OSK expects MAS to remain in the red

KUALA LUMPUR: Malaysia Airlines (MAS) faces an uphill task in returning to the black after having only twice reported quarterly core profits in the past three years, OSK Research said in a research note today.

In relation to this, OSK trimmed its earnings estimates again in view of recent poor results which have yet to reflect significant improvements via cost cuts.

OSK expects MAS to remain in the red next year and has ascribed a lower fair value of RM0.96 an retained its "sell" call.

"MAS' teleconference yesterday did not provide significant positive developments to warrant a rerating of the stock as there were renewed concerns from the investment community over a potential cash call in view of its high cash burn rate amid a weak global outlook," OSK said.

MAS' cash flow from operations was again lower for the quarter, as the airline racked up a bigger deficit of RM516 million versus RM279 million in the preceding quarter, with its net gearing at 162 per cent, the note said.

OSK also said MAS has not secured any financing for 2012 for the delivery of its aircraft to bridge its pre-delivery payments.

"Management has reassured that a cash call is unlikely as its pre-delivery payment will be refundable upon securing financing which should suffice to meet working capital requirements.

"Management has guided for 2012 capital expenditure of about RM5.0 billion to RM6.0 billion," OSK said. It added that MAS will unveil more details of its upcoming collaboration with AirAsia, which should cover the areas of maintenance, overhaul and repair, joint procurement, training and ground handling. - BERNAMA



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Bursa Securities raps Faber for breaching listing rules

KUALA LUMPUR (Nov 23): Bursa Malaysia Securities Bhd has publicly reprimanded FABER GROUP BHD [] over the delay in announcing that Abu Dhabi’s municipal had not renewed its subsidiary’s contracts in January this year.

The regulator said Faber had only announced on Jan 12 that the emirate’s Department of Municipal Affairs, Western Region Municipality had not renewed Faber Ltd Liability Co’s contracts, two days after it was informed of the decision.

“There was material price and volume movement of the company’s securities upon announcement of the non-renewal,” it said.

Bursa Securities said the contracts contributed about 14% and 23% of Faber’s revenue and about 29% and 37% of Faber’s profit after tax and minority interest for the financial years ended 2009 and 2010, respectively.

“It is unacceptable for Faber to temporarily refrain from publicly disclosing the non-renewal of contracts on the premise that the company was taking immediate steps to ascertain the reasons for the non-renewal and to further negotiate with Western Region Municipality,” it said.

The regulator said while it had not found any of the directors to have caused or permitted the breach, however, it was the directors’ responsibility to maintain appropriate standards of responsibility and accountability.



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Esso Malaysia posts net loss RM37.86m in 3Q

KUALA LUMPUR (Nov 23): ESSO MALAYSIA BHD [] posted net loss RM37.86 million in the third quarter ended Sept 30, 2011 compared to net profit RM15.35 million a year earlier, due mainly to lower operating margin and forex loss partially offset by higher sales volume.

The company said its revenue for the quarter rose 57.1% to RM2.85 billion from RM1.81 billion in 2010.

Loss per share was 14 sen compared to earnings per share of 5.7 sen in 2010, while net assets per share was RM3.14.

Esso’s net profit for the nine months ended Sept 30 fell 19.23% to RM118.78 million from RM147.06 million in 2010, despite revenue for the period rising to RM8.52 billion from RM6.07 billion.

Reviewing its performance, Esso said the increase in revenues in 3Q was driven by higher average product prices and higher sales volume.

On its prospects, Esso said the outlook for the industry remains challenging given the expected slowdown in global economic growth and the continued crude and product prices volatility.

“In this environment our strategy remains focused on flawless operations, cost control and product and service quality, while sustaining our competitive position,” it said.



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KL Kepong 4Q net profit up 48% to RM460m, FY RM1.57b

KUALA LUMPUR (Nov 23): KUALA LUMPUR KEPONG BHD [] (KLK) reported a 48% increase in earnings to RM460.61 million in the fourth quarter ended Sept 30, 2011 from RM311.04 million, boosted by the PLANTATION []s sector and disposal of an associate, Esterol.

It said on Wednesday its revenue increased by 48.9% to RM2.999 billion from RM2.014 billion while its earnings per share were 43.25 sen compared with 29.21 sen. It declared an interim dividend of 70 sen per share versus 45 sen.

“The group's pre-tax profit increased 38.3% to RM599.2 million. The current quarter's result was boosted by the non-recurring surplus of RM200.6 million arising from the disposal of an associate, Esterol, whilst last year's quarter had a writeback of RM76.0 million on the allowance for diminution in value of investment,” it said.

KLK said the plantations sector recorded a 27.7% improvement in profit to RM447.5 million due to better selling prices of commodities and increase in fresh fruit bunches production despite higher production cost and FRS 139's fair value loss of RM27.1 million.

However, the manufacturing sector's performance was adversely impacted by the uncertainties and concerns over the sovereign debt crisis in Europe and global macroeconomic environment which had eroded customers' buying confidence and disrupted the supply and demand pattern.

This sector reported a loss of RM49.3 million (4QFY2010: profit RM26.1 million) with substantial stocks write-down as a result of falling prices and FRS 139's fair value loss of RM33.9 million.

For the financial year ended Sept 30, its earnings jumped 55.2% to RM1.571 billion from RM1.021 billion while its revenue reported a 43.4% increase to RM10.743 billion from RM7.490 billion.

KLK said the Group's pre-tax profit for the financial year at RM2.066 billion had surpassed the preceding year's profit by 49.4%.

The increase in profit was due to a 41.9% surge in plantations profit to RM1.596 billion, driven by strong selling prices of commodities which had over-shadowed the impact of higher production cost.

KLK said the manufacturing sector reported a 40.1% increase in profit to RM201.9 million despite the loss suffered in the fourth quarter.

“The results for the year had benefited from added capacities coming on-stream as well as relatively strong business environment in the earlier part of the year,” it said

It also said retailing profit fell 33.6% to RM18.4 million due to narrower margins and increase in operating cost.

The disposals of two associates, Esterol and Barry Callebaut Malaysia Sdn Bhd (BCM), had generated a total surplus of RM244.0 million.



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Ta Ann 3Q net profit jumps 51.6% to RM47.93m

KUALA LUMPUR (Nov 23): TA ANN HOLDINGS BHD [] net profit for the third quarter ended Sept 30, 2011 jumped 51.6% to RM47.93 million from RM31.6 million a year earlier, due mainly to the strong profit contribution from the oil palm division which recorded a 70% higher profit compared to the corresponding quarter in 2010.

The company said on Wednesday that its revenue for the quarter rose 9.99% to RM254.44 million from RM231.32 million.

Earnings per shares rose to 15.52 sen from 10.23 sen in 2010, while net assets per share was RM2.92.

For the nine months ended Sept 30, Ta Ann’s net profit surged to RM125.23 million from RM47.07 million, on the back of an increase in revenue to RM714.38 million from RM607.72 million in 2010.

Reviewing its results, Ta Ann said the better performance in the quarter under review was also contributed by an increase in plywood prices that rose by 21%, although its overall sales volume for timber and timber products fell by 9% quarter-on-quarter.

On its prospects, Ta Ann said demand for timber and timber products were expected to moderate in the last quarter of 2011.

The company said the oil palm sector’s performance would be boosted by the recovery in crude palm oil price to above RM3,000 per tonne level and retain its position as the main profit contributor.

“Barring unforeseen circumstances, the board expects year 2011 to deliver a record performance,” it said.



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Digistar secures RM24m orders for broadcast systems

KUALA LUMPUR (Nov 23): DIGISTAR CORPORATION BHD []’s unit has secured about RM24 million in new orders for base band broadcast system, security system and other electronic and electrical systems.

It said on Wednesday its unit, Digistar Holdings Sdn Bhd had secured new orders from its existing and new clients and the delivery period of these orders ranged from one month to 18 months.

“These orders will have a positive effect on Digistar group's net asset for the financial year ending Sept 30, 2012 and Sept 30, 2013. They are also expected to contribute positively to the future earnings of Digistar Group for the financial year ending Sept 30, 2012 and Sept 30, 2013,” it said.

Digistar said these orders would be funded by its own funds and banks borrowings. As for its gearing, it would hinge on the amount of financing required over the tenure of these orders and is temporary in nature, which would reduce accordingly upon their completion.



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Sumatec: No injection of O&G assets

KUALA LUMPUR (Nov 23): SUMATEC RESOURCES BHD [], whose securities had risen in very active trade recently, clarified on Wednesday that there was no injection of oil and gas assets into the company.

However, it said that it was “in the midst of negotiation with the prospective investor on the regularisation plan”.

Sumatec closed three sen higher to 31 sen with 77.82 million shares done while the warrants edged up one sen to 17 sen with 55.29 million units transacted.



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Market Commentary

The FBM KLCI index lost 4.82 points or 0.34% on Wednesday. The Finance Index fell 0.48% to 12778.77 points, the Properties Index dropped 0.89% to 942.36 points and the Plantation Index down 0.16% to 7571.21 points. The market traded within a range of 15.27 points between an intra-day high of 1439.46 and a low of 1424.19 during the session.

Actively traded stocks include MBFHLDG-WA, SUMATEC, SUMATEC-WA, DPS, DPS-WA, TIGER, COMPUGT, HIBISCS-WA, BIOSIS-WA and KBUNAI. Trading volume increased to 1508.59 mil shares worth RM1127.55 mil as compared to Tuesday’s 1271.69 mil shares worth RM1043.64 mil.

Leading Movers were MISC (+13 sen to RM6.20), KLK (+38 sen to RM21.38), UMW (+14 sen to RM6.57), BAT (+72 sen to RM47.50) and YTLPOWR (+3 sen to RM1.80). Lagging Movers were TENAGA (-17 sen to RM5.37), CIMB (-8 sen to RM6.68), IOICORP (-6 sen to RM4.92), GENTING (-10 sen to RM10.12) and PBBANK (-6 sen to RM12.36). Market breadth was negative with 281 gainers as compared to 450 losers. -- JF Apex Securities Bhd



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KL shares close in negative territory

Share prices ended lower as sentiment remained bearish amid concerns over a possible global economic recession, dealers said.

Regional markets also fell following weak economic data released in China and the debt crisis in Europe and US which were derailing economic growth in Asian countries.

However, some bargain hunting helped the FBM KLCI narrow losses with the market barometer closing 4.82 points easier at 1,433.17.

The Finance Index erased 61.03 points to 12,778.77, the Plantation Index declined 12.15 points to 7,571.21 while the Industrial Index gained 3.19 points to 2,615.75.

The FBM Emas Index fell 47.15 points to 9,822.68, the FBM70 Index dipped 107.471 points to 10,696.01, the FBM Top 100 Index eroded 46.25 points to 9,628.34 and the FBM ACE Index increased 17.17 points to 4,130.20.

Decliners led advancers 450 to 281 while 271 counters were unchanged, 470 untraded and 16 others were suspended.

Volume increased to 1.51 billion shares, worth RM1.13 billion, from 1.27 billion shares, worth RM1.04 billion, recorded yesterday.

Among the active counters, MBF Holdings warrants gained seven sen to 25.5 sen, Sumatec Resources gained half-a-sen to 28.5 sen, Sumatec Resources warrants remained unchanged at 16 sen and DPS Resources increased two sen to 19 sen.

Among the heavyweights, Maybank slipped three sen to RM8.17, CIMB declined eight sen to RM6.68, Sime Darby declined three sen to RM8.73 while RHB Capital rose five sen to RM7.42. -- Bernama



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Ambang Sehati mulls raising BRDB stake

KUALA LUMPUR: Ambang Sehati Sdn Bhd, the major shareholder of Bandar Raya Developments Bhd (BRDB), is exploring the possibility of increasing its stake in the company, an exercise that may or may not result in a general offer for the rest of the shares it does not own.

In an announcement to Bursa Malaysia yesterday, BRDB said a representative of Ambang Sehati emphasised that the exercise to possibly raise its stake in the company is still at an evaluation stage.

“The board will issue further announcements to update on the developments, if any, as and when they occur,” BRDB said.

The announcement by BRDB comes hot on the heels of a report in The Edge weekly which touched on Ambang Sehati possibly taking the company private following its offer to acquire some of the assets in September met with resistance from minority shareholders.

The assets that Ambang Sehati had offered to acquire from BRDB are the Bangsar Shopping Centre and the Menara BRDB office block located next to it in Bangsar, the CapSquare Retail Centre and the Permas Jusco Mall in Johor Baru for a total of RM914 million.

Following an outcry from minorities, the board had decided to undertake an open tender for the disposal of the assets on Sept 26.

In respect of the assets sale via tender, the board has decided to defer the tender exercise to the first quarter of next year after having considered the year-end holidays and also taking into account the intention of Ambang Sehati to increase its interest in BRDB.

Ambang Sehati is the second largest shareholder of BRDB with 18.92% while the largest block is held by Credit Suisse with 23.57%. However, the Credit Suisse block is an omnibus account where the shares of a multiple of investors are held under one account.

Ambang Sehati is a vehicle controlled by Akhbar Khan Mohamed Khan and Mohamed Moiz JM Ali Moiz who took over the company that was sold during the restructuring of Multi-Purpose Holdings Bhd (MPHB) in 1999.

The owner of MPHB then was Datuk Lim Thian Kiat and some within the investment banking circles do not discount the possibility of the Credit Suisse block being linked to him.

The latest development confirms speculation is rife among property industry officials who were of the view that the sale of the assets by tender will be delayed because an international valuer has yet to be appointed to evaluate the assets.

BRDB, whose prime properties were recently revalued, has net assets per share of RM3.57 while its share price is trading only at RM2.13. BRDB also has a 56.76% stake in particleboard manufacturer Mieco Chipboard Bhd.

Yesterday, the property developer announced results for the third quarter ended Sept 30, where it registered a profit of RM28.4 million on a turnover of RM142.3 million. It is a vast improvement compared with the loss of RM745,000 last year on a turnover of RM127.6 million.

For the nine months, BRDB’s net profit was RM49.8 million on a turnover of RM478.4 million. Last year, it recorded RM105.6 million on a turnover of RM468.8 million, supported by a gain from the adjustment to the fair value of Bangsar Shopping Complex.


This article appeared in The Edge Financial Daily, November 23, 2011.



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Is the penny stock party winding down like Harvest?

KUALA LUMPUR: Even as shares in designated Harvest Court Industries Bhd dipped 31% back to penny status yesterday, following the resignation of Mohd Nazifuddin Najib — son of Prime Minister Datuk Seri Najib Razak — from its board, market data showed the recent penny stock party may be winding down.

While Sumatec Resources Bhd, the 10th lower liner to be queried on unusual market activity (UMA) this month, topped yesterday’s most active list after 52% of its share base changed hands, it was the only penny stock among the top five active counters to end with a gain.

Compugates Holdings Bhd, DPS Resources Bhd, MMS Ventures Bhd and SYF Resources Bhd all ended the day between 2.91% and 43.18% lower. SYF and DPS had responded to an UMA query on Nov 14. At yesterday’s 16.5 sen close, DPS is down 47% from its recent high of 31 sen on Nov 14, but is still almost double the 9.5 sen a month ago.

While the total stock value done on the local bourse yesterday still indicated strong trading in penny stocks, the average value of shares traded of 82 sen had been steadily climbing for a fifth straight day after hitting an average low of 52 sen on Nov 15 — incidentally the day after Bursa Securities decided to impose that rare trading restriction on Harvest Court, which the regulator did in May 2006 on Iris Corp Bhd.

Similarly, the number of declining stocks had beaten the number of gainers for a sixth straight market day yesterday, stock market data showed.

Harvest Court lost 43.5 sen to close at its day low of 96.5 sen with 252,700 shares done yesterday. That’s more than half its high of RM2.14 on Nov 14, but still many times the 7.5 sen on Sept 27 before volume surged.

Sumatec, on the other hand, surged 7.5 sen or 36.6% to 28 sen — highest since April this year with over 112 million shares done. It was only at seven sen just a month ago.

Also closing with gains in active trade yesterday were lower liners GPRO Technologies Bhd, Karambunai Corp Bhd and Tricubes Bhd.

It remains to be seen for how long more penny stocks will continue dominating trading volumes.

Prior to this month, the local bourse last saw heavy trading of lower liners from mid-April to mid-June 2009, Bloomberg data showed. Seven stocks received UMA queries in June 2009. They were Measat Global Bhd, Transmile Group Bhd, Compugates Holdings Bhd, SAAG Consolidated Bhd, Equine Capital Bhd, Emico Holdings Bhd and Dataprep Holdings Bhd.

Bernama reported yesterday that Nazifuddin, who is still chairman of Sabah-based real estate developer Sagajuta Group, remains committed to Harvest Court despite his resignation from the board on Monday. He still owns a 2.2% stake in Harvest Court. It was also reported that Sagajuta managing director Datuk Raymond Chan still has 15.7% in Harvest Court.

In an interview published in a local daily yesterday, Chan said he and Nazifuddin would not exit Harvest Court anytime soon but intend to stick around for two to three years “to do genuine business”. He also said they are “comfortable” with their stakes, without committing to keeping their holdings or precluding them to buy or sell down their stakes.

Chan said Nazifuddin will focus on 1Green Enviro Sdn Bhd, while he handles the “many developments” within Sagajuta. He is not getting any government jobs.
“It is all private jobs,” Chan reportedly said.

Describing himself as “a young businessman trying to make a living”, 28-year-old Nazifuddin, who returned to Malaysia two years ago after a stint at a bank in Hong Kong, said he would “think twice about going back to the market” following the attention he received from the short-lived appointment at Harvest Court’s board. Chan reportedly has 30% of Sagajuta (Sabah) Sdn Bhd and Nazifuddin a 10% stake.


This article appeared in The Edge Financial Daily, November 23, 2011.



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AirAsia’s 3Q operating profit up 1.9%

KUALA LUMPUR: AirAsia Bhd’s net profit fell 53% to RM152.3 million, or 5.5 sen a share, for 3QFY11 ended Sept 30 compared with RM327.29 million a year earlier. The steep decline was mainly due to lower finance income than in the same period last year.

Operationally, performance has improved slightly with operating profit rising 1.9% to RM251.4 million from RM246.7 million a year earlier. On the top line, revenue grew 9.8% to RM1.076 billion from RM979.7 million a year earlier.

In its notes to Bursa Malaysia, AirAsia said the higher 3Q revenue was supported by an 8% growth in passenger volume while the average fare was 4% higher at RM180, compared with RM173 a year earlier. Its ancillary income per passenger, however, fell 14% to RM39 from RM45 a year earlier, while seat load per passenger was 1% lower at 77%.

For the nine-month period, net profit fell 43% to RM428.49 million, due to lower finance income, while revenue gained 15% to RM3.2 billion.

CEO Tan Sri Tony Fernandes said the operating environment has been challenging due to weak macroeconomic indicators and high jet fuel prices.

“Although the third quarter is traditionally one of our weaker quarters, we have managed to grow revenues across all three operations. In relation to costs, we have taken evident measures to drive down costs,” he said in a statement.

AirAsia reported an earnings before interest, tax, depreciation, amortisation and restructuring or rent costs (Ebitdar) margin of 39% and earnings before interest and tax (Ebit) margin of 23% for 3Q. Its cost per available seat kilometre (Cask) rose 5% year-on-year (y-o-y) to 12.71 sen despite a 41% increase in fuel prices. Cask, excluding fuel, was 15% y-o-y lower at 6.22 sen.

On the associate level, AirAsia Thailand’s 3Q revenue grew 33% to 3.72 billion baht (RM378 million) from 2.8 billion baht a year earlier due to higher passenger volume, higher ancillary income and improving yields.

“AirAsia Thailand has achieved passenger growth of 18% compared with 3QFY10 while the seat load factor was higher by 4% at 80%,” the company said.

However, the Thai unit’s operating profit fell 48% to 195 million baht from 378 million baht due to higher fuel expenses. Its net profit of 193.6 million baht was also much lower than 485 million baht a year earlier.

AirAsia Indonesia’s revenue rose 37% to 1.07 billion rupiah (RM376,235) from 781.66 million rupiah, supported by a 30% increase in number of passengers.

However, its seat load factor fell to 78% from 81% a year earlier as passenger growth was slightly behind capacity growth. The unit’s ancillary income increased 9%, while base fares rose by 5%.

AirAsia Indonesia posted a loss after tax of 25.7 billion rupiah compared with a profit of 158 billion rupiah a year earlier, due to a 52.9 billion rupiah provision “for the cost of early return of the remaining B737 aircraft in the fleet”.

On the group’s outlook, Fernandes said its forward booking in the final quarter remains strong for Malaysia, Thailand and Indonesia.

He said the floods in Thailand will have minimal impact on the group’s financials and operations. “Although the Bangkok area was severely affected, we have seen that the domestic sector’s performance has been resilient and we are still performing well in terms of yields and loads,” he said. He added that tourist arrivals in December are expected to be strong.

“For AirAsia Indonesia, we have just moved the international operations from Terminal 2 to Terminal 3, where our current domestic operations are located,” he said.

The group will also take delivery of six A320 aircraft in 4Q11.

“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,” said AirAsia in its filing with Bursa.

AirAsia gained one sen to close at RM3.67 yesterday with four million shares done.


This article appeared in The Edge Financial Daily, November 23, 2011.



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PPB earnings lower at RM229 million

KUALA LUMPUR: As expected, PPB Group Bhd saw its net profit for 3Q ended Sept 30 decline by 20.3% year-on-year to RM229.41 million from RM287.99 million previously despite a 23.6% higher revenue to RM710.26 million from RM574.53 million.

PPB said the grains trading, flour, feed milling, environmental engineering and livestock farming divisions together with Wilmar International Ltd, an associate of the group, contributed higher profits.

However, the profit was lower for 3Q compared with a year ago because the returns in 2010 were helped by gains in property investments and investments in equities.

For the nine months ended Sept 30, PPB’s net profit declined by 55.4% to RM771.07 million from RM1.73 billion for the previous corresponding period.

Revenue for the period was RM1.97 billion, 19% higher than the RM1.66 billion a year ago.

On its prospects for the rest of the year, PPB said the global economy, particularly in the eurozone, remains difficult and uncertain and key factors such as volatile commodity prices, rising fuel costs and fluctuating exchange rates will affect the group’s performance.


This article appeared in The Edge Financial Daily, November 23, 2011.



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KrisAssets rises on speculation of a REIT

KUALA LUMPUR: The mundane shopping mall operator KrisAssets Holdings Bhd came to life yesterday, rising by 40 sen to close at RM5, its highest in recent times.

The stock, which was the top performer in terms of share price appreciation, has surged 18.2% since Nov 1, a significant rise for the stock that has traded in the range of between RM4 and RM4.40 over the past six months.

KrisAssets announced its results for 3QFY11 ended September yesterday, recording a net profit of RM58.1 million from RM32.2 million a year earlier, an 80% rise. Its revenue also increased 8.8% to RM91 million from RM83.6 million. The company proposed a single-tier interim dividend of 7.5 sen per share for FY11.

The results aside, analysts noted that the surge in share price could be due to speculation of the establishment of a retail real estate investment trust (REIT) following the recent completion of its purchase of the The Gardens shopping mall in July from parent IGB Corp Bhd.

“KrisAssets’ current property asset is the 10-year-old Mid Valley Megamall. With the completion of the purchase of The Gardens, there is the possibility of a REIT being set up to take advantage of the tax benefits,” said an analyst.

To qualify as a REIT, a fund must have most of its assets and income tied to a portfolio of real estate. In Malaysia, a REIT is exempt from corporate tax if it distributes at least 90% of its total annual income, and unit holders enjoy a lower 10% withholding tax on distribution.


Another point favouring a REIT is that it is an asset class that is not affected by market sentiments as its share price is backed by assets.

The assets that KrisAssets holds, solely retail malls, command better demand due to higher returns.

“Compared to office spaces, retail REIT are supported by high occupancy rates and strong rental income. The local buying sentiment is also going strong at the moment,” the analyst said.

He added that the yields of the assets in KrisAssets of between 6% and 7% are comparable to other local REIT such as Sunway REIT, CapitaMalls Malaysia Trust REIT and the soon-to-be listed Pavillion REIT.

The analyst also noted that the retail space in Mid Valley Megamall and The Gardens recently saw an increase in rental income.

However, another analyst with AmResearch said a KrisAssets REIT might not take off so soon as it does not have enough funds to purchase the remaining assets from IGB Corp.

“IGB Corp’s remaining assets consisting of Mid Valley and The Gardens’ office towers have an estimated combined value of RM2 billion to RM3 billion. As such, we do not think a REIT will materialise just yet,” he said.

However, he does not discount a possible corporate exercise to raise funds for the acquisition of the other assets.

Speculation on the establishment of a KrisAssets REIT surfaced in February when KrisAssets agreed to buy the entire stake in The Gardens at an indicative price of RM820 million. To fund the acquisition, KrisAssets issued RM300 million in convertible secured bonds.

As at Sept 30, KrisAssets had RM72.8 million in cash and bank deposits. KrisAssets is 75.66% owned by IGB Corp.

On its 3QFY11 results yesterday, KrisAssets attributed the improved performance to higher rental income and lower property maintenance costs. The group also saw a recognition of revaluation surplus of RM25 million for Mid Valley Megamall.

“Excluding the fair value gain on investment property, the group recorded pre-tax profit of RM55.1 million, representing a 20.6% increase, compared with pre-tax profit of RM45.7 million in the corresponding quarter [last year],” it said.

For 9MFY11, KrisAssets’ net profit grew 27.6% to RM170.8 million, on the back of RM273.1 million in revenue.


This article appeared in The Edge Financial Daily, November 23, 2011.



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TdC to grow business after completing acquisitions

SUBANG JAYA: Time dotCom Bhd (TdC) can take its data travel and warehousing business further now that it has shareholder approval for the proposed acquisition of a group of telecommunication companies — the AIMS Group, Global Transit Communications Sdn Bhd (GTC), Global Transit Ltd (GTL) and other Global Transit entities which hold Internet licences in Singapore and Hong Kong.

More than a year after the acquisition was first announced by the board of directors, the shareholders of TdC have finally given the nod for the multiple proposals. The acquisition is to be satisfied by the issuance of new TdC shares and cash totalling about RM322 million to the former shareholders of the acquired companies.

According to group CEO Afzal Abdul Rahim, the acquisition will give TdC access and the capability to serve a multi-billion dollar market — comprising the growing Indo-China, Asean and North Asia market, which has more than half of the world’s population where Internet connectivity is in high demand — through the 10% stake in the Unity Cable System held by GTL.

“We are in a business [that] is not dependent on just the domestic Malaysian market, but taking advantage of the huge data growth in Asia-Pacific. We see that this acquisition will bring us value in so far as continuing growth is concerned, not just within the shores of Malaysia but outside Malaysia, and that’s the biggest value that it brings to us in the long term,” he told a press conference after the company EGM yesterday.

The Unity Cable System is a trans-Pacific submarine communications cable system which connects Asia through Japan with the US on the other side of the Pacific Ocean. The cable is almost 10,000km long with a multi-terabyte capacity of up to 7.68Tbps. It was built in collaboration with Google Inc, Bharti Airtel, GTL, KDDI Corp, Pacnet and Singapore Telecommunications Ltd (SingTel).

(From left) Afzal, Kok and TdC executive director Balasingham Namasiwayam at the EGM yesterday.

Apart from the acquisitions, the group also proposed a capital repayment of RM50.6 million to its entitled shareholders and capital restructuring comprising capital reduction of the existing issued and paid up capital via the cancellation of 90 sen of the par value of each TdC share, the offsetting of TdC’s share premium account against the accumulated losses and share consolidation.

“We believe the combined business and growth potential from these acquisitions will bring long-term value for both our shareholders and customers. We will now work towards obtaining the required approvals to close the transactions. Thereafter, we will begin the process of integrating these companies to immediately realise the synergies and opportunities expected from this transaction,” said Ronnie Kok Lai Huat, senior independent non-executive director of TdC.

Through the acquisition of companies, TdC will emerge as an integrated, regional telecommunications player as the acquisition of AIMS brings the business of data warehousing and managing network neutral data centres in Asia, as well as data travel agent business through the acquisition of GTC.

Via the offsetting of its share premium account with the accumulated losses, the group will now be debt-free, according to Afzal. With a better reflected balance sheet, the group will still be looking for other possible investments in telecommunication companies in the region starting with Southeast Asia and the rest of the Asia-Pacific, as and when the opportunity comes up, Afzal said.


This article appeared in The Edge Financial Daily, November 23, 2011.



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Lion Corp’s losses widen

KUALA LUMPUR: Lion Corp Bhd’s net loss ballooned to RM97.35 million or 5.12 sen a share for 1QFY12 ended Sept 30, from the loss of RM56.38 million registered in the corresponding period last year.

The widening loss was despite revenue gaining by about 29% to RM675.63 million during the quarter from RM525.16 million recorded in the same period last year.

Lion Corp said the higher prices of raw materials and an unrealised foreign exchange loss of approximately RM20 million, due to the weakening of the ringgit against the greenback, resulted in a net loss position during the quarter.

With weak earnings, the group’s operating cash flow had also turned negative, as the group reported an operating loss before working capital of RM21.24 million for the three-month period from a profit of RM18.28 million previously.

Also worth noting is the deteriorating financial position of the group. In terms of current liquidity, the group’s current liabilities of RM3.52 billion (RM966.23 million in short-term debt obligations and RM2.55 billion in payables) as at Sept 30, far outweighed current assets of RM1.23 billion (RM791.8 million in inventories and RM391.5 million in receivables and cash). Lion Corp remains debt heavy with total debt at RM2.81 billion versus cash of RM141.2 million.

Total equity stood at only RM189.1 million as at Sept 30.

“International steel prices remained weak while the local demand was adversely impacted due to the dumping activities by foreign exporters,” Lion Corp said in an announcement to Bursa Malaysia, referring to the influx of cheap imported hot rolled coils (HRCs) that had caused its unit Megasteel Sdn Bhd to lose significant market share here.

Compared with the preceding quarter, group revenue had also sunk 34.3% to RM675.63 million from RM1.03 billion in 4QFY11 ended June 30.

Lion Corp said the operating environment for the local flat steel industry was expected to remain challenging due to persistent dumping activities by foreign exporters.

“The group will continue to work closely with the government to address the problem of excessive imports at dumping prices, and assist in the formulation of a supportive environment for the local steel industry to grow, upgrade and expand in an orderly manner,” it added.

Lion Corp holds 79% of Megasteel, the country’s sole manufacturer of HRCs, with its affiliate Lion Diversified Holdings Bhd holding another 21% stake.

Megasteel had recently petitioned to the government to impose an additional 35% duty on imported HRCs, but this was rejected due to negative feedbacks from downstream players.

Subsequently, the company had lobbied for a reduction in import duty on certain flat steel products from 25% to 15%, but with the removal of duty exemptions.
Its latest request is still being reviewed by the government.


This article appeared in The Edge Financial Daily, November 23, 2011.



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MAS: No fund raising despite low cash level

KUALA LUMPUR: The cash level of Malaysian Airline System Bhd (MAS) has decreased to less than RM1 billion, a trigger point that will normally raise the alarm for the national carrier.

During the conference call chaired by MAS managing director Ahmad Jauhari Yahya and executive director Mohamed Rashdan Yusof yesterday, the top management made it clear that there were no plans to call for a fresh round of fundraising.

Analysts were told that there were no plans for an equity fundraising and the management is confident of securing financing soon to pay for new planes that the airline is scheduled to take delivery.

“The officials say their talks with European credit agencies are going on well and are confident they can secure financing over the next 12 months to pay for the delivery of new planes,” said an analyst.

As at Sept 30, MAS’ cash position stood at RM968 million versus the RM1.53 billion in the preceding quarter.

During the period, MAS saw a cash outflow of RM516 million from operations and RM1.44 billion for purchase of new aircraft and engines. The outflow was offset by RM864 million from financing activities, of which a bulk came from aircraft refinancing.

The airline posted bigger-than-expected losses in the third quarter (3Q) ended Sept 30 and stayed in the red with a net loss of RM477.58 million on RM3.49 billion in revenue.

In 3Q, MAS saw a cash burn rate of about RM559 million, but some analysts estimated the rate was lower — at RM230 million.

“For the fourth quarter, the cash burn rate should be much lower ... around the region of RM100 million due to the seasonally stronger quarter,” said an analyst.

RHB Research said in a note yesterday MAS played “safe” in its strategy to turn around the ailing airline.

It said MAS did not unveil any “bold and dramatic” moves to turn things around, such as reducing headcount, revamping its procurement system, recapitalising its balance sheet and roping in a foreign equity partner.

Instead, it said, the measures announced during the briefing were “normal course of business of an airline” such as cutting unprofitable routes, redeployment of capacity, improving fuel burn and negotiating with aircraft manufacturers for better terms.

“We did not find any significant “traces of entrepreneurial spirit”, if this is supposed to come with the entrance of Tune Air (controlled by AirAsia Bhd’s Tan Sri Tony Fernandes) as a 20.5% shareholder of MAS,” it said.

RHB also noted that in the briefing, MAS was “pleased” with its decision to halt Firefly Jet, which otherwise would have resulted in RM75 million losses for the first nine months and may recur next year.

“But we are more inclined to see the losses as start-up losses and we believe Firefly Jet could have eventually rivalled AirAsia if it was not nipped in the bud,” it added.

The current cash level of RM968 million puts MAS near where it was during the first nine months of 2006, when the airline had a cash pile of about RM1.1 billion.

Although MAS has always guided its critical cash level is at 5% of total revenue, which works out to about RM600 million, there are some within the company who said that anything below RM1 billion is a cause for concern.

For 3Q, for instance, MAS saw a cash deficit of RM249.02 million from operations. This compares with a healthy RM496.62 million cash generated from operations in the previous corresponding quarter.

In the event it launches a cash call, Khazanah Nasional Bhd, which has a majority stake in the airline, will emerge as the largest subscriber of the issuance, followed by Tune Air Sdn Bhd with 20.5% and Employees Provident Fund 10.39%.

An analyst said MAS should revisit its plans to list its maintenance, repair and overhaul unit to raise cash.


This article appeared in The Edge Financial Daily, November 23, 2011.



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Analysts neutral on BNM’s new guidelines

KUALA LUMPUR: Bank Negara Malaysia’s (BNM) latest guidelines on lending policies to encourage responsible financing and to make the lending process more transparent are not expected to have an adverse impact on loan growth.

“It should have some impact, but not significant,” said an analyst with Maybank IB Research.

“At the end of the day it really depends on the extent the banks meet the new requirements. It is still too early to quantify the results of the BNM announcement,” the analyst said, adding that the guidelines are meant to encourage prudent lending practices by banks.

Under the revised lending guidelines released by BNM last week, which are viewed as more stringent, the debt service ratio of a loan applicant is calculated based on net income rather than gross income. This means the income of the applicant is based on his or her return after deductions for tax and contribution to the Employees Provident Fund (EPF).

The new loan rules apply to mortgages, auto, share financing and personal loans and will be effective on Jan 1.

Most analysts remain neutral on the impact of the guidelines on the banking industry, according to various research reports. Some have even reported that banks are already practising prudent lending practices.

HwangDBS Vickers Research Sdn Bhd said in its report on Monday: “We believe banks are already practising prudent lending, taking into consideration the necessary risk-reward of the loan. Testimony to this are current retail banking non-performing loan (NPL) ratios, which are currently low.”

OSK Research had a similar view in its report on Monday, saying that some banks could have already started to adjust their debt service ratio over the past few months after the plan to tighten lending policies was first mooted last July and discussed by BNM and industry players.

“The decline in industry mortgage approval rates since June 2011 is an indication that banks may have already been nudging down their debt service ratio computation to preempt this latest ruling,” OSK’s report said.

Although most research reports indicate that the guidelines won’t have a substantial effect on the loan growth, CIMB expects the BNM guidelines to “drag down loan growth”.

“Through the new guidelines, BNM is sending a clear signal to financial institutions that they need to be more prudent in lending to the consumer segment. This will lead to more stringent loan approval, resulting in slower loan growth next year,” it said in its report on Monday.

Before the announcement of the guidelines, analysts were already expecting loan growth to slow down next year. The Maybank analyst said the loan growth projection for FY12 is 8.6% lower than the projection for FY11, which was 12.1%.

Loan growth has already seen a slowdown this year with a lower net interest income for the banks, which released their financial results last week.

Maybank, CIMB, Alliance Financial Group and AMMB posted moderate year-on-year (y-o-y) increases.

CIMB’s net interest income grew by a modest 0.2% y-o-y from RM1.659 million to RM1.662 million. Net interest income growth the year before was a higher 1.51%.

The Maybank analyst commented that while household loans may decrease next year, they will be buffered by corporate demand from financing Economic Transformation Programme projects, which are set to roll out next year.

Maybank, CIMB and OSK had “neutral” calls on the banking industry, and RHB maintained its “underweight” recommendation.


This article appeared in The Edge Financial Daily, November 23, 2011.



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Two new towers in KLCC

KUALA LUMPUR: KLCC Property Holdings Bhd (KLCCP) and the Qatari Investment Authority will build a new retail mall plus two towers next to the Petronas Twin Towers. The new development is set to expand the retail, office and hotel space in the KLCC development.

The two new towers, one for offices and the other a hotel, will sit on the new four-storey podium retail block (with 300,000 sq ft of retail space), which will be integrated with the present Suria KLCC mall.

The new development is slated for completion by 2015. However, details on the cost of the development and specifications are still being finalised and should be available in early 2012, according to Andrew Brien, CEO of Suria KLCC Sdn Bhd, who told journalists at the company’s Media Day yesterday.

Suria KLCC, a joint venture between KLCCP and CB Richard Ellis (CBRE), recently opened the extension to its present mall. Known as “Ramlee expansion”, the new extension added 140,000 sq ft and 37 speciality outlets to the present mall that has a total gross floor area of 1.78 million sq ft and 384 outlets.

“Acting on consumer insights from research, we have embarked on a series of refurbishments to our mall to further set us apart, as well as stay fresh and relevant to our retail partners and consumers,” said Brien.

Aside from owning 51% of the Suria KLCC mall, KLCCP owns Kompleks Dayabumi, Menara ExxonMobil and has a 33% stake in Menara Maxis, according to the company’s recent annual report.

Suria KLCC has an annual turnover of RM2 billion and an average of 41 million visitors each year. The six-level mall covers a gross area of 1.78 million sq ft with a net lettable area of 1.17 million sq ft.

KLCCP saw its profit before tax for the quarter ended Sept 30 rise 6% year-on-year to RM152.37 million. Revenue improved 5% to RM244.83 million, mainly contributed by the retail space at Menara 3 Petronas, rental revisions and new leases in Suria KLCC as well as better performance from its car park management business.

“The directors are of the opinion that the prospects for the financial period ending Dec 31, 2011 will be satisfactory with the existing long- term tenancies, and contribution from the retail space of Menara 3 Petronas,” said KLCCP.


This article appeared in The Edge Financial Daily, November 23, 2011.



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Eversendai bags RM132m Manjung mechanical job

Eversendai Corp Bhd (Nov 22, RM1.64)
Maintain buy at RM1.65 with target price of RM2.17: Eversendai has clinched the mechanical erection work for the Manjung power plant, worth RM132 million. The company has consistently secured new jobs since its listing and is on track to meet our job wins expectation of RM1.2 billion for 2011 (year-to-date wins: RM973 million). We continue to like Eversendai for its bright job flow prospects, coming from key pump-priming markets, where projects are populist demand-driven and have lower timing risk. The stock trades at a low nine times 2012 price-earnings ratio (PER). Maintain “buy” and target price of RM2.17 (12 times 2012 PER).

Eversendai will undertake the mechanical erection work for the boiler and auxiliary equipment for the Manjung Unit 4 in Perak. The job was awarded by its long-time power plant partner Alstom Services Sdn Bhd at a contract value of RM132 million. We expect a net margin of around 12%, with work to start in March 2012 and stretching over four to five years. Additionally, we still see more new job potential within this Manjung project as Eversendai is also in negotiation for several other packages (fabrication work).

We believe the company may secure more jobs (RM400 million at least) in the next three months. Job flow is expected to come from the Tanjung Bin power plant expansion project in Johor (where Eversendai is part of the Alstom consortium) and structural steel works in the Middle East. With the inclusion of the Manjung job, Eversendai’s outstanding order book is lifted by 7% to RM1.6 billion, which should sustain its quarterly earnings growth momentum for the next year.

We maintain our 2012/13 earnings forecasts, having imputed job win potential in our earnings model. We estimate that 67% of our 2012F RM1.2 billion revenue forecast (+13% year-on-year) is already in hand, based on the current order book. Eversendai continues to stand out from its local construction peers due to its geographical diversification and superior margins. — Maybank IB Research, Nov 22


This article appeared in The Edge Financial Daily, November 23, 2011.



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Latexx losing its grip in 3Q

Latexx Partners Bhd (Nov 22, RM1.86)
Maintain neutral at RM1.87 with revised target price of RM2.05 (from RM1.95): At only 64.8% of our FY11 estimate 9MFY11 earnings missed our forecast, leading to a cut in FY11 to FY13 earnings per share. But our target price (7.83 times CY13 price-earnings ratio) rises as we roll it over to end-CY12. We maintain our “neutral” call. We prefer Hartalega for its solid fundamentals and undemanding valuations.

Revenue for 9MFY11 revenue fell by 10.1% year-on-year (y-o-y) to RM350.9 million due to lower output. Utilisation rates were only 60% in 3Q after touching 80% in 2Q. Higher rubber and nitrile prices led to a 7.7% y-o-y increase in operating costs to RM287 million. As a result of the lower revenues and higher costs, earnings before interest, tax, depreciation and amortisation (Ebitda) fell by 19.8% y-o-y to RM64 million and Ebitda margins contracted by 2.2 percentage points y-o-y to 18.2%. Core net profit fell by 28.1% y-o-y to RM43.1 million. During the quarter, the composition of Latexx’s sales was 64% nitrile and 36% natural rubber. Some 51.6% of the group’s sales were shipped to the US, 24.9% to Asia, 20.5% to the EU and the 3% balance to the Middle East and South America. Latexx declared a 2.5 sen dividend per share (DPS), which was expected.

Latexx is still cautious and is taking measures to improve efficiency and lower costs. The company will also retain its focus on the nitrile segment where growth is about 5% per year against a 1% y-o-y contraction for natural rubber. Also, nitrile gloves remain competitively priced as they are 25% cheaper to produce than natural rubber equivalents.

We expect an 18% quarter-on-quarter rise in 4Q net profit to RM15 million due to lower costs as the nitrile price has fallen 25% since Oct 1 and the natural rubber price has dropped 13%. We also expect Latexx to pay another 2.7 sen DPS after its 4Q results, taking FY11 DPS to 5.2 sen. — CIMB Research, Nov 22


This article appeared in The Edge Financial Daily, November 23, 2011.



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Bumi Armada anticipating explosive growth

Bumi Armada Bhd (Nov 22, RM3.94)
Maintain buy at RM3.97 with target price of RM5: Earnings for 3QFY11 were strong at RM92.6 million (+54% quarter-on-quarter, -7% year-on-year), taking 9MFY11 net profit to RM234.9 million or 63% of our full-year forecast. This was despite RM20.3 million IPO-related expenses in the quarter. The expected good 3QFY11 result is attributed to additional contribution from two recently secured floating production, storage and offloading (FPSO) projects in India and Australia, and higher utilisation of its offshore support vessels (OSV) of 93% (against 83% in 2QFY11). However, the transport and installation (T&I) segment posted a small operating loss due to dry-docking expenses for its prime derrick-lay barge Armada Installer, in Baku, Turkmenistan. Nevertheless, operating margins remained superior at 31.7% (against 27.8% in 2QFY11). We also expect 4QFY11 results to be impressive, driven by contributions from Armada Installer and full earnings impact of its new FPSO projects.

This will ensure long-term earnings visibility since RM5.2 billion or 72% is anchored by FPSO contracts (excludes the joint venture’s D1 FPSO in India worth RM1.9 billion). Bumi Armada also has approximately RM3.1 billion extension options that are likely to be exercised by its FPSO clients.

We understand the results of its tender for two FPSO projects — Hess’ Belud oil and gas development in Sabah and Lam Son Joint Operating Co’s (50:50 JV between Petroliam Nasional Bhd and PetroVietnam) fields in Vietnam — will be out by next month. Bumi Armada is also bidding for more projects in the Caspian Sea, Africa and Asia. The key catalyst to watch out for in 2012 will be Petronas’ lucrative marginal oilfield development, in which the company is keen to participate. — HwangDBS Vickers Research, Nov 22


This article appeared in The Edge Financial Daily, November 23, 2011.



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JT International’s 3Q in line with expectations

JT International Bhd (Nov 22, RM6.38)
Maintain buy at RM6.40 with fair value of RM7.20: JT International (JTI) recorded a net profit of RM40 million for the nine months to Sept 30. The 9MFY11 result makes up 82% of consensus estimates, and 84% of our full-year forecast. We deem the results to be broadly in line with our expectations as 9M typically accounts for 80% to 86% of 12 months’ earnings. Historically, 4Q is a soft quarter due to post-budget de-stocking.

JTI registered flattish year-on-year (y-o-y) revenue growth for 9MFY11, but net profit contracted marginally by 2%. The lacklustre performance was largely due to an estimated 12% y-o-y decline in cigarette sales volume due to decreased demand experienced in 2QFY11. This was partially offset by: (i) higher average selling prices (post Budget 2011); (ii) higher net margins; and (iii) lower advertising and promotions expenses.

On a sequential basis, revenues increased 9% on improved sales volume but net profit for 3Q surged a higher 31% to RM40 million. This was mainly attributed to higher earnings before interest, tax, depreciation and amortisation (Ebitda) margin which expanded 2.7 percentage points quarter-on-quarter on the back of reduced operating expenses.

We reckon the group successfully clawed back some of the lost market share at the expense of sub-value for money (VFM), predominantly on the back of the Winston label, JTI’s main earnings driver. Sub-VFM resumed its downward trend, with volume for 9MFY11 falling 9% y-o-y. Recall, depressed total industry volume (TIV) earlier this year was severely impacted by higher average selling price and illegal sale of sub-VFM below the minimum prices.


Unlike the previous years, no dividend was declared for this quarter. The management declared a second interim dividend of 15 sen per share (less 25% tax) back in the preceding quarter, bringing year-to-date dividends to 30 sen per share. This accounts for 66% of our FY11F dividend per share forecast as premised on a recently raised dividend payout ratio of 70%.

We are keeping our TIV forecast of -4% for 2011F, and -3% for 2012F. We believe further TIV contractions are imminent, given high levels of illicit cigarettes. As it is, illicit trades are still a high 37.3% (March to May 2011), according to statistics from the Confederation of Malaysian Tobacco Manufacturers. However, this would be partially offset by the positive status quo of tobacco excise duty.

We make no change to our “buy” recommendation on JTI with a discounted cash flow-based fair value of RM7.20 per share. Valuation is undemanding, with forward earnings trading close to its five-year historical price-earnings ratio average of 12.5 times. The stock offers an attractive dividend yield of 7% per year, well underpinned by its burgeoning cash pile of RM190 million. — AmResearch, Nov 22


This article appeared in The Edge Financial Daily, November 23, 2011.



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Eng Kah’s valuation supported by its dividend yield

Eng Kah Corp Bhd (Nov 22, RM3.18)
Recommend buy at RM3.19 with target price of RM4.25: Eng Kah’s business can be classified into five main categories: cosmetics, perfumery, toiletries, skincare and household products. The company derives more than 70% of its sales from perfumery, cosmetics and skincare products while toiletries and household products account for 14% and 16%. Notable brands in its stable include Sara Lee, Nutrimetics as well as some local home brands like Cosway.

Apart from producing more than 1,000 products for about 50 clients, including multinational companies (MNC), trading companies, multilevel marketing companies (MLM), supermarkets, retail chains and department stores, Eng Kah also develops new products and packaging designs for its existing clients. This distinguishes it from competitors and also gives it an edge in securing new contracts.

According to the Malaysian Cosmetics and Toiletries Industry Group (FMM-MCTIG), there are more than 50 small and medium local companies producing cosmetic and toiletry products. Eng Kah is considered one of the largest players in terms of size and product offerings. The industry is expected to grow by 10% to 15%, driven by: (i) a growing middle-aged population; (ii) the rapid increase in the number of skincare and healthcare centres; and (iii) the aggressive expansion of its customers’ MLM businesses, which can boost the demand for cosmetics and toiletries products.

We project Eng Kah’s earnings will grow by 20% to 30% in the next three years, fuelled by: (i) an enlarged customer base; (ii) a wider product range; and (iii) stronger contributions from its major contributor, Cosway, which is aggressively expanding its distribution channel.


In addition, short-term disruptions arising from the recent floods in Thailand, which is one of the major exporting countries for cosmetics and toiletries products, will also open up opportunities for Eng Kah to engage potential MNC.

Despite not having a dividend policy, the management has been generous in its dividend payout in the last five years, consistently paying out more than 90%. The low capital expenditure requirement for machinery has allowed the group to give out a large proportion of its earnings as dividends. Going forward, we expect the company to maintain its 80% to 90% dividend payout, which translates into a gross dividend yield of 7.1%, one of the highest dividend yields among small-cap stocks.

In a nutshell, we like Eng Kah because of its: (i) innovative and prudent management; (ii) very impressive dividend payout track record; and (iii) solid balance sheet. Eng Kah is now trading at 11 times FY12 price-earnings ratio, but we call a “buy” on the stock as the valuation is well supported by its dividend yield. Net profit for FY12 is projected to grow organically at about 9% driven by its existing business. Our target price is derived by pegging a 5% FY12 single-tier dividend yield, which is in line with the average dividend yield for small-cap stocks. — OSK Research, Nov 22


This article appeared in The Edge Financial Daily, November 23, 2011.



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Hiap Teck subsidiary to start building Kemaman steel complex in December

KUALA LUMPUR (Nov 23): Steel pipe manufacturer Hiap Teck Ventures Bhd’s (HTVB) 55% subsidiary Eastern Steel Sdn Bhd, will begin work on the first phase of the integrated steel complex in Kemaman next month and targeted completion by mid-2013.

HTVB executive director Low Choong Sing said on Wednesday the groundbreaking ceremony for the site would be on Dec 5.

Work on the phase one, stage one of the complex would be undertaken by China Shougang International Trade and Engineering Corp. This part of the project consists of the CONSTRUCTION [] of a blast furnace with a capacity of 700,000 tonnes of steel slab per year.

Phase 1 Stage 1's cost of RM754 million is to be shared by the shareholders of Eastern Steel. The other substantial shareholders of Eastern Steel are Orient Steel Investment Pte Ltd and Chinaco Investment Pte Ltd with 40% and 5% stakes respectively.

At the EGM on Wednesday, shareholders approved thea private placement of 32.2 million new HTVB shares to Shougang Singapore worth RM163.7 million, proposed renounceable rights issue with free warrants to raise RM220 million, and an issuance of RM180 million bonds.

The funds raised would be used to fund HTVB's portion of the project, as well as to repay borrowings.

Low said HTVB would probably look at bank borrowings to fund the phase one, stage two of the project.


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KNM falls on 3Q losses, Maybank Research target price RM1.08

KUALA LUMPUR (Nov 23): Shares of KNM GROUP BHD [] fell in active trade on Wednesday after the disappointing third quarter results, which prompted Maybank Investment Bank Research to keep a sell call and lower target price of RM1.08.

At 4.11am, it was down 10 sen to RM1.13. There were 14.34 million shares done at prices ranging from RM1.12 to RM1.17.

Maybank IB Research said the RM116 million net loss in 3Q11, which was due to operating impairments and provisions totaling RM150 million, wiped out 1H's net profit of RM30 million and validates its concerns on cost management.

The research house now expects KNM to be in the red in 2011, on expectation that losses should extend into the fourth quarter.

“We also cut 2012-13 net profit forecasts by 33%-54% on lower EBIT margin assumptions. Following this, we downgrade target price to RM1.08 (-9%) based on a lower PER multiple of 8.0 times as we roll over our valuations to 2013 (previously 10 times 2012 earnings),” it said.



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Credit Suisse maintains Outperform on Ta Ann, ups TP to RM7.30

KUALA LUMPUR (Nov 23): Credit Suisse has maintained its Outperform rating on TA ANN HOLDINGS BHD [] at RM4.78 and upped its target price for the stock to RM7.30 (from RM6.96), and said it was raising Ta Ann’s net profit for FY11-12E by 25-38% to reflect stronger-than-expected oil palm PLANTATION [] contributions.

In a note Wednesday, Credit Suisse said that there was still no clarity in terms of the timing of Japanese reCONSTRUCTION [].

Timber companies are now looking towards Mar/Apr 2012 for reconstruction activity to commence while the most bearish are concerned that 2012 could be worse than 2011, it said.

“We expect plywood prices to remain on a downtrend for the rest of 2011, as the surge in Japanese plywood imports has so far not been matched by any reconstruction demand.

“We expect log prices to remain firm, as we go into the rainy season which could potentially crimp log supply through early 2012.

Credit Suisse said as and when reconstruction activity kicks off in Japan, this would likely be positive for plywood prices and act as a positive catalyst for Ta Ann.

“The risks to our call include any potential delay in reconstruction activity in Japan or a strong ringgit,” it said.



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MBF warrants surge in heavy trade

KUALA LUMPUR (Nov 23): MBF Holdings’ warrants rose in very active trade on Wednesday despite the absence of any positive news to attract the strong interest, reflecting the recent surge in speculative trading of penny stocks.

At 3.45pm, MBF-WA was up seven sen to 25.5 sen with 91.54 million units done. The share price increased 10 sen to 93.5 sen with 6.1 million shares done.

The FBM KLCI fell 11.58 points to 1,426.41. Turnover was 1.16 billion shares valued at RM779.31 million units done. There were 198 gainers, 503 losers and 245 stocks unchanged.

MBF posted net loss of RM12.638 million in the third quarter ended Sept 30, which was much weaker than the RM3.85 million a year ago.

However, for the nine-month period, it posted net profit of RM74.84 million versus RM41.94 million in the previous corresponding period.

Its net asset per share was RM1.76.



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Maybank eyes 20% rise in billings

Malayan Banking Bhd (Maybank) eyes a 20 per cent increase in billings valued at about RM200 million through its "Maybankard 2 Cards Shop for Free" usage programme, says its Executive Vice President and Head of Cards, Wealth and Payments, B Ravintharan.

"With this usage programme, they spend using their Maybankard 2 American Express (Amex) cards, and that would lead to the increase in usage," he said.

The campaign began in August and ended on Sept 30.

Ravintharan said the programme has increased their credit card holders to about nine to 10 per cent and billings by about 19 per cent year-on-year.

He also expects an increase in billings of below 20 per cent next year, saying the economic condition "is going to come out slightly different".

"However, people cannot run away from essential spendings," he added.

Ravintharan noted that the bank's billing totalled about RM1 billion a month.

Maybank now has 1.5 million credit card holders, four million debit card holders and about three million conventional bank card holders.

It has also issued 1,000 Maybankard Manchester United credit cards, which were launched on Nov 11. -- Bernama



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Maybank eyes 20% rise in billings valued at RM200m

PETALING JAYA (Nov 23): MALAYAN BANKING BHD [] (Maybank) eyes a 20% increase in billings valued at about RM200 million through its "Maybankard 2 Cards Shop for Free" usage programme, says its Executive Vice President and Head of Cards, Wealth and Payments, B Ravintharan.

"With this usage programme, they spend using their Maybankard 2 American Express (Amex) cards, and that would lead to the increase in usage," he said.

The campaign began in August and ended on Sept 11.

Ravintharan said the programme has increased their credit card holders to about 9% to 10% and billings by about 19% year-on-year.

He also expects an increase in billings of below 20% next year, saying the economic condition "is going to come out slightly different".

"However, people cannot run away from essential spendings," he added.

Ravintharan noted that the bank's billing totalled about RM1 billion a month.

Maybank now has 1.5 million credit card holders, four million debit card holders and about three million conventional bank card holders.

It has also issued 1,000 Maybankard Manchester United credit cards, which were launched on Nov 11. - Bernama



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Triplc loses more than half of value

KUALA LUMPUR (Nov 23): Shares of Triplc have lost more than half the value over the past two days since they resumed trading on Tuesday after the company was uplifted from the Practice Note 17 status.

At 3.24pm, it was down 23 sen to 47 sen with 252,500 shares done.

The FBM KLCI fell 10.51 points to 1,427.48. Turnover was 1.10 billion shares valued at RM716.19 million. There were 198 gainers, 486 losers and 246 stocks unchanged.

Under the financial regularisation exercise, there was the listing and quotation of 6.367 million settlement shares issued pursuant to the capitalisation of RM6.36 million or 25% of the RM25.47 million in debts owing by the group to certain substantial shareholders and creditors and the waiver of the remaining 75% of such debts amounting to RM19 million.

Also quoted were 64.02 million shares of RM1 each issued under the consolidation of every 100 shares of 43 sen each into 43 shares subsequent to the reduction of the paid-up b cancelling 57 sen of the par value of each of the 148.88 million shares in issue after the capitalisation.

In the first quarter ended Aug 30, 2011, it posted net profit of RM208,000 compared with RM252,000 a year ago. Its revenue was RM16.85 million versus RM2.17 million a year ago.



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KL shares in red at mid-day

Share prices on Bursa Malaysia stayed in negative territory at midday today on weak market sentiment regionally. Continued selling of heavyweights dragged the FBM KLCI 11.09 points lower at 1,426.90.

The Finance Index plunged 55.05 points to 12,784.75 and the Plantation Index declined 84.31 points to 7,499.05, while the Industrial Index slipped 23.09 points to 2,589.47.

The FBM Emas Index fell 78.18 points to 9,791.65 and the FBM70 Index dipped 105.631 points to 10,697.85, while the FBM Top 100 Index slid 78.92 points to 9,595.67. The FBM ACE Index dwindled 49.65 points to 4,063.38.

Decliners led advancers 485 to 153 while 218 counters were unchanged, 616 untraded and 16 others suspended. Volume stood at 724.3 million shares worth RM498.8 million.

Among active counters, MBF Holdings warrants gained 6.5 sen to 25 sen, Sumatec Resources gained 1.5 sen to 29.5 sen, Sumatec Resources warrants rose one sen to 17 sen and Compugates Holdings was unchanged at eight sen.

Among heavyweights, Maybank slipped two sen to RM8.18, CIMB declined five sen to RM6.71 and Sime Darby declined four sen to RM8.72 while RHB Capital eased two sen to RM7.35. -- Bernama



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Pharmaniaga in RM72.8m project deal with Dataware

KUALA LUMPUR (Nov 23): PHARMANIAGA BHD [] has signed a project agreement with Dataware Sdn Bhd to develop and implement part of the pharmacy information systems.

It said on Wednesday the contract was for phase one of the system for government hospitals and clinics under the Health Ministry as required under the concession agreement dated March 16.

“The project agreement shall be based on the scope of work which shall include the design, development, installation, configuration, testing and commissioning of the PhIS and clinic pharmacy system (CPS) in two stages at 16 sites (six hospitals and 10 clinics) over a period of 20 months as well as the execution of business processes re-engineering and change management based on the guidelines provided by the Government covering the 16 sites.

“Subsequently, after the 20 months, the support and maintenance for PhIS and CPS will continue for a period of five years,” it said.



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Ancom Logistics to expand fleet to maintain growth

KUALA LUMPUR (Nov 23): Ancom Logistics Bhd mulls expanding its fleet size and carrying capacity which are essential to maintain growth going forward.

"We believe the business is gearing for growth and (even) in the current difficult state of the economy the board feels the company is able to perform consistently," CFO Lee Cheun Wei said after the AGM and EGM on Wednesday.

For the first quarter ended Aug 31, 2011, it posted net profit of RM1.02 million compared with RM1.97 million a year ago.

Ancom Logistics’ core activities are transportation, warehousing and chemical tank farm business in Malaysia and Singapore.



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KL shares extend downtrend mid-morning

Share prices on Bursa Malaysia extended their downtrend at midmorning in tandem with weak market sentiments in regional markets due to concerns about the impact of debt problems in Europe and the US on the global economy, dealers said.

As at 11.00 am, the FTSE Bursa Malaysia KLCI (FBM KLCI) shedded 11.51 points to 1,426.48 after opening 2.35 points lower at 1,435.64.

A China-based media outlet blasted the US for sitting on a 'debt bomb' due to balloning national debt and lack of effective actions to cut US deficits. China is the largest foreign holder of US treasuries.

The Finance Index plunged 58.99 points to 12,780.81 and the Plantation Index declined 67.28 points to 7,516.08, while the Industrial Index slipped 26.29 points to 2,586.27.

The FBM Emas Index fell 79.36 points to 9,790.47 and the FBM70 Index dipped 101.271 points to 10,702.21, while the FBM Top 100 Index slid 80.29 points to 9,594.30. The FBM ACE Index dwindled 39.76 points to 4,073.27.

Decliners led advancers 408 to 130 while 211 counters were unchanged, 723 untraded and 16 others suspended. Volume stood at 506.2 million shares worth RM325.7 million.

Among active counters, Sumatec Resources gained one sen to 29 sen, Sumatec Resources warrants were unchanged at 16 sen, Compugates Holdings was unchanged at eight sen and MBF Holdings warrants gained 3.5 sen to 22 sen.

Among heavyweights, Maybank was unchanged at RM8.20, CIMB declined five sen to RM6.71 and Sime Darby declined four sen to RM8.72 while RHB Capital eased four sen to RM7.33. -- Bernama



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KLCI drifts lower at mid-morning, slips below 1,430-level

KUALA LUMPUR (Nov 23): The FBM KLCI could not sustain its slim gains from a day earlier and fell at mid-morning on Wednesday, as investors stayed on the sidelines and blue chip stocks retreated.

Asian shares drifted lower on Wednesday, weighed down by mining and TECHNOLOGY [] stocks after a downward revision of US growth data raised new concerns about the faltering global economy, according to Reuters.

The FBM KLCI fell 9.47 points to 1,428.52 at 10am, weighed by losses including at Genting and KLK.

Losers edged gainers by 317 to 112, while 150 counters traded unchanged. Volume was 319.46 million shares valued at RM165.95 million.

At the regional markets, Hong Kong’s Hang Seng Index fell 1.92% to 17,901.22, South Korea’s Kospi lost 1.46% to 1,799.64, Taiwan’s Taiex and Singapore’s Straits Times Index were down 1.37% each respectively to 6,904.26 and 2,679.94, while the Shanghai Composite Index rose 0.19% to 2,417.23.

Japan’s Nikkei 225 is closed today to observe the Labour Thanksgiving holiday.

BIMB Securities Research in a note Nov 23 said the same old concerns over Europe's debt crisis and US' economic growth seemed unabated as investors continued to be affected by these despite recent efforts to alleviate the impacts.

At present, it seems investors prefer to dwell into the negatives than look at the positives amid prevailing volatilities, it said.

The research house said although yesterday's unveiling of the enhanced lending program to eradicate Europe's short term liquidity concerns by the IMF, this was only a temporary reprieve as many would look to sell into strength going forward.

The news did prop up the Dow Jones Industrial Average from intra-day low to close marginally below 11,500 (-53.59), it said.

BIMB Research said performance of regional markets were mixed on cautious mode taking cue from the bond movements in Europe as yields in Spain and Belgium continue to inch up.

“Similarly, the local bourse remained cautious with the FBM KLCI edging 3.91 points higher on a relatively quiet day.

“We expect some nibbling on stocks to continue today with the benchmark index to possibly test the 1,440 level,” it said.

Among the losers on Bursa Malaysia, KLK fell 40 sen to RM20.60, Harvest Court lost 21.5 sen to 75 sen, Nestle and Triplc down 20 sen each to RM50 and 50 sen, IJM Corp 17 sen to RM5.36, Hong Leong Bank and Genting down 16 sen each to RM10.18 and RM10.06, AirAsia 15 sen to RM3.52 and HLFG 14 sen to RM10.94.

Sumatec was the most actively traded counter with 44.8 million shares done. The stock gained half a sen to 28.5 sen.

Other actives included Compugates, Sanichi, PDZ, TMS, KNM and Tiger Synergy.

Gainers at mid-morning included Cycle & Carriage, Amtel, Tradewinds, JobStreet, SOP, HDBS, MAHB, Batu Kawan, Harrisons and YTL Cement.



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Maybank IB Research maintains Sell on KNM

KUALA LUMPUR (Nov 23): Maybank Investment Bank Research is maintaining its sell call on KNM GROUP BHD [] with a lower target price of RM1.08.

It said on Wednesday the RM116 million net loss in 3Q11, which was due to operating impairments and provisions totaling RM150 million, wiped out 1H's net profit of RM30 million and validates our concerns on cost management.

“We now expect 2011 to be in the red, on expectation that losses should extend into 4Q. We also cut 2012-13 net profit forecasts by 33%-54% on lower EBIT margin assumptions.

“Following this, we downgrade target price to RM1.08 (-9%) based on a lower PER multiple of 8 times as we roll over our valuations to 2013 (previously 10x 2012 earnings),” it said.



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MAS downgraded, stock at 6-week low

Malaysian Airline System Bhd, the national carrier, fell to a six-week low in Kuala Lumpur trading as HwangDBS Vickers Research Sdn Bhd downgraded the stock to “hold” after the company reported a RM477.6 million quarterly loss.

The shares dropped 2.2 per cent to RM1.33 at 9:42 a.m. local time, set for their lowest close since Oct. 10. -- Bloomberg



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KL shares open lower

Share prices on Bursa Malaysia opened lower in early trading Wednesday in tandem with weak market sentiments in regional markets due to the euro debt contagion and concerns over escalating debt in Spain, dealers said.

As at 9.15am, the FTSE Bursa Malaysia KLCI (FBM KLCI) shed 7.70 points to 1,430.29 after opening 2.35 points lower at 1,435.64.

The Finance Index plunged 34.64 points to 12,805.16 and the Plantation Index declined 62.21 points to 7,521.15, and the Industrial Index slipped 23.23 points to 2,589.33.

The FBM Emas Index fell 43.521 points to 9,826.31 and the FBM70 Index dipped 27.311 points to 10,776.17 and the FBM Top 100 Index slid 45.859 points to 9,628.73. The FBM ACE Index dwindled 7.81 points to 4,105.22.

Decliners led advancers 139 to 91 while 104 counters were unchanged, 1,138 untraded and 16 others suspended. Volume stood at 131.4 million shares worth RM51.6 million.

Among active counters, Sumatec Resources gained half a sen to 28.5 sen, Sumatec Resources warrants added half a sen to 16.5 sen, Compugates Holdings was unchanged at eight sen and Media Shoppe earned one sen to 9.5 sen.

Among heavyweights, Maybank lost one sen to RM8.19, CIMB declined two sen to RM6.74 and Sime Darby declined 12 sen to RM8.64 while RHB Capital eased two sen to RM7.35. -- Bernama



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Hwang-DBS and AFG in possible merger exercise

PETALING JAYA: The market is rife with talk that Hwang-DBS (Malaysia) Bhd and Alliance Financial Group Bhd (AFG) are looking at a merger exercise.

A key player in the talks is said to be Singapore banking giant DBS Group Holdings Ltd.

DBS Bank owns 28% of investment bank Hwang-DBS and it has been long rumoured that DBS might also secure a controlling stake in AFG by buying over Temasek Holdings' indirect 29% stake in AFG.

“A local bank aiming to merge with another local bank definitely looks better than a foreign bank buying up a local outfit. It can smoothen the discussion process,” said an industry observer.

It is also possible that Hwang-DBS and AFG are in talks to merge some of their units, rather than a full-scale merger of the two financial institutions.

Hwang-DBS has a total equity of RM890mil while AFG has about four times that, at close to RM3.4bil.

Hwang-DBS declined comment, while AFG said: “We do not comment on market speculation.”

Shares in AFG have climbed 15% in the past six months.

Singapore investment firm Temasek has a 49% stake in Vertical Theme Sdn Bhd, the holding company that owns 29% in AFG.

It has been widely reported that Temasek might be planning to consolidate its banking assets under one umbrella, which is its 28%-owned DBS. DBS has long expressed its intention to become a leading pan-Asian bank.

It has also been reported that Temasek might hive off its stake in AFG to DBS to pave the way for the latter's entry into the Malaysian market.

Industry sources also said that Temasek could be close to finalising its acquisition of the other 51% in Vertical Theme, which is held by Langkah Bahagia Sdn Bhd, a company believed to be linked to former finance minister Tun Daim Zainuddin. The Employees Provident Fund (EPF) is the second largest shareholder in AFG with a 12% stake.

Temasek, as at press time, had yet to respond to StarBiz queries via email.

Temasek first came into AFG as a shareholder in 2005 after it acquired a controlling stake, together with Langkah Bahagia.

Sources said Langkah Bahagia's entry into AFG was at a low cost.

Hence, there should not be too much of haggling on pricing on its part.

Bank Negara's approval is needed for any discussion to first take place.

Shares in AFG have climbed 15% in the past six months.

Hwang-DBS started operations in Penang in the early 1970s and was one of the first stockbrokers to receive the Universal Broker status from the Securities Commission in 2001. It became a full-fledged investment bank in 2007.



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