Wednesday, 30 November 2011

Tanjung Offshore secures RM43m contract from Petronas Carigali

KUALA LUMPUR (Nov 30): TANJUNG OFFSHORE BHD []’s subsidiary, Tanjung Maintenance Services Sdn Bhd has secured a RM43 million contract from Petronas Carigali Sdn Bhd.

It said on Wednesday the contract was to provide maintenance services for mechanical rotating equipment at all offshore platforms operated by Petronas Carigali in the Sarawak operations region .

“The said maintenance contract is for a tenure of five years with an option to extend for another one year. The primary contract is effective from Jan 1, 2012 to Jan 4, 2017,” it said.

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PJI Holdings secures RM59.64m contracts at KLIA2

KUALA LUMPUR (Nov 30): PJI HOLDINGS BHD []’s unit has secured two contracts worth RM59.64 million at the KLIA2 involving the low voltage system for several locations at the KLIA2.

It said on Wednesday its unit P.J. Indah Sdn Bhd had accepted the letter of award from BINA PURI HOLDINGS BHD [] to formalise the sub-contract valued at RM25.16 million.

The contract included the supplying, installation and maintenance of the low voltage system for the skybridge (sector 4), contact pier (sector 5), satellite building (sector 6) and contact pier (Sector 7) of KLIA2.

“The duration of the sub-contract will be for a period of 427 days and were deemed to have commenced on Oct1, 2011,” it said.

In a separate statement, it said P.J. Indah had also accepted a RM34.64 million contract from UEM CONSTRUCTION [] Sdn Bhd.

It said the contract was for the design, supply and maintenance of the low voltage system, uninterruptible power supply and lightning protection system at KLIA2.

PJI said the duration of the second sub-contract was for eight months and was expected to be complete by April 1, 2012.

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KUB posts net loss RM12.85m in 3Q after RM14.7m impairments

KUALA LUMPUR (Nov 30): KUB MALAYSIA BHD [] posted net loss of RM12.86 million in the third quarter ended Sept 30, a vast contrast from the net profit of RM2.49 million a year ago.

KUB said on Wednesday it had undertaken impairment assessments on its assets of underperforming subsidiaries and decided to provide impairment losses of RM14.70 million.

It said revenue did improve by 2% to RM181.64 million from RM178 million while loss per share was 2.31 sen compared with earnings per share of 0.45 sen.

For the nine-month period, its racked losses of RM19.12 million compared with net profit of RM5.30 million in the previous corresponding period. Revenue showed a 2.6% decline to RM521.89 million compared with RM535.78 million a year ago.

It said the weaker nine-month performance was due to non-materialisation of the ICT and other projects. It was also affected by higher food costs.

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Eastern & Oriental 2Q earnings jump 172% to RM13.8m

KUALA LUMPUR (Nov 30): Eastern & Oriental Bhd (E&O) saw its earnings surge 172% to RM13.83 million from RM5.08 million a year ago.

It said on Wednesday that revenue increased by 25.5% to RM82.60 million from RM65.81 million while earnings per share were 1.27 sen compared with 0.48 sen.

For the first half, its earnings more than tripled, or 329% to RM65.73 million from RM15.31 million in the previous corresponding period while revenue was 41.3% higher at RM158.48 million from RM112.12 million.

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Axiata Group 3Q earnings dn 7.7% to RM589.6m

KUALA LUMPUR (Nov 30): Axiata Group Bhd’s earnings fell 7.7% to RM589.62 million in the third quarter ended Sept 30, 2011 from RM639.12 million a year ago on foreign exchange translation losses and higher operating costs.

According to notes to its accounts, it said on Wednesday that net foreign exchange losses surged to RM43.91 million compared with gains on financing activities of RM71.96 million a year ago.

It was also impacted by higher domestic interconnect and international outpayments which totalled RM433.16 million compared with RM374.60 million a year ago while marketing, advertising and promotion costs increased to RM413.53 million from RM371.66 million. Axiata said that staff costs had also increased to RM306.87 million from RM227.94 million.

Axiata’s revenue rose 6.5% to RM4.194 billion from RM3.937 billion due to higher revenue contribution from key operating companies. Earnings per share were 7.0 sen compared with 8.0 sen.

Axiata said among the operating companies, Robi Axiata Ltd’s revenue grew 13.3% mainly from higher prepaid and postpaid revenue which increased by 21.2% and 12.0% respectively.

Dialog Axiata Group’s revenue grew 10.3% mainly from higher prepaid and global revenue, which increased by 21.7% and 4.8% respectively.

Its Indonesian operations under XL reported a 7.6% increase in revenue in tandem with the increase in subscriber base of 6.7%.

Celcom Axiata Bhd’s revenue grew 6.8% driven by 15.1% increase in broadband subscribers and 6.5% increase in revenue generating base customers.

“The fluctuation of ringgit against local currencies of the operating companies had unfavourably affected the overall group’s translated revenue. At constant currency using 3Q 2010 exchange rate, the group revenue would have registered a higher growth of 8.3%, quarter-on-quarter,” it said.

“Operating costs of the group increased by 12.9% to RM2.375 billion in 3Q 2011 from RM2.104 billion in 3Q 2010, mainly driven by XL, Celcom and Dialog,” it said.

Axiata group’s depreciation, impairment and amortisation increased by 15.0% to RM783.3 million in the just ended quarter from RM681.0 million a year ago mainly due to higher capital expenditure in XL and Celcom and accelerated depreciation arising from network upgrade in Celcom and Robi.

Nine-months performance

For the nine months, its earnings showed a 15.7% decline to RM1.801 billion from RM2.137 billion. Its revenue rose 4.9% to RM12.183 billion from RM11.603 billion.

At constant currency, revenue would have been up 8%. Earnings before interest, tax, depreciation and amortisation (EBITDA) dipped 0.2% partly due to the strengthening ringgit against local currencies.

“At constant currency EBITDA would have grown 2.2%.The strengthening ringgit and marked depreciation of the Bangladesh Taka, higher costs incurred to support network expansion for data as well as a change in revenue mix, did have an impact on margins, which dipped 2.3 percentage points to 43.6%,” it said.

Axiata said the underlying profit after tax and minority interests (PATAMI), stripping off the one-off gains from the share disposal in XL and gains from the Spice merger exercise, was RM2 billion, up 5% on the back of continued operational improvements across the main operating companies.

It added that actual PATAMI, inclusive of extraordinary gains last year, decreased by 16%.

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MRCB secures RM40.3m govt contract for Penang river

KUALA LUMPUR (Nov 30): MALAYSIAN RESOURCES CORPORATION BHD(MRCB) has secured a RM40.30 million contract to carry out coastal protection works at the Sungai Perai river mouth and nearby coastal areas.

MRCB said on Wednesday it had received the letter of award from the Department of Irrigation and Drainage for the third phase of the project.

“The contract sum of the project is RM40.33 million. The CONSTRUCTION [] period is 15 months and to be completed by March 2013,” it said.

It said the project included beach rehabilitation, construction of a jetty, boat mooring facilities and related works to cater for safe berthing and mooring for the fishermen in Bagan Ajam and neighbouring areas.

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Maxis 3Q earnings dn 10.6% to RM537m on-year

KUALA LUMPUR: Maxis Bhd’s earnings fell 10.6% to RM537 million in the third quarter ended Sept 30 from RM610 million a year ago on higher administrative expenses and network operation costs.

It said on Wednesday that revenue was 1.3% higher at RM2.244 billion from RM2.216 billion a year ago, while earnings per share were 7.2 sen compared with 8.0 sen. It declared a third interim single-tier tax exempt dividend of 8.0 sen per share.

“The increase in revenue was primarily driven by all round increases in both voice and non-voice revenues underlying the company’s thrust in these areas and the strengthening of its grip on future revenues,” it said.

Maxis said the increase in voice revenue was largely due to higher usage, while its non-voice revenue momentum built up over the last few years continued at a solid 8% growth on the back of higher mobile internet usage and wireless broadband (WBB) revenue.

“Non-voice revenue contributed 44.0% of total mobile services revenue in 3Q 2011, up from 42.7% in 2Q 2011,” it said.

Maxis said during the quarter, its average revenue per user (ARPU) increase. Postpaid ARPU continuously improved from RM105 in 1Q to RM108 in 2Q and RM110 in 3Q.

“The increase in postpaid ARPU was mainly due to increase in internet and data usage,” it said.

Maxis said that prepaid ARPU also increased mainly driven by higher minutes of usage, reflecting early success of its revenue improvement program.

As at Sept 30, Maxis’ total subscription base stood at 14.2 million.

For the nine months ended Sept 30, it reported a 3.4% decline in net profit to RM1.627 billion compared with RM1.685 billion in the previous corresponding period. Its revenue dipped 0.3% to RM6.535 billion from RM6.559 billion.

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PSC could turn Sumatec around

KUALA LUMPUR: Sumatec Resources Bhd has entered into a framework agreement with Markmore Energy (Labuan) Ltd (MELL) and CaspiOilGas LLP (COG) for the award of a production sharing contract (PSC) for the Shelly oil field in Kazakhstan.

COG, a wholly-owned subsidiary of MELL, is the concession holder and operator of the Shelly oil field, while Sumatec is seeking the mandate to develop and extract oil at the field.

Sumatec managing director James Chan told The Edge Financial Daily: “This is a good contract and should be able to get Sumatec out of PN17 in about a year.” Sumatec has been in the PN17 category since April.

The proposed PSC is a 50:50 profit-sharing venture between Sumatec and COG for the 354.45-sq km Shelly oil field, in which COG has the concession until Aug 25, 2025 to explore oil.

Interestingly, MELL is a wholly-owned subsidiary of Markmore Sdn Bhd, the vehicle of corporate player Tan Sri Halim Saad, who was among the most prominent figures in corporate Malaysia in the late 90s.

Halim told The Edge Financial Daily in a phone conversation: “Sumatec has the expertise … so why not,” when asked about the selection of the ailing company to partner his oil and gas outfit Markmore.

Judging by initial reports, Sumatec’s prospects seem bright.

According to SRK Consulting (Australasia) Pty Ltd’s assessment of the Shelly oil field reserves, the field contains “Proved plus Probable” (2P) hydrocarbon reserves of 122.3 million barrels of oil equivalent.

The majority of these reserves are located within a 33-sq km area in the northern part of the field which makes up 9% of the total field size.

It seems there is a huge upside potential in the largely unexplored southern area.

“It (the southern area) is close to the Shell concession and is not fully explored yet. It has the potential for more exploitable and recoverable oil,” Chan said.

The framework stipulates that for the first two years, Sumatec will enjoy 100% of the profits but will also bear all the related costs, including infrastructure expenditure such as pipes, oil and gas treatment plants, and wells. After that, the profits will be shared equally between Sumatec and COG.

According to a source who spoke on condition of anonymity, there are approximately 47 wells drilled in the Shelly oil field and out of which, 14 are operational and producing oil. The source added that production from the field is slated to reach 10,000 barrels per day by the end of the second year and it estimated very good margins for Sumatec.

Chan said if the deal goes through, Sumatec will take over the operations from the present management and build up the oil and gas infrastructure.

Oil and gas players estimate the PSC to set Sumatec back by more than US$100 million (RM318 million), a hefty sum for the PN17 company.

Sumatec’s proposed PSC is conditional to its regularisation exercise being given the green light by shareholders.

An EGM is likely to be called to get shareholders’ approval for the proposals which include a par value reduction, issuance of new shares, a rights issue and debt restructuring.

The par value reduction will see the cancellation of 17.5 sen or 50% off the par value of the 214.36 million 35 sen shares.

Other proposals include raising RM15 million via the issue of new shares to yet-to-be disclosed investors and a renounceable rights issue worth RM445 million which the new investors will be entitled to.

Sumatec also proposed the issuance of RM32.5 million worth of shares to unsecured creditors who hold approximately RM65 million in debt.

The company’s share price which has been trading below the 10 sen band since late May saw a sudden surge in volume in the beginning of this month. Sumatec’s stock rocketed 460% to close at 28 sen yesterday from a low of five sen on Aug 11.

This article appeared in The Edge Financial Daily, November 30, 2011.

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Improved, larger KLIA2 to cost RM3.9b

SEPANG: Malaysia Airports Holdings Bhd (MAHB) revealed yesterday that the new KLIA2 will now cost 95% more at RM3.6 billion to RM3.9 billion due to significant changes at the terminal, which include the very much debated aerobridges.

MAHB managing director Tan Sri Bashir Ahmad Abdul Majid, however, denied any cost overruns at the project, where the deadline has been further pushed to April 2013 from the first half of next year.

“After discussing with all our stakeholders, airlines and the public, these are the requirements,” said Bashir at a media briefing on the KLIA2 yesterday.

He added that the bulk of the cost swelling stemmed from increased earthworks as a result of the enhanced footprint area of the terminal (RM670 million), bigger terminal building (RM420 million), longer runway at 3.96km from 2.5km initially (RM180 million) and better public infrastructure (RM260 million), among other expenditure.

BIGGER AND BETTER ... Significant changes to the terminal and facilities at KLIA2, including the much discussed aerobridges, will raise the price tag of the new low-cost carrier terminal by 95% to close to RM4 billion.

Interestingly, the incorporation of aerobridges, which was the core of the dispute between AirAsia Bhd and MAHB, cost only RM120 million or just about 7% of the entire cost increase of RM1.6 billion to RM1.9 billion.

Of the cost increase, about RM530 million is for the construction of buildings of government agencies. The improved KLIA2 will also see more aircraft stands, which will incur RM160 million more in costs and upgraded air traffic control facilities, which will see an additional RM130 million in expenditure.

He also said the cost of the KLIA2 meets global standards at some RM4,900 per sq m while the cost per passenger works out to only 25 sen.

Bashir added that the adjustments to the size and design of the KLIA2 came about because MAHB needed to meet the government’s requirement to segregate international and domestic passengers. He said that MAHB had also considered exercising the option to include aerobridges and fully-automated baggage handling system, which were not considered before, as requested by an airline partner.

“We have decided to bring forward the capex. It is better for us to delay by a few months rather than doing them (the changes) later and go through a lot of interruption,” Bashir told newsmen gathered for the briefing yesterday.

He said as a result of tedious tender processes, requirement changes on aerobridges and runway extensions as well as the baggage handling system, the project’s completion has been delayed to the end of next year and the KLIA2 will only be operational ready by April 2013.

“It was only in June that discussions on whether the baggage handling system be fully automated were held… in trying to agree (on the matter), we had weekly discussions with our airline partners.

“The best way to handle 45 million passengers is to have a fully-automated system,” said Bashir, explaining the time line and causes of the delay.

He added that the terminal has been extended by over 71% in terms of space, enough to handle 45 million passengers per annum versus 30 million as initially planned.

He also adressed concerns that a costlier airport does not necessarily mean higher airport taxes for travellers because aeronautical charges are highly regulated. Based on the current numbers, Bashir said, it should be no problem for KLIA2 to break even within its first few years of operations.

The aeronautical charges have also been a reason for dispute between AirAsia and MAHB for awhile now.

The Transport Ministry recently 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, meanwhile, will rise in three stages over three years — landing charges will be 9% while parking charges will be increased by 18% per year. This is the first increase in charges after 17 years.

“We are not allowed to go back to the government (for an increase) until 2014. It is my understanding that whatever charges at the current LCCT applies at KLIA2,” Bashir added.

This article appeared in The Edge Financial Daily, November 30, 2011.

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‘Year-end rally’ still elusive

KUALA LUMPUR: After last week’s choppy seas, the FBM KLCI yesterday closed up 0.92% or 13.17 points to end at 1,444.72 points as the local market played catch up with regional markets and positive sentiment on Wall Street overnight.

The local index surged in early trade yesterday to hit an intra-day high of 1,458 points in the afternoon before closing lower at 1,444.72 points. Bursa Malaysia was closed on Monday due to a public holiday.

The FBM KLCI’s performance yesterday was largely driven by funds buying into Genting Bhd and selected banking stocks including CIMB Group Holdings Bhd and AMMB Holdings Bhd.

Genting yesterday surged 48 sen to RM10.50 with 10.35 million shares traded.

CIMB Group gained 31 sen to RM7.05 with 17.1 million shares traded while AMMB gained 28 sen to RM5.92 on a volume of 7.78 million shares. Both banking groups yesterday clocked in their steepest gain since late September.

On Bursa Malaysia, the top two gainers were consumer counters, British American Tobacco (M) Bhd (BAT) and Nestle (Malaysia) Bhd.

BAT yesterday gained 50 sen to RM45.90 while Nestle rose 50 sen to RM51.40.

Many analysts pointed out that the brief rally seen yesterday was a catch-up on positive sentiment seen across major regional bourses since Monday.

Regional markets in turn were riding on the good cheer on Wall Street from brighter US retail sales data over Thanksgiving last week, analysts said.

On Nov 28, the Dow Jones Industrial Average gained 2.59% to 11,523.01 points while the S&P 500 Index rose 2.92% to 1,192.55 points.

Hong Kong’s Hang Seng Index yesterday rose 1.21% to 18,256.2 points, the Shanghai Composite Index gained 1.23% to 2,412.39 points while Japan’s Nikkei 225 jumped 2.29% to 8,477.82 points.

Could the FBM KLCI’s performance yesterday foreshadow a year-end rally?
Analysts opined that it was still too early to predict if the local market could see a year-end rally as market sentiment was largely dependent on external economic conditions.

HwangDBS Investment Management Bhd head of equities Gan Eng Peng said that it was currently difficult to predict the market’s short-term direction given that markets are “in the state of delirium and no longer rational”.

“Markets are still driven by news and headlines rather than fundamentals. To be honest, how long this rally will last is anyone’s guess. We think it is just a spur of the moment,” Gan said in an email response.

Gan said markets could be pulled down once more in the event that there are no concrete plans to tackle the eurozone debt crisis during the next European summit on Dec 9 or further deadlock at the US Congressional Super Committee in resolving the US deficit issue.

Gan, however, expects to see some trading and profit-taking activity over the next few weeks as funds seek to “prop up” their portfolios and recover some of the losses made a few months earlier.

“About half of the smart money is sitting on the sidelines, while the other half is slowly flowing back to the market,” Gan remarked.

In a similar vein, UOB Kay Hian (Malaysia) head of research Vincent Khoo said that whether a year-end rally will materialise cannot be ascertained for another two to three weeks but funds could position themselves closer to the year’s end.

“A lot of it depends on what happens in Europe and the US. Right now it is a bit of a yo-yo situation. In Malaysia’s case, the catalyst (for a year-end rally) could be optimism for US economic recovery or a pre-election rally,” Khoo said.

Khoo added that although the FBM KLCI could see a slight uptrend towards the year’s end, it remained to be seen to what extent the index can catch up after falling from its recent peak.

Although the FBM KLCI closed higher at 1,444.72 points yesterday, it was still at a lower level than the recent one-month peak of 1,491.89 on Oct 31.

Yesterday’s closing level was also about 9.4% or 150.02 points lower than the year-to-date high of 1,594.74 on July 8.

This article appeared in The Edge Financial Daily, November 30, 2011.

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HLBB's 1Q earnings up 58% after EONCap merger

KUALA LUMPUR: Hong Leong Bank Bhd’s (HLBB) net profit for 1QFY12 ended Sept 30 surged 58.28% to RM407.11 million from RM257.2 million a year ago, having consolidated the earnings from its acquisition of EON Capital Bhd’s (EONCap) assets and liabilities.

In a filing with Bursa Malaysia yesterday, HLBB said its pre-tax profit rose 65.05% to RM523.84 million from RM317.38 million due to several factors, including higher net income and a higher share of profit from Bank of Chengdu but partly offset by higher operating expenses.

Interest income in 1QFY12 rose 87.26% to RM1.328 billion from RM709.5 million while net income grew 69.83% to RM916.73 million from RM539.78 million.

This included net interest income growth of 71.64% to RM644.25 million, other operating income rising 50.02% to RM176.43 million and net income from Islamic banking business doubling to RM96.03 million.

Yvonne Chia, HLBB group managing director and chief executive, said in a press statement the enlarged and more diversified earnings performance following the merger with EONCap had enhanced the group’s resilience and profit sustainability.

HLBB’s Treasury business was affected by volatile movements in the yield curve, she added.

Earnings per share was 28 sen while net assets per share was RM5.41 as at Sept 30, 2011.

According to HLBB’s press statement, its gross loans grew 112% year-on-year to RM85.4 billion while deposits grew 62% y-o-y to RM114.2 billion. Loan-to-deposit ratio was 74.7%.

Net interest margin improved five basis points to 2.49% while gross impaired loans ratio improved 15 basis points to 2.1%.

Quarter-on-quarter, HLBB’s net profit grew 37.25% to RM407.11 million from RM296.6 million while pre-tax profit rose 37.68% to RM523.84 million from RM380.469 million.

This was mainly due to higher net income and lower operating expenses, offset by lower share of profit from Bank of Chengdu and higher allowance for impaired loans.

Net income grew 11.68% to RM916.73 million from RM820.792 million a quarter ago.

Chia said HLBB remains focus on its final push in integrating HLBB and EONCap and looks forward to unlocking some of the identified synergies at both the cost and revenue levels in the coming quarters.

“The global events this quarter continue to exert downward pressure on growth and the macroeconomic health in key economies in the West continue to experience destabilising elements.

“We are cautiously optimistic that opportunities from domestic consumption and private investments, coupled with the broad resilience of Asian economies, will counteract the downside risks on global trade flows,” Chia said.

HLBB shares closed down two sen yesterday at RM10.40 with 770,800 shares traded.

This article appeared in The Edge Financial Daily, November 30, 2011.

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Lion Industries post RM27.6m 1Q net profit

KUALA LUMPUR: Lion Industries Bhd posted a net profit of RM27.6 million for the first quarter ended Sept 30 (1QFY12), turning the corner from a net loss of RM18.8 million for the corresponding period a year earlier.

The group’s revenue rose 42.4% to RM1.33 billion compared with RM936 million a year earlier. For the three months in review, the company posted basic earnings per share of 3.85 sen versus a basic loss per share of 2.62 sen a year ago.

In its filing with Bursa Malaysia, Lion Industries said the higher revenue was due to higher sales tonnage and selling prices of its steel products.

After accounting for higher profits from associate companies and jointly-controlled entities of RM25.3 million, Lion Industries posted a profit before tax of RM37 million against a loss before tax of RM36.4 million a year earlier.

On its outlook, Lion Industries said the group’s operating environment would remain challenging in view of uncertainties surrounding the global economy.

“Demand for steel products is expected to be soft while raw material prices remain volatile. On the domestic front, demand for steel products is expected to recover, driven primarily by the initiatives implemented under the Economic Transformation Programme (ETP),” it said.

It added that its steel business would achieve a satisfactory set of results in the next quarter due to ETP initiatives.

Lion Industries rose two sen to close at RM1.36 yesterday with 452,100 shares done.

This article appeared in The Edge Financial Daily, November 30, 2011.

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Sime Darby’s Bakke appointed E&O director

KUALA LUMPUR: Sime Darby Bhd’s president and group chief executive Datuk Mohd Bakke Salleh has emerged as a non-independent and non-executive director of property outfit Eastern & Oriental Bhd (E&O).

According to a filing with Bursa Malaysia yesterday, Bakke was appointed the nominee director representing Sime Darby, which holds a 30% stake in E&O.

Bakke is joined by Sime Darby group chief operating officer Datuk Abdul Wahab Maskan who has been appointed E&O’s non-independent and non-executive director.

E&O also saw the resignation of non-independent and non-executive director Thomas Teo Liang Huat.

Sime Darby became E&O’s single largest shareholder when it acquired the 30% stake for RM766 million cash or RM2.30 per share from E&O’s managing director Datuk Terry Tham, Tan Sri Wan Azmi Hamzah and GK Goh Holdings of Singapore in September.

The share purchase by Sime Darby prompted the Securities Commission (SC) to investigate the requirement for the conglomerate to extend a mandatory general offer (MGO) for the remaining 70% stake in E&O.

However, SC later ruled that Sime Darby was not required to extend a MGO as it had found no collusion between Sime Darby and Tham regarding the deal.

While Sime Darby has not revealed its plans for E&O, analysts said it is most likely to participate in the latter’s Seri Tanjung Pinang 2 project in Penang, which has a gross development value of RM12 billion.

E&O rose two sen to RM1.33 while Sime Darby gained 15 sen to close at RM8.81 yesterday.

This article appeared in The Edge Financial Daily, November 30, 2011.

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Yeoh expects YTL Comms to turn around

KUALA LUMPUR: YTL Power International Bhd expects its subsidiary YTL Communications Sdn Bhd to turn around within two years, managing director Tan Sri Francis Yeoh told shareholders at the company’s annual general meeting here yesterday.

A 60% subsidiary of YTL Power, YTL Communications launched its YES 4G wireless network in November last year.

“He [Yeoh] told shareholders to be patient and think that YTL Communications will turn around to become an aggressive and profitable company within two years,” said a shareholder at the AGM.

For its 1QFY12 ending Sept 30, YTL Power’s mobile broadband network division posted a loss before tax of RM94.94 million. For its FY11 ending June 30, the division posted a loss before tax of RM280.2 million on the back of RM26.6 million in revenue.

YTL Power’s net profit for FY11 increased by 11.3% to RM1.346 billion from RM1.209 billion a year ago, on the back of a 9.1% increase in revenue to RM14.663 billion from RM13.443 billion a year ago.

Yeoh said YES now has a subscriber base of over 3,000 and YTL Communications will break even when it has one million subscribers, according to the shareholder.

Yeoh told shareholders that YTL Communications will launch an Android smartphone together with an “easy to understand” price plan in January next year. The Android smartphone will be sold at half the price of an iPhone.

However, shareholders at the AGM were disappointed with YTL Power’s dividends for FY11.

YTL Power paid dividends amounting to 9.39 sen for FY11 compared with 13.13 sen for FY10, a reduction of about 29%.

“Francis [Yeoh] said the company paid less dividends compared to last year because it is preserving cash for a huge credit crunch which he [Yeoh] believes will happen in the coming year or two,” said the shareholder.

The shareholder said Yeoh believes this “huge and wild” financial turbulence will last for a year or two.

“Yeoh said he is preparing YTL Power for good growth after the ‘turbulence’ as there will be better opportunities if a company is in a good cash position,” added the shareholder.

As of end-September, YTL Power had cash reserves of RM8.155 billion against borrowings of RM15.644 billion.

This article appeared in The Edge Financial Daily, November 30, 2011.

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RHBCap 3Q net profit up 7% to RM376m

KUALA LUMPUR: RHB Capital Bhd’s (RHBCap) net profit for its third quarter ended Sept 30, 2011 (3QFY11) grew 7.12% to RM376.4 million from RM351.35 million a year ago on higher income from Islamic banking, offset by lower net interest income.

In a filing with Bursa Malaysia yesterday, RHBCap said its pre-tax profit rose 8.58% to RM492.11 million from RM453.21 million while net operating income fell 0.96% to RM1.03 billion from RM1.04 billion a year ago.

Net interest income declined 1.47% to RM694.95 million from RM705.34 million; other operating income fell 14.25% to RM215.52 million from RM251.35 million while income from Islamic banking grew 42.94% to RM120.42 million from RM84.24 million a year ago.

Earnings per share was 17.2 sen while net assets per share was RM5.09 as at Sept 30.

In a press statement, RHBCap said gross loans grew 13% to RM94.5 billion as at Sept 30, 2011. This mainly comprised public sector lending, purchase of securities, purchase of transport vehicles and purchase of residential property.

RHBCap said its domestic loans growth of 12.5% had outpaced the industry’s growth of 10.1% for the first nine months of 2011.

Customer deposits also grew 16.2% to RM109.7 billion as at Sept 30, 2011, which RHBCap said surpassed the industry growth momentum of about 9.4%.

As at Sept 30, RHBCap’s loans-to-deposits ratio stood at 82.6%.

RHBCap noted that its net interest income grew 7.5% to RM2.078 billion, driven by strong loans growth of about 13%.

But margins remained under pressure due to intense competition and several increases in overnight policy rate (OPR) and statutory reserve requirement (SRR) over the past 12 months, RHBCap added.

For the nine-month period, RHBCap’s net profit grew 10.22% to RM1.154 billion from RM1.047 billion while pre-tax profit rose 11.37% to RM1.531 billion from RM1.375 billion a year ago.

RHBCap said the higher pre-tax profit was mainly due to higher net interest income, higher income from its Islamic banking business and lower allowance for impairment on loans, financing and other losses, amongst other factors.

However, the higher pre-tax profit was also partly offset by higher operating expenses, RHBCap said.

Net operating income for the nine months grew 7.78% to RM3.171 billion from RM2.942 billion a year ago.

Quarter-on-quarter (q-o-q), RHBCap’s net profit slid 4.61% to RM376.4 million from RM394.619 million while pre-tax profit fell 6.82% to RM492.11 million from RM528.175 million.

Net operating income, however, rose 1.66% q-o-q to RM1.03 billion from RM1.014 billion.

The lower pre-tax profit was attributed to several factors including lower operating income, lower net interest income and higher impairment losses on other assets, but partly offset by higher income from its Islamic banking business.

In a press statement, RHBCap chairman Datuk Mohamed Khadar Merican said RHBCap expects to continue its business growth momentum for the remainder of its FY11 ending Dec 31, 2011.

“Strengthening of credit policies and risk management practices and sound assets and liability management will continue to be high on our agenda,” Mohamed Khadar said.

This article appeared in The Edge Financial Daily, November 30, 2011.

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Proton 2Q net profit plunges 76%

KUALA LUMPUR: National carmaker Proton Holdings Bhd’s net profit fell 76.4% to RM15.6 million for 2QFY12 ended Sept 30 from RM65.9 million a year earlier, due to higher expenses incurred by its Lotus Group International Ltd.

The group’s revenue was 1% higher at RM2.26 billion compared with RM2.24 billion a year earlier. Earnings per share was 2.8 sen compared with 12 sen a year earlier.

The national carmaker, however, posted a higher profit before tax of RM35 million compared with RM12 million in 1QFY12.

“In the current quarter, the group experienced a higher total sales volume compared with the immediate preceding quarter’s sales volume, driven by stronger demand for Proton’s higher margin models, the Exora and Inspira,” it said in a filing with Bursa Malaysia.

For 1HFY12 ended Sept 30, Proton’s net profit declined 86.6% to RM20.1 million from RM150.6 million, on the back of RM4.5 billion in revenue. Its profit before tax was 75.6% lower at RM47 million compared to RM185 million a year ago. Basic earnings per share fell to 3.7 sen versus 27.4 sen a year earlier.

“The lower profit was largely attributed to higher expenses incurred by Lotus Group, which was in line with the group’s effort in achieving Lotus Group’s long-term business transformation plans,” it said.

Proton added that the higher expenses at Lotus Group were partially offset by an increase in domestic sales volume, which was 2% higher year-on-year.

Proton said it would remain cautious on its outlook due to the challenging environment. It added that sales are expected to be weak due to the seasonal slowdown towards year-end and the impact of the floods in Thailand on the supply chain.

The Malaysian Automotive Association (MAA) recently noted that sales of passenger vehicles had declined 1% to 450,169 for the first 10 months of 2011, compared with 454,889 a year earlier. It said sales in November are expected to be lower than October due to parts supply disruption in Thailand.

On a brighter note, Proton noted that it has opened its first official Lotus Group showroom in China and its order book has exceeded 300 units. “With more showrooms to be opened across China, Lotus Group is confident the sales volume will increase further,” it said.

The Lotus Group also successfully bid for a £10.4 million (RM51.7 million) grant from the UK government.

It added that following the amicable settlement with 1Malaysia Racing Team, Lotus Group will be the sole owner of the Lotus name in Formula One.

According to Bloomberg, Proton has no “buy” calls from analysts covering its stock, but has nine “holds” and four “sells”, with an average fair value of RM2.92.

Proton fell one sen yesterday to close at RM3.09 with 3.13 million shares changing hands.

This article appeared in The Edge Financial Daily, November 30, 2011.

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JCY records turnaround in 4Q

KUALA LUMPUR: Hard disk drive (HDD) manufacturer JCY International Bhd has returned to the black in its 4QFY11 with net profit of RM26.43 million due to the overall increase in revenues arising mainly from increases in the shipment quantity and a favourable US dollar exchange rate.

In the same quarter last year, JCY posted a loss of RM25.18 million. For the current quarter, its revenue dipped 1.5% to RM439.92 million from RM474.71 million while earnings per share were 1.29 sen compared with loss per share of 1.23 sen.

For the 12-month ended Sept 30, its earnings plunged 92% to RM14.55 million from RM173.76 million in the previous financial year. Its revenue fell 17.8% to RM1.67 billion from RM2.03 billion.

Rozali says the results were satisfactory given the challenging business environment.

Despite high raw material and labour costs resulting from a shortage of workers, JCY said margins and net profit rose in the final quarter from improving its operational efficiency and effective cost management.

JCY, one of the largest global precision engineering manufacturers of HDD mechanical components, is fortunate as its facilities in Thailand were not affected by the recent flooding.

JCY said it continues to operate at full capacity in Thailand although the flooding has adversely affected the HDD supply chain, with Western Digital stopping production as well.

HDD vendors also have their factories in the flooded zone, and based on a recent media reports, HDD industry production in this coming quarter is expected to be about 50 million drives short of its 180 million target. As a result, average HDD prices have risen 20% to 30%, according to various reports.

JCY’s group chairman Dr Rozali Mohamed Ali said the results were satisfactory given the challenging business environment.

“We are very comfortable with our improvement in the operational efficiency, and we will continue to focus our efforts in improving our yields to maintain our sustainable profit improvement for the next financial year,” he added.

Rozali also said the company is currently taking a number of approaches to increase its output from its factories, including restructuring its production output and product mix, and accelerating expansion for its plants in China.

“We will continue to work closely with our key customers to meet their requirements for our HDD components over the next few quarters,” he said.

However, he added the biggest challenge facing JCY in Malaysia continues to be a shortage of labour which constraints its output. JCY has increasingly implemented automation for its production and this has resulted in the improvement of its output yield recently.

Moving forward, the company is optimistic that it will be able to improve its global market share and profitability despite the floods in Thailand severely affecting the global HDD industry.

JCY’s shares rose one sen to close at 76 sen yesterday with 15.5 million shares traded.

This article appeared in The Edge Financial Daily, November 30, 2011.

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Benalec 1Q net profit marginally lower

KUALA LUMPUR: Marine construction firm Benalec Holdings Bhd’s net profit for 1QFY12 ended Sept 30 fell 3.44% to RM28.92 million from RM29.95 million a year ago.

In a filing with Bursa Malaysia yesterday, it said pre-tax profit decreased 9.51% to RM35.04 million from RM38.72 million.

This was on the back of 42.85% revenue growth to RM74.58 million from RM52.2 million.

Earnings per share was four sen while net assets per share was 52 sen as at Sept 30.

Quarter-on-quarter (q-o-q), Benalec’s net profit grew 26.8% to RM28.92 million from RM22.81 million.

In the notes to its financial results, Benalec attributed the improved q-o-q results to the recognition of higher profit from its marine construction division’s ongoing works and its vessel chartering division.

Pre-tax profit grew 13.6% to RM35.04 million from RM30.84 million, while revenue rose 13.07% to RM74.58 million from RM65.96 million a quarter earlier.

Benalec said its prospects for growth are bright due to the future projects that could come onstream including those in Penang, Malacca, Iskandar Malaysia, Port Klang and the Sarawak Corridor of Renewable Energy.

Benalec made the news when it secured the rights to reclaim two tracts of seafront land on the coasts of Tanjung Piai (3,485 acres) and Pengerang (1,760 acres) in Johor, measuring a total of 5,245 acres.

The land reclamation is for the proposed development of a petroleum and petrochemical hub and maritime industrial park.

In an earlier announcement, Benalec said it expects the Johor projects to contribute positively to its earnings and net assets from FY13.

Benalec expects the project to provide it a sustainable order book for the next 10 to 15 years.

Apart from domestic work, the company said it is also eyeing future projects in the Asia-Pacific region estimated at over RM170 billion.

Benalec shares yesterday gained two sen to RM1.36 with 3.52 million shares traded.

This article appeared in The Edge Financial Daily, November 30, 2011.

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BIMB Holdings adopts 50% dividend policy

KUALA LUMPUR: BIMB Holdings Bhd posted net profit of RM16.31 million for 3QFY11 ended Sept 30, compared with RM62.84 million in the previous quarter, due mainly to lower net income and higher operating overheads. It also announced the adoption of a dividend payout policy of at least 50% of the company’s net profit to shareholders.

The group’s revenue for 3QFY11 fell 4.2% to RM481.3 million from RM502.3 million in 2Q. It posted basic earnings per share of 1.53 sen against 5.89 sen in 2Q.

BIMB’s profit before zakat and taxation (PBZT) declined by 28% to RM110.6 million compared with RM153.6 million in the preceding quarter, due to relatively lower net income, higher operating overheads and higher allowance for impairment on financing, advances, among others, it said.

BIMB’s 51%-owned subsidiary, Bank Islam Malaysia Bhd saw its 3QFY11 PBZT decline by 24% to RM101 million compared with RM133.2 million in 2Q. The decrease was due mainly to lower writebacks in impairment allowances by RM16.1 million and by both fund based and non-fund based income by RM13.5 million.

Meanwhile, 65.2%-owned subsidiary Syarikat Takaful Malaysia Bhd’s PBZT fell 53% to RM10.1 million from RM21.8 million in the preceding quarter.

The decrease was mainly attributable to lower surplus transfers from family takaful and general takaful.

For the 9MFY11 ended Sept 30, BIMB posted RM130.52 million net profit on the back of RM1.5 billion in revenue. BIMB’s PBZT for 9MFY11 grew 47% to RM399.8 million as Bank Islam operating results rose 20% and Syarikat Takaful’s 81%.

Bank Islam’s PBZT rose 42% to RM342 million compared with the last corresponding period. The significant achievement translated into a return on equity (ROE) of 17.3% compared with 16.5% as at end December 2010. This compares with the Islamic banking system’s average ROE of 14.5% as at Dec 31, 2010.

Bank Islam’s return on assets was 1.5% compared with 1.2% as at Dec 31, 2010. The industry average was 1.2% as at end-December 2010.

For 9MFY11, Syarikat Takaful recorded operating revenue of RM1 billion, comprising RM892.5 million in gross contribution and RM152.6 million in investment income. The gross contribution was mainly attributable to family takaful group business and motor and fire class of business.

No comparative figures were disclosed for the current quarter and the cumulative year-to-date of the preceding quarter and year due to the change in the financial year end to Dec 31.

BIMB said the local banking and finance industry will remain resilient next year, despite a moderation in the economic growth rate. It added that competition will intensify with the entry of foreign-controlled banks and insurance operators next year.

“The group will continue to leverage Bank Islam’s strong Islamic branding and competitive position to sustain core retail financing and deposit-investment businesses. Efforts are also being intensified to increase non-fund based income,” said Johan Abdullah, group managing director and CEO.

He said Bank Islam will continue to originate and participate in syndication facilities as well as focus on deals such as sukuk, corporate finance and advisory services.

Johan added that it hopes to increase Takaful Malaysia’s market share in the takaful industry by introducing new products and growing its agency workforce.

BIMB rose one sen to close at RM1.80 yesterday with 4.4 million shares done.

This article appeared in The Edge Financial Daily, November 30, 2011.

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Uzma 3Q earnings surge to RM3.3m on higher sales

KUALA LUMPUR: Uzma Bhd’s net profit surged to RM3.3 million for 3QFY11 ended Sept 30 from RM286,000 the previous corresponding quarter due to continuous cost saving strategies and higher sales.

The oil and gas service group’s revenue rose 87% to RM56.3 million compared with RM30.1 million a year earlier.

Basic earnings per share was 4.11 sen against 0.36 sen a year earlier.

Revenue and net profit for 3QFY11 rose 40.5% and 10.3% respectively from 2Q mainly due to increased sales from divisions within Uzma Engineering Sdn Bhd and other subsidiaries.

For 9MFY11 ended Sept 30, Uzma posted a net profit of RM8.2 million compared to a net loss of RM2.5 million a year earlier.

Revenue for the same period rose 64.3% to RM131.4 million from RM80 million a year earlier.

“Overall, all business divisions have registered higher revenue year-to-date ... The increase in revenue was mainly contributed by the manpower division which registered the highest revenue increase of RM15.1 million, project oilfield operation services’ revenue which increased by RM13.4 million and the geoscience and petroleum engineering services division’s revenue increase by RM9.8 million,”
it said.

It added that its wireline services division has begun contributing to the group’s revenue.

Compared with the previous quarter, Uzma’s revenue increased by RM16.2 million or 40.5% from RM40.1 million.

“The increase in revenue was mainly due to improved sales from most of divisions in Uzma Engineering Sdn Bhd and other subsidiary companies,” it said.

Uzma said its directors remain optimistic over the group’s prospects.

“Currently oil is trading around US$100 per barrel. We view the current oil price level as supportive of overall oil and gas exploration and production as invitations to bid for contracts from oil majors have increased in 2011,” it said.

Uzma rose 12 sen to close at RM1.78 yesterday.

This article appeared in The Edge Financial Daily, November 30, 2011.

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Digistar banks on digital broadcast, IPTV for growth

KUALA LUMPUR: Digistar Corp Bhd is banking on a portion of projects expected to arise from the switch by television stations from analogue to digital broadcasting for its future growth. The company not only plans to look within Malaysia for such projects, but it is also considering a foray into the Asia-Pacific region.

“The government has said that under the 10th Malaysia Plan, it has tasked RTM to spearhead the digital conversion. This is expected to result in a potential RM2 to RM3 billion worth of jobs,” Digistar managing director Datuk Lee Wah Chong told a press briefing yesterday.

Aside from the free-to-air channels under RTM, Media Prima Bhd also has four FTA channels in its stable. All television service providers have until 2015 to make the swap, a deadline set by the International Telecommunications Union.

Lee says Digistar is in talks with a group that owns 22 hospitals.

“So it is not only Malaysia that has to make a change, but other countries in the region as well. There is definitely potential as all will have to make the digital migration eventually,” said Lee.

Earlier in the year it was reported that private company Puncak Semangat Sdn Bhd, which is said to be connected to businessman Tan Sri Syed Mokhtar Al-Bukhary, was also in talks with the government to develop digital TV. It was also reported that Puncak Semangat is in preliminary talks with Media Prima on the conversion.

According to Lee, Digistar will most likely not be direct competitors with Puncak Semangat or its ilk, but could possibly benefit by being a subcontractor.

While the ICT and telecommunication divisions are the company’s biggest revenue generators, Digistar also has big plans for its Internet protocol television (IPTV) segment. In September, Digistar secured two contracts to implement the IPTV service in two hospitals in the Klang Valley. According to Lee, Digistar currently serves 15 hospitals and is in talks with a group that owns 22 hospitals nationwide.

“We also put in a bid to provide our service to two hospitals in Singapore. We are excited about that and are just waiting for the results to be announced,” said Lee. He added that the benefit of focusing on providing services to healthcare is that the segment is fairly resilient and gives a buffer against any potential downturn.

“We are also looking to upgrade the IPTV service to include more services,” said Lee.

Digistar also plans to set up an office in Singapore as part of its bid to expand to the Asia-Pacific. Presently, the majority of revenue comes from Malaysia.

As at end-September, Digistar’s order book stood at RM130 million, and the company is tendering for jobs worth more than RM200 million. The contracts are split equally between government projects and those from the private sector, Lee said.

Another segment that Digistar invests in is central monitoring systems (CMS) via a partnership with Fullimage MSC Sdn Bhd. Lee said Digistar would make a further announcement on the service over the next two to three months.

“This partnership will entail the sharing of revenue. We are still waiting for the licence to be awarded before we can proceed but we are expecting to see some small contribution from CMS by the end of 2012,” Lee said.

Digistar announced its full-year results for FY11 ended Sept 30, with net profit up by 345.5% year-on-year to RM19.1 million from RM4.3 million. Top line for FY11 grew by 33.5% to RM97.8 million from RM73.3 million. According to Digistar, the improvement was due to better performance across the board from the company’s various segments.

Asked if the performance is sustainable, Lee said, “We do expect to see some good years ahead as more broadcasters move from analogue to digital and there are still some three years to go.”

On a quarterly basis, while Digistar’s 4Q net profit grew to RM4.1 million from RM2.2 million a year ago, its top line declined slightly from RM24.2 million to RM21.8 million. This was due to the different times when the company booked in certain jobs and was a normal occurrence, said Digistar.

The company is working on its transfer from the ACE Market to the Main Market. Lee said, “We will be submitting the paperwork to the authorities next month and expect to know the results by February next year.”

This article appeared in The Edge Financial Daily, November 30, 2011.

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Naim not spared in gloomy property outlook

KUALA LUMPUR: Naim Holdings Bhd has not been spared in the gloomy Sarawak property outlook, suggesting that the sluggish sentiment in the sector is not only skewed towards Peninsular Malaysia.

In notes to Bursa Malaysia accompanying its financial results last Thursday, the Sarawak-based property and construction firm said its weaker financial performance was attributable in part to the slow demand for properties in Sarawak.

“We are disappointed with the current results. This is due in part to the sluggish demand for property in Sarawak over the past two years, amid fears of overheating in the property sector affected by uncertainties over the increasing cost of commodities, rising interest rates and decreasing purchasing power,” Naim said.

The company saw its net profit for 9MFY11 ended Sept 30 drop 44% to RM41.6 million from RM75.3 million a year ago. Revenue declined 24% to RM318.7 million during the period in review from RM420.3 million a year earlier, while earnings per share fell to 17.58 sen from 31.78 sen previously.

Regulatory bodies tightening controls could also dampen the prospects of property companies.

Bank Negara Malaysia recently announced new financing rules starting next year, which require loan applicants to go through a more exhaustive process when applying for loans, including mortgages.

However analysts said banks had already tightened lending policies over the past few months, even before the new guidelines were introduced.

“We understand banks have not been too generous on financing margins and this very much depends on the applicant’s existing debt obligations,” according to a research report dated Nov 21 by AmResearch.

Despite the weak fundamentals in the sector, Naim managed to register property sales of RM170 million for the nine months ended Sept 30, 2011, surpassing a total of some RM145 million registered for the entire year in 2010.

Naim said the company is making inroads into the upcoming Bintulu property market, leveraging its landbank in the prime location of the old Bintulu airport as well as setting up an office in Kota Kinabalu, to pave the way for expansion to Sabah.

According to analysts, the company is finalising the details of the maiden launch of a mixed-used commercial development located on 37 acres of land within the old Bintulu airport. The project has an estimated gross development value (GDV) of RM1.5 billion. The next leg up would be 33 acres of prime land at Batu Lintang within Kuching.

OSK Research said: “But we feel that take-up rates could be weak with a softening property market.”

In a note on Nov 26, the research house downgraded its call on Naim to “sell” given its less than optimistic outlook. OSK revised Naim’s fair value downward to RM1.56 from RM1.83 previously.

AmResearch has revised Naim’s fair value downward to RM3.39 (from RM3.72 previously) and MIDF to RM2.43 (from RM4.65 previously), though maintaining a “buy” call on the company.

Naim shares have shed almost half their value year-to-date, and closed at RM1.69 yesterday.

This article appeared in The Edge Financial Daily, November 30, 2011.

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Hap Seng sells KK land for RM85m in RPT

KUALA LUMPUR: Hap Seng Consolidated Bhd’s wholly-owned subsidiary, Hap Seng Realty Sdn Bhd, is disposing of 2.16 acres of land with a cinema complex in Kota Kinabalu to Akal Megah Sdn Bhd for RM85 million cash or RM90 per sq ft.

Akal Megah is a wholly-owned subsidiary of Lei Shing Hong Ltd.

In a filing with Bursa Malaysia yesterday, Hap Seng Consolidated said the disposal price was arrived at after taking into consideration the sizeable area and prime location within the central commercial district of Kota Kinabalu City Centre. Hap Seng Realty acquired the land for RM28.5 million in March 2010.

“The proposed disposal is in the ordinary course of business of the vendor, a company principally involved in property investment, with which the vendor is able to realise the attractive capital appreciation of the said property,” it said.

The sale is considered a related party transaction (RPT) as Tan Sri Panglima Lau Cho Kun holds 36.6% equity interest in Lei Shing Hong and 56% of Gek Poh (Holdings) Sdn Bhd.

Gek Poh currently holds a 61.8% stake in Hap Seng Consolidated, comprising 53.3% direct shareholding and 8.53% indirect shareholding via subsidiary Hap Seng Insurance Services Sdn Bhd.

Datuk Edward Lee Ming Foo and Lee Wee Yong are directors of Hap Seng Consolidated and Gek Poh, while Datuk Simon Shim Kong Yip is a director of Hap Seng Consolidated, Akal Megah and Lei Shing Hong.

Hap Seng Consolidated closed unchanged at RM1.40 yesterday with 1.53 million shares done.

This article appeared in The Edge Financial Daily, November 30, 2011.

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Slight disappointment at IJM’s revenue

IJM Corp Bhd (Nov 29, RM5.59)
Maintain sell with a lower target price of RM4.24 (from RM5.75): IJM Corp reported revenue of RM1.097 billion (up 6.2% quarter-on-quarter) and a profit after tax and minority interests (Patami) of RM74.8 million (-35% q-o-q) in 2QFY12 ended Sept 30.

The cumulative six-month 2012 Patami of RM189.8 million meets 42% of our earnings forecast and 40% of street’s estimate. Excluding the foreign exchange translation losses of RM32 million, core earnings are mostly in line.

The shortfall of earnings in 2QFY12 is due to: (i) lower recognition of construction revenue (mainly due to timing issues); and (ii) margin erosion in the property development division from 26% to 17% q-o-q as the bulk of the projects in Penang are in the early phases.

IJM’s management thinks there are still ample opportunities in the local construction scene.

We expect a better set of results for FY12 after a lacklustre first half, with construction pre-tax margin to normalise to about 4% to 5% and better earnings contribution from the healthy unbilled sales in property development coupled with better margins.

Construction pretax margin fell marginally to 3.2% from 3.7% q-o-q, and we maintain our view that the construction margin for FY12 and FY13 will hover around 3% to 4% as most of the new orders are still in their early phases.

We expect margins to normalise to about 5% and see meaningful contribution from 2012 onwards.The management has highlighted that the West Coast Expressway’s (WCE) realignment issue has been resolved. However, construction will commence in late 2H12 and earnings recognition can only be seen in FY13. We understand that the New Pantai Expressway (NPE) extension may face some delays due to alignment issues, but management expects a resolution by 1H12. Therefore we believe the award will only come in late 2012 with earnings contribution impacting only in late 2013. IJM’s outstanding order book stands at RM3.8 billion, of which 85% are domestic jobs.

IJM’s management thinks there are still ample opportunities in the local construction scene with the MRT project the main focus. Recall that IJM Construction has been shortlisted for all three categories, civil works, stations and depots for the MRT elevated portion. The tender closed in October and management expects the contract to be awarded in 1Q12, with each package estimated to range between RM500 million and RM1 billion. Channel checks indicate that the margins for the MRT job range from 3% to 5%.

IJM’s management will focus more on mid-end products next year, especially its maiden launch of Canal City in Kota Kemuning, Selangor, (gross development value [GDV]: RM10 billion). Phase 1 with a GDV of RM250 million is slated to be launched in 2H12.

We sense that the management has turned cautiously optimistic on the property market, just like other developers. Other projects in the pipeline are Sebana Cove in Johor (GDV: RM1.4 billion) and a light commercial development in Penang (GDV: RM4 billion).

Its unbilled sales of RM1 billion should provide clear earnings visibility for the next two years.

The loss for the quarter was mainly due to the foreign exchange translation losses caused by offshore US dollar-denominated borrowings amounting to RM32 million. It was impacted by the adoption of International Financial Reporting Interpretations Committee (IFRIC) 12 by toll concessions amounting to a net loss of RM12 million.

IJM’s management views this as part of the operational pitfalls and remains confident that strong growth can be delivered going forward, especially from the expansion of berth capacity at Kuantan Port and Besraya Highway extension which will begins operation by 2013.

We are maintaining our earnings forecasts. The key risks are the timing of construction jobs, inflating raw material cost and take-up rates of property projects.

Maintain “sell” with a sum-of parts-based (SOP) target price of RM4.24, which implies a FY13 price earnings ratio (PER) of 13 times. This is premised on pegging PER to its construction earnings (from 16 times to IJM Corp’s mean PER of 15 times), lower fair values for IJM Plantation and IJM Land, plus a 10% discount on the total SOP value reflecting a high foreign shareholding risk.

The share price catalysts are news flow of contract awards from the Economic Transformation Programme-pushed projects such as the MRT project, approval of the WCE and NPE extensions, infrastructure projects in Iskandar/Sarawak and extension of existing port concessions. — UOBKayHian, Nov 29

This article appeared in The Edge Financial Daily, November 30, 2011.

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RCE feeling the heat from the competition?

RCE Capital Bhd (Nov 29, 47.5 sen)
Maintain market perform, fair value of 50 sen: RCE Capital Bhd’s net profit of RM26.9 million for 2QFY12 ended Sept 30 (-13.9% year-on-year [y-o-y]; -19.1% quarter-on-quarter [q-o-q]) was slightly ahead of our and consensus expectations. The 1H12 net profit of RM60.1 million (+9.5% y-o-y) accounted for 62.4% of our and 61.3% of consensus full-year net profit forecasts.

The key variances were further gains recognised from the sale of AmFirst REITs (RM2.1 million during the quarter) and low effective tax rate of 19.4% in 1HFY12 (against our assumption of 25%). As expected, RCE did not declare any dividend.

Q-o-q net profit fell 19.1% due to: (i) 3.2% q-o-q drop in revenue as RCE’s loan book continued to contract and lower interest from early settlement of loans; (ii) lower gain from sale of AmFirst REITs (1QFY12: RM3.8 million); (iii) higher loan impairment allowance of RM2.3 million against 1QFY12’s RM400,000; and (iv) higher effective tax rate of 22.7% than 1QFY12’s 16.5%.

Revenue for 1HFY12 was down 10.4% y-o-y due to a smaller loan base but net profit was up 9.5% y-o-y due to: (i) RM5.9 million gain from sale of REITs; (ii) lower loan impairment allowance of RM2.7 million against 1HFY11’s RM5.7 million; and (iii) lower effective tax rate of 19.4% versus 1HFY11’s 26.9%.

RCE’s net loan book as at end-September 2011 contracted by 2.1% q-o-q (-11.9% y-o-y). This could reflect the stiff competition, resulting in the refinancing/early settlement of loans by borrowers. RCE said early settlement of loans slowed during the quarter. Coupled with the resumption of disbursements to Koperasi Wawasan Pekerja-Pekerja Bhd (Kowaja) in July 2011, the pace of contraction of RCE’s loan book moderated in 2QFY12 compared with 1QFY12 (-9.4% q-o-q; -7.6% y-o-y).

The risks would be slower than expected loan growth and weaker than expected margins, which could be due to, for example, competition and regulatory issues.

We raise our FY12 net profit forecast by 5.2% after imputing higher gains from the disposal of AFS securities and a lower effective tax rate assumption of 22.5%. We are keeping our FY13/FY14 net profit projections unchanged for now.

Our fair value of 50 sen is unchanged and based on target calendar year 2012 price-earnings ratio of four times. We think the operating environment remains challenging amid stiff competition from the likes of Malaysia Building Society Bhd.

Regulatory changes could exacerbate the situation. As Bank Negara Malaysia said recently, Suruhanjaya Koperasi Malaysia (SKM) will be imposing requirements for responsible financing practices on credit cooperatives.

We think these concerns have been partly reflected in RCE’s valuations so we are keeping our “market perform” call on the stock. — RHB Research, Nov 29

This article appeared in The Edge Financial Daily, November 30, 2011.

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A good first harvest of the year for Sime

Sime Darby Bhd (Nov 29, RM8.81)
Maintain trading buy at RM8.88, unchanged fair value of RM10.60: Sime Darby Bhd’s results for 1QFY12 ended Sept 30 were broadly in line with expectations, forming 27% of our full-year forecast and 28% of consensus numbers.

We expect weaker earnings in subsequent quarters due to lower crude palm oil (CPO) prices. The stock remains a “trading buy” for its attractive valuations and potential earnings-accretive mergers and acquisitions.

Sime Darby has gotten off to a good start for the year as all divisions other than energy and utilities turned in stronger earnings on a year-on-year basis in 1QFY12. As a result, the group posted a 64% jump in net profit.

But core net earnings fell 12% quarter-on-quarter due to lower selling prices for palm products, weaker property sales, a slowdown in industrial sales in China/Hong Kong, an unrealised loss of RM36 million on the fair valuation of foreign exchange contracts by its motor division and downtime at one of its power plants in Thailand.

We expect earnings in future quarters to be lower due to weaker CPO selling prices. As expected, no dividend was declared for the quarter. The group has set headline key performance indicator targets of RM3.3 billion net profit and return on equity of 13.3% for FY12. Net profit is 16% below our forecast, which we suspect could be due to lower CPO price assumptions.

Sime remains positive on its fundamentals but is cautious on the outlook for the rest of FY12 given the uncertain global prospects. — CIMB Equities Research, Nov 29

This article appeared in The Edge Financial Daily, November 30, 2011.

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Kulim maintains its winning streak

Kulim (Malaysia) Bhd (Nov 29, RM3.68)
Maintain buy at RM3.56, with higher fair value of RM4.80 (from RM4.45): We maintain our “buy” call on Kulim, being the cheapest large-scale plantation company listed in Malaysia. Its nine-month results for the period ended Sept 30 continued to beat street estimates and were on track to hit or surpass our forecast of RM501.3 million, which appeared over-optimistic six months ago but very achievable now.

Based on our raised crude palm oil (CPO) price assumption of RM3,000 per tonne for CY12, Kulim trades at 8.9 times calendar year 2012 earnings. There will be an additional 13,687ha of plantation land in Kulim’s stable by mid-2012 from the acquisition of Johor Corp’s estates.

Kulim reported an unusually strong quarter, with net profit of RM171.1 million. The boost was a RM27.5 million gain from the disposal of quoted investments.
Stripping out this item, annualised nine-month core earnings would have been within our forecast, beating consensus by 11.6%. Plantations continue to drive Kulim’s earnings, making up 76.8% of its earnings before interest and tax (Ebit) year-to-date compared with 67.8% last year.

Malaysian plantations recorded a 65.7% rise in Ebit, driven by a 13.5% increase in production and 29.4% rise in average CPO price this year. Furthermore, average palm kernel price achieved was up by 63.5%. Its Papua New Guinea (PNG) operations showed a 122.1% jump in Ebit as production jumped 28% driven by improved yields at its acquired assets in the past three years, namely Ramu and Kula Plantations.

However, the plantation Ebit for Malaysia dipped by 25.8% quarter-on-quarter (q-o-q) while PNG was down by 18%. Malaysia plantation’s decline in Ebit was despite an 11.3% q-o-q increase in fresh fruit bunch production. PNG experienced a smaller decline in average CPO price of 1.2% q-o-q against 3.9% for Malaysia, suggesting more aggressive forward sales.

There will be an additional 13,687ha of plantation land in Kulim’s stable by mid-2012 from the acquisition of Johor Corp’s estates.

We maintain our earnings forecast for FY11 as Kulim appears very much on track to hit or surpass our forecast. There is room for consensus estimate to be raised as the street has been underestimating Kulim’s earnings growth this year. We are raising our FY12 forecast to RM504.8 million from RM434.3 million, factoring in higher average CPO price of RM3,000 per tonne compared with RM2,700 previously. — OSK Research, Nov 29

This article appeared in The Edge Financial Daily, November 30, 2011.

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Market Commentary

The FBM KLCI index gained 27.38 points or 1.90% on Wednesday. The Finance Index increased 1.26% to 13157.76 points, the Properties Index up 0.50% to 956.15 points and the Plantation Index rose 0.69% to 7690.02 points. The market traded within a range of 28.51 points between an intra-day high of 1472.10 and a low of 1443.59 during the session.

Actively traded stocks include COMPUGT, ARMADA, VASTALX, VERSATL, TIGER, MITHRIL, MBFHLDG-WA, NICORP, SAAG and AIRASIA. Trading volume increased to 1534.36 mil shares worth RM2024.33 mil as compared to Tuesday’s 1304.50 mil shares worth RM1563.23 mil.

Leading Movers were AXIATA (+25 sen to RM5.10), MAYBANK (+28 sen to RM8.30), GENTING (+46 sen to RM10.96), SIME (+19 sen to RM9.00) and TENAGA (+21 sen to RM5.65). Lagging Movers were UMW (-10 sen to RM6.68), PPB (-14 sen to RM16.06), MISC (-4 sen to RM5.88), RHBCAP (-7 sen to RM7.31) and PETDAG (-6 sen to RM16.50). Market breadth was positive with 417 gainers as compared to 352 losers. -- JF Apex Securities Bhd

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KLCI in late surge to close at 2-wk high of 1,472

KUALA LUMPUR (Nov 30): The FBM KLCI surged in late trade to close at a two-week high of 1,472 on Wednesday, supported by some fund buying of index-linked stocks including Genting, bucking the key regional markets and European bourses.

The KLCI was up 27.38 points to 1,472.10, which was the highest since Nov 16. There were 1.53 billion shares valued at RM2.02 billion. The broader market improved, with 417 gainers to 352 losers and 283 stocks unchanged.

However, European markets fell and the euro weakened after Standard & Poor's hit some of the world's leading banks with a credit downgrade and euro zone leaders' move to ramp up the regional bailout fund drew a tepid response, Reuters reported.

Weighing further on the single currency, the head of Italy's market authority said there was a real risk of euro break-up if the European Central Bank's role in fighting the two-year-old crisis remains unchanged.

At Bursa Malaysia, Tradewinds surged 65 sen to RM9.98 while Genting added 46 sen to RM10.96 and IJM 32 sen to RM5.91.

Consumer stocks shone, with BAT up 60 sen to RM46.50, Nestle 50 sen to RM51.90, GAB 48 sen to RM11.68 and Dutch Lady 32 sen to RM24.10.

Other top gainers were Lafarge, up 46 sen to RM6.94, Aeon Credit 40 sen to RM6.28 and Sarawak Oil Palms 35 sen to Rm5.10.

Compugates was the most active with 109.20 million shares done, adding 0.5 sen to nine sen.

Versatile added eight sen to 37.5 sen with 52.89 million shares done, which prompted a query from Bursa Malaysia Securities about the sharp rise in price and volume.

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Bursa Securities queries Versatile over unusual market activity

KUALA LUMPUR (Nov 30): Bursa Malaysia Securities Bhd has issued an unusual market activity over the trading of VERSATILE CREATIVE BHD []’s shares recently.

The regulator said on Wednesday the query was over the sharp rise in price and high volume in the shares.

At 4.22pm, its share price was up 8.5 sen to 38 sen with 49.73 million units done.

The FBM KLCI was up 13.56 points to 1,458.28. Turnover was 1.24 billion shares valued at RM1.33 billion. There were 356 gainers, 378 losers and 285 stocks unchanged.

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Faber Group sinks into the red in 3Q

KUALA LUMPUR (Nov 30): FABER GROUP BHD [] posted net losses of RM26.87 million in the third quarter ended Sept 30, 2011 compared with net profit of RM29.01 million a year ago.

It said on Wednesday the losses were mainly due to the recognition of costs amounting to RM44.5 million for works completed for the projects in the United Arab Emirates (UAE) where the corresponding revenue was not recognised as it could not be measured reliably.

Faber said the loss per share was 7.4 sen compared with earnings per share of 7.99 sen.

Faber said revenue rose 34.1% to RM309.39million from RM230.69 million a year ago. The main reason was the higher revenue from integrated facilities management (IFM) non-concession projects in UAE.

“The recognition of RM107.7 million revenue was on the work orders issued prior to the expiry of contracts where works and documentation for invoicing were fully completed post expiry of the contracts,” it said. It added the final amount of revenue would be determined upon the final acceptance by the principal, Western Region Municipality (WRM), with whom negotiation is currently ongoing.

Its property division recorded higher revenue by RM39.8 million mainly due to the launch of new projects in fourth quarter 2010 and first quarter 2011. The IFM concession also recorded higher revenue by RM1.9 million due to higher variation orders and additional new facilities at the government hospitals within Faber Group’s concession area.

Faber also said group revenue for 3Q of RM309.4 million was 66.0% or RM123.0 million higher than 2Q’s RM186.4 million. The main reason was the higher revenue from IFM non-concession projects in UAE. The recognition of RM107.7 million revenue was on the work orders issued prior to the expiry of contracts.

For the nine-month period, its earnings fell sharply to RM3.78 million from RM75.87 million in the previous corresponding period. Its revenue was 1.3% higher at RM694 million from RM684.89 million.

“Property division and IFM concession recorded a positive variance of RM73.4 million and RM17.4 million respectively. IFM non-concession recorded negative variance of RM81.7 million as a result of the non-renewal of contracts for infrastructure and low cost houses maintenance in UAE,” it said.

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Axiata, PLDT plan mobile virtual network operator services in Malaysia

KUALA LUMPUR (Nov 30): Axiata Group Bhd is teaming up with Philippines’ PLDT Global Corporation to establish mobile virtual network operator (MVNO) services in Malaysia.

Axiata said on Wednesday its unit Celcom Axiata Bhd had inked a shareholders’ agreement with PLDT and PLDT Malaysia Sdn Bhd (PLDT MY) for the collaboration.

According to the announcement to Bursa Malaysia, PLDT MY’s paid-up share capital will be RM6 million, divided into six million PLDT MY Shares of which Celcom and PGC will subscribe in cash in the ratio of 49: 51.

“The subscription by Celcom of its 49% equity interest in PLDT MY for the sum of RM2.94 million will be funded through internally generated funds,” said Axiata.

Axiata said the investment in PLDT MY was to allow Celcom to have an equity and management participation in the MVNO business.

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KLCI bucks key regional markets, Genting leads

KUALA LUMPUR (Nov 30): Blue chips extended their gains on Wednesday, with the FBM KLCI firmly above the 1,450 level, powered by Genting and Maybank but all the key regional markets were in the red at midday.

Reuters said sentiment was weighed down as caution set in over the chance for more progress in resolving euro zone debt woes after officials agreed to strengthen a rescue fund and seek more aid from the International Monetary Fund.

The earlier rise in Asian shares was mostly seen as a correction to last week's huge selling, with investors only tepidly scaling back risk aversion as they waited for more euro zone debt sales and meetings ahead.

At 12.30pm, the FBM KLCI rose 11.67 points to 1,456.39. Turnover was 685.72 million shares valued at RM614.86 million. The broader market was mixed with 306 gainers, 304 losers and 278 stocks unchanged.

Among the regional markets, Japan’s Nikkei 225 fell 1.27% to 8,370.09, Hong Kong’s Hang Seng Index lost 1.89% to 17,911.21, Shanghai’s Composite Index 2.32% to 2,356.33, Taiwan’s Taiex 1.38% to 6,892.39, South Korea’s Kospi 0.78% to 1,842.13 and Singapore’s Straits Times Index down 0.06% to 2,686.56.

Among the commodities, US light crude oil fell 51 cents to US$99.28 while Brent was unchanged at US$110.82. Crude palm oil futures fell RM8 to RM3,054 per tonne while the ringgit was firmer at 3.1698 to the US dollar from the previous close of 3.1817.

Consumer stocks were among the gainers, albeit in thin volume. Nestle rose 40 sen to RM51.80, GAB 22 sen to RM11.32, Dutch Lady and Bonia 20 sen each to RM23.98 and RM1.88.

Genting climbed 30 sen to RM10.80 with 4.36 million shares done. The gain pushed the KLCI up 2.57 points. Petronas Gas added 24 sen to RM13.24.

Maybank rose 12 sen to RM8.14 and Tenaga 11 sen to RM5.55, nudging the index by 2.08 points and 1.38 points. Other index-linked gainers were CIMB and Telekom, up six sen each to RM7.11 and RM4.31 while Axiata, DiGi and IOI rose four sen to RM4.89, RM3.52 and RM4.99 respectively. However, PPB fell 10 sen to RM16.08 and UMW 10 sen to RM6.68.

Compugates was the most active with 86.35 million shares done, ending the morning session unchanged at 8.5 sen. JCY fell 2.5 sen to 73.5 sen on mild profit taking despite analysts upgrades following a turnaround in the company’s operations.

AirAsia rose three sen to RM3.69 in active trade.

Among the decliners were Minho, down 19 sen to 36 sen, New Hoong Fatt 12 sen to RM2.15 and AIC 10 sen to RM1.20.

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MAHB slips on concerns of higher KLIA2 costs

KUALA LUMPUR (Nov 30): Shares of Malaysia Airports Holdings Bhd (MAHB) slipped in early trade on Wednesday as investors were concerned about the escalating costs for the new klia2 terminal.

At 9.59am, MAHB was down nine sen to RM6. There were 131,000 shares done.

However, the FBM KLCI charged ahead 10.86 points to 1,455.68 on buying of index-linked stocks. Turnover was 241.57 million shares valued at RM171.22 million. There were 230 gainers, 132 losers and 206 stocks unchanged.

MAHB forecast the CONSTRUCTION [] cost of KLIA2 to escalate to between RM3.6 billion and RM3.9 billion mainly due to upgrades of specifications of the airport. The initial budget was RM2.5 billion.

Hwang DBS Vickers Research had downgraded its target price for MAHB to RM6.70 as it factors in the higher investments for klia2.

“We believe that MAHB’s cash levels will be stretched following the hike in costs for the new klia2 and factor in a cash call. We also cut MAHB’s dividend payout policy to 40% in view of the need to preserve cash levels,” it said.

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KLCI firmer in early trade, above 1,450

KUALA LUMPUR (Nov 30): Hong Leong Bank and GENTING BHD [] led blue chips higher in early trade on Wednesday, as sentiment was reinforced by European officials' agreement to strengthen a bailout fund and seek more aid from the International Monetary Fund to help lend to troubled economies as Italy's borrowing costs hit fresh highs.

At 9.39am, the FBM KLCI was up 5.51 points to 1,450.23. Turnover was 193.44 million shares valued at RM120.62 million. There were 180 gainers, 118 losers and 174 stocks unchanged.

Hong Leong Bank rose 16 sen to RM10.56 while Genting added 14 sen to RM10.64.

United PLANTATION []s and Nestle added 50 sen each to RM19 and RM51.90 with only 100 shares done.

Guinness Anchor rose 16 sen to RM11.26 as investors were positive about its plans to issue commercial papers/ medium term notes (CP/MTN) with an aggregate nominal value of up to RM500 million. The proposed debt papers programme would provide it with an alternative source of financing and enable it to effectively plan and manage its funding costs and requirements.

Other gainers were Aeon Credit, up 12 sen to RM6 and Tradewinds 11 sen to RM9.44.

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