Thursday 1 December 2011

Petronas quarterly profit jumps 48%

Petroliam Nasional Bhd, Malaysia’s state oil company, announced plans to tackle the Southeast Asian nation’s gas supply shortage as it reported a 48 per cent jump in quarterly profit.

The Kuala Lumpur-based group, which manages all the country’s energy reserves, will build a fourth gas import terminal and a second floating liquefied natural gas plant, Chief Executive Officer Shamsul Azhar Abbas told reporters today. It also agreed to partially absorb extra costs incurred by power producer Tenaga Nasional Bhd due to supply disruptions, he said.

Gas shortages have forced Tenaga to buy costlier oil and distillate for electricity generation. This incurs additional cost of RM400 million (US$127 million) every month, Chief Executive Officer Che Khalib Mohamad Noh said on Oct. 28. Petroliam Nasional, or Petronas, has reduced supplies of low- cost, subsidized natural gas due to maintenance of plants.

“As a national company, we’ll play our part and share the misery,” Shamsul said. “We hope Tenaga will play its part too. Tenaga is encouraged to be inefficient and we’re not prepared to fund the inefficiency.”

Petronas spends as much as RM20 billion a year to subsidize gas at below market price to industrial users including Tenaga, said Shamsul. Malaysia needs to shift to a market-driven mechanism to determine prices, he said.

Tenaga posted a RM453.9 million loss in the three months ended Sept. 30, while Petronas said net income climbed to RM16 billion from RM10.8 billion a year earlier. Sales grew 26 per cent to RM71.8 billion, the oil corporation said in a statement.

Boosting Reserves

Increased earnings will boost the amount of spare cash Petronas has to spend on discovering new energy reserves after paying RM30 billion in dividends to the Malaysian government again this year.

Crude oil prices in New York averaged US$89.63 a barrel in the three months ended Sept. 30, up from US$76.20 a year earlier. Higher oil prices in the three months through September also boosted quarterly earnings of Royal Dutch Shell Plc, Europe’s biggest oil company.

Oil prices will likely average US$85 to US$87 a barrel in 2012, Shamsul said.

Petronas may venture into the power generation business in Japan and India, the chief executive said. It’s also bidding for an oil and gas rights in Myanmar, Anuar Ahmad, executive vice president of gas and power business told reporters in Kuala Lumpur. -- Bloomberg



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TA Investment declares 4 sen payout

TA Investment Management Bhd (TAIM) has declared a distribution of four sen per unit to registered unit holders of TA South-East Asia Equity Fund (TASEA) as at Nov 30, 2011.

In a statement today, TAIM said the fund has been giving consistent positive returns since its launch on Nov 28, 2005, culminating in a total gain of 78.68 per cent as at Oct 31 this year.

The fund has outperformed its benchmark, FTSE Asean 40 Index, which registered a return of 58.37 per cent over the same period, it said.

TAIM said the fund aimed to provide a steady income and long-term capital growth by investing primarily in quoted or listed equities and equity related instruments, including real estate investment trusts in South-East Asian markets.

The external investment manager for TASEA is Lion Global Investors Ltd.

Meanwhile, TASEA'S external investment manager, Kelvin Wong, said TAIM remained cautious on the region's medium-term outlook due to the weakness seen in the developed economies.

"In the US, household deleveraging is still ongoing, and in Europe, the sovereign debt crisis remains unsolved.

"Asian economies, on the other hand, are expected to fare better due to both stronger macro and corporate balance sheets," he said.

Wong said growth rates were expected to slow, dragged by weaker demand from the Western countries. -- Bernama



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Cagamas MBS debt rating reaffirmed

RAM Ratings has reaffirmed the AAA rating (with a stable outlook) of Cagamas MBS Bhd’s RM2.41 billion residential mortgage-backed securities (2007/2027), known as CMBS 2007-2.

The reaffirmation is premised on the available overcollateralisation (OC) ratio of 34.38 per cent as at Feb 28, 2011, RAM Ratings said in a statement.

It is also premised on the overall performance of the collateral pool, and the structural support afforded by the transaction structure.

The stable outlook reflects RAM Ratings’ belief that the pattern of defaults and losses as well as prepayments on the government staff home loans (GSHLs) will continue to fall within its expectations. -- Bernama



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AmFIRST REIT acquires Cyberjaya properties

Am ARA REIT Managers Sdn Bhd, the manager of AmFIRST Real Estate Investment Trust, has completed its acquisition of Prima
9 and Prima 10 located in Cyberjaya for a cash consideration of RM133 million on Nov 30.

In a statement today, AmInvestment Bank Group said, this was AmFIRST REIT's first investment in Cyberjaya, capitalising on the economic growth and vibrancy of its commercial office segment to achieve wider geographical diversification
of current investment portfolios.

"Prior to the acquisition and as of Sept 30, AmFIRST REIT had six properties with a total net lettable area of 2,311,489 square feet.

"The new acquisition will boost the total investment portfolio to eight properties and add a further 211,496 square feet, representing an increase of nine per cent of the total net lettable area.

"The acquisition records a remarkable growth in the asset under management (AUM) of AmFIRST REIT by 13 per cent from RM1.028 billion as at Sept 30, to RM1.163 billion and the gearing ratio will increase to 46.5 per cent," the statement said.

It added that the two new properties are expected to contribute an additional distributable income of 0.68 sen per unit on an annual basis. -- Bernama



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Dutch Lady to reduce sugar level by 2013

Dutch Lady Milk Industries Bhd is committed to improve the health of Malaysian consumers by reducing sugar consumption in its range of dairy products by 40 per cent from the current usage level by 2013.

Its managing director, Bas van der Berg, said currently, out of its 110 products, 32 per cent were made without added sugar. "By end-2013, the company aims to reduce the annual consumption of added sugar by over 2,700 tons, which represents 40 per cent reduction from the current usage level.

"Today, we have launched three products which have reduced their sugar content by 25 per cent, namely Dutch Lady Kid, Dutch Lady School and Dutch Lady Drinking Yogurt.

"By unveiling these products with lower sugar contents, consumers can realise the company’s commitment to reduce sugar content in all our products in time to come," he said at the launch of the company's two-year 'Sugar Reduction' campaign here Wednesday.

The campaign is part of Dutch Lady's corporate social responsibility programme and business sustainability efforts.

Van der Berg said the campaign heeded the government's call and the medical fraternity's concerted efforts to reduce sugar content in food products as well as to help educate Malaysians about the ill-effects of sugar consumption.

Along with the campaign, he also said the company has ceased production of its sweetened condensed milk in September this year.

"Dutch Lady believes that if the customers start to replace sweetened creamers with evaporated, or ultra-high-temperature, milk and use only one teaspoon of sugar every day, this can surely help reduce per capita sugar consumption in the long run," he said.

He said the decision to discontinue the product would help the company achieve its aim to reduce sugar consumption. -- Bernama



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Integrated Healthcare said to plan IPO

Integrated Healthcare Holdings Sdn Bhd, Asia’s biggest hospital operator, hired CIMB Group Holdings Bhd, Bank of America Corp’s Merrill Lynch unit and Deutsche Bank AG to manage an initial public offering in Kuala Lumpur, according to two people with knowledge of the matter.

The company, controlled by Malaysia’s sovereign wealth fund Khazanah Nasional Bhd, is considering conducting a secondary listing in Singapore, said the people, asking not to be identified as the information is private.

The IPO may raise up to US$2 billion and will take place in the first half of 2012, people with knowledge of the matter said last month. Khazanah spokesman Mohd Asuki Abas declined to comment. -- Bloomberg



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Favelle Favco buys 60pc of Shanghai Favco

Favelle Favco Bhd (FBB) has taken up a 60 per cent stake in Shanghai Favco Engineering Machinery Manufacturing Co Ltd (SFEMM) worth RM5.335 million.

SFEMM, whose intended principal activity is crane manufacturing, is presently dormant, FBB said in an announcement to Bursa Malaysia today.

It added the subscription of shares in SFEMM is not expected to have any material effect on the group's earnings or net assets for the current financial year ending Dec 31, 2011. -- Bernama



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OSK maintains 'neutral' call on AZRB

OSK Research Sdn Bhd has maintained its "neutral" call on Ahmad Zaki Resources Bhd (AZRB) following the company's lower
nine-months financial year 2011 earnings of RM9.1 million.

In a research note today, OSK Research said AZRB's lower earnings was way below its expectations.

"The disappointment was mainly due to the low margin jobs being recognised for the three quarter financial year 2011 and a higher effective tax rate," it said.

Nevertheless, OSK Research noted that AZRB has a strong order book to help drive revenue in financial year 2012.

The research firm remain cautious on AZRB's execution and hence, its "neutral" rating. -- Bernama



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MESB to sell 55% stake in Dynamic Comm

MESB Bhd has announced the proposed disposal of a 55 per cent equity interest in Dynamic Communication Link Sdn Bhd to Touch Mindscape Sdn Bhd for a total cash consideration of RM15 million.

It a statement today, MESB said the proposed disposal represents a good opportunity to realise its investment and unlock the value of Dynamic Communication, while having additional funds for working capital as well as future investments. -- Bernama



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Petronas plans regasification plant in Lumut

Petroliam Nasional Bhd (Petronas) plans to build another regasification plant in Lumut, Perak in view of the serious shortage of gas faced by the country.

President/chief executive officer, Datuk Shamsul Azhar Abbas, said the Lumut plant would be the fourth Petronas would build to resolve the gas shortage woes.

The first plant in Melaka, which will have a capacity of 3.6 million tonnes a year, is expected to come on stream in July or August next year.

He said the gas supply disruption in Malaysia was expected to continue until the Melaka plant was in operation.

"The shortage is going to last until the gas terminal in Melaka is commissioned in July or August next year.

"Then, no one will complain about the shortage of gas anymore," he said at the announcement of the group's financial performance for its second quarter today.

Shamsul said Petronas and Tenaga Nasional (TNB) had agreed that the gas supplied from the gas terminal in Melaka would be at full market price as the company would be importing the gas.

"The understanding with TNB and the industry is that any molecule that supplied from that gas terminal will be at full market price because we are basically importing the LNG.

"With the completion of the terminal, we’ll introduce full open access, meaning they can choose to bring their own gas or buy from any company willing to supply them the gas, so Petronas will no longer have that monopoly of gas supply to domestic end-users," he said.

Petronas planned to have a second gas terminal in Pengerang, Johor in 2015 and the third plant in Lahad Datu in Sabah where it would be connected to the power plant that Petronas would build with TNB in Lahad Datu, he said.

He said the Melaka and Pengerang plants would have annual capacity of between 3.6 million tonnes and 3.8 million tonnes.

"Looking at the gas demand profile for the country, we reckon that we may need the third and the fourth gas terminal plants," he said.

Shamsul said Petronas was currently in discussion with TNB to ascertain the amount of additional expenditure that had been incurred because of the shortage of gas.

"We will come to an agreement as soon as we know what is the right level TNB had spent. We will play our part and the government will play its part too," he said.

According to Shamsul, Petronas was willing to pay one third of the amount.

He said Petronas has also put a bid for exploratory rights in Myanmar’s onshore blocks.

He said at the moment, Petronas has only offshore operations and the business has been performing well.

"The bidding process will end next year," he said.

Shamsul said Petronas was also looking at entering Japan’s power industry.

"We have plans to further expand our generation capacity. We started in Singapore and are looking at Japan because of the nuclear problem that they had this year.

"They may be looking at reducing dependency on nuclear. They will come out with a new energy policy, probably in the middle of next year, and it will demand more of thermal generation and gas will be one of them.

"We are interested to participate," he said.

Petronas has bought a 30 per cent stake in GMR Energy (Singapore) Pte Ltd, marking its first foray into the international power business, he said. -- Bernama



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Accept Kuok Brothers takeover offer, Jerneh Asia shareholders told

KUALA LUMPUR (Dec 1): JERNEH ASIA BHD []'s shareholders have been advised to accept the takeover offer by the group's major shareholder, Kuok Brothers Sdn Bhd, for a quicker way out of the cash-rich company that has been without a core business for a year.

OSK Investment Bank (OSK IB) Bhd, which is the independent adviser to the Kuok Brothers' offer, said on Thursday the takeover offer was preferable compared with the "uncertainty and lengthy" procedure of receiving proceeds via the route of asset disposals, capital repayment and winding up.

In arriving at its recommendation, OSK IB said it considered that Jerneh Asia was classified under PN16 and PN17 status given that it was without a core business, having disposed off its insurance business.

Last December, Jerneh Asia sold its 80% equity interest in Jerneh Insurance Bhd to ACE INA International Holdings Ltd last December for RM523.2 million cash and had distributed the proceeds in the form of dividends and capital repayments.

To recap, Kuok Brothers had on Oct 31 launched a conditional takeover offer of RM1.45 cash per share for all remaining Jerneh Asia shares it does not own and for all new Jerneh Asia shares which may be issued arising from the exercise of the outstanding warrants.

Kuok Brothers, which holds a direct 37.71% stake in Jerneh Asia, was also looking to acquire the remaining 2.96 million warrants for 45 sen apiece. Kuok Brothers and persons acting in concert (PACs) hold a combined 41.81% equity interest in Jerneh Asia, comprising 102.02 million shares.

Based on a simple calculation, Kuok Brothers — the vehicle of tycoon Robert Kuok Hock Nien — will have to fork out about RM207.19 million for the deal.

Jerneh Asia shares yesterday closed unchanged at RM1.43.



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DRB-Hicom issues RM500m debt notes for working capital, projects

KUALA LUMPUR (Dec 1): DRB-HICOM BHD [] has issued RM500 million in nominal value of Sukuk in two tranches which would be used for working capital, projects and capital expenditure.

It said on Thursday the sukuk had been accorded a final rating of AA-IS by Malaysian Rating Corporation Bhd with a stable outlook.

The first tranche of the Sukuk, amounting to RM250 million in nominal value shall have a tenure of five years maturing on Nov 30, 2016.

The second tranche of the Sukuk, amounting to RM250.0 million in nominal value shall have a tenure of seven years, maturing on Nov 30, 2018.




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Petronas says bidding for Myanmar oil field

KUALA LUMPUR (Dec 1): Malaysia's state oil firm Petronas has put in a bid for an onshore energy field in Myanmar, Executive Vice President of Exploration and Production Wee Yiaw Hin said on Thursday.

"At the moment in Myanmar we are only offshore and the business has been quite good," Wee told reporters after announcing Petronas' quarterly earnings.

"There has been recently a bid on the onshore block and we are looking at opportunities to go onshore in Myanmar."

Wee said the bidding process will end some time next year. He added that he was not aware of any other Malaysian companies bidding for the same blocks.

Wee was earlier quoted as saying Petronas was deriving good value from operations in Sudan, Myanmar, Turkmenistan and Vietnam and is on the lookout for "new basins and a few value growth areas" in these regions.

Myanmar closed its biggest oil and gas exploration tender in years in August, a few months after it cautiously started political reforms, and the government is now processing bids. - Reuters



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Tenaga, Petronas and government to share fuel cost increase

KUALA LUMPUR (Dec 1): TENAGA NASIONAL BHD [] (Tenaga) has received a letter from the government that provides a fuel cost sharing mechanism to address the utility’s increased cost due to the gas shortage.

In a filing to Bursa Malaysia Securities on Thursday, Tenaga said that the letter provided that Tenaga, Petronas and the government would each equally share the differential cost incurred by Tenaga due to dispatching on alternative fuels and also imports, from Jan 1, 2010 until Oct 31, 2011 amounting to approximately RM3.07 billion.

“Presently, Tenaga is facing a higher operational cost due to the extra cost of generation arising from running the power plants on expensive alternate fuels and power import from Singapore and Thailand.

“In view of the urgency of the matter and the critical financial situation facing Tenaga, Tenaga will be liaising as soon as possible with the relevant parties to implement this mechanism,” it said.



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Petronas 2Q net profit up 54% to RM18.35b from RM11.88b yr ago

KUALA LUMPUR (Dec 1): Petroliam Nasional Bhd posted net profit of RM18.35 billion for the second quarter ended Sept 30, 2011, up 54.4% from the RM11.88 billion a year ago underpinned by improved margins.

It said on Thursday its revenue was RM71.83 billion, up 26% from the RM56.99 billion a year ago on the back of higher realized prices of crude oil and condensates and other energy commodities particulary petroleum products and liquefied natural gas (LNG).

Its operating profit was RM27.11 billion, an increase of 47% from RM18.44 billion a year ago.

For the first half, its net profit increased by 50.8% to RM40 billion from RM26.51 billion in the previous corresponding period. Its revenue rose 25.3% to RM144.80 billion from RM115.54 billion on the back of higher realized prices of petroleum products, crude oil and condensates, LNG and petroleum products.

Petronas said its total assets increased from RM439 billion as at March 31, 2011 to RM472 billion following the profit generated during the quarter, net of dividend distributed to shareholders.

“Total debt to total asset ratio remains at 0.11 times,” it said.

During the period ended Sept 30, 2011, it paid a third interim dividend of RM6 billion for the financial year ended March 21, 2011. It also paid a tax exempt final dividend of RM22 billion between June and November 2011.

It also declared and paid a first tax interim dividends of RM2 billion for the financial period ending Dec 31, 2011.

According to notes to its accounts, in the second quarter ended Sept 30, its revenue of RM91.348 billion comprised of exploration and production (RM28.84 billion), gas and power (RM19.50 billion), downstream (RM39.32 billion) and corporate and others RM4.68 billion.

Petronas also said second quarter total production was 2,033 thousand barrels of oil equivalents (boe) per day compared to 2,116 thousand boe per day a year afo.

“Crude oil and condensates production decreased by 7.0% mainly caused by higher realised prices for crude oil and condensates, offset by the impact of the strengthening of the ringgit,” it said.



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Maxis sees RM1b revenue from U Mobile

KUALA LUMPUR: Maxis Bhd expects at least RM1 billion in revenue in the first five years of its 10-year business agreement with 3G service provider U Mobile, chief executive officer Sandip Dass told reporters after the company’s 3Q results briefing yesterday.

In its 3QFY11 ended Sept 30, Sandip said Maxis took a major step in signing an agreement with U Mobile on the first 3G radio access network sharing arrangement in Malaysia.

“This is really the non-conventional sharing of the future,” he said.

“This will allow U Mobile to carry traffic for its customers on the 3G spectrum,” he added.

He said Maxis’ business arrangement with U Mobile is up to a period of 10 years with an option for up to another two years.

Meanwhile, Maxis’ net profit for 3QFY11 was down 10.6% to RM537 million, compared with RM601million a year earlier.

For the three months ended Sept 30, Maxis posted a revenue of RM2.24 billion, compared with RM2.22 billion a year earlier.

Sandip said the lower net profit was due to higher costs in depreciation, amortisation and interest expense, which was resulted from capex investing. He said the increase in revenue was driven by higher voice and non-voice revenues.

Sandip describes the 3G radio access network sharing arrangement with U Mobile as the 'non-conventional sharing of the future'.

Maxis said the increase in non-voice revenue was mostly 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 revenue,

“Non-voice revenue contributed to 44% of total mobile services revenue in 3QFY11, up from 42.7% in 2QFY11,” Maxis noted in a statement.

Stripping away its low-margin hubbing business, which the integrated communications services provider had scaled down early this year, and as a result of excluding International Gateway Services (IGW) revenues, Maxis’ comparable revenue year-on-year (y-o-y) was an increase of 4.8% to RM2.21 billion, against RM2.11 billion in 2010.

Maxis recorded earnings before interest, taxes, depreciation and amortisation (Ebitda) of RM1.12 billion for the third quarter, down 1.3% from RM1.14 billion a year earlier. Its Ebitda margin continued to be industry leading at 50%, compared with 51.4% a year ago, it said.

Net profit for the nine months fell 3.4% y-o-y to RM1.63 billion from RM1.69 billion previously, while revenue grew 2.6% to RM6.42 billion from RM6.26 billion.

Maxis said its non-voice revenue jumped 19% to RM2.7 billion in the first nine months this year from RM2.26 billion in the same period last year. It said over 7.5 million of its users use the Internet.

Internet and data services (non-SMS) now contribute 59% of non-voice revenue, said Maxis.

Maxis invested in capex of RM707 million in the first nine months on the back of RM1.24 billion invested in 2009 and RM1.44 billion in 2010 to augment the 3G HSPA network.

In 3Q, Maxis declared a first interim dividend of eight sen per share, which represents a payout totalling RM600 million.

As at Sept 30, Maxis said its total subscription base stood at 14.2 million (of which 12.7 million are revenue generating subscribers).


This article appeared in The Edge Financial Daily, December 1, 2011.




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FBM KLCI ends Thurs on high

KUALA LUMPUR: The FBM KLCI managed to finish Thursday higher by 0.89% to 1,485.26 although it gave up almost half of its earlier gains.

Dealers said investors took profit as there was still no clear solution to the debt problems faced by the West.

Still, Asian markets ended Thursday stronger taking their cue from the overnight strong performance in overseas markets.

Key U.S. equity bourses ended higher by between 4.2% and 4.3% after central banks in the US, Europe, UK, Canada, Japan and Switzerland took coordinated actions to lower the cost of US dollar borrowings. "Such a powerful rally on Wall Street will surely reverberate across Asia today," Hwang DBS told clients ahead of the opening bell in Asia.

The benchmark FBM KLCI will likely build on its two-day cumulative gains of 40.6-point or 2.8%, possibly overcoming the immediate resistance level of 1,475 ahead, it said. Crude palm oil 3-month futures were up RM51 to RM3,069 per tonne.

Nymex crude oil added 32 cents to US$100.69 per barrel.



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Market Commentary

The FBM KLCI index gained 13.16 points or 0.89% on Thursday. The Finance Index increased 1.30% to 13328.34 points, the Properties Index up 0.55% to 961.37 points and the Plantation Index rose 1.66% to 7817.63 points. The market traded within a range of 18.11 points between an intra-day high of 1502.53 and a low of 1484.42 during the session.

Actively traded stocks include WIJAYA-WA, COMPUGT, UTOPIA, MBFHLDG-WA, EXTOL, KBUNAI, HUBLINE, GPRO, UTOPIA-WA and VERSATL. Trading volume increased to 1662.28 mil shares worth RM1792.95 mil as compared to Wednesday’s 1534.36 mil shares worth RM2024.33 mil.

Leading Movers were IOICORP (+17 sen to RM5.18), PBBANK (+20 sen to RM12.74), PETCHEM (+18 sen to RM6.17), MAYBANK (+9 sen to RM8.39) and DIGI (+8 sen to RM3.60). Lagging Movers were AXIATA (-17 sen to RM4.93), GENTING (-26 sen to RM10.70), GENM (-3 sen to RM3.88), MAXIS (-1 sen to RM5.49) and PLUS (-1 sen to RM4.44). Market breadth was positive with 513 gainers as compared to 280 losers.


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Celcom and PLDT ink MVNO pact

KUALA LUMPUR: Celcom Axiata Bhd has signed a shareholder agreement with Philippines’ PLDT Global Corp (PGC) to establish a mobile virtual network operator (MVNO) in Malaysia.

Under the agreement, Celcom Axiata and PGC will hold 49% and 51% stakes respectively in PLDT Malaysia Sdn Bhd.

PLDT Malaysia has a paid-up capital of RM6 million, divided into six million shares. “The subscription by Celcom of its 49% equity interest in PLDT for the sum of RM2.94 million will be funded through internally generated funds,” Celcom Axiata said in a filling with Bursa Malaysia.

PLDT Malaysia will offer mobile prepaid services under the brand name SMART Pinoy, targeted at Filipino migrant workers in Malaysia.

“By tapping into PGC’s knowledge of the Filipino market and leveraging its SMART brand name among the Filipinos, Celcom will be able to better reach this segment of migrant workers,” said Celcom Axiata CEO Datuk Seri Shazalli Ramly.

This is the fifth MVNO partnership for Celcom Axiata after REDtone, Tunetalk, XOX and Merchant Trade.

Shazalli (second from left) and Ernesto R Alberto, senior vice-president and head, enterprise and international and carrier business groups of PLDT and SMART Communications Inc presenting the SMART Pinoy SIM pack to the Philippines Ambassador to Malaysia Jose Eduardo Malaya (centre). Also present were Celcom chief sales and commercial officer Eric Chong (left) and PLDT Global Corp president and CEO Alejandro O Caeg.

According to Bernama, Shazalli said Celcom Axiata is targeting 10% contribution to its total revenue from the MVNO business by 2015.

It has 1.2 million active MVNO subscribers, contributing 5% to the group’s total revenue for the nine-month period ended Sept 30.

Celcom Axiata gained 25 sen to close at RM5.10 yesterday with 10.23 million shares done.


This article appeared in The Edge Financial Daily, December 1, 2011.




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Padini shows strong earnings momentum

Padini Holdings Bhd (Nov 30, RM1.06)
Maintain buy with unchanged target price of RM1.16: Padini’s 1QFY12 earnings were strong with net profit of RM27 million, up 47% year-on-year (y-o-y) (+49% quarter-on-quarter [q-o-q]).

Although above our expectation (1Q is typically a strong quarter), we maintain our forecasts on anticipation that sales could moderate into 2HFY12 on the back of slower domestic consumption.

For its strong retail presence and increasingly resilient earnings model through its Brands Outlets, Padini remains a “buy” with an unchanged target price of RM1.16 based on a CY12 price-earnings ratio (PER) of 9.2 times.

Revenue recorded a new high of RM178 million in 1QFY12, which translates into y-o-y and q-o-q growth of more than 30%.

While this was within our expectation, the improvement in earnings before interest and tax (Ebit) margin surprised us on the upside.

The group’s 1QFY12 gross profit margin declined by 3.6 percentage points (ppt) y-o-y to 49.4% as higher cotton prices since the start of CY10 continued to put pressure on its cost of goods sold.



Despite this, Ebit margin improved 2ppt y-o-y to 20.6% due to increased efficiency in merchandising.

Overall, 1Q net profit accounted for 34% of our full year forecast and 33% of consensus.

New stores drive revenue growth. While q-o-q revenue growth was driven by festivals, y-o-y revenue growth was due to store expansion in the past 12 months.

From October 2010 to September 2011, the group has opened four Brands Outlet stores and two Padini Concept Stores.

The sales of own products in the Brands Outlet stores rose 86% y-o-y to contribute about 15% to total revenue in 1QFY12 against 11% in 1QFY11, while the Brands Outlet stores now contribute to about 20% of group revenue.

There will be one Padini Concept Store and one Brands Outlet each in The Paradigm (Kelana Jaya) and Setia City Mall (Shah Alam) by end-CY12.

Presence at the Johor Premium Outlet (to open on Dec 11) will also enhance its market reach to tourists travelling between Singapore and Malaysia. — Maybank IB Research, Nov 30


This article appeared in The Edge Financial Daily, December 1, 2011.




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Proton thrown off course by taxes

Proton Holdings Bhd (Nov 30, RM3.04)
Maintain neutral with higher target price of RM3.45 (from RM3.05): Higher taxes were the main reason Proton’s annualised earnings for 1HFY12 ended Sept 30 were just 53% of our forecast and 44% of market expectations.

Group Lotus’ losses continued to drag down earnings but the risks posed by its five-year turnaround plan are already largely priced in.

We cut our FY12/FY13 earnings per share for higher tax assumptions but raise our target price as we now peg it to 0.5 times price-to-book value (P/BV) (10% discount to historical P/BV instead of 20%). We remain “neutral” on the stock.

Despite a 1% dip in 1HFY12 revenue due to a similar decline in vehicle sales, Proton’s earnings before interest and tax (Ebit) plunged 70% as Group Lotus’ operating loss almost tripled to RM130 million from RM50 million in 1HFY11 as a result of higher restructuring and marketing costs.

Even the domestic operations saw a 28% decline in Ebit in 1HFY12 due partly to lower vehicle sales, provisions for ageing stock and higher customer acquisition costs.

1HFY12 results were further skewed by a higher effective tax rate of 58% ( against 19% in 1HFY11) due to the absence of tax credits from its subsidiaries’ losses. As a result, net profit plummeted 87%.

Relative to UMW Toyota, Honda Malaysia and Tan Chong, Proton is much less affected by the Thai floods. It should also be relatively unperturbed by the strengthening of the US dollar. While it does import components in US dollars, we gather that Proton is a net recipient of US dollars.

The weak results partly reflected in the share price. We are raising our target price to RM3.45 from RM3.05 after narrowing the discount that we attach to Proton’s historical P/BV to 10% from 20% to reflect the possibility of an entry of a strategic shareholder.

Proton’s financial performance remains weak due to Group Lotus but we think that this is partly reflected in Proton’s share price which has fallen 29% year-to-date compared with 4% for the FBM KLCI.

Expectations for the stock are low and positive news could catalyse its share price. — CIMB Equities Research, Nov 30


This article appeared in The Edge Financial Daily, December 1, 2011.




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Hong Leong Bank raring to go

Hong Leong Bank Bhd (Nov 30, RM10.46)
Maintain buy with unchanged fair value of RM12.15 (RM10.40): Hong Leong Bank Bhd (HLB) group is well positioned post- merger to capitalise on growth opportunities, but we believe the market may not have fully appreciated the revenue synergies that the larger organisational platform can potentially attain.

Maintain “buy” with a fair value of RM12.15, or 2.12 times FY12 price-to-book value (P/BV), based on the Gordon Growth model. This valuation is supported by 14.7% return on equity (ROE), 9.2% cost of capital and 4% long-term growth rate.

The key catalysts are: (i) a bigger than expected upside in revenue and operational synergy; (ii) more resilient than expected asset quality; and (iii) stronger than expected growth from 20% associate Bank of Chengdu in China.

The stock’s 1.6 times P/BV is compelling against ROE of 14% to 15%.

HLB’s annualised 1QFY12 earnings was largely in line with both consensus and our forecast, representing 25.8% and 25.9% of our and consensus full-year estimates.

The 1QFY12 earnings marked the first full quarter contribution from the enlarged HLB-EON Capital Bhd entity against the initial two-month contribution in 4QFY11. As a result, its quarter-on-quarter (q-o-q) earnings surged 37.2%.

EONCap’s asset quality holds firm. The key positive from the results was the lower than expected loan loss provision, which jumped 22.8% q-o-q largely due to the harmonisation of EONCap’s loan loss coverage closer to that of HLB, resulting in the merged entity’s loan loss cover enlarging from 119% in 4QFY11 to 138% in 1QFY12.

This was largely pre-emptive in nature as the asset quality of the group’s merged portfolio continued to hold up, with absolute impaired loans declining 5% q-o-q.

In fact, the actual additional impairment on EONCap’s loans book as a consequence of harmonising with HLB’s more stringent impaired loans criteria only led to a RM30.9 million increase in impaired loans for EONCap, which is small in relation to the RM673 million excess loan loss cover the group is currently sitting on.

Loans growth slowed in tandem with portfolio realignment. The group’s q-o-q loans growth was a relatively subdued 1.3%, or an annualised rate of just 5.2%.

All of its loan segments recorded lacklustre growth apart from residential and non-residential properties, which collectively grew at an annualised 17.6% year-on-year and 4.4% q-o-q. — OSK Research, Nov 30


This article appeared in The Edge Financial Daily, December 1, 2011.





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MPHB all-in on gaming

Multi-Purpose Holdings Bhd (Nov 30, RM2.59)
New coverage, outperform with fair value of RM3.10: With 100%-ownership in Magnum since June, gaming is now MPHB’s main core business. We estimate that in FY12, gaming will contribute about 80% to 85% of net profit, up from about 60% in FY10.

As for its other businesses — financial services, stockbroking and property investment and hotels — MPHB is in the process of selling these off, first to pare down debt, and secondly to concentrate its attention on gaming.

The response to Magnum’s 4D jackpot game has been phenomenal, with average sales/draw spiking to as high as RM4 million to RM5 million during periods when the jackpot figure has accumulated to a large amount.

Even after the launch of Berjaya Sports Toto’s competing 4D jackpot game in June, Magnum has not seen any significant downturn in its lotto sales, which indicates that the market has actually expanded.

In FY11, Magnum’s 4D jackpot game was averaging about RM2.5 million to RM3 million per draw in gross revenue, compared with BToto’s RM1.5 million to RM2 million.

Although there are new punters who have started buying lotto as a result of this new game, management believes that a significant amount of the market expansion came from the illegal market, as it is unable to match this kind of payout scale.

We project Magnum’s 4D jackpot game to contribute close to 20% of gross revenue by FY13 (from 16% in 1HFY11).

The risks include: (i) poor luck factor; (ii) regulatory changes for the numbers forecast operators (NFO) industry to discourage gambling or to allow competitors more outlets and more game variations; and (iii) a hike in gaming taxes.

We project MPHB will deliver a three-year earnings compound annual growth rate of 10.8%, with earnings driven by the gaming division, as well as lower interest expense after the partial repayment of its outstanding debt from the RM375 million proceeds of the sale of Menara Multi-Purpose.

We value MPHB at RM3.10 per share, based on sum-of-parts valuation. Our fair value indicates an upside potential of 20.7% from the current price.

We believe MPHB is a deep value stock at current prices. We highlight that even at our fair value of RM3.10, this implies a price-earnings ratio of only 12.3 times CY12, which is still at a discount to BToto.

At the current market price, after deducting our estimated value of all of MPHB’s other assets, we estimate that the market is pricing the gaming business at only seven times CY12.

We believe one of the main re-rating catalysts for the stock would be the disposal of more of its non-core assets, which will put MPHB on a more even footing with BToto. — RHB Research, Nov 30


This article appeared in The Edge Financial Daily, December 1, 2011.





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AutoV’s earnings improved but still weak

After a particularly weak performance in 2QFY11, AutoV Corp Bhd’s financial performance improved in 3Q, although profit fell on a year-on-year (y-o-y) basis.

The auto parts manufacturer’s earnings continue to hinge largely on sales of the Proton Exora multi-purpose vehicle, which has driven the company’s growth in the last two years. Like most models, Proton Exora is now seen as “matured”, with sales tapering off.

Still, 3QFY11 fared better than 2Q as the previous quarter was affected by changes in the Hire Purchase Act which created some uncertainties, as well as the March earthquake and tsunami in Japan which disrupted supplies, especially to non-national cars, which make up 30% of AutoV’s sales. These concerns have since eased.

For 3QFY11, revenue rose marginally by 3.9% to RM27.35 million, partly due to the acquisition this year of JP Metal Sdn Bhd, a metal stamping firm acquired from related company Jotech Holdings Bhd for RM7 million.

Pre-tax profit declined 37.2% y-o-y to RM2.02 million, although it was better than 2QFY11’s RM1.7 million. Net profit fell 40.2% y-o-y to RM1.26 million, but was above the RM0.8 million reported in 2QFY11.

For the first nine months of 2011, revenue declined 3.8% y-o-y to RM77.18 million. Pre-tax profit declined 45.7% y-o-y to RM6.03 million while net profit fell 57.6% y-o-y to RM4.01 million, or 6.9 sen per share.

These numbers were within our expectations, with the nine-month results accounting for about 60% of our full-year forecast.

AutoV’s share base has increased by 6.5 million shares to 64.88 million following the completion of the acquisition of Proreka (M) Sdn Bhd in November.

AutoV’s earnings continue to hinge largely on the success of Proton, which accounts for 70% of its total sales, and the Exora in particular over the last two years.

Management is optimistic of a stronger 4Q as Proton Exora’s sales have picked up again in recent months. Sales of the multi-purpose vehicle have slowed over the past year, after the earlier large pent-up demand following its launch.

We understand there will be a new turbo-charged Exora model to be introduced next year, which should help rejuvenate sales.

Over the medium term, Proton has a pipeline of other new models, including the Persona replacement and Perdana enhancement models. We understand AutoV will supply a number of components for the Persona replacement model, expected to be launched next year.

The acquisition of Proreka will also improve earnings. A tier-1 vendor and manufacturer of OEM and ODM automotive parts, Proreka is expected to give AutoV added turnover of RM60 million, boosting the latter’s current RM100 million annual revenue base.

However, earnings forecasts are largely academic for AutoV as the company will cease to exist as a listed entity once the proposed merger with two other related companies under Temasek Formation Sdn Bhd goes through.

In July, Temasek Formation, headed by businessman Datuk Goh Tian Chuan, proposed the merger of AutoV, Jotech Holdings Bhd and AIC Corp Bhd into a single listed entity, via a share swap valued at RM696 million.

Goh is the major shareholder of all three companies. The exercise is expected to be completed by end-1Q12.

Temasek Formation will have three core businesses —- auto parts, resource and semiconductors — following the merger.

All three stocks are currently trading at large discounts to their offer prices. The offer price for AutoV is RM2.38, 43% above the current share price of RM1.66. The offer price for AIC Corp is RM1.80, 51% above its current price of RM1.19, while the offer price for Jotech at 18 sen is 44% above its current price of 12.5 sen.

However, in the absence of a cash offer, these are largely academic and relative prices.

The merged company will have a combined market capitalisation of RM696 million at the offer prices, and estimated historical net profit of RM36 million for FY10.

This implies a historical price-earnings ratio (PER) of 19.3 times based on the takeover prices, which is not cheap. However, assuming an average 35% discount to the offer prices, which is roughly where the stocks are trading at now, the PER drops to 12.7 times, which is still admittedly not attractive in the current environment.

Shareholders of AutoV who opt for the merger will obtain a more diversified exposure to other sectors, including semiconductors, palm oil and coal mining, which have different risk profiles.

Management believes the enlarged entity will offer better synergies and economies of scale, as the company can grow faster and proceed with its inorganic route of expansion.

It plans to use the merger to piggyback on Temasek Formation’s larger market capitalisation and balance sheet in the hope of acquiring companies that have a higher value, as AutoV was previously restricted by its small size.

The question for AutoV’s shareholders is whether the merged entity is an attractive one, given its more balanced although diverse risk profiles, compared with a focused but also more cyclical auto-based company.


Note: These reports are brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.


This article appeared in The Edge Financial Daily, December 1, 2011.




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Danajamin backs Mydin’s RM350m sukuk

KUALA LUMPUR: Danajamin Nasional Bhd is guaranteeing Mydin Mohamed Holdings Bhd’s 13-year RM350 million sukuk programme, increasing the amount of bonds backed to RM3.4 billion.

In a statement yesterday, Danajamin said the funds raised from Mydin’s Islamic medium-term notes programme will be used to finance the construction and development of three Mydin hypermarkets.

It said the development of the hypermarts is part of Mydin’s Entry Point Project under the government’s Economic Transformation Plan.

“The first tranche of the sukuk programme amounting to RM55 million was successfully issued today and fully subscribed,” it said in the statement.

It noted that this was Mydin’s maiden venture into the sukuk/bond market. The sukuk, with a seven-year tenure, was issued with a triple-A rating accorded by RAM Rating Services Bhd, it added.

CIMB Investment Bank Bhd was appointed principal adviser/lead arranger/lead manager for the sukuk programme .

So far, Danajamin has provided guarantees for RM3.4 billion of bond programmes for various sectors including utilities, plantations, retail, education and manufacturing.

Its largest deal so far is backing Ranhill Power Sdn Bhd’s RM500 million facility.


This article appeared in The Edge Financial Daily, December 1, 2011.




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Thailand floods cloud Dufu’s outlook

After a particularly weak second quarter, Dufu Technology Corp showed improvement in its results for 3QFY11 as a result of better sales, while the weaker ringgit placed less pressure on margins.

However, the recent floods in Thailand have thrown out new uncertainties for the global hard disk drive (HDD) production and supply chain. This will have an impact on Dufu and HDD players in the coming quarters. Having said that, we also note that the stock is already trading at a steep 54% discount to its net assets of 78 sen per share.

Dufu’s net profit for 3QFY11 declined 6.9% year-on-year to RM714,000 from RM767,000, although revenue increased 27% to RM34.45 million. This was primarily due to lower margins as the ringgit strengthened against the US dollar over the past year.

Compared with 2QFY11 though, net profit improved from just RM154,000 while revenue increased 8% from RM31.8 million. The improvement was due to new orders secured as well as better margins as the ringgit depreciated sharply in 3QFY11 following the global financial turmoil.

For the first nine months of 2011, revenue rose 8.3% to RM97.6 million. However, net profit declined 76.4% to RM1.25 million, or 1.04 sen per share, from RM5.27 million. The steep decline was due to a high base in the first half of last year, before the industry’s downturn began in mid-2010.

The nine-month results matched our full-year net profit forecast of RM1.3 million. The company had net debt of RM41.76 million as at Sept 30, equivalent to a net gearing ratio of 44.7%.

While results for the first three quarters of the year have equalled our full-year projection, we are keeping our forecasts unchanged amid a challenging fourth quarter.

The fourth quarter has traditionally been the strongest for Dufu and the HDD industry due to pre-Christmas seasonal orders. However, this year will be very different due to the recent massive flooding in Thailand, which has disrupted the global HDD supply and production chain.

The impact of the flooding is creating a global shortage of HDDs that could well persist until end-2012, Seagate Technology CEO Stephen Luczo recently warned.

Dufu also acknowledged these problems, noting that the economic uncertainties coupled with the Thai floods will impact sales of its HDDs by approximately 50%. As HDDs account for about 80% of Dufu’s sales, it expects a decline of 30% to 40% of its total revenue in the coming quarter.

It noted that the actual impact will be more visible and ascertainable only by the end of the year. Management acknowledges that the global shortage of HDDs has pushed prices up, but the volume decline due to a breakdown in the supply chain and closure of factories in Thailand will negate these gains.

Recent press reports suggest HDD prices have risen 20% to 25% following the floods.

Indeed, the Thai floods have eclipsed all the earlier concerns surrounding the sector, such as the HDD versus solid state drive argument, as well as inventory and pricing pressure issues.

They have also negated any positive effect from the industry consolidation exercise undertaken earlier this year, as well as the ringgit’s recent weakening against the US dollar, which helps lift margins for component suppliers like Dufu, whose sales are mostly denominated in the greenback.

To recap, the global HDD sector has been hard hit by the recent flooding in Thailand because a huge portion of the supply chain is situated in the country’s worst hit areas. Western Digital has announced a halt to its production in Thailand, although Seagate continues to operate.

Malaysian HDD component makers that have operations in that country, such as Eng Teknologi Holdings Bhd and Notion VTec Bhd, have also stopped their Thai operations. Western Digital expects its December quarter revenue to fall 60% from a year ago as some 60% of its HDDs are produced in Thailand.

The extent of damage to the HDD factories and machinery, as well as recovery plans, is still unclear.

Before the floods arrived, the industry’s macro prospects were expected to improve following two consolidation exercises announced earlier this year, that aimed to cut the world’s HDD makers to just three from five and put 90% of the global market in the hands of the top two players — Western Digital and Seagate.

Seagate had announced the acquisition of Samsung Electronic’s HDD business in April this year, just a month after Western Digital’s takeover of Hitachi Global Storage Technologies.

The industry consolidation exercise is likely to be positive in the long run, as it will reduce price discounting, and reduce volatility in capacity and inventory conditions, which has plagued the industry over the past year. Hitachi, for instance, was reportedly the most aggressive in initiating price cuts.

To reduce reliance on the HDD segment, Dufu is taking more aggressive steps to diversify its product base and is moving into the manufacture of medical components. Management says the move is progressing well, although the results will likely be more evident next year.

Dufu is embarking on manufacturing medical components for orthopaedic medical devices, a fast growing market with relatively high margins. Orthopaedic fixation devices and instruments assist in attaching fractured or broken bones, as well as torn ligaments and tendons.

The non-HDD segment, which accounts for about 20% of revenue, has largely focused on components for the telecom, industrial safety and sensor sectors, and metal stamping, which provide relatively low margins. This is unlike Notion, which enjoys high margins from its camera segment.


Note: These reports are brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.


This article appeared in The Edge Financial Daily, December 1, 2011



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Faber sinks into the red

KUALA LUMPUR: Faber Group Bhd sank into the red recording a RM26.87 million net loss for the third quarter ended Sept 30 (3QFY11) in contrast to the RM29.01 million net profit for the corresponding period a year ago.

However, for the quarter, group revenue rose 34.1% to RM309.4 million from RM230.7 million a year earlier. For 3Q, Faber suffered a basic loss per share of 7.4 sen versus an earnings per share of 7.99 sen a year earlier.

In a filing with Bursa Malaysia, the group said the bleeding was mainly due to the recognition of costs amounting to RM44.5 million for works completed at projects in the United Arab Emirates (UAE). Faber added that the corresponding revenue was not recognised as it could not be measured reliably.

The company added that there was a RM12.9 million impairment loss at the expense level, due to the group’s expectation of the significant delay in collection of trade receivables from its principal, Western Region Municipality (WRM) in UAE.

“The group has determined the amount of impairment loss as the difference between the carrying amount for the assets and the present value of the estimated future cash flow discounted at the financial assets original effective interest rate,” it said.

Faber added that it is putting in maximum effort to recover the revenue, costs and receivables from the UAE projects and is in active discussions with WRM.

The group noted that the losses were mitigated by higher profit from integrated facilities management (IFM) concession and property division by RM5.4 million and RM2.9 million respectively.

Faber added that revenue for the quarter was higher due to increased contributions from IFM non-concession projects in UAE.

“The recognition of RM107.7 million in 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,” Faber said. It added that the final amount of revenue would be determined upon the final acceptance by WRM.

Its property division recorded higher revenue by RM39.8 million mainly due to the launch of new projects in 4Q10 and 1Q 11.

The IFM concession also recorded higher revenue by RM1.9 million on more variation orders and additional facilities at government hospitals within Faber Group’s concession area.

For the nine-month period ended Sept 30 (9MFY11), Faber’s net profit fell sharply to RM3.78 million from RM75.9 million a year earlier. 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.

The company said it expects to record lower profit for FY11 due to recognition of cost for completion of work orders in UAE, and the delay in collecting trade receivables.

Faber fell one sen to close at RM1.50 yesterday with 514,700 shares done.


This article appeared in The Edge Financial Daily, December 1, 2011.



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Research houses downgrade MAHB on costlier KLIA2

PETALING JAYA: Research firms called downgrades on Malaysia Airports Holdings Bhd (MAHB), a favourite of aviation analysts, after the airport operator unveiled plans to build a bigger and costlier low-cost carrier terminal dubbed KLIA2.

On Tuesday, MAHB revealed that the total investment for KLIA2, which has been expanded by over 70% in terms of size, will increase to RM3.4 billion to RM3.9 billion from the initial RM2 billion.

HwangDBS Research, which downgraded the counter to “hold” from “buy”, said with the higher investment in KLIA2, MAHB might see higher depreciation cost than initially expected during the early years.

“In our opinion, additional revenue to cover the higher capital cost may take time to kick in, as passengers gradually increase. This would result in lower utilisation in the initial years,” said the research house.

HwangDBS cut MAHB’s earnings estimate for FY12 ending December by 3% to RM381 million and FY13 by 17% to RM350 million in view of higher depreciation costs.

However, it said the depreciation would be partially offset by the larger retail space and potential additional revenue of about RM40 million per year due to rental of the airport control tower to the government.

Hwang DBS’ move to cut MAHB’s earnings estimate was echoed by others, including RHB Research, which reduced its FY13 net profit forecast by 10.2% to RM410.7 million and OSK Research, which cut its FY13 earnings by 8% to RM450.2 million. RHB maintained its “buy” call and OSK its “outperform” on MAHB.

CIMB said it is looking at a 30% dip in core earnings once KLIA2 commences operations in 2013 due to higher operating costs.

The research firm said the major factor in its earnings downgrade is the possible huge rise in staff count, maintenance and repair costs, utilities and other miscellaneous costs as result of a bigger KLIA2.

CIMB downgraded its core earnings per share estimates by 12.5% for FY13, 7% in FY14 and 1% to 2% from FY15 to FY18.

The research house also expects MAHB to raise a further RM600 million from its remaining debt facility to help finance KLIA2.

It assumes the additional RM600 million equity issue can be achieved via a 10% placement at around RM5.50 per placement share.

CIMB said the equity funding inherently increases its weighted average cost of capital (WACC) estimate as MAHB’s cost of equity is more than double its cost of debt, at 10% versus just 4.6% for its debt.

It has also turned cautious on MAHB’s plans to expand beyond what is necessary as it has seen other airport operators, such as Thailand’s AOT of Suvarnabhumi, making the same mistake.

It advised investors to stay on the sidelines as it downgraded the stock from “outperform” to “neutral” with a lower target price at RM6.90 from RM7.95.

HwangDBS believed that MAHB’s cash levels would be stretched following the hike in costs for the new KLIA2 and factored in a cash call. It also trimmed MAHB’s dividend payout policy to 40% in view of the need to preserve cash levels.

OSK Research revised its fair value on the airport operator downwards but retained its “buy” call. It derived a lower fair value of RM7.26 from RM8.10 previously based on an unchanged WACC assumption of 9%.

It also noted that MAHB’s management expects total net savings of RM766.15 million over 20 years from “front loading” its future capital expenditure.

It added that the total capex for KLIA2 seems astronomical at first glance, but on a unit cost basis at RM4,694 per sq m, its cost is relatively lower than KLIA’s RM8,000 per sq m, and Kota Kinabalu and Kuching airports’ RM6,000 per sq m each.

OSK noted MAHB may be entitled to sales tax exemptions ranging from 5% to 10% on the equipment purchased, which would potentially reduce the capex by RM150 million to RM200 million.

So far, the counter has four “buy”, and one “outperform”, “neutral”, “hold” and “under review” calls each, based on Bloomberg data and the latest reports issued by the research houses.


This article appeared in The Edge Financial Daily, December 1, 2011.



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StanChart sees double-digit growth in SME division

KUALA LUMPUR: Standard Chartered Bank Malaysia expects its small and medium enterprises (SME) segment to chart double-digit growth for the coming year, backed by stronger offerings for its customers.

“We are hoping to double our market share over the next three years,” said general manager for SME banking, Standard Chartered Malaysia, Vishal Shah.

Vishal declined to reveal StanChart Malaysia’s market share at the moment, saying that since SMEs cover a wide range of industries, it is hard to interpret an exact figure.

“However, over the past three years we have seen high double-digit growth, between 17% and 18%, for our SME business. This is in terms of revenue and customer balances. So going forward, we are aiming to maintain that level of growth,” said Vishal.

Globally, the SME market is seen as an increasingly important contributor to StanChart Malaysia.

“Between 24% and 30% of StanChart’s consumer banking revenue comes from the SME segment,” said the global head for SME banking, Standard Chartered Bank, Som Subroto.

(From left) Vishal, Som and Tiew Siew Chuen after the launch of its new SME offerings.


“The SME segment has grown at almost twice the rate of gross domestic product in most markets and is expected to grow at 10% to 12% per year across our footprint in Asia, Africa and the Middle East,” Som added.

“Our ambition is to be the leading international bank for SMEs, building the segment into a multi-billion dollar business over the next three to four years.”

Vishal and Som were speaking to reporters after the launch of StanChart Malaysia’s new SME offerings.

Som said StanChart Malaysia’s new SME offerings comprise the best of the solutions for both its retail and corporate segments. Each SME product offers a dedicated relationship backed by a team of specialists and provides easy access to financial services after having invested significantly in infrastructure.

“Our strengthened customer offering is timely in view of the government’s rising interest in spurring the development of a more diverse, competitive and high-growth SME sector,” said Vishal.

According to reports, SMEs comprise 56% of Malaysia’s total workforce and contribute 31% to the country’s GDP.

On whether the current global uncertainty would have an impact on SME activity, Vishal said, “There is no doubt that there will be some impact. However, we are cautiously optimistic for the coming year.”


This article appeared in The Edge Financial Daily, December 1, 2011.



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KLCI pares down gains, struggles to stay above 1,490-level

KUALA LUMPUR (Dec 1): The FBM KLCI pared down its gains on Thursday and slipped to below the 1,490-point level, while regional markets chalked up strong gains as coordinated liquidity action by the major central banks boosted investor sentiment.

The US Federal Reserve, the European Central Bank and the central banks of Canada, Britain, Japan and Switzerland said on Wednesday they would lower the cost of existing dollar swap lines by 50 basis points from Dec 5, and arrange bilateral swaps to provide liquidity for other currencies, according to Reuters.

The FBM KLCI closed 13.16 points higher at 1,485.26. The index had earlier risen to its intra-day high of 1,502.53.

At the regional markets, Hong Kong’s Hang Seng Index surged 5.63% to 19,002.26, Taiwan’s Taiex rose 3.98% to 7,178.69, South Kospi gained 3.72% to 1,916.18, the Shanghai Composite Index added 2.29% to 2,386.86, and Japan’s Nikkei 225 was up 1.93% to 8,597.38 and Singapore’s Straits Times Index rose 2.2% to 2,761.88.

On Bursa Malaysia, BAT was the top gainer and rose RM1.60 to RM48.10; PPB added 52 sen to RM16.58, Cepco rose 40 sen to RM1.91, JobStreet 39 sen to RM2.80, Hong Leong Bank 32 sen to RM10.78, Nestle, Dutch Lady and KLK 30 sen each to RM5.20, RM24.40 and RM21.80 respectively, Shangri-La 28 sen to RM2.38 and Litrak 24 sen to RM3.65.

Genting was the top loser and fell 26 sen to RM10.70; Lafarge Malayan Cement lost 24 sen to RM6.70, MSM 19 sen to RM4.81, Axiata 17 sen to RM4.93, F&N 14 sen to RM18.02, IJM Corp, Tan Chong and MAHB fell 11 sen each to RM5.80, RM4.24 and RM6.08 respectively, while Southern Steel lost 10 sen to RM1.98.

The actively traded counters included Wijaya warrants, Compugates, Utopia, Extol, Karambunai, Hubline and GPRO.



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Boustead REIT NAV rises on revaluation

KUALA LUMPUR: Al-Hadharah Boustead Real Estate Investment Trust’s (Boustead REIT) 15 plantation assets gained a 20.4% or RM215.85 million net surplus after a revaluation exercise to reflect market conditions as required under the fair value model of Financial Reporting Standard 140.

In a filing with Bursa yesterday, Boustead REIT said the carrying value of its plantation assets had increased to RM1.27 billion compared to its net book value of RM1.06 billion as at Sept 30.

“Under the fair value model of FRS 140, the fair value of the plantation assets shall reflect market conditions as at the balance sheet date (that is, the plantation assets are revalued every year. As the fund has adopted the fair value model stipulated in FRS 140, the fund will be required to conduct a yearly revaluation of all its real estate properties,” it said.

The valuations were undertaken by independent professional valuers C H Williams Talhar & Wong Sdn Bhd.

“Based on the unaudited financial statements of the fund as at 30 Sept, the net asset value per unit of the fund of RM1.43 will increase to RM1.77 upon incorporation of the revaluation surplus,” it said.

Boustead REIT fell four sen to RM1.55 yesterday with 4,000 shares traded.


This article appeared in The Edge Financial Daily, December 1, 2011.



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Axiata falls after one-day surge, active after 3Q results

KUALA LUMPUR (Dec 1): Shares of Axiata Group Bhd snapped its one-day price surge, as investors were quick to lock in gains on Thursday after the release of its third quarter results for the period ended Sept 30.

At 3.45pm, it was down 13 sen to RM4.97 with 10.16 million shares done. It has surged 25 sen to RM5.10 on Wednesday, pushing up the KLCI up by 4.10 points.

The KLCI was up 15.41 points to 1,487.51. Turnover was 1.27 billion shares valued at RM1.32 billion. There were 506 gainers, 281 losers and 271 stocks unchanged.

For the nine months, its earnings fell 15.7% 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.

In the third quarter ended Sept 30, its earnings fell 7.7% to RM589.62 million from RM639.12 million a year ago on foreign exchange translation losses and higher costs.

UOB Kay Hian Malaysia Research said Axiata’s core nine-month results were broadly in line with its and consensus 2011 estimates.

However, it expected little excitement from Axiata in the medium term as the group focuses on building broadband capacity in this region. In its latest guidance, Axiata raised its capex budget to RM4.4 billion for 2011 vs RM3.9 billion earlier (guidance). This is due to the aggressive network rollout by XL.

“Hold call and sum-of-parts target price of RM5.20 are under review pending an analyst briefing. Its share price was ramped up at closing yesterday, but we see significant change in the fundamentals of the group to justify the market’s excitement. Although we think Axiata has the capacity to pay more dividends, the group is expected to hold on to its cash pile in anticipation of potential in-country consolidation in the medium term,” it said.



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MyEG 1Q net profit up 92%

KUALA LUMPUR: E-government services provider My EG Services Bhd’s 1QFY12 ended Sept 20 net profit rose 91.9% to RM5.4 million from RM2.8 million a year ago, on higher revenue driven by growth from the online renewal of auto insurance, road tax transactions and its related services.

MyEG’s revenue grew 18.2% to RM14.2 million from RM12 million previously, it said in an announcement yesterday.

Group revenue was also boosted by the deployment of more e-service kiosks and the introduction of new cloud computing-based services.

“The quarter under review saw the group incurring higher depreciation in tandem with the additional e-service kiosks,” it said.

MyEG increased the number of kiosks to 495 as at end-June, compared with 345 in the previous financial year.

The e-services provider also attributed the improved earnings to trimming of marketing expenses in 1QFY12. In the previous financial year, MyEG had incurred one-off costs for advertising and promotion for World Cup 2012.

“With the increased number of e-service touchpoints and greater operations efficiency from cloud computing, we anticipate growing adoption of our existing and upcoming e-government services,” said executive chairman Datuk Dr Norraesah Mohamad.

MyEG rose half a sen to close at 61 sen yesterday with 369,700 shares done.


This article appeared in The Edge Financial Daily, December 1, 2011.



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Axiata 3Q profit slips 7.8%

KUALA LUMPUR: Axiata Group Bhd’s net profit fell 7.8% to RM589.6 million for its third quarter ended Sept 30, 2011 (3QFY11) compared with RM639.13 million a year earlier due to foreign exchange translation losses and higher operating cost.

For the three months in review, Axiata’s revenue grew 6.3% to RM4.19 billion from RM3.94 billion a year ago. Basic earnings per share was seven sen compared with eight sen a year earlier.

It said at constant currency using 3Q10 exchange rate, group revenue would have seen higher growth of 8.3% year-on-year. Furthermore, operating costs rose 12.9% to RM2.3 billion in 3QFY11 from RM2.1 billion a year ago, mainly driven by its key units PT XL Axiata Tbk, Celcom Axiata Bhd and Dialog Axiata plc.

For the nine-month period ended Sept 30, 2011 (9MFY11), Axiata’s net profit fell 15.9% to RM1.8 billion from RM2.14 billion. Revenue rose 5% to RM12.18 billion from RM11.6 billion. Its basic EPS fell to 21 sen from 25 sen.

In its filing with Bursa Malaysia, Axiata attributed the better revenue to higher contribution from its key operating companies.

The group’s mobile subsidiaries are Celcom in Malaysia, XL in Indonesia, Dialog in Sri Lanka, Robi Axiata Ltd in Bangladesh, and Hello Axiata Co Ltd in Cambodia. It also has significant strategic stakes in Idea Cellular Ltd in India, and M1 Ltd in Singapore.

“Robi’s revenue grew by 17.9% mainly due to increase in prepaid usage and 32% increase in prepaid revenue generating subscriber base. Dialog Axiata plc’s revenue grew 9.7% mainly from increase in interconnect and data revenue, both increased by more than 100%,” it said.

It also noted that XL’s revenue growth of 7.8% for the nine-month period was mainly from increases in subscriber base and outgoing SMS by 6.7% and 44.5% respectively. Celcom’s revenue grew by 3.9% driven by postpaid and broadband revenue growth of 8.8% and 24.9% respectively.

Axiata said the group’s operating costs rose by 9.4% to RM6.87 billion from RM6.28 billion a year earlier, due to higher network related costs and marketing cost.

“Other operating income of the group decreased by 88.6% to RM44.3 million from RM389.5 million in the corresponding period last year, mainly arising from one-off gain on disposal of shares in XL of RM337.9 million last year,” it said.

Axiata’s depreciation, impairment and amortisation rose 4.8% to RM2.25 billion due to higher capital expenditure in XL and Celcom, and accelerated depreciation arising from network upgrade in Celcom and Robi.

“I am quite pleased to see sequential improvements across almost all operating companies in the third quarter, despite an increasingly difficult operating landscape. Particularly pleasing are the positive results seen at Celcom in voice, which saw good quarterly growth on the back of aggressive voice resuscitation campaigns,” said president and group CEO Datuk Seri Jamaludin Ibrahim.

Moving forward, Jamaludin said Axiata would retain its return on investment capital target for 2011 of 16.5% whilst moderating its revenue and earnings before interest, taxes, depreciation, and amortisation (Ebitda) growth expectations, given the challenging operating landscape. Axiata has targeted 10% and 10.3% growth for its revenue and Ebitda respectively.

“Alongside this, we will re-emphasise on internal efficiencies as we continue to invest in the early growth phase of our transformation into a data-centric company beyond voice,” he added.

Axiata gained 25 sen to close at RM5.10 yesterday with 10.23 million shares changing hands.


This article appeared in The Edge Financial Daily, December 1, 2011.




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Celcom and PLDT ink MVNO pact

KUALA LUMPUR: Celcom Axiata Bhd has signed a shareholder agreement with Philippines’ PLDT Global Corp (PGC) to establish a mobile virtual network operator (MVNO) in Malaysia.

Under the agreement, Celcom Axiata and PGC will hold 49% and 51% stakes respectively in PLDT Malaysia Sdn Bhd.

PLDT Malaysia has a paid-up capital of RM6 million, divided into six million shares. “The subscription by Celcom of its 49% equity interest in PLDT for the sum of RM2.94 million will be funded through internally generated funds,” Celcom Axiata said in a filling with Bursa Malaysia.

PLDT Malaysia will offer mobile prepaid services under the brand name SMART Pinoy, targeted at Filipino migrant workers in Malaysia.

“By tapping into PGC’s knowledge of the Filipino market and leveraging its SMART brand name among the Filipinos, Celcom will be able to better reach this segment of migrant workers,” said Celcom Axiata CEO Datuk Seri Shazalli Ramly.

This is the fifth MVNO partnership for Celcom Axiata after REDtone, Tunetalk, XOX and Merchant Trade.

Shazalli (second from left) and Ernesto R Alberto, senior vice-president and head, enterprise and international and carrier business groups of PLDT and SMART Communications Inc presenting the SMART Pinoy SIM pack to the Philippines Ambassador to Malaysia Jose Eduardo Malaya (centre). Also present were Celcom chief sales and commercial officer Eric Chong (left) and PLDT Global Corp president and CEO Alejandro O Caeg.


According to Bernama, Shazalli said Celcom Axiata is targeting 10% contribution to its total revenue from the MVNO business by 2015.

It has 1.2 million active MVNO subscribers, contributing 5% to the group’s total revenue for the nine-month period ended Sept 30.

Celcom Axiata gained 25 sen to close at RM5.10 yesterday with 10.23 million shares done.


This article appeared in The Edge Financial Daily, December 1, 2011.



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ECM Libra IB sale back on?

KUALA LUMPUR: K&N Kenanga Holdings Bhd has cleared the first hurdle to acquiring ECM Libra Financial Group Bhd’s investment banking unit after receiving the go-ahead from Bank Negara Malaysia (BNM) some three weeks ago, according to sources.

After months of speculation, sources told The Edge Financial Daily that Kenanga will only be acquiring ECM Libra’s investment banking unit rather than the entire listed entity.

The sources said the consideration will be in cash. This will make ECM Libra a cash-rich entity, and enable it to pursue new business interests.

In the current global economic conditions, ECM Libra may be able to acquire new businesses at depressed prices, but what businesses the company might be looking at is not known.

An analyst noted that ECM Libra is increasingly acting like an asset management company, having made substantial investments in companies such as AirAsia Bhd and Eastern & Oriental Bhd.

It is learnt that BNM had approved the application towards the end of October and both parties are currently awaiting a decision by the Securities Commission (SC) pending several minor details. If all goes according to plan, negotiations will commence as soon as the regulatory approvals are secured.

If negotiations are successful, shareholder approval will be needed from both groups to finalise the acquisition. The whole process could be completed as early as 1Q next year.

Sources also revealed that BNM had received the merger and acquisition (M&A) application from the two groups sometime in late September to October.

This was roughly two to three months after The Edge had reported in July that merger talks were stalled due to issues relating to pricing and non-performing loans.

Earlier in April, The Edge had reported that the two companies were exploring a potential merger.

It was widely known at the time that Tan Sri Azman Hashim was looking to exit his position in ECM Libra as under the Banking and Financial Institutions Act, an individual is not allowed to hold substantial stakes in more than one financial institution.

Azman had a deemed interest of 23.85% (as at April 6) in ECM Libra, as stated in its 2011 annual report, and a 16.78% indirect stake (as at July 30) in AMMB Holdings Bhd, as noted in its 2011 annual report.

ECM Libra’s disposal of its investment banking business should remove the onus on Azman to sell down his stake in ECM Libra.

The co-founders of ECM Libra, Lim Kian Onn and Datuk Seri Kalimullah Masheerul Hassan have a 9.62% and 3.95% stake in the company respectively.

ECM Libra’s net profit for its 2Q ended July 31 saw a stellar improvement of 189.12% to RM14.62 million from RM5.06 million in the quarter last year.

Cahaya Mata Sarawak Bhd (CMS) is Kenanga’s largest shareholder with a 25.07% stake followed by Deutsche Asia Pacific Holdings Pte Ltd and Tengku Noor Zakiah Tengku Ismail with a 16.55% and 7.5% stake respectively.

Kenanga saw a major improvement for 2Q ended June 30, returning to the black with a net profit of RM5.58 million compared to a loss of RM21.49 million in the corresponding period last year.

Earnings for the potential acquirer have been volatile, having suffered a loss for the year ended Dec 31, 2010 of RM50.63 million due to a huge impairment of loans amounting to RM88 million.

ECM Libra’s shares shed 1.5 sen to close at 78 sen on the back of 596,100 shares traded while Kenanga rose two sen to 70 sen on thin volume of 25,600 shares.


This article appeared in The Edge Financial Daily, December 1, 2011.



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CIMB venturing into Sri Lanka

KUALA LUMPUR: Malaysia’s second largest banking group by assets, the CIMB Group is considering venturing into Sri Lanka, specifically the stockbroking and commercial banking segments, said CEO Datuk Seri Nazir Razak.

He was speaking to reporters here yesterday at the “Invest Sri Lanka: Opportunities in a New Era” conference organised by CIMB and the Colombo Stock Exchange (CSE).

“As we understand Sri Lanka better and as we get momentum, then obviously we will look to diversify into more capital-intensive activities and that would include going into stock brokerage ourselves and also potentially into banking. Those are future possible moves for CIMB,” he said.

Nazir said CIMB is the first international investment bank to open a local office in Sri Lanka.

On Aug 4, CIMB entered into a joint venture with two leading Sri Lankan individuals to establish an investment banking and corporate advisory presence in Sri Lanka. CIMB holds a 51% stake in the joint venture through its wholly-owned subsidiary CIMB Securities International Pte Ltd, with the remaining 49% held by the other two individuals.

“CIMB’s current platform is an investment advisory platform. The investment capital is small at US$2 million [RM6.34 million], which involves hiring people for advisory work in Sri Lanka,” Nazir said.

Nazir says different markets require different entry methods.


Sri Lanka central bank governor Ajith Nivard Cabraal (left) shakes hands with CIMB Group CEO Datuk Seri Nazir after the launch of CIMB's Invest Sri Lanka 2011 conference organised by CIMB and the Colombo Stock Exchange.



Asked about the timeline for CIMB’s possible diversification in Sri Lanka, Nazir said: “Different markets require different entry methods, so we will wait and see.”

The conference aimed to provide a snapshot of what lies ahead for the Sri Lankan economy and why Sri Lanka is one of the most exciting investment destinations currently in the world.

Nazir said despite the tolls of unrest in Sri Lanka, the country’s economy has averaged 4.8% annual growth over the past 30 years.

“Sri Lanka is a great place for our corporates and institutions to look at investing,” said Nazir.

“It’s still a young capital market and stock exchange. But if you look at many of these young exchanges over the past few years, it can indeed grow extremely rapidly when the conditions are right,” he added.

Nazir said CIMB has been bringing a lot of investors from Asean to Sri Lanka to look at direct investment opportunities. At the same time, he said, CIMB is also soliciting for Sri Lankan corporates to help these investors raise capital either through equity or debt.

During the conference, CSE’s chairman Krishan Balendra pointed out that the exchange’s All Share Price Index achieved remarkable heights in 2009 and 2010, with the CSE being ranked as the second best performing market in the world in both years.

CIMB said the Sri Lankan government is targeting to double GDP per capita to US$4,000 by 2016 and reach US$6,000 per capita in 10 to 12 years — equivalent to Malaysia’s GDP per capita in 2009.

According to CIMB, CSE’s market capitalisation is equivalent to only 30% of Sri Lanka’s GDP, significantly lower than India (94%), Malaysia (173%), Indonesia (51%), Bangladesh (47%), and Thailand (87%).

In 2009 and 2010, the CSE was Asia’s best performing market, emerging an investor favourite after the end of the 26-year civil war which started in 1983.


This article appeared in The Edge Financial Daily, December 1, 2011.



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