are in negotiation currently,” it said.

Eversendai group managing director Datuk A.K Nathan said with a sturdy order book of RM1.6 billion after the inclusion of this new project, “we expect to exit FY2011 in a firmer position and have the growth visibility into FY2012 and beyond”.

He said the group was currently building the structural steel works for contact piers, sky bridge and satellite building for KLIA 2 and fabrication of pipe racks structures for Sabah Oil & Gas Terminal (SOGT) projects which have contributed to 5.0% of the overall group revenue.



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KL shares close sharply lower

KUALA LUMPUR: Share prices on Bursa Malaysia closed sharply lower today, reflecting the gloomy sentiment in regional markets that remained concerned with the unresolved eurozone debt crisis, dealers said.

They said the bearish statement made by China's Vice Premier, Wang Qishan, that the global economic outlook remained grim and of an impending global recession also affected the market.

The FTSE Bursa Malaysia KLCI (FBM KLCI) fell 20.32 points to 1,434.08 after opening 2.64 points lower at 1,451.76.

The Finance Index lost 139.25 points to 12,849.54, Plantation Index shed 70.51 points to 7,544.13 and the Industrial Index declined 57.35 points to 2,615.83.

The FBM Emas Index slid 134.569 points to 9,850.98, FBM70 Index fell 119.29 points to 10,809.03, the FBM Top 100 Index dipped 130.27 points to 9,655.04 and the FBM ACE Index declined 115.55 points to 4,080.37.

Decliners led advancers by 661 to 176 while 194 counters were unchanged, 450 untraded and 26 others suspended.

Total volume decreased to 1.416 billion shares worth RM1.161 billion from 1.462 billion shares worth RM1.196 billion last Friday.

As for the actives, Compugates Holdings rose half a sen to 8.5 sen, Fast Track Solution declined half a sen to 10 sen and DPS Resources slipped 4.5 sen to 18 sen.

Sumatec Resources, however, rose three sen to 20.5 sen.

Among heavyweights, Maybank lost five sen to RM8.20, CIMB eased 10 sen to RM6.77 and Sime Darby lost 10 sen to RM8.80.

RHB Capital, however, gained two sen to RM7.31.

Volume on the Main Market decreased to 1.026 billion shares valued at RM1.109 billion against 1.046 billion shares valued at RM1.141 billion last Friday.

Turnover on the ACE market decreased to 296.151 million shares worth RM42.217 million from 350.682 million shares worth RM50.021 million last Friday.

Warrants increased to 81.512 million units valued at RM7.159 million from 63.245 million units valued at RM5.382 million last Friday.

Consumer products accounted for 162.6 million shares traded on the Main Market, industrial products 147.8 million, construction 28.3 million, trade and services 368.2 million, technology 24.4 million, infrastructure 21.8 million, finance 67.6 million, hotels 1.1 million, properties 150.6 million, plantation 33.2 million, mining 44,000, REITs 1.2 million and closed/fund 25,000. - Bernama



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Latexx 3Q net profit falls 27.8% to RM12.73m

KUALA LUMPUR (Nov 21): LATEXX PARTNERS BHD [] net profit for the third quarter ended Sept 30, 2011 fell 27.8% to RM12.73 million from RM17.63 million a year earlier, due mainly to the persistently high raw material prices and the weaker US dollar.

The company said on Monday that its revenue for the quarter slipped 6.2% to RM121.81 million from RM129.88 million in 2010.

Earnings per share decreased to 5.17 sen compared to 8.19 sen in 2010, while net assets per share was RM1.23.

Latex declared a first interim tax exempt dividend of 2.5 sen per share of 50 sen each for the financial year ending Dec 31, 2011 to be paid on Jan 3, 2012.

For the nine months ended Sept 30, Latexx’s net profit fell 28.1% to RM43.06 million from RM59.89 million in 2010, while its revenue was down 10.1% to RM350.92 million from RM390.53 million.

Reviewing its performance, Latexx said the normalising demand, higher raw material prices of both natural rubber and nitrile latex were the main reasons for the contraction in the revenue and profit margin for the third quarter.

On its prospects, Latexx said although the industry outlook remained to be challenging in the near to midterm, the group would continue to deliver positive performance.

The company said that NR latex price has softened since June 2011 and the exchange rate of the US dollar had also improved.

On the other hand, nitrile latex price has peaked during the period of 3Q11 and has shown sign of softening recently, it said.

Despite the signs of improvement of the business environment, Latexx said it would still be cautious and take all possible measures to continue to remain as a competitive glove manufacturer.

Latexx said it would continue to grow its business by focusing on the Nitrile range, especially on the non- medical sectors, i.e. personal care, food handler, industrial, etc. to widen and diversify the revenue base.

“The group will also continue to broaden its customer base by focusing more on other countries besides the affluent markets.

“Fully embracing the industry’s environment with the challenges ahead, the group is confident that the current undertakings and strategies of the group is on the right track and will lead the Group to attain the organisational and earnings goal,” it said.



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CCM Duopharma 3Q net profit dips to RM7.52m

KUALA LUMPUR (Nov 21): CCM DUOPHARMA BIOTECH BHD []’s earnings dipped 1.3% to RM7.52 million in the third quarter ended Sept 30 from RM7.62 million a year ago due to slightly higher administration expenses.

In its announcement on Monday, the administration expenses increased to RM3.35 million from RM2.40 million a year ago.

However, its revenue increased 6.7% to RM36.76 million from RM34.46 million while earnings per share 5.42 sen compared with 5.49 sen.

For the nine-month period, its earnings rose 1.6% to RM20.37 million from RM20.05 million while its revenue increased at a stronger pace of 5.9% to RM105.09 million from RM99.24 million.

“The increase in revenue was mainly due to increase sales to government hospitals,” it said.



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United Plantations 3Q net profit up 32.6% to RM105.15m

KUALA LUMPUR (Nov 21): United PLANTATION []s Bhd net profit for the third quarter ended Sept 30, 2011 jumped 32.6% to RM105.15 million from RM79.27 million a year earlier, driven mainly by significant improvement in the selling prices of crude palm oil (CPO) and palm kernel (PK).

The company said on Monday that its revenue for the quarter surged 59.3% to RM439 million from RM275.54 million in 2010.

Earnings per share was 50.52 sen compared to 38.08 sen a year earlier, while net assets per share was RM9.55.

The company declared an interim dividend of 18.75 sen net per share for the year ending Dec 31, 2011, and a special dividend 11.25 sen net per share, to be paid on Dec 21.

For the nine months ended Sept 30, United Plantations’ net profit increased 64.9% to RM300.83 million from RM182.43 million in 2010, on the back of a 60% jump in revenue to RM1.11 billion from RM692.27 million.

Reviewing its performance, United Plantations said among the factors that drove its earnings were rising production from newly matured fields from its estates in Indonesia for the current period as compared to the corresponding period in 2010.

It said the production from its estates in Malaysia for the current period was at about the same level as the corresponding period in 2010.

United Plantations said there was also RM 16.44 million unrealised foreign exchange gain from Indonesian rupiah (IDR)-denominated loans to Indonesian subsidiaries in the current period due to the stronger IDR, as compared to RM 13.82 million loss in the corresponding period in 2010.

The company said its refinery recorded a profit before tax of RM 8.7 million in the current period compared with RM 12.9 million in the corresponding period in 2010, adding that the 32.6% decrease was mainly due to losses from fair valuation of foreign exchange positions.

Meanwhile, United Plantations said the higher government windfall gain tax of RM 14.60 million incurred in the current period as a result of higher CPO prices compared with RM 1.43 million in the corresponding period in 2010.

On its prospects, the company said palm oil production in Malaysia and Indonesia was expected to decline seasonally from November 2011 to March 2012, and that the current above average rainfall would affect palm oil production for November 2011.

“These two factors will support prices in the near future,” it said.

However, the company said that the spreading debt problems in the European Union were affecting global economies and are likely to dampen demand in the medium term.

These problems will have a bearish impact on the vegetable oil complex in the longer term if not resolved, as demand for vegetable oils will slow down with lower GDP growth, it said.

United Plantations said it was replanting a large area in Malaysia in 2011 in accordance with its replanting policy, adding that some areas in its Indonesian operations came into maturity in 2010 and more areas had been progressively maturing in 2011.

“The Indonesian production will more than compensate for the crop loss from the replanted areas in Malaysia and, as such, the total production for the Group for 2011 is expected to be above that in 2010.

“The directors are of the opinion that the group’s results for the current financial year ending on Dec 31, 2011 should be better than last year primarily due to better selling prices,” it said.



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PLUS Expressway 3Q earnings up 39% to RM465.9m

KUALA LUMPUR (Nov 21): PLUS EXPRESSWAYS BHD [] saw its earnings increase by 39.3% to RM456.98 million from RM334.49 million a year ago on higher toll collection.

The tolled road operator said on Monday its revenue increased by 15.2% to RM969.92 million from RM841.85 million while earnings per share were 9.32 sen compared with 6.69 sen.

In the notes to the accounts, it said toll collection was higher by RM55.1 million or 8.6% from a year ago, mainly due to an increase in the toll collection of RM45.10 million.

“Total revenue for the current quarter of RM969.9 million was 15.2% or RM128.0 million higher than the preceding year corresponding quarter of RM841.9 million. The favourable variance was mainly due to higher toll collection and higher toll compensation of RM72.2 million(net of fair value adjustment).

For the nine-months ended Sept 30, its earnings rose 46.9% to RM1.344 billion from RM918.81 million while revenue increased by 17.2% to RM2.876 billion from RM2.454 billion.

PLUS said its group toll collection of RM2.067 billion was 9.0% or RM170.2 million higher than the previous period’s RM1.897 billion.

The increase was mainly attributed by higher toll collection by PLUS of RM138.4 million driven by traffic growth of 6.2%.

For the period ended Sept 30, the group generated cash from operating activities of RM1.386 billion,with cash and cash equivalents balance of RM3.244 billion.



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JT International 3Q net profit rises 13.1% to RM39.75m

KUALA LUMPUR (Nov 21): JT INTERNATIONAL BHD [] net profit for the third quarter ended Sept 30, 2011 rose 13.1% to RM39.75 million from RM35.13 million a year earlier, driven mainly by higher net margins and lower marketing expenditures.

The company said on Monday that its revenue for the quarter increased 6% to RM334.86 million from RM315.95 million in 2010.

Earnings per share increased to 15.2 sen from 13.43 a year earlier, while net assets per share was RM1.67.

For the nine months ended Sept 30, JT International’s net profit fell to RM104.74 million from RM106.46 million on the back of an increase in revenue to RM932.23 million from RM927.63 million in 2010.

Reviewing its performance, JT International said the increase in its revenues was attributed to higher cigarette prices offset partially by lower sales volume.

On its prospects, the company said it was encouraged by the government’s approach of not increasing cigarette excise tax in the 2012 Budget in the light of the significant size and growth of the illegal cigarettes trade in Malaysia.

It said that whilst the legal tobacco industry volume, as measured by the Confederation of Malaysian Tobacco Manufacturers (CMTM), fell 3.0% in the first nine-months of 2011, the illegal trade of cigarettes increased to 37.3% in March-May 2011 compared with the annualised 36.3% in 2010.

JT International said that amidst the challenging environment, the company managed to maintain its market share at 19.8% in the first nine-months of 2011, compared to 19.7% during the same period last year.

“JT International Malaysia is committed to maintain its competitiveness through continued effective investment behind its Global Flagship Brands: Winston, Mild Seven and Camel.

“However, it is very unlikely that JT International Malaysia will be able to maintain last year’s strong performance,” it said.



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KLCI falls 1.4% to close below 1,440-level

KUALA LUMPUR (Nov 21): The FBM KLCI fell below the 1,440-point level and extended its losses for the fifth day running on Monday, as global markets retreated, weighed by the uncertainties surrounding the world’s economy.

The 30-stock index fell 1.4% or 20.32 points to 1,434.08, dragged by key blue chips including Genting, MISC and index-linked PLANTATION [] stocks.

Market breadth was negative with losers thumping gainers by 661 to 176, while 194 counters traded unchanged. Volume was 1.42 billion shares valued at RM1.16 billion.

Regional markets extended their losses on growing worries over the health of the global economy, as Chinese Vice-Premier Wang Qishan warned on Monday that the global economy remains in a grim state.

Meanwhile, European stocks fell early on Monday, hitting a six-week low, as the expected failure of a U.S. congressional committee to agree on how to slash the deficit revived fears about the country's finances and rattled investors, according to Reuters.

At the Asian markets, Hong Kong’s Hang Seng Index fell 1.44% to 18,255.85, Taiwan’s Taiex lost 2.64% to 7,042.64, South Korea’s Kospi was down 1.04% to 1,820.03, Japan’s Nikkei 225 lost 0.32% to 8,348.27, the Shanghai Composite Index shed 0.06% to 2,415.13 and Singapore’s Straits Times Index fell 1.19% to 2,697.98.

On Bursa Malaysia, PPB was the top loser and fell 46 sen to RM16.06; Jaya Tiasa, KLK, MISC and Genting lost 38 sen each to RM6.10, RM20.70, RM6.07 and RM10.22, Fima Corp down 37 sen to RM5.73, GAB 30 sen to RM10.62, Tan Chong lost 24 sen to RM4.18, BLD Plantations 23 sen to RM6.73 while Hong Leong Bank shed 22 sen to RM10.32.

DPS Resources was the most actively traded counter with 49.3 million shares done. The stock fell 4.5 sen to 18 sen.

Other actives included Sumatec, Compugates, Tiger Synergym Flonic, Karambunai, Fastrak and Extol.

Among the gainers, Dutch Lady added 60 sen to RM23.40, KrisAssets rose 22 sen to RM4.60, Sarawak Oil Palms 21 sen to RM4.66, Panasonic 16 sen to RM19.96, CBIP and Tasek nine sen each to RM4.05 and RM8, while TSH Resources added eight sen to RM3.67.



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Private risk in market volatility

KUALA LUMPUR: Effective this Jan 1, those looking to borrow from banks to buy houses and cars will be subject to Bank Negara Malaysia’s (BNM) new guidelines aimed at promoting prudent, responsible and transparent retail financing practices.

While much has been documented about the high borrowings of Malaysian households, little has been said about the 33% of households’ financial assets that are in the form of equities and unit trusts, which makes them also vulnerable to market volatility.

Malaysia’s high proportion of household debt to GDP of 76% is already a well-known fact. Having targeted the credit card segment earlier by imposing fees and stricter credit limits, the central bank is now tightening the income criteria for mortgages, requiring eligibility to be based on net income rather than gross income as it was previously.

Not only that, effective last Friday the tenure for car loans is now capped at nine years.

Although much has been said about the high level of household borrowings, what do their balance sheets look like?

Earlier this year, BNM published its 2010 Financial Stability and Payment Systems report, highlighting that some 33% of households’ financial assets are in the form of equities and unit trusts, and are susceptible to the performance of the stock market.

Equity holdings and unit trust funds accounted for 17% and 16% respectively of household assets at the end of 2010, with endowment policies accounting for 6%.

Bank deposits form the biggest chunk of household financial assets at 31%, followed by retirement savings with the Employees Provident Fund (EPF) with 30%, and equities 17%.

In fact, equity holdings were at their highest levels since the financial crisis in 2008, recording a 20% change on an annual basis according to the report. This was partly due to the stock market recovery that saw the FBM KLCI gaining 19.34% in 2010. It also contributed to the bulk of the 14.9% expansion in household financial assets last year.

If the high volatility in equity markets persists, it may impinge on a household’s ability to service its debt and mortgages, and inadvertently slow economic growth.

Equity markets around the world have been on a downhill slide since August, hit by the European debt crisis and a slew of other external concerns. Starting with Standard & Poor’s downgrade of US sovereign debt, worries spread to a possible default by Greece and several other European countries, as well as slowing growth in China and a sluggish recovery in the US.

In August itself, 7.9% or RM97.4 billion was wiped off the KLCI’s market capitalisation, with a further RM69.6 billion erased in September.

Year-to-date, the KLCI has declined 5.15% to 1,454.4 last Friday, and is off an intra-day high of 1,597.08. From the year’s high to the year’s low of 1,310.53 on Sept 26, the index fell 17.9%. The market has since rebounded from the low rising 10.9% to last week’s close.

BNM shared its concern over the stock market’s impact in the report.

“With one-third of household financial assets in the form of equity, households are susceptible to volatile swings in equity prices as observed in 2008, when a 39.3% fall in the KLCI precipitated a decline in household financial assets. This in turn, may subject the household financial position to the vagaries of the equity market.”

In 2008, the value of equity holdings and endowment policies held by households fell by over 35% when the stock market slumped. The value of unit trusts fell over 15% while bank and EPF deposits chalked up modest growth.

However, BNM also said this risk is mitigated by “a substantial and almost equal proportion of household financial assets represented by deposits with financial institutions, which continue to provide a comfortable buffer to support households’ debt servicing ability”.

The central bank added that at the end of 2010, the ratio of financial assets-to-debt remained relatively unchanged at 238.4%, with more than 60% of the financial assets held in the form of highly liquid assets.

Economists contacted by The Edge Financial Daily were not too worried about the impact of the stock market volatility on household assets.

“Investors would have already taken that into consideration when investing,” said Dr Yeah Kim Leng, group chief economist at RAM Holdings.

The current market decline would produce negative wealth effects, but this would be offset by rising income and the rally in commodities prices this year, he said.

“The question now is what is the threshold that would trigger bankruptcy and defaults,” he elaborated. Yeah said the current correction in the markets is not sizable enough to trigger such a situation.

There are other indicators to observe, including employment levels, wage rates and bank credit flows, he said.

“If credit lending for retail and households were impinged, then spending would definitely be cut,” he warned.

Those who invested in the stock market would be the ones with excess savings, he said, adding that households can still depend on fixed income sources such as unit trusts like Amanah Saham Bumiputera and savings deposits which can provide stable returns.

Yeah estimated that the KLCI would have to drop between 30% and 50% from its peak this year to cause any real effects to households.

“This time around, the market is more dominated by institutional investors than retail compared with the 1997 Asian financial crisis. So investors won’t be directly burned by this correction,” said Suhaimi Ilias, an economist at Maybank IB Research.

Suhaimi said: “Unlike back in the 1990s, leveraged equity investments via share margin financing (SMF) were a big thing so individuals were far more vulnerable to market swings due to margin calls and forced selling. As mentioned, this time around household assets related to equity investments are mainly placed under professional fund managers who are better equipped to monitor the investment portfolio and manage risks. Banks are also far more careful in extending SMF these days.

“For that matter, banks are also exercising a great deal of prudence in lending as part of credit risk management, under the close watchful eyes of Bank Negara, which has also been implementing macro prudential measures since late 2010 on mortgages and credit card loan.

“To me, 33% of households invested in equities and unit trusts is not that high a ratio. Moreover, the household financial assets to household debt ratio obviously excludes real assets [such as property holdings] but includes mortgages on the debt side ... so the household assets to debt cover could be higher,” he said.

Nontheless, Suhaimi said a weakening sentiment can affect the real economy as households and consumers turn more cautious in their spending as they react to market news and movements.

“The household assets to debt cover figure is an aggregate statistic, with no breakdown by household income groups, that is high income, middle income, low income,” he added.

“Chances are the lower income households and those working in export-based industries, for example, may be vulnerable due to a lower household assets to debt cover, and from the impact of the global downturn, as what we saw in 2008/09 when many people in the manufacturing sector were retrenched outright or had reduced income due to redundancies or working on shorter shifts,” he said.

“This can lead to difficulties in repaying loans and rising non-performing loans. Back in 2008/09, Bank Negara stepped in to provide temporary relief for the retrenched workers by allowing banks to grant a six-month moratorium on housing loan repayments,” he said.

With high debts and a rising propensity to invest in riskier assets, maintaining near full employment and raising income levels are keys to maintaining households’ financial sustainability.


This article appeared in The Edge Financial Daily, November 21, 2011.



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Market volatility to continue

KUALA LUMPUR: The markets are expected to be volatile in the week ahead, as the news flow from the eurozone continues to swing like a pendulum. On the minds of investors is whether the governments in Europe and the US can resolve the growing debt problems.

Investors are unsure whether the European Central Bank will find a way to act as a lender of last resort in the manner of the US Federal Reserve.

In Malaysia, while the economy grew at a faster pace of 5.8% year-on-year in 3Q from 4.3% in 2Q, there were concerns over the headwinds in 4Q12. RHB Research Institute said it tweaked its real GDP growth estimate for 2011 upwards to 5% from 4.5%.

“However, we are keeping our 2012 forecast unchanged and expect economic growth to weaken to 3.6%, given that the eurozone’s sovereign debt crisis is still lingering and the risk of it worsening remains high, and on the back of a slow US economic growth,” it said.

Affin Investment Bank’s head of retail research Dr Nazri Khan said 3Q GDP results showed the existing financial conditions in the country remain conducive for growth.

“Our view is that the government and Bank Negara Malaysia should continue with the current environment of low interest rates, ensure ample liquidity in the financial markets and easy credit accessibility, to bolster domestic demand,” he said.

Nazri said key support for future GDP growth would definitely be private investment.

“As the projects under the ETP [Economic Transformation Programme] kick off to higher gear, we expect stronger private investment and other side effects, such as bond and equity income growth, to bring more contribution to the economy,” he said.

As for equities, Nazri believes the FBM KLCI is now ripe for a pullback towards a lower range of 1,450 to the 1,430 support level.

“We believe the global equity market will be affected by the widening European debt crisis following disappointing French and Spanish bond auctions and downgrade warnings from ratings agency on the US’ large banks,” he said.

RHB Research, in its market strategy, said the volatile news flow would continue as long as there are no firm and detailed solutions, forestalling the equities market correction it had been anticipating.

“We continue to advise caution,” it said, pointing out that its top picks are companies with stable cash flow and those with above-market dividends.

Its stocks which offered more trading flavour and near-term trends were UEM Land Bhd, Top Glove Corp Bhd and WTK Holdings Bhd.

It said UEM Land is expected to benefit as oil and gas projects in Johor will continue to raise land values and provide catalysts for the share price.

It also favoured Top Glove as lower auto industry demand — due to Thailand’s severe floods — could impact the latex price in the near term.

“We see potential for the stock to move higher, although we recognise its premium valuations relative to its sector peers,” it said.

RHB Research added that WTK would benefit from a rise in timber prices in 2012 as Japan’s post-tsunami construction picks up. It explained that WTK is the purest timber play for Japan and the recent share price pullback saw it trading at relatively inexpensive valuations against the less liquid peers.

Other stocks to watch include IOI Corp Bhd, Masterskill Education Group Bhd, Affin Holdings Bhd and Benalec Holdings Bhd.

IOI’s net profit for 1QFY12 ended Sept 30, 2011, fell 48.2% to RM258.09 million from RM498.13 million a year ago, due mainly to unrealised translation loss on foreign currency denominated borrowings of RM271.7million. The loss was higher than analysts’ estimates.

Masterskill’s net profit for 3QFY11 ended Sept 30 fell 78.8% to RM5.55 million from RM26.18 million a year ago mainly due to lower student enrolment and higher overheads.

Affin reported an improvement in its earnings, which rose 17.5% to RM135.19 million in 3QFY11 ended Sept 30 from RM115.01 million a year ago, boosted by higher writebacks and higher Islamic banking income. It declared an interim dividend of 12 sen per share.

The Edge weekly reported that Benalec’s recent foray into land reclamation at the oil and gas hub in Johor has raised some eyebrows.

If all goes well, the project will boost the total outstanding gross development value of its projects from about RM1.5 billion to over RM15 billion.


This article appeared in The Edge Financial Daily, November 21, 2011.



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Bumi Armada, Nestle likely to join FBM KLCI

KUALA LUMPUR: Bumi Armada Bhd and Nestle (M) Bhd may replace PLUS Expressways Bhd and possibly Gamuda Bhd in the FTSE Bursa Malaysia KLCI (FBM KLCI) by the middle of December.

The FTSE Bursa Malaysia Index Series’ semi-annual review begins from Nov 22 and its results will be out on Dec 8. Changes to the KLCI will be effective towards the end of December.

PLUS is expected to be delisted by mid-December after it finalises its takeover exercise, which is expected to be completed by Dec 7, said Maybank Investment Bank Research in a research note on Nov 17.

Gamuda may also be heading for the exit as it has dropped out of the top 35 largest companies in Malaysia by market capitalisation. Gamuda will be removed from the KLCI if it does rank within the top 35 stocks by market capitalisation on Nov 30 — FTSE’s cut-off date, according to its regulations, the report said.

As at last Thursday, Gamuda’s market capitalisation of RM6.63 billion ranked 38th.

Bumi Armada, Nestle and AirAsia Bhd are strong candidates to be included in the KLCI, according to a report by OSK Research on Nov 14.

A local research head said market capitalisation is the first criteria taken by the FTSE in determining a KLCI member.

According to OSK Research, Nestle will be a “definite shoo-in” to replace PLUS and possibly Gamuda, as it is also on the reserve list.

The list comprises the five highest ranking non-constituents of the index by market capitalisation. Stocks in the reserve list will replace an existing KLCI component delisted prior to the half-yearly review.

Next to Nestle are Bumi Armada and AirAsia. OSK Research said between Bumi Armada and
AirAsia, the latter has a higher chance of being included as it is on the reserve list.

“It’s a toss-up between Bumi Armada and AirAsia, but we think AirAsia might have a slight edge,” OSK Research said.

But after news on Nov 15 that Bumi Armada will be included in the MSCI Malaysia Index, OSK research head Chris Eng, who wrote the Nov 14 report, told The Edge Financial Daily that the counter is likely to join the KLCI.

Although not on the reserve list, Bumi Armada has a larger market capitalisation than AirAsia. Because it was listed on July 21, Bumi Armada did not make the reserve list created in June.

At a closing price of RM3.93 last Friday, Bumi Armada’s market capitalisation stood at RM11.51 billion, while AirAsia’s market capitalisation came to RM10.39 billion at its Friday closing price of RM3.74.

Nestle, which closed at RM50 last Friday, with a market capitalisation of RM11.73 billion had the highest ranking among stocks on the reserve list. The other stocks on the reserve list are UEM Land Holdings Bhd, IJM Corp Bhd and S P Setia Bhd.

“If both stocks [Nestle and Bumi Armada] retain their ranking in terms of market value by Nov 30, they will likely be featured in the revised FBM KLCI 30 list come the next review,” said Maybank.

However, another research head said AirAsia is considered more liquid than Bumi Armada and Nestle, a factor to be taken into consideration by FTSE.

Bumi Armada had 866.27 million free float shares with a value of RM4 billion based on its closing price last Friday. Its free float represented 30% of its total shares outstanding. AirAsia had 1.6 billion free float shares, which translated into a value of RM7.8 billion and 60.4% of its total shares outstanding.

Nestle’s free float of 41.88 million shares, represents 17.9% of its total shares out, with a value of RM2.1 billion.

Prospects for Bumi Armada remain good with Bloomberg showing four “buy/overweight” calls with an average target price of RM4.55. AirAsia has five “buy/overweight” calls with target prices averaging RM4.65.

Supposing that both companies reach their average target prices, Bumi Armada with a share base of 2.9 billion will end up with a market capitalisation of RM13.324 billion, and AirAsia, with a share base of 2.7 billion, will have a market capitalisation of RM12.917 billion.

Nestle, with a share base of 234.5 million, has two “buy” calls with an average target price of RM52.70. Its market capitalisation will be RM12.36 billion if it reaches its average target price.

According to Bloomberg data, Nestle has a beta of 0.52 which makes is less volatile in relation to the KLCI compared with AirAsia and Gamuda, which had a beta of 1.60 and 1.44 respectively. No current beta was available for Bumi Armada.


This article appeared in The Edge Financial Daily, November 21, 2011.



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Cheaper latex a positive for glovemakers

KUALA LUMPUR: Latex prices, which hit fresh lows in recent days, are seen to be on a downward trend in the coming months in anticipation of lower demand by major industrial users, a positive for natural rubber (NR) glove producers although other concerns linger.

Analysts said rubber prices could be stifled by lower demand due to the eurozone sovereign debt crisis, besides automotive sector supply chain disruption from the floods in Thailand. Normalising demand for rubber gloves in the absence of disease outbreaks is another factor underlying lower consumption of rubber in the coming months.

“There is a downside bias to our forecast for rubber prices,” an analyst with MIDF Amanah Investment Bank Bhd told The Edge Financial Daily.

MIDF’s forecast indicates that latex will trade at an average of RM9 a kg this year before falling to RM8.75 in 2012. An analyst said the current situation would benefit glovemakers with a higher composition of NR gloves than synthetic rubber or nitrile glovemakers. Notable players include Top Glove Corp Bhd whose portfolio comprises 81% natural rubber gloves with the balance 19% being nitrile products.

Supermax Corp Bhd has a ratio of 80:20 for natural and nitrile gloves respectively while Kossan Rubber Industries Bhd has a ratio of 55:45.

Concerns over normalising demand for gloves due to the absence of outbreaks have given rise to fears of a price war among players, which could hurt the profit margins of these companies, the analyst added.

“Buyers of rubber gloves are adopting a wait and see attitude in anticipation of rubber prices going down further,” she said. Latex makes up some 60% of glovemakers’ cost.

The analyst said that while floods in Thailand have caused supply chain disruptions for the automotive sector, the situation there has begun to recover, and this is expected to lend support to rubber prices.

OSK Research Sdn Bhd analyst Jason Yap said he expects rubber prices to decline in the long term as demand is seen to be anaemic. This is due to moves by glovemakers to increase output of nitrile products and normalising demand for gloves.

Yap also said the global automotive sector, which consumes 70% of world rubber output, encountered setbacks against a weak global economic backdrop and floods in Thailand.

Thailand, Indonesia and Malaysia are the world’s top producers and exporters of rubber, accounting for 70% of global output. It has been widely anticipated that these top suppliers would embark on measures to stem the decline in natural rubber prices.

Policymakers in Thailand, for example, plan to spend 10 billion baht (RM1 billion) to increase inventory of the commodity. It was reported that a soft loan of some 10 billion baht would be given to the country’s estimated 600 cooperatives to purchase rubber from farmers at 95 baht per kg. The move is expected to drain supply out of the market to support prices of the commodity. Lawmakers there have also encouraged tappers to delay tapping between now and January next year to cut supply.

OSK’s Yap said amid expectations that top rubber producers will stem the decline in rubber prices, glove buyers are anticipated to increase their inventory ahead of the next year’s wintering season, when latex production is lower.

Rubber prices declined to fresh lows in recent days on expectation that the eurozone sovereign debt woes and lower vehicle output by major automotive players in Thailand due to the floods will reduce demand for the commodity.

Over the last six months, Malaysian latex prices have fallen 32% from a high of RM9.51 a kg on May 27 to RM6.43 on Nov 14.

The eurozone debt woes are far from over. Economists expect economic activities there to further weaken after a survey involving purchasing executives indicated that the manufacturing and service industries declined further last month leading to expectations of a contraction in the eurozone’s GDP in 4Q11 and 1Q12.

As the automotive sector consumes 70% of world rubber supply, a perceived weakness in the automotive industry will naturally impact rubber prices.

The floods in Thailand are creating a second major supply disruption in the global automotive sector since the March 11 earthquake and tsunami in Japan. According to news reports, the floods in Thailand have spread across 64 of Thailand’s 77 provinces and affected seven industrial enclaves where Honda Motor Co and auto parts makers have set up factories.

Global automotive players are also feeling the pinch. According to news reports, car factories across the Americas, and Asia, including Malaysia and Indonesia, will see lower vehicle output due to the supply chain disruption.

RHB Research Institute wrote in a note last Friday that it had revised downwards its 2011 total industry volume (TIV) for the Malaysian automotive sector to 604,000 units compared with 616,000 units previously.

This follows guidance from the Malaysian Automotive Association (MAA) that vehicle sales here would decline this month due to supply disruptions resulting from the floods in Thailand.

Year-to-date till October, Malaysian TIV fell 0.3% to 503,898 units, according to MAA.


This article appeared in The Edge Financial Daily, November 21, 2011.



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KLK confident of group’s future growth

KUALA LUMPUR: Kuala Lumpur Kepong Bhd (KLK) is confident of its capacity to grow, backed by the group’s sound fundamentals and a favourable oil palm tree ageing profile.

“KLK’s capacity for investment is still there,” said Tan Sri Lee Oi Hian, the plantation group’s CEO. “We have low gearing and good cash flow. It all depends on opportunity,” he told a media briefing last Friday.

Currently, 55% or 139,126ha of KLK’s plantation land is concentrated in Indonesia, with the remaining 45% or 111,959ha is in Peninsular Malaysia and Sabah. Growth of its landbank in Malaysia has been mostly flat as there were missed and limited opportunities, according to group plantations director, Roy KC Lim.

The group’s planted area as at June was 205,259ha with 20,000ha planted with rubber. The group targets new oil palm plantings of about 10,000ha a year, mainly in Kalimantan, Indonesia, subject to approvals by the Indonesian authorities.

“KLK has a short-term target [to expand its landbank] to 300,000ha with a focus on Indonesia,” said Lim.

“Opportunities to acquire land in Malaysia are fewer as the prices of brownfield [land] are quite high. We would like to have land here too but [our options] are limited,” said Lee. “There is also a lot of interest in Africa and other parts of the Asia-Pacific, like Papua New Guinea where land is more available,” he said.

No time line has been set and the group is actively seeking opportunities as and when they come. Currently the group is evaluating plans, conducting internal studies and feasibility studies on what other countries could have potential.

“lt is a relatively slow process, so our focus is productivity,” Lee said.

Under the Economic Transformation Programme (ETP), KLK has committed RM700 million to develop downstream production as well as research and development facilities together with the Malaysian Palm Oil Board (MPOB).

The MPOB had earlier approved a RM134 million grant for KLK to set up three production plants which would use excess capacity of basic oleochemicals to venture further downstream.

These ventures include the development of surfactants and vitamin E analysis. It also collaborated with MPOB via the Malaysia Oleochemical Manufacturing Group in response to global concerns on environmental and sustainability issues.

The RM700 million under the ETP has been invested in building and expanding KLK’s integrated methyl ester sulfonate and fatty alcohol plant, a plant to produce high grade tocotrienol and isomers as well as a world-class research centre. All of these projects are currently ongoing and will be ready in 2012 and 2013.

Profit contribution from downstream activities accounts for only 20% of KLK’s operating profit and Malaysia is still a small market for oleochemicals as key users are overseas. As such, the group does not want to be totally dependent on upstream activities, which is highly dependent on commodity prices, said Lee.

He believes improvements in the productivity of workers and higher wages will be the catalysts to boost Malaysia up the value chain from upstream (production) to downstream.

He noted that for a long time oil extraction rates (OER) in Malaysia were very low, but with Indonesian competition, the general industry average has improved. “No competition, no improvement,” he said.

Although Malaysia lacks land, Lee said the country still has better infrastructure and capabilities to compete with Indonesia; the key is efficiency.

Indonesia’s recently revised export duty structure will result in a gross oversupply of oleochemicals in the market, Lee said.

To take advantage of Indonesia’s competitive export duty on palm oil products, the group is currently building three new oil mills in East Kalimantan with two more to be built in the next few years and a RM120 million fatty acids plant due to commence operations in 2013.

Lee is confident about KLK’s future growth as 47% of its oil palm trees are less than 10 years old with 42% of them 10 to 18 years and the balance 19 years and above.

The group expects an average fresh fruit bunchs (FFB) yield per mature hectare of 22 to 24 tonnes. FFB production is expected to grow at a rate of 8% to 10% per year as a result of better planting materials, new planting and better productivity, said Lee.


This article appeared in The Edge Financial Daily, November 21, 2011.



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Miami lawmakers questioning Genting’s projections, promises

KUALA LUMPUR: The Genting group may have to work harder or change its approach in obtaining a casino licence in Miami. Decision-makers came away reportedly unconvinced the casino operator could deliver on its many promises and forecasts presented at a debut debate session last Wednesday.

Genting Americas’ blunt-speaking president Colin Au said Miami’s three mega casino resorts could collectively rake in between US$4.3 billion (RM13.6 billion) and US$6 billion gambling revenue a year, higher than the US$5.7 billion the Las Vegas Strip took in last year, according to a Miami Herald report dated Nov 16.

Numbers like US$1.7 billion new revenue for the state were cited from an economic study Genting commissioned, which assumes that the two other casinos would be as big as Genting, which is looking to have a casino space that is nearly four times Vegas’ largest.

Las Vegas Sands president Andy Abboud raised doubts at the meeting, pointing out that state economists think the number is closer to US$980 million a year. Legislators should take a “cautious, go-slow approach”, on the matter, Abboud reportedly said.

Senator Ellyn Bogdanoff, a sponsor of the casino bill, is among the unconvinced. “They [Genting] actually kill their own case because, based on what they want to do, they’re going to put all the pari-mutuels out of business and every restaurant in Miami — and a couple of hotels too,” the Miami Herald quoted her as saying.

Genting’s numbers for the economic potential of three mega-resorts proposed in her bill “are over the top”, she said, urging Genting to scale back its planned 5,200 rooms to a more modest 750 rooms.

But Genting’s Au rubbished criticism, saying lawmakers could always “just cancel the licence” if promises aren’t delivered.

“I can assure you, Senator, when we are up and running, you will find the impact of these three destination resorts to be even larger than Singapore,” Au reportedly said, citing the benefits Singapore’s economy saw last year after allowing two casino resorts.

“We do not eat people’s lunch. We create lunch, dinner, breakfast for everybody,” Au said, adding that the four million to six million new visitors to South Florida would give the incumbent Seminole tribe a 20% to 40% jump in revenue, while the smaller pari-mutuels would see a 50% to 100% jump in business.

“We will guarantee half the seats of non-stop flights from the Asia-Pacific [to Miami],” Au reportedly told the committee. “I’m even prepared to guarantee Disney 100,000 tickets that we will sell for them in our resort.”

Walt Disney World, which is located at Orlando, north of Miami, is reportedly among those opposed to expanding gaming in Florida.

But even Miami mayor Tomas Regalado — who was earlier seen as supportive of Genting’s plans, having presented Genting chairman Tan Sri Lim Kok Thay with a key to the city in June — came away hedging his bets, saying he needs more time and information before deciding on which way to vote.

“I believe that your proposed project may be one of the best things that ever happened to our community — or the worst. It is too early in its planning to tell,”’ Regalado reportedly wrote in a letter to Lim, even as neighbourhood interest groups raised questions over everything from negative social impacts, cannibalising of existing businesses to traffic woes.

In a separate interview, Regaldo told the Miami Herald Genting’s Resorts World Miami project wouldn’t be too large for the city as long as it can address traffic problems and other potential strains on the city’s services.

That said, Genting has at least won over the Latin Builders Association, a South Florida trade group, who endorsed the casino plan earlier this week. Others who have reportedly voiced opposition include billionaire businessman Norman Braman and University of Miami Professor Greg Bush, president of the Urban Environment League, who is reportedly attempting to energise grass roots community opposition.

Genting has another chance at swaying votes next month. The Senate Regulated Industries Committee is scheduled to hold a second workshop on the issue in December before taking a vote on the bill during the first week of the legislative session in January, the Miami Herald said.


This article appeared in The Edge Financial Daily, November 21, 2011.



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CIMB Bank wins ‘Best Internet Bank in Malaysia’

KUALA LUMPUR: CIMB Bank Bhd clinched the inaugural Best Internet Bank Award in Malaysia at Global Finance’s World’s Best Internet Bank Awards, at its ninth annual awards dinner in New York.

Joseph D Giarraputo, publisher of Global Finance magazine said: “The world is becoming increasingly connected and more and more people are looking for convenience online. CIMB Bank has proven that the online facilities it offers its customers provide them just that, with no compromise to security.”

“CIMB Clicks, our online banking platform, has gained great traction in its uptake and as such, it is important that it consistently exceeds customers’ expectations for online banking. This award will spur us on to take it to greater heights,” said Peter England, head of retail and financial services with CIMB Bank.

The winners of the awards were selected based on the strength of their strategy for attracting and servicing online customers, success in getting clients to use web offerings, growth of online customer base, breadth of products offered, evidence of tangible benefits gained from Internet initiatives, and web site design and functionality.


This article appeared in The Edge Financial Daily, November 21, 2011.



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InsiderAsia’s model portfolio - 456

Last week was another bad one for global equities as developments in Europe continued to dominate headlines despite better-than-expected economic numbers in the US. On the local front, Bursa Malaysia’s designation of Harvest Court Industries Bhd also affected sentiment for retail and penny stocks.

Concerns over the widening eurozone debt crisis — which is stalking one country after another — remained pivotal, with attention shifting from Greece to Italy and now to Spain.

Bond yields in Italy and Spain rose last week as worries grew over the ability of eurozone leaders to contain the crisis. A Spanish government bond auction ended with a euro era high average yield just under 7%. US officials have also started warning that the debt crisis could affect US economic growth.

Indeed, the selloff came despite a number of better-than-expected economic reports from the US last week, including data on retail sales, industrial production, manufacturing activity and jobless claims. The latter showed the number of people applying for unemployment benefits dropped to a seven-month low. US home building also fell less than expected in October.

However, investor attention remained firmly set on the other side of the Atlantic.

On the local front, Bursa Malaysia’s classification of Harvest Court knocked the wind not only out of the sails of the former high-flying stock, but also penny and retail stocks in general. It was a move lauded to prevent excessive speculation, but some would argue that it was a little late in coming.

Harvest Court’s shares had surged some 30 times in the space of just about a month — hitting a high of RM2.14 on Nov 14, before trading restrictions were imposed. Its shares have hit limit down twice after being re-listed from a one-day suspension, but resumed its rally on Friday, rising 31% to RM1.36, still a third down from its peak.

Over the past week, the FBM KLCI lost 14.4 points or 1% to close at 1,454.4.

Portfolio review
Stocks in our model portfolio outperformed the benchmark index substantially in the past week. Total market value for our basket of 17 stocks was up by 0.71% to RM379,850, compared with the FBM KLCI’s 1% loss. Eight stocks in our portfolio chalked up gains, seven had losses while two were unchanged.

Bumi Armada Bhd was our top gainer for the week, rising 5.6%. This followed the announcement that the oil and gas player will be added to the MSCI Malaysia Index effective end-November.

DiGi.Com Bhd continued to chalk up good gains, rising 4.6% last week, ahead of its share split exercise. The stock will trade ex today for a subdivision of one ordinary share of 10 sen into 10 ordinary shares of 1 sen each. DiGi’s shares also traded ex last week for a 37 sen dividend, which we have added to our pool of realised profits.

Other notable gainers include two of our REITs — Al-’Alqar KPJ REIT (up 3.5%) and Al-Hadharah Boustead REIT (up 3.4%). The losers were led by Pantech Group Holdings Bhd warrants (down 8.3%) and CIMB Group Holdings Bhd (down 4.8%).

Including our cash holdings, for which no interest income is imputed, our total portfolio value was up by a lesser 0.41% to RM659,803.

Last week’s gains boosted our model portfolio’s cumulative returns since inception to 312.4% on our initial capital of just RM160,000. We continue to outperform the FBM KLCI, which was up by about 124.9% over the same period, by some distance.

Our total profits are very substantial at RM499,803, of which RM399,793 has already been realised from previous shares sales.

We kept our portfolio unchanged last week.


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 21, 2011.




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Kossan set to bounce

Kossan Rubber Industries Bhd (Nov 18, RM3.08)
Upgrade to buy at RM3.07 with revised target price of RM3.59 (from RM3.04): Kossan’s 9MFY11 results were in line with our and consensus expectations, accounting for 70% and 68% of the full-year figure respectively. As expected, 9MFY11 earnings were 24.1% lower year-on-year (y-o-y) at RM67.5 million.

The good performance in 3QFY11 is unsurprising as the latex price has softened to RM6.77 per kg from its highest level in April 2011 of RM10.93. Higher earnings of RM23.6 million (+12.9% quarter-on-quarter [q-o-q]) were mainly anchored by strong results from both its divisions. Pre-tax profit surged 25.2% q-o-q for its gloves (due to lower latex price) and 16% for its technical rubber products (TRP) (strong demand from automotive sector). Earnings before interest and tax (Ebit) margin for 3Q fell within our estimate of 11% to 12% at 11.8%. We expect Ebit margin for FY11F to average around 11.5% to 12%.

Kossan has declared an interim tax-exempt dividend of three sen which is expected to be paid on Dec 20. The three sen accounts for about 40% of our full-year figure.

We are rolling our valuation to FY12F with a price-earnings ratio of 10 times, which is Kossan’s three year-historical average PER. Thus, we derive a higher target price of RM3.59 (from RM3.04). Therefore, we are upgrading our call to “buy” from “neutral” previously. We believe that average FY12 PER of 10 times is sensible given that Top Glove Corp Bhd has always traded at a premium among glove players with a multiple of 14 times and Hartalega Holdings Bhd at 11 times. — MIDF Research, Nov 18


This article appeared in The Edge Financial Daily, November 21, 2011.




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APM Automotive’s 3Q earnings disappoint

APM Automotive Holdings Bhd (Nov 18, RM4.40)
Maintain market perform at RM4.40 with fair value of RM4.50: APM’s 3QFY11 results were below expectations. Net profit for the quarter reached RM26.8 million (-4.41% quarter-on-quarter [q-o-q] and -11.4% year-on-year [y-o-y]) while cumulative 9MFY11 profit fell 12.2% y-o-y to RM82.7 million. Cumulative earnings amounted to just 66.4% of our previous 2011 estimate. The main reasons for the discrepancy were unfavourable average foreign exchange rates and operational upgrades that are likely related to costs associated with the consolidation of the Seri Kembangan plant to Port Klang during the quarter. In addition, effective tax rates for the quarter spiked higher to 29.6% due to deferred tax adjustments.

Revenue for the quarter rose 7.2% q-o-q to RM297.2 million, helped by the 10.3% q-o-q rebound in total industry volume (TIV). Cumulative revenue for 9MFY11 fell 1.7% y-o-y that was broadly in line with the 0.7% contraction in domestic TIV for the period. Revenue from overseas operations (mainly in Indonesia and Australia) disappointed, falling 24.7% y-o-y for the quarter and 15% y-o-y for the 9MFY11.

Higher revenue for the quarter helped lift earnings before interest and tax (Ebit) margin to 14.7% from 13.9% for 2QFY11 and 13.7% for 1HFY11.

We lower our 2011 forecasts by 9.4% after trimming our margin assumptions and factoring in higher effective tax rates. Our 2012/13 earnings estimates are unchanged. Prospects in 2012 remain decent, helped by strong sales of the new Myvi and supply of modules to DRB-Hicom Bhd for the locally assembled Volkswagen. APM’s longer term growth potential remains intact and will benefit from the ongoing localisation programmes by domestic assemblers in addition to being well-positioned to benefit from efforts by OEM auto manufacturers to geographically diversify and improve their supply chain redundancies after the natural disasters experienced by Japan and Thailand this year.

Key risks are lower car sales and unfavourable forex trends.

We make no change to our “market perform” recommendation and fair value estimate of RM4.50 derived from applying a 6.5 times target price-earnings ratio to 2012 earnings (unchanged). We believe APM is close to being fairly valued given 2010 to 2013 earnings compound annual growth rate of 5.8%. APM’s share price should also be supported by an expected gross yield of 5%. — RHB Research, Nov 18


This article appeared in The Edge Financial Daily, November 21, 2011.




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Pavilion REIT — initial public offering

Pavilion REIT (Offer price 88 sen)
Fair value of RM1: Pavilion REIT will be the sole premium retail REIT in Malaysia upon listing, with its most valuable asset being Pavilion KL Mall (with 1.3 million sq ft of net lettable area [NLA]), which is valued at RM3.4 billion. The REIT also manages Pavilion Tower — a 20-storey office tower with 167,400 sq ft of NLA valued at RM128 million. Pavilion KL Mall has a diversified tenant base, ranging from supermarkets/department stores (Parkson, Mercato) to high-end fashion outlets (Prada, Gucci, Michael Kors) only available in one or two malls in Malaysia. Overall occupancy rate is 99% with average rental rates of RM16.76 per sq ft (retail) and RM5.92psf (office).

Near-term growth will be organic, driven by positive rental reversions on expiring leases. Some 67.2% of Pavilion KL Mall’s leases are due to expire in FY13, which would lift our FY13F revenue forecast by 4% year-on-year (assuming 5% rental rate hike) to RM324.7 million. Y-o-y growth for FY12 is expected to be marginal as only 5.5% of the mall’s occupied NLA is set for renewal. We understand the managers are actively searching for yield accretive acquisitions in the Klang Valley, Penang and Johor that fit the REIT’s profile. Pavilion REIT also possesses rights of first refusal (ROFR) for Pavilion KL Mall extension and a retail mall in USJ Subang Jaya. Pavilion REIT also has ROFR for fahrenheit88, a 300,000 sq ft NLA mall located nearby, with plans to inject it into the REIT as early as 2014.

Pavilion REIT — which would be using 93% of its gross IPO proceeds of RM695 million to part finance the purchase price of RM3.3 billion — would have a gearing of 20.1% post-listing, below the 50% gearing limit. This suggests it could borrow an additional RM1 billion to fund its future acquisitions.

Our RM1 fair value is based on a discounted cash flow analysis with 7.5% weighted average cost of capital, 3% terminal growth and 0.5 Beta (based on CapitaMalls Malaysia Trust), thus valuing Pavilion REIT at a market capitalisation of RM3 billion. At our target price of RM1, the stock offers a distribution yield of 5.8% (based on FY12F dividend per unit of 5.8 sen). This is broadly comparable with the one-year forward yields for Sunway REIT (5.7%) and CapitaMalls Malaysia Trust (6.1%), its closest peers with dominant retail exposure and market capitalisation. — HwangDBS Vickers Research, Nov 18


This article appeared in The Edge Financial Daily, November 21, 2011.




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More losses in 3QFY11 for MAS?

Malaysian Airline System Bhd (Nov 18, RM1.40)
Downgrade to hold at RM1.41 with revised target price of RM1.55 (from RM2.70): MAS will release its 3QFY11 results in late November. We expect 3QFY11 to be loss-making due to the impact of 45% higher fuel price year-on-year (y-o-y) and the globally soft yield environment. The challenging global economy is undermining business activity, business confidence and the sentiment to travel. Against this backdrop, we have lowered our earnings forecasts and downgrade MAS to a “hold” (from “buy”) with a new target price of RM1.55 (from RM2.70) pegged to 5.6 times 2012 adjusted enterprise value/earnings before interest, tax, depreciation, amortisation and rental — on par with global peers.

MAS’ 3QFY11 passenger load factor contracted by 2.7 percentage points (ppt) y-o-y to 75.9%. Cargo load factor fell by 3.4 ppt y-o-y to 68.9%. The overall load factor (passenger + cargo) declined by 2.7 ppt y-o-y to 73.5%. Overall, we expect yield decline of 2% y-o-y, based on our observation of Singapore Airlines, Cathay Pacific Airways and Thai Airways’ results.

We estimate the Group’s 3QFY11 core net loss to be RM242 million after adjusting for FRS139 derivative mark-to-market which is non-cash. Fuel price was the culprit as it has risen by 45% y-o-y. Furthermore, the yield environment was very soft due to the challenging global economic outlook coupled with the negative impact of the Japanese disasters and Middle East uprisings.


The weak 3Q is likely to intensify based on the negative statements made by various other airline CEOs. We forecast 4QFY11 and the early part of 2012 to be loss-making for MAS after imputing for a higher jet fuel price of US$120 per bbl (previously US$110 per bbl) and a softer yield environment. MAS’ cost structure is not nimble enough to deal with the current market environment; it should be in better shape in 2HFY12 when it removes most of its old aircraft from the fleet.

We have lowered our earnings forecasts to adjust for higher fuel price, lower yields and lower capacity deployment. We are optimistic on the tie-up with AirAsia as it brings forth exciting opportunities with synergy potential in the billions; but execution plans are iffy in announcements and very slow. — Maybank IB Research, Nov 18


This article appeared in The Edge Financial Daily, November 21, 2011.




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WCT’s pillars are still strong

WCT Bhd (Nov 18, RM2.25)
Maintain outperform at RM2.40 with revised target price of RM3.20 (from RM3.30): Though we keep our valuation basis of 20% realisable net asset value (RNAV) discount, our target price is trimmed as we update for balance sheet items. The potential revival of project flows in the coming months supports our “outperform” call. WCT remains one of our top construction picks.

Overall 9MFY11 revenue was down 17% year-on-year (y-o-y) due to the depletion of jobs for the construction division and the timing of new launches for the property division. However, earnings before interest and tax (Ebit) margin climbed higher due to contributions from new jobs with better margins. This helped push core net profit up 15.3% y-o-y. Construction Ebit margin improved two percentage points y-o-y to 13%. We expect construction margins to hold steady from this point.

We continue to expect the RM4 billion worth of jobs that WCT has tendered for to start materialising in 2012. Some potential local jobs include the RM7 billion Gemas-Johor Baru double tracking, various large-scale building jobs worth around RM1 billion and private sector projects such the Vale iron ore facility which has yet to kick off in a big way. In the Middle East, prospects for order flows are still positive even though WCT is being more selective. Potential jobs include a building job in Bahrain and a highway project in Oman worth around RM1 billion each.

We think it is just a matter of time before project flows regain momentum as tenders approach the award stage. WCT’s order book visibility is intact. Within our construction coverage, the stock is one of the worst performers, having fallen 25% year-to-date. We believe that its share price has largely priced in the potential negatives, especially concerns over order book visibility. The stock is trading at a 40% discount to RNAV. — CIMB Research, Nov 18


This article appeared in The Edge Financial Daily, November 21, 2011.




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KPJ Healthcare still on the growth track

KPJ Healthcare Bhd (Nov 18, RM4.26)
Maintain buy at RM4.21 with fair value of RM5.21: Despite the strong top line growth, KPJ expects a slight slowdown in profit before tax growth largely due to slower yield growth at its new hospitals — Tawakkal Specialist Hospital, Penang Specialist Hopsital and Bumi Serpong Damai (BSD) in Jakarta. Generally, KPJ’s new hospitals do not operate at full capacity at the start of operation as the group reserves some floors for future expansion. With Tawakkal and Penang Specialist having reached their maximum occupancy rates, the limited bed capacity resulted in slower yield growth, with the rise in revenue lagging the increase in costs. Given the high fixed cost nature of the business and in order to improve yields, both hospitals have embarked on capacity expansion by opening new wards to reach optimum operating capacity. BSD is expected to remain in the red for at least a few more years as it is still in the early phase of gestation. Nevertheless, KPJ expects BSD’s financial performance to improve as it captures a bigger market share in Jakarta.

With construction of Bandar Baru Klang Specialist Hospital completed recently, the hospital is expected to start operation by 1QFY12 pending further approvals from the authorities. KPJ has four new hospitals under construction currently while construction on another three is expected to start next year. The group’s ongoing expansion will enable it to strengthen its position as the leading private healthcare services provider in Malaysia as well as tap the underserved markets where private healthcare is in high demand. We believe that the innovative use of the REIT as a vehicle to recycle its capital will allow KPJ to sustain its growth momentum without stretching its balance sheet.

Based on management’s guidance, we are raising our revenue forecast for FY11 by 2.2%. That said, we are trimming our net profit forecast by 1.2% after factoring in higher operating costs although our FY12 forecast stays. We maintain our “buy” rating at an unchanged fair value of RM5.21, based on 19.6 times price-earnings ratio on FY12 earnings per share. KPJ is excellent for long-term investment and portfolio balancing. — OSK Research, Nov 18


This article appeared in The Edge Financial Daily, November 21, 2011.




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Boustead 9-month profit up 28.6%

Boustead Holdings Bhd posted an increase of 28.6 per cent in its unaudited after tax profit of RM501.8 million for its nine months to Sept 30, 2011 from RM390.2 million in the previous corresponding period.

Revenue for the nine months increased by 34 per cent to RM6 billion from RM4.49 billion in the previous corresponding period.

Earnings per share for the nine-month period was 44.5 sen compared with 35.3 sen the previous corresponding period.

For its third quarter, Boustead’s after-tax profit rose 15.81 per cent to RM144.3 million from RM124.6 million registered for the same quarter in the previous financial year. Pre-tax profit was RM167.1 million compared with RM153.7 million registered in the previous corresponding quarter.

Boustead's board of directors declared a dividend of 12 sen per share for the quarter under review, reflecting a total dividend payout of 30 sen per share for the nine-month period.

"The group is committed to ensure that we will maintain our dividend policy payout for the financial year.

"This will be all the more possible given our diversified nature where we are not solely dependent on one income stream and as such contributions from multiple streams of businesses will have a positive impact on the group’s bottom line," said deputy chairman/group managing director Tan Sri Lodin Wok Kamaruddin.

"We look to close the financial year on a positive note as we intend to work harder and channel our resources and energies to improve our bottom line and business prospects particularly from organic growth,” he said in a statement today.

For the nine-month period, the group’s plantation division delivered a strong profit of RM267 million compared with RM132 million previously amid higher prices for the commodity.

The property division delivered a profit of RM58 million for the period compared with RM49 million previously amid improved contribution from the segment in tandem with the progress of construction jobs.

The manufacturing and trading division delivered a profit of RM76 million with strong contribution from BHPetrol as a result of higher sales volume and stockholding gains.

Its pharmaceutical division registered a profit of RM51 million compared with RM14 million in the corresponding period last year due to higher sales revenue and better margins with improved productivity and prices.--Bernama



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KL shares lower at mid-afternoon

KUALA LUMPUR: Share prices on Bursa Malaysia were lower at mid-afternoon today, reflecting the gloomy sentiment in regional markets as lingering concerns about the impact of escalating eurozone debt crisis affected investor confidence, dealers said.

They said the bearish statement made by China's Vice Premier, Wang Qishan, that the global economic outlook remained grim, also affected the market.

As at 3.26pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) fell 13.07 points to 1,441.37 after opening 2.64 points lower at 1,451.76.

The Finance Index lost 100.51 points to 12,888.28, Plantation Index shed 39.78 points to 7,574.86 and the Industrial Index declined 42.61 points to 2,630.57.

The FBM Emas Index slid 94 points to 9,891.55, FBM70 Index fell 102.931 points to 10,825.39, the FBM Top 100 Index dipped 88.64 points to 9,696.67 and the FBM ACE Index declined 65.67 points to 4,130.25.

Decliners led advancers by 630 to 118 while 207 counters were unchanged, 526 untraded and 26 others suspended.

Total volume stood at 911.6 million shares worth RM673.4 million.

For the actives, Compugates Holdings was unchanged at eight sen, Fast Track Solution was unchanged at 10.5 sen and DPS Resources slipped three sen to 19.5 sen.

Flonic Hi-Tech added three sen to 30 sen.

Among heavyweights, Maybank lost two sen to RM8.23, CIMB eased seven sen to RM6.80 and Sime Darby lost 10 sen to RM8.80.

RHB Capital, however, gained 12 sen to RM7.41. - Bernama



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CIMB Research maintains Outperform rating on Bumi Armada

KUALA LUMPUR (Nov 21): CIMB Research has maintained its Outperform rating on Bumi Armada Bhd at RM3.94 with a target price of RM4.61, and said that the company’s third quarter results released on Monday did not disappoint the research house though it undershot market expectations.

Bumi Armada’s net profit for the third quarter ended Sept 30, 2011 fell 7.5% to RM92.58 million from RM100.08 million a year, due mainly to its listing expenses in July this year.

The company said on Monday that revenue for the quarter rose to RM403.92 million from RM328.9 million in 2010.

For the nine months ended Sept 30, Bumi Armada’s net profit slipped to RM234.91 million from RM240.38 million in 2010, while revenue jumped to RM1.17 billion from RM870.22 million.

CIMB Research said on Monday that although Bumi Armada’s nine month-net profit made up 62% of its forecast, the research house considered it to be in line as it expects a much stronger 4Q and a record finish for FY11, thanks to the Apache and ONGC contracts.

“We continue to value Bumi at 17.6x CY13 P/E, a 40% premium over our CY13 target market P/E. Bumi remains an Outperform due to new FPSO contracts and marginal field works.

“It is now a component of the MSCI Malaysia Index,” said the research house.



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Jerneh Asia posts losses in Q3

Jerneh Asia Bhd posted a pre-tax loss of RM31,000 for the third quarter ended Sept 30, 2011 compared to pre-tax profit of RM5.65 million in the same quarter last year.

Revenue increased to RM42.87 million from RM25.93 million previously, the company said in a filing to Bursa Malaysia today.

Jerneh Asia said the pre-tax loss was mainly due to the poor performance in the equities market in the current quarter and the provision for losses in an associated company as a result of floods in Thailand. -- Bernama



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Axis REIT private placement of 75m units oversubscribed

KUALA LUMPUR (Nov 21): Axis-REIT’s proposed private placement of 75.18 million units has been oversubscribed by multiple times.

Axis REIT Managers Bhd, the management company, said on Monday the private placement represents 20% of the existing approved fund size of 375.90 million units and will increase the approved fund size to a maximum of 451.08 million units.

“The gross proceeds from the private placement which amounts to approximately RM184.20 million will be used to pare down the borrowings of Axis-REIT for the financial year to-date; lowering the gearing to 24%; providing Axis-REIT with sufficient headroom for more acquisitions,” it said.

The CEO of Axis REIT Managers, Stewart LaBrooy said the continuing interest in the Axis-REIT stock underlined the manager’s ongoing efforts to improve stock liquidity as well as, delivering improved distributions and increasing the size of the Trust through yield accretive acquisitions.

On completion of the placement and the conclusion of the latest acquisitions, Axis-REIT would have RM 1.39 billion in assets under management and a market capitalisation of over RM 1.15 billion. Trading of the new units is expected to start at 9am on Dec 7.



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Boustead 3Q net profit up 31.5% to RM120.9m



KUALA LUMPUR (Nov 21): BOUSTEAD HOLDINGS BHD [] net profit for the third quarter ended Sept 30, 2011 jumped 31.55% to RM120.90 million from RM91.9 million a year earlier, due mainly to higher sales volume and firmer palm product prices.

The company said on Monday that its revenue for the quarter rose 44.6% to RM2.19 billion from RM1.51 billion in 2010.

Earnings per share rose to 12.86 sen from 9.83 sen a year earlier, while net assets per share was RM4.63.

The company declared a third interim single tier dividend of 12 sen per share to be paid on Dec 30.

For the nine months ended Sept 30, Boustead’s net profit rose 27.3% to 418.3 million from RM328.6 million in 2010 while revenue jumped to RM6 billion from RM4.49 billion.

Reviewing its performance, Boustead said the higher sales volume had contributed toward the increase in revenue for its manufacturing and trading division, while the PLANTATION [] division was boosted by stronger palm product prices.

It said the first time consolidation of Pharmaniaga during the second quarter had also boosted revenue of its pharmaceutical division.

On its prospects, Boustead said on the overall, the group expected to register satisfactory results for the current financial year.

It said plantation’s earnings would very much be dependent on palm oil prices that were expect stay at attractive levels for the remainder of the year, and thus enable the division to deliver very strong earnings for FY2011.

It also said the negotiations for the contract to construct six naval vessels was progressing well and would have a positive effect on the earnings of the heavy industries division.

On its property division, Boustead said it was looking forward to stable recurring income from its portfolio of commercial and retail PROPERTIES [] and the expansion of the hotel operations.

Meanwhile, contributions from Pharmaniaga together with the improved performance from Boustead’s pharmaceutical manufacturing operation would augur well for the pharmaceutical division, it said.



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Mah Sing 3Q net profit up 45% to RM43.2m



KUALA LUMPUR (Nov 21): MAH SING GROUP BHD []’s earnings jumped 45.6% to RM43.22 million in the third quarter ended Sept 30, 2011 from RM29.67 million while up to Nov 15, its sales had exceeded RM2 billion.

It said on Monday that the performance was underpinned by strong sales which exceeded the RM2-billion mark as up to Nov 15, due to the strong branding and the flexibility afforded by its comprehensive portfolio of PROPERTIES [].

Mah Sing said revenue also recorded strong growth, up 48.4% to RM420.69 million from RM283.46 million while earnings per shares rose to 5.20 sen from 3.57 sen.

For the nine-month period, its earnings rose 47% to RM127.52 million from RM86.72 million in the previous corresponding period while its revenue increased by 41.6% to RM1.148 billion from RM810.82 million.

It said the revenue was underpinned by development activities in Kuala Lumpur, Klang Valley, Penang and Johor Baru

“Ongoing projects that contributed to revenue and profit include Garden Residence in Cyberjaya, Kinrara Residence in Puchong, Perdana Residence 2 in Selayang, MSuites in Jalan Ampang, One Legenda and Hijauan Residence in Cheras, Icon Residence in Mont' Kiara, Kemuning Residence in Shah Alam and Aman Perdana inMeru Shah Alam.”

Also contributing are commercial projects such as Southgate Commercial Centre in Sungai Besi, Star Parc Point inSetapak and industrial projects, i-Parc1 and i-Parc3 in Bukit Jelutong as well as i-Parc 2 in Shah Alam.

Projects in Penang Island, Residence@Southbay and Legenda@Southbay and in Johor Bahru, Sierra Perdana, Sri Pulai Perdana 2 and Austin Perdana also contributed to revenue and profit. The plastics division continued to contribute positively to the Group's performance,” it said.

“The group’s balance sheets remain healthy with net gearing ratio at 0.38 as at Sept 30, 2011,” it said.




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Jerneh Asia posts RM1.36m losses in 3Q

KUALA LUMPUR (Nov 21): JERNEH ASIA BHD [] posted net losses of RM1.36 million in the third quarter ended Sept 30, 2011 compared with net profit of RM21.33 million a year ago, mainly due to the poor equities market and provision for losses in an associate due to the severe floods in Thailand.

It said on Monday its revenue rose 65% to RM42.87 million from RM25.93 million. Its loss per share was 0.56 sen compared with earnings per share of 11.81 sen.

“The increase in revenue was mainly contributed by the sale of held-for-trading investments and interest income from the placement of proceeds from the disposal of Jerneh Insurance Bhd to an approved financial institution,” it said.

For the nine-month period, its earnings fell 77.1% to RM10 million from RM43.79 million in the previous corresponding period. Its revenue fell 156% to RM109.51 million from RM42.71 million.

Jerneh Asia said the group’s revenue for continuing operations for the period ended Sept 30 increased by RM66.79 million to RM109.51 million from RM42.72 million in the corresponding period in 2010.

The group recorded a profit before tax from continuing operations of RM13.92 million compared with RM13.34 million profit a year ago due to improved returns from the sale of held-for-trading investments.

When compared with the preceding quarter ended June 30, it recorded a loss before tax of RM310,000 compared to profit before tax of RM8.50 million in the preceding quarter. It said this was mainly due to the poor performance in the equities market in the current quarter and provision for losses in an associated company as a result of floods in Thailand.

To recap, on Oct 31, Jerneh Asia announced it had received a notice of voluntary conditional take-over offer from Kuok Brothers Sdn Bhd to acquire Jerneh Asia.



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