Tuesday 22 November 2011

Market Commentary

The FBM KLCI index gained 3.91 points or 0.27% on Tuesday. The Finance Index fell 0.08% to 12839.8 points, the Properties Index up 0.55% to 950.78 points and the Plantation Index rose 0.52% to 7583.36 points. The market traded within a range of 13.04 points between an intra-day high of 1438.51 and a low of 1425.47 during the session.

Actively traded stocks include SUMATEC, SUMATEC-WA, COMPUGT, DPS, MMSV, MBFHLDG-WA, SYF, HIBISCS-WA, TCUBES and GPRO. Trading volume decreased to 1271.69 mil shares worth RM1043.64 mil as compared to Monday’s 1416.44 mil shares worth RM1161.21 mil.

Leading Movers were DIGI (+12 sen to RM3.72), TENAGA (+9 sen to RM5.54), GENM (+7 sen to RM3.84), KLK (+30 sen to RM21.00) and AXIATA (+2 sen to RM4.73). Lagging Movers were SIME (-4 sen to RM8.76), PBBANK (-4 sen to RM12.42), PETCHEM (-4 sen to RM5.94), CIMB (-1 sen to RM6.76) and AMMB (-2 sen to RM5.49). Market breadth was negative with 327 gainers as compared to 399 losers. -- JF Apex Securities Bhd



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Better margins boost BRDB 3Q earnings to RM28.4m

KUALA LUMPUR (Nov 22): BANDAR RAYA DEVELOPMENTS BHD [] posted net profit of RM28.40 million in the third quarter ended Sept 30 from a net loss of RM745,000 a year ago due to better property development gross margins.

It said on Tuesday other positive factors were higher rental income and gain from disposal of the gourmet delicatessen and foodhall business in the property division.

Its revenue rose 11.5% to RM142.33 million from RM127.59 million while earnings per share were 5.80 sen compared with loss per share of 0.20 sen.

BRDB said the revenue was boosted by the manufacturing division but revenue from the property division fell 14% quarter-on-quarter to RM71.0 million from RM82.3 million, despite strong sales of the group’s new projects.

In the nine-month period, its earnings fell 52.8% to RM49.78 million from RM105.56 million in the previous corresponding period while revenue was up just 2% to RM478.41 million from RM468.76 million.

Elaborating on the revenue, it said that turnover from the property division slipped 21% with lower contributions from property development and CONSTRUCTION [], which were partially mitigated by higher rental income from Bangsar Shopping Centre (BSC) and Menara BRDB.

“The group posted pre-tax profit of RM46.4 million for the period under review, down 64% against RM130.4 million a year ago due to lower development profits from projects in Kuala Lumpur although profit contribution from Johor projects improved significantly.

“In addition, the results last year had accounted for an RM82.7 million gain from adjustment to fair value of BSC which when excluded, would show a comparable group pre-tax profit of RM47.7 million for the earlier period,” it said.



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Mudajaya 3Q net profit jumps 76% to RM63m on-yr

KUALA LUMPUR (Nov 22): MUDAJAYA GROUP BHD []’s net profit jumped 76% to RM63 million from RM46.54 million, aided by a currency translation gain of RM19.39 million compared with loss of RM14.95 million a year ago.

It said on Tuesday its revenue increased at the same pace, up 76.4% to RM337.21 million from RM191.15 million while earnings per share were 2.5 sen compared with 1.50 sen.

For the nine-month period, its earnings showed an increase of 8.7% to RM164.54 million from the RM151.36 million in the previous corresponding period. Revenue rose 43.3% to Rm916.39 million from RM639.14 million.

“The growth in revenue of 43.4% was mainly attributable to the increased level of activities during the current period whilst the profit before taxation was affected by the stronger ringgit Malaysia (RM) against US dollar and the lower contribution from some of the activities,” it said.



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PPB Group 3Q earnings fall 20.3% to RM229m, Wilmar weighs

KUALA LUMPUR (Nov 22): PPB GROUP BHD []’s earnings fell 20.3% to RM229.40 million in the third quarter ended Sept 30 from RM287.99 million a year mainly due to lower contribution from its associate, Wilmar International Ltd.

It said on Tuesday the lower Wilmar contribution had weighed its earnings despite the better performance by the grains trading, flour and feed milling division.

PPB’s revenue rose 23.6% to RM710.26 million from RM574.53 million while earnings per share were 19.35 sen from 24.29 sen.

It said earnings in the nine months ended September fell 55.4% to RM710.20 million from RM1.73 billion despite that revenue rose 18.5% to RM1.966 billion from RM1.659 billion.

“The increase (in revenue) was due mainly to higher flour revenue and an increase in grains trading volume recorded by the grains trading, flour and feed milling division,” it said.

PPB added the environmental engineering, film exhibition and distribution, chemicals trading and manufacturing, livestock farming as well as consumer product divisions also contributed higher revenue for the period under review.



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AirAsia 3Q net profit falls 53.46% to RM152.29m

KUALA LUMPUR (Nov 22): AIRASIA BHD [] net profit for the third quarter ended Sept 30, 2011 fell 53.46% to RM152.29 million from RM327.29 million a year earlier, due mainly to higher fuel expense and staff costs.

The airline said on Tuesday that revenue for the quarter rose 9.87% to RM1.08 billion from RM979.71 million in 2010.

Earnings per share for the quarter fell to 5.50 sen from 11.90 sen in 2010, while net assets per share was RM1.43.

For the nine months ended Sept 30, AirAsia’s net profit fell 42.89% to RM428.49 million from RM750.33 million in 2010, despite posting an increase in revenue to RM3.2 billion from RM2.78 billion.

Reviewing its performance, AirAsia said its aircraft fuel expense in 3Q2011 rose to RM421.22 million from RM290.42 million a year earlier, while staff costs rose to RM126.29 million from RM91.26 million.

Meanwhile, its revenue growth was supported by 8% growth in passenger volume while the average fare was 4% higher at RM180 as compared to RM173 achieved in 3Q10, it said.

AirAsia said the group’s cash from operations was RM130.3 million, compared to RM216.1 million in the immediate preceding quarter ended June 2011.

Net cash flow in the quarter amounted to RM218.6 million outflow, as cash flows from investing and financing activities exceeded operating cash flows, it said.

On its prospects, AirAsia said that based on the current forward booking trend underlying passenger demand in the final quarter for the Malaysian, Thai and Indonesian operations remains positive.

Load factors achieved in the month of October were in line with the prior year in Thailand and slightly below in Malaysia and Indonesia, with average fares higher in all three countries, it said.

In Malaysia, forward loads for the remaining months of the third quarter are ahead of the prior year with base fares slightly lower, in line with the Company strategy to increase load factors, it said.

“Passenger numbers are expected to remain strong for the rest of the year which is the strongest quarter for the Malaysian operations.

“The current floods in Thailand are expected to have a minimal impact affecting only the Kuala Lumpur to Bangkok sector,” said AirAsia.

The low-cost carrier said in Thailand, demand was expected to remain strong in the fourth quarter, adding that despite the current situation the final quarter of 2011 was still expected to provide a strong end to the year.

Meanwhile, it said that in Indonesia the recent phasing out of the remaining Boeing 737 aircraft would increase efficiency, lower unscheduled maintenance costs and lower fuel consumption, which was expected to translate into improved financial performance.

AirAsia said the outlook for the final quarter of the year should be seen in the context of the current high price of oil and aviation fuel.

“Fuel surcharges, introduced during the third quarter of the year have mitigated, but not fully offset, the effect of higher fuel prices.

“However, barring any unforeseen circumstances, the directors remain positive for the prospects of the group for the final quarter of 2011,” it said.



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Time Engineering’s 3Q earnings RM89m, boost from asset disposal

KUALA LUMPUR (Nov 22): TIME ENGINEERING BHD [] posted net profit of RM89.70 million in the third quarter ended Sept 30, up 709% from RM11.08 million a year ago, boosted by a gain of RM91.92 million from the disposal of investment.

It said on Tuesday its revenue slipped 2.9% to RM15.44 million from RM15.91 million mainly due to reduction in the group’s system integration business. Earnings per share were 11.57 sen compared with 1.43 sen.

“The current quarter’s results benefited from lower finance cost due to early full redemption of redeemable secured loan stocks and the gain on disposal of investment,” it said.

Time Engineering said for the nine-month period, its earnings were RM89.30 million compared with RM7.66 million in the previous corresponding period. Its revenue fell 25% to RM49.33 million from RM65.78 million.

The lower revenue in the current year was mainly due to the completion of the MAMPU project and supply of ICT Equipment for MIS implementation in Vietnam.

It said the Group would focus on improving its business and services offerings in its e-commerce portfolios. It added the integrated enterprise centre had recently started and was expected to begin contributing to the group results.



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KNM posts net loss RM116.29m in 3Q

KUALA LUMPUR (Nov 22): KNM GROUP BHD [] posted net loss RM116.29 million for third quarter ended Sept 30, 2011 compared to net profit RM56.09 million a year earlier, due mainly to one off provision for foreseeable losses and credit impairments.

The company said on Tuesday that revenue for the quarter rose 6.41% to RM445.18 million from RM418.36 million in 2010.

Loss per share for the quarter was 11.88 sen compared to earnings per share of 5.69 sen a year earlier, while net assets per share was RM1.69.

There was no dividend declared or recommended during quarter under review.

However, KNM said it had adopted a dividend policy of distributing at least 50% of its consolidated net attributable after tax profit (subject to the availability of distributable reserves and compliance of financial covenants) with effect from financial year ending Dec 31, 2012.

For the nine months ended Sept 30, KNM posted net loss RM86.42 million compared to net profit RM110.57 million in 2010, while its revenue grew 19% to RM1.4 billion from RM1.17 billion.

Reviewing its performance, KNM said the higher revenue in this year was due to higher job recognition.

On its prospects, KNM said notwithstanding its strong order book, the company expects the business environment for the remaining quarter to remain challenging due to global uncertainties.



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KLCI snaps losing streak as regional markets pare down losses

KUALA LUMPUR (Nov 22): The FBM KLCI snapped its losing streak and closed higher on Tuesday after having continuously fallen for five trading days, as some of the regional markets reversed earlier losses.

Stock markets put in gains on Tuesday after a heavy session of losses the previous day, though the respite from worries over U.S. and European government debt looked only temporary, according to Reuters.

The FBM KLCI rose 3.91 points to close at 1,437.99.

Market breadth, however, remained tepid with losers edging gainers by 399 to 327, while 298 counters traded unchanged. Volume was 1.27 billion shares valued at RM1.04 billion.

At the regional markets, Hong Kong’s Hang Seng Index rose 0.14% to 18,251.59, South Korea’s Kospi rose 0.34% to 1,826.28 and Singapore’s Straits Times Index gained 0.71% to 2,717.20.

Meanwhile, Japan’s Nikkei 225 fell 0.4% to 8,314.74, Taiwan’s Taiex lost 0.61% to 7,000.03 and the Shanghai Composite Index shed 0.10% to 2,412.63.

On Bursa Malaysia, KrisAssets rose 40 sen to RM5, Nestle was up 34 sen to RM50.20, KLK 30 sen to RM21, Tradewinds 25 sne to RM9.43, TSH Resources rose 24 sen to RM3.91, United PLANTATION []s 20 sen to RM18.50, Knusford 19 sen to RM1.77, BLD Plantations 15 sen to RM6.88 and DiGi up 12 sen to RM3.72.

Sumatec was the most actively traded counter with 112.1 million shares done. The stock jumped 7.5 sen to 28 sen.

Other actives included Compugates, DPS Resources, MMSV, SYF Resources, Tricubes and GPRO.

Among the decliners, Harvest Court fell 43.5 sen to 96.5 sen, Panasonic down 36 sen to RM19.60, Triplc 30 sen to 70 sen, Uzma 19 sen to RM1.60, DKSH and SOP 18 sen each to RM2.15 and RM4.48, Sungei Bagan 17 sen to RM2.73, while Nilai and MAHB fell 11 sen each to RM1.21 and RM5.96.



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Govt yet to decide on 6% service tax for pre-paid phones

KUALA LUMPUR (Nov 22): The government has yet to decide whether or not to cancel the six per cent service tax on prepaid telephone users as has been announced by telecommunication companies (telco), the Dewan Rakyat was told on Tuesday.

Deputy Information Communication and Culture Minister Datuk Joseph Salang said the tax was one of the major revenue earners for the country.

"The decision to be made may also depend on the telco," he said in response to a supplementary question from Saifuddin Nasution Ismail (PKR-Machang) on the matter.

Responding to a question from Amran Ab. Ghani (PKR-Tanah Merah), Salang said 1,692 locations had been identified for the implementation of the ministry's Wireless Village project.

The project, being carried out in stages, was scheduled for completion end of next year, he added.

“A total of 1,408 villages nationwide have been equipped with the wifi service as of last Sept 23, but the figures do not include wireless access centres in Penang and Miri, Sarawak," he added.

He said the project had been developed in selected areas during by-elections, like Kerdau, Pahang: Merlimau, Melaka; Tenang, Johor; Gua Musang, Kelantan and Sibu, Sarawak.

To a supplementary question from Amran on the selection of the villages for the wifi project, Salang said it was based on three main criteria, which included population.

"The other two criteria are its location, whether the village is near to an area which already has access to 3G, etc, and whether the village already has wire service, like fixed telephone line," he added. - Bernama



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KLIA2 to cost more than RM2.5b?

KUALA LUMPUR: In the midst of the war of words between Transport Minister Datuk Seri Kong Cho Ha and AirAsia Bhd co-founder Tan Sri Tony Fernandes over the recent rise in airport charges, speculation is rife that the cost of KLIA2 has increased significantly from the initial estimates of between RM2 billion and RM2.5 billion.

Officials from Malaysia Airports Holdings Bhd (MAHB) declined to comment on the cost of the project, emphasing that even if there was an increase in expenditure in constructing the KLIA2, it would not affect the passengers nor the airlines.

“The only avenue for us to recoup the costs is from non-aeronautical revenue such as the retail segment,” said an official.

The official was commenting on speculation that the cost of completing the KLIA2, the new low-cost carrier terminal (LCCT), has escalated to more than RM4 billion and a costlier airport would mean MAHB has to increase its charges — including airline parking and landing fees and airport taxes — to recoup its investment.

The MAHB official said these concerns are unfounded because aeronautical charges are regulated.

“It’s already set in stone and subject to review every five years. It should not matter if the cost is above RM2.5 billion because MAHB will account for all costs. It is not the government or any airline’s concern as we can’t simply raise charges.

“Be mindful that aeronautical charges, particularly PSC (passenger service charge), are never based on the cost of building MAHB’s airports. Airports are never built on ROI (return on investment). It’s very unlike the models they have in the UK ... the ROI for MAHB on KLIA2 is only based on non-aeronautical income,” said the official.

It has been reported recently that the KLIA2 retail space, which takes up about 20% of the terminal area, will generate some RM1.2 billion in revenue.

The official also said MAHB is a well-run company and the stock is favoured by analysts for its performance and governance.

“It would only be sensible for it to be accountable for what it builds and ensure that it will recoup every cent it invests.”

The Transport Ministry was dragged into the ongoing dispute between AirAsia and MAHB after the airport operator obtained the green light to increase landing and parking charges and
airport tax from Nov 10 this year. This is the first increase in charges after 17 years.

The Transport Ministry approved a RM14 increase in airport tax to RM65 per passenger in most of its international airports while the LCCT in KLIA and the Terminal 2 in Kota Kinabalu saw charges go up by RM7 to RM32 per international passenger. Landing and parking charges will rise in three stages over three years — landing charges will be 9% while parking charges will be increased by 18% per year.

Fernandes, when contacted by The Edge Financial Daily, defended the need for low airport charges and raised questions on the efficiency of MAHB. He was also disappointed that the Transport Ministry has not given attention to AirAsia’s requests.

“It is the poor decision making of MAHB that made me disappointed. When they were building the KLIA2, they say it will cost RM1.2 billion, but now, the airport won’t only cost more but probably will not be ready by 2012 as initially planned,” he said.

Fernandes also responded to Kong’s statement in an interview with Sin Chew daily over the weekend that PSC at airports operated by MAHB were subsidised by the government.

He argued that the passengers at the LCCT were not subsidised by the government and that although MAHB had not raised charges for 17 years, the existing terminal to cater for low-cost travellers was new and did not exist for that long a period.

Kong had told the Chinese daily that the recent increase in airport charges was to lift the government’s burden of subsidising the airport operator to the tune of RM180 million per annum in PSC and it was mainly enjoyed by passengers going abroad.

It is understood that the subsidy was part of an operating agreement between the government and MAHB in 2009.

Fernandes pointed out that the cost of building the existing LCCT was RM300 million and that the airport operator was able to recover the costs within one year based on the previous airport charges.

He also argued that it is not fair for MAHB and the government to compare the cost of KLIA and LCCT to Singapore’s Changi Airport.

“Malaysians aren’t paid Singapore salaries. Our advantage is cost, so, let’s have volume instead of cost,” he said.

Another matter that Fernandes has touched on is the appointment of high-position Transport Ministry officials to the board of MAHB and claimed that it was unfair as the ministry was also the regulator of the aviation industry.

However, Kong refuted the claims made by Fernandes, stating that the appointment was before his tenure in the ministry.

Kong also said that the recent increase in airport charges was not made by the Transport Ministry but came about as a result of negotiations between the Finance Ministry and MAHB. He said the Transport Ministry was only responsible for implementing it.

Kong said the agreement with MAHB was to allow an increase as long as the charges remain competitive in the region.

He said as a Malaysian, he is proud of AirAsia’s success, but highlighted that the government has been supportive of the airline’s growth.

“Of course, I do not deny the airline also has merit, it is important that the government has never prevented the development of AirAsia,” he added.


This article appeared in The Edge Financial Daily, November 22, 2011.



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Najib’s son resigns from Harvest CourtPrivate risk in market volatility

KUALA LUMPUR: Mohd Nazifuddin Najib, one of the sons of Prime Minister Datuk Seri Najib Razak, has resigned as director of Harvest Court Industries Bhd, the company that was designated by Bursa Malaysia last week after the stock saw a signficiant rise in its share price.

The 28-year-old, who was appointed to Harvest Court’s board on Oct 28, is still chairman of a string of private companies, including 1Green Enviro Sdn Bhd and Sagajuta (Sabah) Sdn Bhd, according to a company filing yesterday.

His appointment came together with the emergence of Datuk Raymond Chan Boon Siew, the major shareholder of Sagajuta group of companies.

At the time of writing, there was no change to the status of Chan, 39, managing director of 1Green Enviro and the Sagajuta group of companies, who was appointed a Harvest Court director the same day as Nazifuddin. Chan had a 15.7% stake in Harvest Court as at Nov 11 while Nazifuddin hold 3.98 million Harvest Court shares or 2.2% equity interest.

Adding four sen to close at RM1.40 yesterday with about three million shares done, Harvest Court lost just over one-third of its value from the high of RM2.14 it hit on Nov 14 when Bursa decided to impose trading curbs on the stock due to the frenzy of speculation surrounding it. The counter was classified a designated stock effective Nov 16, mandating upfront payment for the purchase of its shares.

At RM1.40, it is still 18 times the 7.5 sen it was fetching on Sept 27 before prices began running on heavy trade, but recovered from last Thursday’s RM1.04 apiece.


This article appeared in The Edge Financial Daily, November 22, 2011.



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MAS continues losing streak

KUALA LUMPUR: Malaysian Airline System Bhd (MAS) continued its losing streak when it posted RM477.59 million net loss or 14.3 sen per share 3QFY11 ended Sept 30. This is the third consecutive quarterly loss for the airline since the beginning of this financial year.

In its notes to Bursa Malaysia, MAS said the loss was due to higher fuel cost, derivative loss of RM70 million and unrealised foreign exchange loss of RM195 million. In comparison, MAS posted a net profit of RM233.23 million a year earlier.

For 3Q, MAS posted an operating loss of RM156 million compared to RM35 million profit a year earlier. The loss came as the national airline posted RM3.57 billion revenue compared with RM3.39 billion a year earlier.

The higher revenue was due to a 3% growth in passenger load on a 6% capacity growth. The group also saw reduced seat factor by 2.7% to 76%, and recorded 6% growth in passenger yield.

“Total expenditure, however, increased by 10% or RM357 million to RM3.72 billion mainly due to increase in fuel cost by RM396 million as the total fuel cost increased by 37.1% over the same period last year,” it said.

Non-fuel cost was 2% lower or RM39 million than the same quarter last year. Cash and bank balances stood at RM1 billion as at Sept 30, compared with RM1.58 million three months earlier.

For 9MFY11, MAS posted a net loss of RM1.25 billion on a revenue of RM10.24 billion.

MAS said the operating environment for airlines remains challenging for 4Q due to high jet fuel prices, and the worsening European economic situation which affects its forward booking profiles for long-haul routes.

MAS said it is undertaking dynamic revenue management activities to mitigate the situation.

“Notwithstanding management’s efforts to mitigate the adverse situation, we expect the 4Q operational results to be weaker than 3Q. Management is reviewing all aspects of operations and inventories and any consequential provisions required shall be recognised in 4Q,” it said.

MAS said it is embarking on significant network rationalisation exercise to withdraw structurally weak, loss-making routes, and to embark on new higher yielding routes focusing on Asia.

“With the adoption of a leaner network, management shall also be accelerating the return of ageing aircraft, and in so doing improve the fuel efficiency of our fleet. We expect the full impact of these initiatives to begin bearing fruit in 2012,” it said.

MAS said these key strategies would be outlined in its business plan, which would be announced next month.

On its collaboration with Air- Asia Bhd and AirAsia X that came about following the share swap between Khazanah Nasional Bhd and Tune Air Sdn Bhd in August, MAS said it would announce several initiatives soon in the areas of training, ground handling, maintenance, repair and overhaul and joint procurement.

MAS fell four sen to close at RM1.36 yesterday with 1.58 million shares transacted.


This article appeared in The Edge Financial Daily, November 22, 2011.



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Bumi Armada plans up to RM2.5b in capex next year

KUALA LUMPUR: Bumi Armada Bhd plans to allocate US$600 million to US$800 million (RM2.54 billion) for capital expenditure in FY12 in a bid to increase its asset base in the markets where it is operating currently, said CEO Hassan Basma.

He said the extra spending will be used to expand its operations in the 11 countries it has a presence. The bulk of the expenses will be used for building floating production storage and offloading (FPSO) vessels, Bumi Armada’s main strength.

“Bumi Armada is looking to secure two good FPSO projects annually,” he told reporters after the company’s 3QFY11 results briefing yesterday.

According to Hassan, the company is looking for six to eight prospects at all times to achieve its target of securing two contracts per year.

According to Bernama, the company is currently looking at six prospects to tender. The contracts are in various countries such as India and Indonesia where Bumi Armada has operations.

In a presentation to reporters during the event, Hassan said there is strong demand for FPSO in key markets such as Asia, Africa and Latin America.

For its 3QFY11 ended Sept 30, Bumi Armada posted a 7.5% decline in net profit to RM92.58 million from RM100.08 million a year ago on the back of an increased revenue of 22.8% to RM403.92 million from RM328.9 million previously. The lower profit was due to expenses incurred in the company’s listing on July 21 that amounted to RM20.3 million.

For the nine months ended Sept 30, its revenue increased by 34.8% to RM1.17 billion from RM870.22 million a year ago, while net profit was down by 2.3% to RM234.91 million from RM240.38 million previously.

Hassan said the increase in revenue was generally driven by higher activities across all its business segments, particularly from the FPSO and offshore support vessel (OSV) divisions. Bumi Armada is the largest OSV owner operator in Malaysia and the sixth FPSO operator in the world.

The company’s main revenue driver, its FPSO division, contributed RM177.53 million or 44% of its total revenue in 3QFY11. Its OSV division accounted for 33%, followed by transport and installation (T&I — 12%) and oilfield services (11%).

The revenue increase came mainly from two major FPSO contracts — Apache in Australia for the Balnaves field and and ONGC in India for the D1 field.

Hassan said oil prices are a leading indicator and oil is trading above US$70 (RM221.90) per barrel, which is positive for the long-term development and future investment on oil and gas exploration and production (E&P).

He said analysts are expecting 150 FPSOs in the next five years, which creates a demand of about 30 FPSOs a year. He said the capacity or supply of the industry is about 20 FPSOs a year, which will make demand higher than supply.

Asked if Bumi Armada paid US$20 million for a vessel named Rainbow River, he said the company has not purchased the vessel but has the option to.

Hassan said in October that Bumi Armada had completed the conversion of a floating storage offloading (FSO) vessel and sold it to Petrofac Ltd for its Sepat oilfield located offshore Terengganu. It is expected to produce oil by December. This was the first project that was done in less than 12 months in Malaysia.

CFO Shaharul Rezza Hassan said the quarter-on-quarter contribution from FPSO remains mostly unchanged due to the declining US dollar despite the Apache contract.

On its OSV segment, Shaharul said the fleet utilisation rate has improved throughout the year. It utilisation rate (not including JV vessels) for 3QFY11 improved to 93% compared to 83% in 2QFY11.

Shaharul said leverage improved with net debt-to-earnings before interest, tax, depreciation and amortisation (annualised) ratio declining to 2.1 times in 3QFY11 from 5.1 times in 2009, while its gearing ratio has fallen to 0.8 times in 3QFY11 from four times in 2009.

As at end-September, Bumi Armada had deposits, cash, and bank balances totalling RM992.83 million, while total borrowings amounted to RM2.68 billion.

As at end-September, Shaharul said, Bumi Armada’s firm contract order book stood at RM7.2 billion (which includes 50% share of the ONGC D1 contract), of which 72% was from the FPSO segment, 18% from T&I, and 10% from OSV operations. It had RM3.1 billion worth of contracts with options to extend.

CIMB said in a research note yesterday Bumi Armada is in the running to secure the Belud FPSO contract, which may be awarded in two to three weeks, adding that it is vying for FPSO opportunities in Vietnam, Angola, Nigeria and Brazil.

CIMB said Bumi Armada may not win Vietnam’s Lam Son project but is competing for the Belud and Bunga Kamelia FPSO jobs at home. Bumi Armada currently has FPSO presence in Nigeria, Vietnam, Australia and India, it added.

The research house said that Bumi Armada is keen to take on more direct responsibility as a marginal field producer and developer.

“Management is in talks with international oil companies such as Apache and plans to unveil a new business plan for marginal fields in 1QFY12,” it said.

CIMB expects Bumi Armada’s 4QFY11 to be stronger leading to a record year due to the first full-quarter contribution from the Apache contract and the return of Armada Installer to the Caspian Sea in December.

CIMB retained its “outperform” call on Bumi Armada with a target price of RM4.61, due to new FPSO contracts and marginal field works. Shares of Bumi Armada closed three sen higher to RM3.97 yesterday. Its stock has climbed 31% from its IPO price of RM3.03 on July 21.


This article appeared in The Edge Financial Daily, November 22, 2011.



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San Miguel-Esso deal gets go ahead from Miti and MTDCC

KUALA LUMPUR: The International Trade and Industries Ministry (Miti) and the Domestic Trade, Cooperatives and Consumerism Ministry (MTDCC) have given their letters of approval for San Miguel Corp’s proposed acquisition of a 65% stake in Main Market-listed Esso Malaysia Bhd.

According to the announcement, the MTDCC’s approval was given subject to operational conditions relating to dealers and employees, and Esso Malaysia obtaining relevant approvals from other relevant government agencies.

“Esso Malaysia will make further announcements at the appropriate time when there are any material developments related to the matter,” stated Esso Malaysia in the announcement.

On Aug 17, the Philippines-based San Miguel announced that it was buying the 65% stake in Esso Malaysia from ExxonMobil International Holdings Inc for RM614.25 million cash. This worked out to RM3.50 per share.

Yesterday, Esso Malaysia’s share price closed at RM3.47. Once the acquisition is completed, San Miguel will have to undertake an offer for the remaining Esso Malaysia shares it does not own.

It is worth noting that arm forces fund Lembaga Tabung Angkatan Tentera (LTAT) had earlier bid for the stake in Esso Malaysia but it could not match San Miguel’s offer. There was subsequently a call for the government to intervene for the stake to be sold to Malaysian companies but this was rejected by the government.

In addition to the stake in Esso Malaysia, San Miguel had also acquired from the ExxonMobil group other Malaysia units such as ExxonMobil Borneo Sdn Bhd and ExxonMobil Malaysia Sdn Bhd for a collective price tag of US$404 million (RM1.28 billion).

According to reports, San Miguel saw potentials in upgrading Esso Malaysia’s existing refineries, which would help it move up the value chain. It is also lured by the steady earnings stream coming in from Esso Malaysia’s 560 retail stations.

San Miguel, which is better known for its food and brewery activities, has been diversifying into other sectors over the past few years, including power generation and distribution and airports among others.


This article appeared in The Edge Financial Daily, November 22, 2011.



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Jaya Tiasa Holdings Bhd

Established in 1960, Jaya Tiasa Holdings Bhd is one of Malaysia’s largest fully integrated timber companies, with activities from extraction and trading of logs, to the manufacturing and export of plywood, veneer and sawn timber. The group’s timber concessions span a vast 713,211ha in Sarawak. In addition, the group also has 141,308ha of replantable reforestation land, of which just over 20% has been planted.

Jaya Tiasa has diversified into oil palm plantations in recent years and currently has a plantable landbank of 70,900ha for oil palm. The group posted net profit of RM151.44 million on revenue of RM870.9 million for the financial year ended April 30, 2011.

Datuk Seri Tiong Chiong Hoo, group managing director, shares with The Edge Financial Daily his strategies and dreams for the company.

TEFD: What are the group’s competitive strengths and advantages?
Tiong: The availability of resources is one of our key strengths. We have a sustainable supply of logs through natural and planted forests, as well as a diversified export market for our timber and timber-related products. Our landbank for the development of oil palm plantations is huge, and we have a favourable age profile of palms. Jaya Tiasa has established products and branding, and enjoys good financial standing.

Another major advantage is the strategic location of our facilities. Our timber processing factories are within the vicinity of the concession areas as well as the seaport, providing ease of export. Our existing and future palm oil mills are located within the estates, saving us on transport costs.

What have been the major achievements of the company in the past four years?
A significant achievement for the group is its diversification into oil palm, where we have a plantable area of 70,900ha. As at April 30, 2011, we have planted a total area of 55,017ha, of which 25,058ha have matured. Fresh fruit bunch (FFB) production increased significantly by 96% to 358,798 tonnes from the preceding financial year.

The group’s first palm oil mill commenced operation in 2009 with an initial processing capacity of 45 tonnes per hour of FFB. The mill is currently under expansion to increase the FFB processing capacity to 90 tonnes per hour to support the higher crop levels.

Another achievement is the success of our market diversification strategy. With our logs and wood-based products exported to over 10 countries, we are one of the most diversified, in terms of export sales markets, among Malaysian timber companies. The wood division has also obtained a number of certificates.

What are the major challenges your company has faced over the years and how did it overcome them? Is there anything you would have done differently?
The economic crisis in 2008/09 negatively affected demand and prices of timber and timber-based products. In addition, the volatility of foreign exchange rates, rising costs due to the hike in crude oil prices, inconsistent supply of logs due to unpredictable weather conditions and labour shortages were among the many challenges we have faced over the years.

To overcome these challenges, we focused on increasing sales of products in the higher price segments where margins are better. We also adjusted our inventories to the lower levels of demand by cutting back or temporarily suspending production.

We harnessed our existing production technology to improve operational efficiency and were vigilant in maintaining cost discipline. Stringent quality control was ensured to meet the buyers’ requirements. As demand for environmentally-friendly wood products is on the rise, our green certification also gave us a good base for capturing a considerable share of this market.

To reduce dependence on labour, we improved infrastructure to enable successful mechanisation in some areas of operations in the oil palm estates.

How is the company positioning itself within your industry?
Jaya Tiasa is one of the major players in the timber industry with a large timber concession area measuring 713,211ha in Malaysia. The group ventured into the palm oil industry in 2002. We are one of the major players among the smallholders. As at April 30, 2011, the total landbank of the group for oil palm stood at 83,483ha with 70,900ha estimated to be suitable for planting.

What are your strategies to grow or gain market share?
For the plywood division, we invest considerably in machinery upgrading, which resulted in the ability to peel logs of smaller diameter and increase the wood recovery rate. We are flexible in the deployment of our resources and closely monitor the cost of production.

We are continuously upgrading our plywood products by focusing on producing and exporting value-added products, such as floor base and thin panels for niche markets which offer premium pricing. Jaya Tiasa concentrates on supplying certified plywood products to effectively exploit a rising number of markets that demand certified wood products.

For our logging division, we continue to emphasise and enforce good forest management. The company improves operational efficiency through stringent monitoring of logging equipment and machines to ensure optimal utilisation. Prominence logistic planning is deployed to ensure timely production and delivery to safeguard the quality of logs and to improve grading for better pricing. We also implement a phased approach to obtain forest management certification.

Reforestation is an investment for the future viability of the group in keeping with the world’s move towards conservation of natural forests and ensuring sustainability of forest resources. We are endeavouring to add reforestation areas while focusing on improving workforce management, enhancing work standards and engaging more contractors and manpower for the project, as well as strengthening research and development.

Planted forests require a maturity period of 12 to 15 years to provide commercially exploitable timber. In this respect, we anticipate that the forest plantations division will start to positively contribute to the group’s earnings by 2022.

The pursuit of sustainable long-term growth is part of the reason behind our diversification into oil palm plantations — a new core business apart from the existing timber based operations. The palm oil division is expected to be the engine for future growth and a major contributor to the group in the future. Currently it contributes about 30% of the total group revenue.

What are your company’s plans for the future, short-term and long-term?
The company will strengthen current measures to improve operational efficiency and effectiveness across all business divisions. We will also intensify our marketing strategy in exploring new opportunities for greater market access. Ultimately, we want to create value for our shareholders and stakeholders in the long term.

What are your plans to compete in the increasingly globalised environment?
Jaya Tiasa is prompt to respond to changes in the global business environment.

We will strengthen our penetration in existing markets and broaden it in other potential markets. We want to ensure our businesses are sustainable, through the attainment and maintenance of globally recognised certification for our timber and timber-based products. As consumers are increasingly choosing products they perceive as environmentally-friendly, we are providing environmentally certified forest products.

We will harness our existing production technology towards improving operational efficiency and product quality, as well as producing value-added products for niche markets. The company aims to fully maximise its economies of scale, with an emphasis on continuous improvements in yields and cost efficiencies. We also hope to grow our talent pool.

What is your dream for your company? How would you like to see it in 10 years?
We want Jaya Tiasa to be Malaysia’s leading producer of renewable and sustainable quality wood and oil palm-based products.


This article appeared in The Edge Financial Daily, November 22, 2011.



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TSH to meet expectations, targets higher FFB output

PETALING JAYA: Plantation company TSH Resources Bhd is confident of delivering the strong earnings growth analysts expect, riding on an anticipated one-third jump in fresh fruit bunch (FFB) production by 2013.

“We are confident, we can achieve [FFB] growth of 30% to 35% this year,” group managing director Datuk Tan Aik Sim told reporters yesterday, pointing out that its FFB production growth had averaged 30% in recent years, jumping as much as 51% year-on-year in FY10 as more
Indonesian estates mature.

It expects FFB production to reach 600,000 tonnes by 2013, double the 279,000 tonnes produced in FY10 and about 300,000 tonnes the first nine months of FY11, Tan said.

That would help TSH’s FY11 net profit meet street expectations, Tan said. TSH’s FY11 earnings are expected to come in between RM110 million and RM126 million, and between RM97.3 million and RM146 million, according to Bloomberg data at the time of writing.

Thanks to higher crop production and the rise in mature acreage from Indonesia, TSH’s 9MFY11 net profit more than double to RM94.3 million from RM40.8 million the year before, on the back of 30% revenue growth to RM855.6 million from RM662.2 million.

Some 73% of TSH’s planted oil palm estates comprise immature and young mature trees which will produce more fruit upon reaching their prime production years (year seven to 15) over the next three to five years, Tan said after the company EGM, where shareholders approved a one-for-one bonus issue. “That translates into better results for the years to come, as we sustain a high growth rate going forward,” he added.

Tan says TSH's large landbank augurs well for its aspirations to be a regional plantation player.


At present, about 54% or 25,850ha of its oil palm estates are immature or below four years old, while 19% or 5,263ha have attained maturity (four to six years) but had yet to enter into prime production phase. Only 27% of its trees are over seven years old. Of its immature crop, 58% is situated in Indonesia and the remainder held under an associate company in Sabah.

Additionally, about 60,212ha or 60% of the company’s 98,996ha landbank was still unplanted as at end-2010. “We still have a large landbank for our future expansion, this augurs well for the company’s aspirations to be a regional plantation player,” he said.

In seeking out new landbank, TSH plans to retain its focus in Indonesia, where land and labour are easier to obtain relative to Malaysia.

Contributions from its plantation segment are expected to increase to 98% this year from 95% in FY10, he said.

Tan is less exuberant on TSH’s cocoa manufacturing segment, which saw a lower profit of RM2.3 million. Similarly, its wood products segment, under Ekowood International Bhd, registered a loss of RM1.6 million for 3Q.

“These [two segments] will most likely remain insignificant as we focus on being a regional plantation player,” Tan said, when asked if these businesses would eventually be hived off.

TSH added eight sen or 2.23% to close at RM3.67 yesterday.


This article appeared in The Edge Financial Daily, November 22, 2011.



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QL sees 2QFY12 earnings improve by 15%

KUALA LUMPUR: QL Resources Bhd saw net profit for 2QFY12 ending March 31 increase by 15.2% year-on-year (y-o-y) to RM38 million or 4.57 sen a share from RM33 million on the back of higher earnings by its integrated livestock farming division and palm oil activities.

Pre-tax profit for QL’s livestock and palm oil division saw an increase of 32% and 235% respectively for 2Q.

Revenue likewise grew from RM438.7 million to RM495.2 million, which is equivalent to a y-o-y increase of 12.9%. Sales for the livestock division rose by 18% to RM293.1 million from RM247.9 million previously.

According to the notes accompanying the announcement, QL saw an improvement in its livestock segment as a result of higher unit price of raw feed material as well as partly from the recognition of investment in associate Lay Hong Bhd.

“Our palm oil segment saw an improvement mainly due to improved crude palm oil prices, which stood at RM3,090 per tonne for 2Q compared with RM2,590 for the previous corresponding quarter as well as a new contribution for associate Boilermech Bhd,” QL said.

However, QL’s marine product farming division did not perform as well, with pre-tax profit falling 22% y-o-y to RM15.6 million in 2Q and revenue dropping 3% to RM114 million. According to QL, the drop was the result of lower fish landing.

On a cumulative basis, for the first six months of FY12, QL’s net profit rose to RM65.8 million or 7.91 sen a share, from RM59.8 million, while revenue grew 15.4% to RM949.8 million. However, once again QL said that its earnings were impacted by its marine product farming segment.

“Performance for our 1HFY12 results was adversely affected by poor fish landing, especially in Sabah water as well as keen competition in raw material trade. The operating environment was also challenging due to volatile commodity prices, fluctuating currency exchange and uncertainties in the world economy,” said QL.

While QL is expecting the second half of the year to be challenging, it noted that it has seen some improvement in fish landing for 3QFY12.

“We are also expecting to see some contribution from our fishery, poultry and palm oil operation in Indonesia in the fourth quarter. Thus, we are cautiously optimistic on the group’s performance for the second half,” said QL.


This article appeared in The Edge Financial Daily, November 22, 2011.



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JTI’s 3Q net profit increases 13%

KUALA LUMPUR: Tobacco company JT International Bhd (JTI) saw net profit for 3QFY11 ended Sept 30 increased 13.1% year-on-year (y-o-y) to RM39.8 million or 15.2 sen a share, from RM35.1 million reported in the previous year’s corresponding quarter.

Revenue for the third quarter likewise rose to RM334.9 million from RM315.9 million previously.

According to the notes accompanying the announcement, the increase in revenue was attributed primarily to higher cigarette prices, offset partially by lower sales volume. Legal tobacco industry volume fell by 3% in the first nine months of this year, according to data by the Confederation of Malaysian Tobacco Manufacturers (CMTM).

On a cumulative basis however, JTI’s net profit declined slightly to RM104.7 million or 40.05 sen a share, compared with RM106.5 million reported in 9MFY10.

This was despite revenue for the period increasing to RM932.2 million from RM927.6 million.

“Profit before tax [for 9M] was marginally lower at RM140.6 million compared with RM142.9 million for the corresponding period in 2010. The drop was attributed to lower sales volume offset partially by higher net margins and lower marketing expenditure,” said JTI.

The tobacco players got a respite this year when they were spared an increase in excise tax when the government unveiled its budget for the upcoming year.
Local tobacco players have been open about how the steep hikes in excise duties contribute to the increase in illicit cigarette activity.

In a study commissioned by CMTM, illicit cigarette trade in Malaysia has increased to 37.3% from March to May 2011, compared with an average of 36.3% in 2010.

“Amid the challenging environment, JTI managed to maintain its market share at 19.8% in the first nine months of 2011, compared with 19.7% during the same period last year,” said JTI in a statement.

Despite managing to maintain its market share, JTI is cautious on its prospects going forward, saying, “JTI is committed to maintain its competitiveness through continued effective investment behind its flagship brands. However, it is very unlikely that the company will be able to maintain last year’s strong performance.”

For 9MFY11, dividends proposed/declared by JTI were at 30 sen per share, same as last year’s corresponding period.


This article appeared in The Edge Financial Daily, November 22, 2011.



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Eversendai wins RM132m job

KUALA LUMPUR: Eversendai Corp Bhd’s subsidiary Shin Eversendai Engineering (M) Sdn Bhd has been awarded a RM132 million contract for work on the Manjung Power Plant.

In a statement to Bursa Malaysia yesterday, Eversendai said the work is related to the provision of “mechanical erection for boiler and auxiliary equipment for the Manjung Unit No 4”, for client Alstom Services Sdn Bhd.

There are several other packages within this project for which Shin Eversendai and Alstom are in negotiations, it added, citing more projects in the pipeline.

“With a sturdy order book of RM1.6 billion after the inclusion of this new project, we expect to exit FY11 in a firmer position and have growth visibility into FY12 and beyond,” said Datuk AK Nathan, Eversendai group managing director.

The group is presently executing the structural steel works for contact piers, sky bridge and satellite building for KLIA2 and fabrication of pipe racks structures for Sabah oil and gas terminal (SOGT) projects.

For the quarter ended Sept 30, Eversendai reported a group revenue and profit after tax of RM254.4 million and RM30.7 million, respectively. Revenue and profit after tax for the nine-month period was RM720.4 million and RM97 million, respectively. The company was listed in July this year.

“With the diverse and strong order book, the group is strategically positioned to perform well in FY11 and going forward. The wide geographical spread, number of projects and large client base of the current order book sees the group grow substantially as it is not dependent solely on any specific sector and or client,” said Nathan.


This article appeared in The Edge Financial Daily, November 22, 2011.



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Mah Sing surpasses FY11 sales target of RM2b

KUALA LUMPUR: Mah Sing Group Bhd’s profits for 3QFY11ended Sept 30 surged 45.64% to RM43.22 million or 5.2 sen a share, up from RM29.68 million in the corresponding period last year.

Profit was driven by stronger revenue which rose 48.41% to RM420.7 million up from RM283.46 million in the same quarter last year.

For the cumulative nine-month period ended Sept 30, the group has racked up RM1.15 billion in revenue, a 41.65% improvement from the same period in 2010. Profit has likewise increased 47.05% to RM127.52 million or 15.34 sen a share up, from RM86.72 million previously.

“We have surpassed our FY11 full-year sales target of RM2 billion by achieving approximately RM2.04 billion sales as at Nov 15, 2011,” said Tan Sri Leong Hoy Kum group managing director and chief executive of Mah Sing.

“We also have very strong earnings visibility, with unbilled sales of approximately RM2.14 billion as at Sept 30, 2011. This is more than twice the revenue we recognised from property development for the whole of FY10,” he said.

The group reports unbilled locked in sales plus remaining gross development value (GDV) of an estimated RM15 billion which should last five to seven years.

Mah Sing said it expects an increase in demand for affordable properties next year and the group’s launch pipeline in 2012 will include several projects offering residential and commercial properties in the range of RM500,000 onwards.

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

Mah Sing’s net assets per share have risen to RM1.24 as at Sept 30 up from RM1.10 as at the end of the last year. It reported a cash pile of almost RM600 million, a healthy war chest which will allow the group to continue its aggressive expansion strategy. As at Sept 30, Mah Sing’s total borrowings included a term loan of RM725.46 million and redeemable convertible bonds of RM269.04 million.

Thus far in 2011, Mah Sing has embarked on three land deals that will contribute additional combined GDV of RM2.46 billion. The most recent proposed acquisition was in October, the purchase of 226 acres of freehold land in Rawang for the M Residence@Rawang project that will contribute RM948 million in estimated GDV to the group.


This article appeared in The Edge Financial Daily, November 22, 2011.



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Boustead 3Q earnings up 31.6%

KUALA LUMPUR: Boustead Holdings Bhd’s third quarter (3Q) net profit ended Sept 30 rose 31.6% to RM120.9 million or 12.86 sen a share, from RM91.9 million in the same period last year. The group’s 3Q revenue rose 44.6% to RM2.19 billion up from RM1.51 billion in the corresponding period last year.

“We are pleased with our results particularly on a year-on-year comparison for the third quarter under review as well as for the full nine-month period. On this basis, 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,” said Tan Sri Lodin Wok Kamaruddin, deputy chairman/group managing director of Boustead.

For the nine-month period, group net profit rose 27.3% to RM418.3 million or 44.49 sen a share, while revenue gained 33.6% to RM6 billion. The bulk of earnings were contributed by the plantation division, with an operating profit of RM267.1 million, up 101.89% compared with RM132.3 million from a year ago.

The jump in plantation profits could be attributed to the division achieving an average crude palm oil (CPO) selling price of RM3,350 per tonne against last year’s corresponding period’s average of RM2,514 per tonne, marking a significant 33% increase. Cumulatively, fresh fruit bunch (FFB) crop improved to 854,006 tonnes.

The manufacturing and trading division produced a nine-month profit of RM75.9 million, up 41.34% from the previous year corresponding period’s RM54 million.

The division was boosted by strong results in BHPetrol, which saw higher sales volume and stockholding gains.

“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 Lodin.

Boustead has declared dividends of 22 sen per unit in 3Q, making nine-month total gross dividends at 30 sen per unit, against 27 sen in the same period last year. Net assets per share rose to RM4.63 as at Sept 30 from RM4.50 as at the end of last year.


This article appeared in The Edge Financial Daily, November 22, 2011.



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Builders want govt to expedite award and implementation of projects

KUALA LUMPUR: The Malaysian construction fraternity hopes the government will expedite the award and implementation of public projects to sustain the growth of the local sector.

In a statement yesterday, Master Builders Association Malaysia (MBAM) president Kwan Foh Kwai said by virtue of the construction industry having a multiplying impact on over 140 other sectors, MBAM hopes policymakers will speed up the award of new projects, especially initiatives with a high impact on the economy.

“For projects involving foreign direct investment and domestic investors, the timely issue of construction permits will further improve investor confidence,” he said.

He said while MBAM applauded the government’s decision to spur the growth of the construction sector for a targeted growth of 7% in 2012, much has to be done now to meet this challenging target.

The economy expanded at a faster pace of 5.8% in 3Q but whether the growth momentum could continue in the 4Q is still uncertain, Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz said last Friday during the announcement of the country’s economic performance.

She said the stronger 3Q growth was due to robust domestic demand, driven by the expansion in both household and business spending as well as higher public sector expenditure. However, for 4Q, there would be uncertainties due negative developments in the external economic environment.

On the supply side, the construction component industry expanded 3% year-on-year in 3Q, higher than the 0.6% y-o-y growth recorded in 2Q. In 1Q, the sector expanded 3.8%. The domestic construction industry grew 5.3% in 2010.

Kwan said by virtue of the growth rates for the construction sector so far in 2011, MBAM is concerned that the sector might not reach its intended growth targets if 4Q numbers do not improve substantially.

According to Kwan, timely awards and implementation of projects under the 10th Malaysia Plan and Economic Transformation Programme will contribute positively to the growth of the local building sector in 2012 as the projects require a gestation period to generate a positive impact on the economy.

“This planned and progressive award of projects will reduce any abrupt increase in demand for building materials and manpower which may jeopardise the targeted growth due to temporary shortages in supply. This will also prevent unnecessary price increases which will add a burden to contractors,” Kwan said.


This article appeared in The Edge Financial Daily, November 22, 2011.



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Axis REIT unit placement oversubscribed

KUALA LUMPUR: Axis Real Estate Investment Trust (Axis REIT) saw a good response to its shares placement exercise.

In a statement to Bursa Malaysia yesterday, Axis REIT said the 75.18 million units were placed out at RM2.45 each. Acquirers of the new shares are expected to make payment within five market days from the price fixing date of Nov 18 while trading of the new units is expected to begin on Dec 7. The property trust did not specify who the investors are, and the oversubscription quantum for its latest placement which raised RM184.2 million. Axis REIT closed at RM2.57 yesterday.

In a separate statement, Stewart LaBrooy, CEO and executive director of Axis REIT Managers Bhd, which manages Axis REIT, said investors’ continuing interest in the property trust underlined the efforts of the manager to improve the stock’s liquidity, deliver higher income distribution, and expand the property trust via yield-accretive acquisitions.

Upon completion of the exercise, Axis REIT’s issued share capital will expand to 451.08 million units. This translates into a market capitalisation of RM1.16 billion based on the unit’s closing price yesterday.


This article appeared in The Edge Financial Daily, November 22, 2011.



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United Plantations 3Q profit up 33% to RM105m

KUALA LUMPUR: United Plantations Bhd’s net profit for 3QFY11 ended Sept 30 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 yesterday its revenue for 3Q surged 59.3% to RM439 million from RM275.54 million a year ago.

Earnings per share was 50.52 sen compared with 38.08 sen previously, 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 surged 64.9% to RM300.83 million from RM182.43 million in the previous corresponding period, 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 period under review compared with the corresponding period in 2010.

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

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

“These two factors will support prices in the near future,” 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 Dec 31 should be better than last year primarily due to better selling prices,” it said.


This article appeared in The Edge Financial Daily, November 22, 2011.



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PPB down after downgrades on Wilmar, but decent 3Q seen

KUALA LUMPUR: PPB Group Bhd, which is still working on acquiring a 20% stake in the flour-related business of its associate Wilmar International Ltd, is expected to show decent year-on-year (y-o-y) growth in third quarter earnings slated for release sometime this week, analysts said.

But concerns over challenging operating conditions and several downgrades at Wilmar, its largest earnings contributor, dampened sentiments for both PPB and its 18%-owned associate. Wilmar’s 3QFY11 ended Sept 30 numbers fell short of street estimates due to exceptional losses, while showing strong y-o-y growth.

Closing at RM16.06 and S$5.09 (RM12.43) yesterday, PPB slipped 6% while Wilmar is down close to 9% over the past nine market days following Wilmar’s 3Q earnings release the morning of Nov 9.

Wilmar’s net profit for the quarter would have jumped 157% to US$442.4 million (RM1.4 trillion) from US$172.4 million in 3QFY10 had it not been for exceptional items like foreign exchange losses which resulted from a stronger greenback against the Aussie dollar due to loans provided to its sugar unit, as well as fair value losses on the group’s convertible bonds. Instead, on the morning of Nov 9, Wilmar said net profit for 3QFY11 rose 24% to US$321 million on the back of a 69% jump in revenue to US$13.1 billion. Earnings were also short of 2QFY11’s US$393 million.

Has enough value emerged following the recent price weakness?

KAF Seagroatt & Campbell values PPB at RM18.80, while AmResearch is even more bullish at RM19.35, according to Bloomberg data. Both have a “buy” on PPB while HwangDBS Vickers Research thinks the stock “fully valued” at RM16.30.

Wilmar, which is more widely tracked, has 13 “buy” calls, eight “holds” and four “sells” following downgrades by Kim Eng Securities and HSBC post the 3Q release.

Kim Eng cut Wilmar to “sell” after slashing its fair value from S$5.31 to S$4.50, after factoring in lower margins as well as the possibility of more one-off items eating into earnings.

“For FY12 and FY13, we slash our forecasts by a substantial 25% and 3% respectively,” Kim Eng wrote in a note dated Nov 10. The brokerage house’s bearishness was also due to near-term pessimism on China’s economy, given that Wilmar is seen as a proxy to China’s growing affluence. Wilmar, which had previously been hit by unfavourable trading positions, could again be hit if volatility on global commodity prices again rises significantly, it added.

Little wonder then that PPB’s stock price has slid in tandem, given that contributions from Wilmar — its largest earnings contributor following the disposal of its sugar business to what is now MSM Malaysia Bhd — is expected to continue to be sizeable until PPB’s other consumer businesses catch up in size.

One potential boost for PPB could come from the completion of the purchase of a 20% stake in Wilmar’s flour business in China. That is hoped to help make up for some of the earnings contributions lost from PPB selling a 20% stake in its Malaysian flour unit — FFM Bhd — to Wilmar earlier this year. At its 2Q briefing, PPB’s key management would only say paperwork for the transaction is being prepared and that plants in China will beat the size of those in Malaysia, given the difference in addressable market, without specific numbers.

Whatever the case, analysts who are less bearish on China’s economy and Wilmar’s growth prospects pointed out that the company had hitherto demonstrated the ability to build on its core competencies.

“Wilmar has shown strong underlying operational strength in its results which will continue to benefit PPB in the long run,” one analyst said, pointing out that Wilmar would be a beneficiary of the recent export tax changes for palm oil products in Indonesia.

CIMB Research reckons investors should accumulate Wilmar shares on any price weakness. “The stock has [fallen] after it reported lower earnings due to exceptional losses as well as amid concerns over its portfolio investments, but we remain positive on mid-term earnings prospects,” CIMB wrote in a note dated Nov 10, valuing Wilmar at S$5.60 apiece.

PPB is also expected to benefit from Wilmar’s on-going expansion into the sugar business in the longer run, analysts said.

In the near term, PPB’s earnings won’t see much of a boost from the recent purchase of Porserpine Cooperative Sugar Milling Association’s (PCSMA) assets for a headline price of A$120 million (RM377 million) by Wilmar’s wholly-owned Australian sugar unit, Sucrogen Ltd, given its size. The purchase, however, is expected to boost Sucrogen’s milling capacity and raw sugar production by about a 10th.


This article appeared in The Edge Financial Daily, November 22, 2011.



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Petronas launches Malaysia’s first mobile fuel dispenser

SEPANG: Petronas Dagangan Bhd (PetDag), the domestic marketing arm of Petroliam Nasional Bhd (Petronas), has launched Malaysia’s first mobile fuel dispenser called the Petronas Primax Mobile Fuel Dispenser.

PetDag’s managing director and chief executive officer Amir Hamzah Azizan said the mobile fuel dispenser, which costs some RM400,000 and is capable of fuelling up some 20,000 litres of petrol, is especially useful for the re-fueling of race cars within the racing circuit.

Under the current practice, the racing cars are mainly re-fuelled by petrol trucks while the mobile dispenser provides an improved platform for such needs.

“Our years of strategic partnerships with the Formula One teams have resulted in a solid team of fuel technology experts at PetDag. From developing fuel for the race track, the research and development (R&D) team has now taken that technology on to the road for the benefit of our Malaysian customers.

“The introduction of the Petronas Primax Mobile Fuel Dispenser is a clear testimony of the success of our line of fuels,” he told reporters at the launching ceremony of the mobile fuel dispenser here on Sunday which was attended by some 600 special invitees comprising customers and business partners.

Amir Hamzah (right) launching Malaysia's first Petronas Primax Mobile Fuel Dispenser.


Moving forward, Amir Hamzah said PetDag was committed to continuing to organise more events such as the Petronas Xtrack to reward its customers who have shaped the company to become the industry’s leader today.

Previously, PetDag has been organising several events with similar objectives such as the Road to Rewards “Ride the RM3 million Wave” campaign that rewarded RM3 million worth of prizes to its loyal customers as well as the Petronas Fuel-up promotion during which winners were presented with a total of 20 Apple iPad.


This article appeared in The Edge Financial Daily, November 22, 2011.



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Sarawak Cable a power play with strategic positioning

Sarawak Cable Bhd (Nov 21, RM2.00)
Maintain buy at RM2.05 with fair value of RM2.86: Maintain “buy” on Sarawak Cable (SCB) with an unchanged sum-of-parts-derived fair value of RM2.86 target price-earnings ratio of 9.6 times on FY12F earnings per share. Investor interest is increasing on the group’s deepening status as a direct play on Sarawak Energy Bhd’s (SEB) robust spending.

SCB is confident of securing a role in the upcoming 500kV transmission line spanning over 600km that links Bunut to Kuching in Sarawak. This is more so after it inked several memorandums of understanding with multinational power giants such as Sinohydro India’s KEC International Ltd and Siemens to solidify its bidding opportunities in power transmission contracts.

The Edge weekly revealed over the weekend that the pre-qualification stage of this massive backbone transmission line project worth about RM1.5 billion is more or less finalised. We understand that SCB is the only home contractor that has been shortlisted under a strict screening process by SEB.

End contracts for transmission line works could be out by this January. This should quickly be followed by substation works worth over RM1 billion.

We reckon that SCB’s competitive edge lies with its status as the only integrated transmission line specialist, particularly in the supply of power cables.

The group would also have more local knowledge (logistics, mobilisation and dealings with locals) than its international peers.

Beyond the 500kV line, SCB foresees an acceleration of transmission line jobs in Sarawak, including the Kuching-Kalimantan line, Miri-Baram line as well as linkages to Brunei. Near-term, it is close to securing a transmission line job within the Samalaju Industrial Park.

The group has also set aside some RM80 million to further its plans to develop mini-hydropower plants in Indonesia via a 65% stake in PT Inpola Mitra Elektrindo. Construction is scheduled to start by year-end.

We expect SCB to register strong earnings growth for its upcoming 3QFY11 results, scheduled to be out this week. This is even before any maiden contributions from its proposed acquisition of Trenergy Infrastructure Sdn Bhd, which is scheduled for completion by next month. — AmResearch, Nov 21


This article appeared in The Edge Financial Daily, November 22, 2011.




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Dividend masks uncertainty for Media Prima

Media Prima Bhd (Nov 21, RM2.95)
Maintain sell at RM2.60 with target price of RM2.25: Results for 9MFY11 were within expectations but it is evident that 3QFY11 revenue and earnings growth year-on-year (y-o-y) ground to a halt. In addition, we are disturbed to notice that 3QFY11 revenue actually eased 1% quarter-on-quarter when we had expected it to exhibit strong q-o-q growth on Hari Raya Aidilfitri ad spend. Maintain “sell” and RM2.25 target price. Only a special single-tier dividend per share (DPS) of five sen (in addition to three sen second interim) provided some cheer.

Core net profit for 3QFY11 of RM53.3 million (+4% y-o-y, +20% q-o-q) brought 9MFY11 core net profit to RM132.7 million (+20% y-o-y), meeting 72% of our full-year estimate but 70% of consensus estimate. Revenue of RM1.2 billion for 9MFY11 (+5% y-o-y) was at 73% of our 2011 estimate.

Although 3QFY11 core net profit was 4% higher y-o-y, revenue and earnings before interest, tax, depreciation and amortisation (Ebitda) were little changed y-o-y. Due to weakening consumer sentiment, TV advertising revenue eased 3% y-o-y, the first time since 4QFY09. Radio ad revenue contracted 15% y-o-y on stiff competition. Although outdoor and print recorded revenue growth y-o-y, their Ebitda were subdued on higher site rental and newsprint costs.

Although 3QFY11 Ebitda and core net profit was 18% and 20% higher q-o-q respectively, we were disturbed to notice that revenue actually eased 1% q-o-q.


Historically, quarters with Hari Raya Aidilfitri tend to exhibit strong revenue growth q-o-q on festive ad spend. We gather that the earnings growth q-o-q was only due to content cost management at the TV networks.

A second interim single-tier DPS of three sen was declared bringing 9MFY11 recurring single-tier DPS to six sen. In addition, a special single-tier DPS of five sen was declared. Year-to-date, total single tier DPS declared is 11 sen or 87% net dividend per ratio (DPR), above our expectation of 60% net DPR for the full-year.

As industry gross TV adex contracted 6% y-o-y in October 2011, we concede that there is likely to be further downside risk to our earnings estimates. We maintain our earnings estimates for now pending a meeting with management but reiterate our “sell” call and RM2.25 target price on 13.5 times one-year forward PER. — Maybank IB Research, Nov 21


This article appeared in The Edge Financial Daily, November 22, 2011.




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IOI Corp’s 1QFY12 affected by high forex loss

IOI Corp Bhd (Nov 21, RM4.97)
Downgrade to sell at RM5.05 with target price of RM4.50: IOI Corp recorded a net profit of RM258 million (-52.9% quarter-on-quarter [q-o-q], -48.2% year-on-year [y-o-y]) for 1QFY12. The results were way below expectation due to unrealised foreign exchange losses of RM271.7 million. Excluding this, 1QFY12 net profit was RM530 million (-3.3% q-o-q, +6.4% y-o-y), in line with expectation. Higher fresh fruit bunch (FFB) production has boosted the plantation division’s contribution. However, weakening downstream business and property divisions were a drag on net profit.

IOI’s FFB production grew 8.1% in 1QFY12. However, we expect some contraction in 2QFY12 production growth due to potential heavy rainfall from La Nina by this December and January and the 22- to 24-month impact of the 2009/10 El Nino. If La Nina is extended to April/May 2012, production will be lower than expected. We project a 7% to 9% growth in production for FY12.

IOI continued to suffer from lower sales and margins for its oleochemical and speciality fats products. This was attributable to stiff competition from Indonesian players and weakness in the European markets. IOI recorded a lower margin for its refineries segment, contrary to our expectation that refining margin would improve due to high prices on the back of high biodiesel demand. IOI’s downstream operation is expected to continue to suffer given the uncertainty and economic slowdown in Europe as it has significant exposure to the European market and with the new export tax structure that favours Indonesian downstream players.

Its property division is likely to stay weak due to the slowdown in the property market. Developers are slowing down their launches, anticipating a weak property market in Malaysia. On the other hand, IOI is embarking on a larger joint venture project in Singapore with City Development’s South Beach, located in downtown Singapore. It has an estimated gross development value of S$3.1 billion (RM7.6 billion) and completion is scheduled in 2015. We expect the project to start contributing 5% to 7% to IOI’s pre-tax profit in FY14.

We are maintaining our earnings estimates as the lower performance in 1QFY12 was due mainly to the unrealised forex losses from its US$1.3 billion (RM9.8 billion) loan.

We forecast earnings per share of 31.9 sen, 34 sen and 39 sen for FY12 to FY14.

We downgrade IOI to “sell” as the current price is above our target price after the recent price rally. Our target price is RM4.50, based on sum-of-the-parts, implying 13 times FY13F earnings per share. Investors should lock in profit from the recent share price strength. Its performance is likely to lag its peers’ due to declining FFB yield and past-prime acreage which is also due for replanting soon, and this would affect production and bottom line. — UOBKayHian, Nov 21


This article appeared in The Edge Financial Daily, November 22, 2011.




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Masterskill 3QFY11 continues to disappoint

Masterskill Education Group Bhd (Nov 21, RM1.16)
Maintain fully valued at RM1.20 with revised target price of 70 sen (from RM1.20): Masterskill’s 3QFY11 net profit plunged 78.8% year-on-year (y-o-y) and 52.1% quarter-on-quarter (q-o-q) to RM5.5 million. This brings 9MFY11 net profit to RM39.7 million or 52.5% of our initial full-year estimate, way below expectation. Revenue for 3QFY11shrank to RM61.2 million (-24.1% y-o-y, -7% q-o-q) on the back of weak new student intake (1,800 year-to-date, below the circa 3,000 students that graduated in September 2011). This, coupled with rising overhead costs (attributable to teaching staff, depreciation and other administration costs), dragged down operating margin to 15.9% (3QFY10: 40.7%, 2QFY11: 15.4%).

Masterskill has been struggling to draw in more new students due to: (i) a more competitive health science education landscape; (ii) a shift in industry trend whereby fewer students are pursuing diploma courses in private education institutions; (iii) lower National Higher Education Fund (PTPTN) funding limit; and (iv) higher minimum entry requirement for nursing programmes.

Following the disappointing 3QFY11, we have cut FY11F to FY13F earnings by 38% to 43% as we factor in lower new student intakes of 2,100 (from 4,000) in FY11F and 4,500 (from 5,100) in FY12F (when there could be a higher number of new students for its degree programmes and new courses as Masterskill embarks on fresh initiatives to diversify its income profile).

We have also trimmed our dividend payout assumption to 40% (from 50%), which translates to dividend per share of 4.4 sen (of which 4.2 sen has just been declared) or a prospective 3.7% net yield for FY11F. Masterskill may want to conserve cash for its capital expenditure requirements amid a weak earnings outlook. Maintain “fully valued” with a revised target price of 70 sen (from RM1.20) based on nine times FY12F earnings per share with support from its existing net cash balance of RM121.6 million, or 30 sen per share. — HwangDBS Vickers Research, Nov 21


This article appeared in The Edge Financial Daily, November 22, 2011.




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Evergreen sees better 3QFY11 results on higher ASP

Evergreen Fibreboard Bhd (Nov 21, 89.5 sen)
Maintain underperform at 87.5 sen with fair value of 89 sen: Evergreen’s 9MFY11 net profit of RM42.4 million came in within expectations, accounting for 75% of our and 70% of consensus expectations. Despite the better results for 3QFY11, we believe this will not continue into 4QFY11 ending December as the increase in raw material costs (particularly rubberwood log costs) due to the rainy season in Thailand will likely have an impact on Evergreen’s margins. Moreover, after the global stock market rout in August, the company has also stopped raising its product prices as its customers have generally turned cautious in their purchasing activities.

Year-on-year (y-o-y), 9MFY11 net profit declined by 52.5%, mainly due to: (i) drastic hike in glue and rubberwood log costs which were triggered by the prolonged rainy season as well as high latex prices; and (ii) impact from the weakening US dollar against the ringgit (7.4% y-o-y).

Quarter-on-quarter (q-o-q), 3QFY11 net profit was significantly higher at 92.1% mainly due to higher sales volume and higher average selling prices for the majority of Evergreen’s products, which helped to alleviate the cost pressures on margins (due to drastic hike in glue and log cost) apart from improved operational efficiency and cost savings.

The risks include: (i) sharp drop in medium density fibreboard (MDF) price; (ii) sharp increase in log costs; (iii) further escalation of crude oil related glue and logistics costs; and (iv) strengthening of the ringgit which could reduce the company’s export competitiveness.


We maintain our forecasts. We believe further headwinds ahead for the MDF industry, such as high raw material costs and capacity addition by players in the region, will continue to weigh on Evergreen’s share price performance. We value Evergreen at 89 sen based on unchanged target price-earnings ratio of seven times FY12 earnings, which is in line with its five-year average historical price-earnings ratio. Maintain “underperform”. — RHB Research, Nov 21


This article appeared in The Edge Financial Daily, November 22, 2011.




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BNM's new loan guidelines timely, says Maybank's Wahid

KUALA LUMPUR (Nov 22): MALAYAN BANKING BHD [] (Maybank) has lauded Bank Negara's (BNM) new loan guidelines to protect loan applicants, describing them as a timely and pre-emptive move to prevent household debts in the country from going out of hand.

Maybank president and chief executive officer Datuk Seri Wahid Omar said the current ratio of household debt to GDP at 77 per cent is still not too high but it is better for the central bank to jump in early before the situation gets worse.

"It is best for BNM to come in early and make sure that all the financial institutions, non-bank financial institutions as well as cooperatives play their part so that we all lend our money responsibly," he told reporters after a zakat handing over ceremony here.

Starting Jan 1 next year, BNM will be enforcing new guidelines for home and vehicle financing, credit and charge cards, personal financing including overdraft facilities as well as financing for the purchase of securities, except for share margin financing, which comes under stock exchange rules.

The guidelines will include a more stringent "suitability and affordability assessment" which would ensure borrowers have the ability to pay without recourse to debt relief or substantial hardship.

Wahid said though the move would see lower loan disbursements, it would at the same time increase the quality of debt repayments which in turn would increase the bank's net income.

"We are looking at overall repayment capacity. Viewed from the gross perspective, the percentage would be lower but looking at the net income, the proportion of debt servicing would be higher," he said.

On next year's forecast, he said the banking industry's growth is expected at 1.5-2 times the country's gross domestic product (GDP) growth.

"With the problems in Europe and the US economy, we are expecting a slower global economic growth.

"Malaysia will be affected and we are looking at 3.8 to four per cent GDP growth," he said.

He said the industry's loan growth forecast of around eight per cent is achievable, fuelled by loan demand from the Economic Transformation Programme projects. - Bernama



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