Tuesday, 6 December 2011

MAHB willing to ink SLA with AirAsia

KUALA LUMPUR (Dec 6): Malaysia Airports Holdings Bhd (MAHB) has indicated its willingness to have a service-level agreement (SLA) with AIRASIA BHD [] at the Kuala Lumpur International Airport and Low-Cost Carrier Terminal (LCCT) in response to the low-cost carrier's call for a specific SLA.

In a statement issued nearly nine hours after a press conference by AirAsia on Tuesday, MAHB said it was currently awaiting the low-cost carrier's proposal on the SLA for further study and consideration.

A service-level agreement is part of a service contract where the level of service is formally defined. In practice, the term SLA is sometimes used to refer to the contracted delivery time (of the service) or performance.

The current LCCT's main occupant, AirAsia, is currently under a Conditions of Use (CoU) agreement with MAHB.

The airport operator has a CoU agreement with its airlines partners as well as the ground handlers at KLIA.

"The CoU provides guidance on the use of airport facilities particularly in regard to the safe and secure use of the airport, as well as a schedule of applicable airport charges.

"This is very much in line with the common industry practice.

"We would also like to reiterate that the airport charges, both current and future, are regulated by the government and the mechanisms for future increases have been clearly defined in our Operating Agreement with the Government," MAHB said.

In a related development, MAHB dismissed calls by AirAsia to establish a Joint Working Committee, saying the weekly meetings with AirAsia and other stakeholders serve as a platform for all views and requirements to be discussed and addressed, and most of AirAsia's requests have been complied with.

"Only issues which have financial implications are referred to the Board. We will continue to engage AirAsia during the weekly meetings.

"It has always been Malaysia Airports' view that in dealing with our partners, issues raised by either party are best resolved through proper consultation," it said.

The airport operator said however, from time to time, it is duty bound to make clarifications so that the public receive accurate information and a balanced perspective.

On claims by the budget carrier that the land chosen to develop KLIA2 is not suitable, MAHB said the present site for KLIA2 was selected based on the National Airport Master Plan (NAMP) after a detailed and comprehensive study involving all MAHB's stakeholders including the Transport Ministry, Department of Civil Aviation, Finance Ministry, Home Affairs Ministry and all airlines including AirAsia.

"We hope that with the clarifications made above and over the past week on some of the issues raised, we can now move forward and work together with our partners in ensuring the successful development of KLIA2 for the good of the country," MAHB said. - Bernama

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Stocks to watch: Guocoland, CBIP, Ekovest, MRCB, Wijaya Baru

KUALA LUMPUR (Dec 7): Investor sentiment at the local stock market is likely to remain cautious on Wednesday in line with the overall tepid mood at key regional markets a day earlier after Standard & Poor's warned it might downgrade top-rated Germany and other euro zone countries.

S&P had placed the ratings of 15 euro zone countries on credit watch negative, including the region's two biggest economies Germany and France, and said "systemic stresses" are building as credit conditions tighten in the 17-nation region.

However, analysts say they are cautiously optimistic that European policymakers would make some progress in finding a solution to the eurozone debt crisis at the summit later this week, and as such the decline at the stock market was not expected to be severe, with the exception of further shocks like credit rating downgrades.

On Bursa Malaysia, among the stocks that could be in focus are GUOCOLAND (MALAYSIA) BHD [], CB INDUSTRIAL PRODUCT HOLDING [] Bhd (CBIP), EKOVEST BHD [], MALAYSIAN RESOURCES CORPORATION BHD and Wijaya Baru Global Berhad.

Guocoland’sunit is acquiring 46.72 acres of land worth RM107.8 million in the Cheras locality as part of its land bank expansion plan for future developments.

Its unit Ace Acres Sdn Bhd had entered into a sales and purchase agreement with Bond Corporation Sdn Bhd to acquire nine parcels of land located in Cheras and Mukim Petaling.

Meanwhile, CBIP secured a RM17.88 million contract from Felda Palm Industries Sdn Bhd for the conversion of the Trolak palm oil mill in Sungkai, Perak. Its unit Modipalm Engineering Sdn Bhd has accepted the letter of award to build and install the mill.

Ekovest - MRCB JV Sdn Bhd (EMJV) was picked the be the project delivery partner (PDP) by the government for to assist in the implementation and delivery of the River of Life (ROL) project.

EMJV is a joint venture between Ekovest Bhd and Malaysian Resources Corporation Bhd, where Ekovest will subscribe to 60% of the issued and paid up capital of the Company, while MRCB will subscribe to the remaining 40%. EMJV said it would earn a maximum fee of RM22 million or 1% of the total projected works to be delivered over three years.

It will also receive monetary incentives for the work done and the contract is expected to contribute positively to its future earnings.

Meanwhile, Wijaya Baru received its shareholders’ nod to acquire US$80 million in timber and palm oil concessions from Wealth Gate Pte Ltd and Suffolk Pte Ltd.

Wijaya will acquire 100% of Suffolk and Wealth Gate's shares, giving Wijaya ownership of two 40,000 ha plots of land in Irianjaya which can be converted into oil palm PLANTATION []s.

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Market Commentary

The FBM KLCI index lost 9.03 points or 0.61% on Tuesday. The Finance Index fell 0.72% to 13183.5 points, the Properties Index dropped 0.59% to 951.65 points and the Plantation Index down 0.37% to 7848.06 points. The market traded within a range of 6.69 points between an intra-day high of 1484.81 and a low of 1478.12 during the session.

Actively traded stocks include UTOPIA, WIJAYA-WA, SANICHI, COMPUGT, PROTON-CG, UTOPIA-WA, MLAB-WA, MLAB, MBFHLDG-WA and DRBHCOM-CG. Trading volume decreased to 2261.26 mil shares worth RM1304.55 mil as compared to Monday’s 2329.37 mil shares worth RM1333.67 mil.

Leading Movers were PBBANK (+6 sen to RM12.72), MAXIS (+5 sen to RM5.50) and PETGAS (+2 sen to RM13.98). Lagging Movers were CIMB (-12 sen to RM7.09), MAYBANK (-9 sen to RM8.20), TENAGA (-7 sen to RM5.65), GENTING (-10 sen to RM10.82) and AXIATA (-4 sen to RM4.95). Market breadth was negative with 255 gainers as compared to 493 losers.

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Guocoland buys 46.7 acres in Cheras for RM107m

KUALA LUMPUR (Dec 6): GUOCOLAND (MALAYSIA) BHD []’s unit is acquiring 46.72 acres of land for RM107.8 million around Cheras to expand its land bank for future development which includes residential PROPERTIES [].

Guocoland said on Tuesday that the unit Ace Acres Sdn Bhd had entered into a sales and purchase agreement with Bond Corporation Sdn Bhd to acquire nine parcels of land in Cheras and Mukim Petaling.

It said the land was about 10km south of Kuala Lumpur city centre and located between two prominent townships -- Alam Damai and Bandar Damai Perdana -- in the Cheras locality. Other neighbourhoods are Taman Connaught, The Peak Cheras and Taman Len Sen, it said.

Guocoland said that the proposal was to build bungalows, semi-detached houses, superlink houses, condominiums and shophouses.

The purchase of the land is RM53 psf and will be financed from borrowings, it said.

Guocoland said the acquisition was to increase its land banks in strategic locations for future developments and it expected the projects to boost the group's earnings.

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Ekovest-MRCB JV picked PDP for River of Life

KUALA LUMPUR (Dec 6): Ekovest - MRCB JV Sdn Bhd (EMJV) has been appointed the project delivery partner (PDP) by the government to assist in implementing the River of Life (ROL) project.

EMJV is an EKOVEST BHD [], MALAYSIAN RESOURCES CORP []oration Bhd (MRCB) joint venture, where Ekovest will subscribe to 60% of the company's paid-up and MRCB the remaining 40%.

The ROL project is an Entry Point Project in the Greater Kuala Lumpur National Key Economic Area under the Government’s Economic Transformation Programme.

The project's objective is to transform the rivers running through the heart of Kuala Lumpur by undertaking river rehabilitation, beautification of riverbank and river corridor development. It involves rehabilitation of Sungai Kelang and Sungai Gombak and the beautification of an initial 10.7km stretch.

EMJV’s PDP service will be three years with a projected contract value of RM2.2 billion.

In a statement Tuesday, EMJV said it would earn a maximum fee of RM22 million or 1% of the total projected works to be delivered over a three year period.

It will also enjoy monetary incentives with respect to the work done, it said, adding that the contract was expected to contribute positively to its future earnings.

EMJV director KC Lim said with the combined strength and expertise of both JV partners, it was confident of successfully implementing the project as the PDP, as well as fulfilling the KPIs to enjoy the performance incentives offered by the government. As the PDP, EMJV will monitor and coordinate the inter agency cooperation.

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Bank Islam 9-month profit up 41.7% to RM341.9m

KUALA LUMPUR (Dec 6): Bank Islam Malaysia Bhd's profit before zakat and tax increased 41.7% to RM341.9 million in the first nine months of FY11, boosted by a better product mix and robust financing growth.

The banking group said on Tuesday that its revenue for 9M11 was up by 12.1% year-on-year (y-o-y) to RM1.2 billion despite a slower expansion rate of 9.4% for fund-based income a year ago.

Net financing growth rose 14.9% y-o-y to RM13.3 billion, while non fund-based income increased 38.1% y-o-y to RM135.6 million for 9M11, it said.

Customer deposits were RM26.1 billion, of which current and savings accounts (CASA) accounted for RM11.2 billion with CASA-to-deposits ratio high at 42.8%.

In a statement Dec 6, Datuk Seri Zukri Samat, managing director, attributed the strong numbers to robust financing growth, better product mix, continued improvement in asset quality as well as increased contributions from non-fund based income and cost containment measures.

Zukri said that recognising the many challenges ahead amidst the impending global slowdown and a host of other downside risks to the operating environment, Bank Islam would continue to remain vigilant in its asset acquisition and conduct prudent, responsible and transparent financing practices through adequate customer affordability evaluations and increased disclosure, all the for the purpose of enhancing consumer protection.

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Toyo Ink requests for trading halt on Wednesday

KUALA LUMPUR (Dec 6): Trading in the securities of TOYO INK GROUP BHD [] will be suspended from 9am to 5pm on Wednesday, Dec 7 pending a material announcement.

It said on Tuesday that Bursa Malaysia Securities had approved the company’s request for a trading halt.

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CBIP unit gets RM17.88m contract from Felda

KUALA LUMPUR (Dec 6): CB INDUSTRIAL PRODUCT HOLDING [] Bhd has secured a RM17.88 million contract from Felda Palm Industries Sdn Bhd for the conversion of the Trolak palm oil mill in Sungkai, Perak.

CBIP said on Tuesday its unit Modipalm Engineering Sdn Bhd had accepted the letter of award for the conversion of the mill.

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Bangkok Bank to move HQ to Golden Triangle

KUALA LUMPUR: Bangkok Bank Bhd, the Malaysian unit of Thailand’s largest commercial bank Bangkok Bank Pcl, has bought property units worth RM110 million from Berjaya Corp Bhd in its development at Jalan Ampang.

The bank entered into an agreement yesterday with Wangsa Tegap Sdn Bhd, a wholly-owned subsidiary of Berjaya Corp, for the purchase of eight levels of corporate suites and commercial spaces on the ground and mezzanine floors of the Berjaya Central Park development.

The eight levels of corporate suites, which occupy a total of 99,950 sq ft, will house Bangkok Bank’s new headquarters, while the ground and mezzanine floors covering an area of over 6,000 sq ft will house the banking halls. The units cost roughly RM1,100 per sq ft.

Bangkok Bank will move its headquarters from downtown KL to the 46-storey tower — to be named Menara Bangkok Bank, where it will be the anchor owner when the building is completed in 25 months, sometime in 1Q14.

Robert Loke, the executive director and CEO of Bangkok Bank, told the press that there are no plans yet to sell or lease out its current headquarters in Jalan Tun HS Lee, but all options will be explored. Bangkok bank commenced operations in Malaysia in 1959.

In the last 1½ years, Bangkok Bank has opened four new branches in Malaysia, said Loke. The new branches are located at Jalan Bakri, Muar, Taman Molek, Johor Baru, Penang Auto City, Penang, and Bandar Botanic, Klang, Selangor.

As part of its long-term expansion plans, the bank may open as many as four additional branches in the next four to five years, said Loke who could not provide specifics.

Federal Territories and Urban Wellbeing Minister Senator Datuk Raja Nong Chik Raja Zainal Abidin (left) and Berjaya Corp Bhd CEO Datuk Robin Tan looking at the scale model of Berjaya Central Park.

Loke said each branch costs RM1 to RM2 million to open, compared with the estimated cost of its new headquarters of at least RM110 million.

Loke declined to comment on whether Bangkok Bank is looking at opening branches in Sabah and Sarawak, but he noted that it has customers there.

Bangkok Bank has not been expanding as rapidly as the other foreign banks, but Loke said the new headquarters in the middle of the Golden Triangle will boost its prominence in Malaysia.

On the outlook for the banking sector, Loke said, “Malaysia is very robust. If you look at the 2008/09 crisis, we’ve managed to recover very well.

“Fortunately, we are quite insulated from the troubles in Europe and the US. However if Europe and the US do not manage the crisis well and things over there get much worse, we will still feel the effects.”

Loke’s outlook is optimistic but he noted, “There may be some impact in 2H12 due to lag.”

At the same event, Vinci-MHPT Consortium was awarded the building contract for the Berjaya Central Park development. The contract includes the podium and the Menara Bangkok Bank corporate suite tower and the structural framework for the residence tower.

Berjaya Corp has previously worked with Vinci-MHPT, the biggest construction firm in Europe, on the construction of Berjaya Times Square, Kuala Lumpur.

Michel Oliveres, chairman of the executive committee of Vince-MPHT, told the press conference that the basement carpark on which Berjaya Central Park will be built has already been modified to accommodate the development.

Each of the 37 floors of Menara Bangkok Bank has 13,100 sq ft of net lettable space, with the lower nine floors consisting of the podium and carpark levels.

Datuk Francis Ng, director of Wangsa Tegap, said that over 300,000 sq ft, excluding Bangkok Bank’s eight floors, have yet to be taken up and the minimum price per sq ft will be RM1,100.

Berjaya is hoping to secure an anchor tenant before it launches the remaining floor spaces, said Ng.

The residence tower is to be managed by the Ritz-Carlton. Ng said Berjaya Corp is awaiting internal layout designs from Ritz-Carlton, which may add 15 to 20 months to the development time of the residential towers.

He told press that the residence tower, which is the same height as Menara Bangkok Bank will have 48 floors in total instead and should fetch at least RM2,200 psf.

This article appeared in The Edge Financial Daily, December 6, 2011.

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Proton in need of a local suitor

Proton Holdings Bhd (Dec 5, RM 4.50)
Maintain buy with revised fair value RM5 from RM2: The Edge weekly reported this week that Proton Holdings Bhd’s major shareholder Khazanah Nasional Bhd, which owns a 42% stake, is seeking a possible divestment of as much as 30% of its stake to interested parties.

It is understood that several local auto manufacturers have been approached. DRB-Hicom Bhd has expressed strong interest, as well as the management of Proton (through a management buyout). Sime Darby Bhd, UMW Group, Naza Group of Companies and Hyundai-Berjaya Corp Bhd were approached but were not interested.

Over the past few weeks, Proton’s share price has rallied strongly on massive volumes last seen in early 2007, when its potential acquisition by Volkswagen collapsed. The strong rally in its share price of late was fuelled by a rumour that DRB-Hicom, which has been courting Proton over the years, is keen to buy the 30% stake held by Khazanah at the price of RM8 per share, valued at 0.96 times price per net tangible assets (P/NTA). At such a price, this deal could be worth RM1.3 billion.

Given that Khazanah would want to keep the ownership of Proton in local hands, it makes perfect sense to think that DRB-Hicom would be the best candidate.

Proton’s Tanjung Malim plant, which is significantly underutilised, could be used as Volkswagen’s Asean manufacturing hub, noting that DRB-Hicom has plans to localise production of at least three Volkswagen product line-ups.

We also understand the localisation is being postponed to 2013 from end-2011 due to capacity constraints at its Pekan plant. The presence of Volkswagen in this picture will add value to Proton, as this will give Proton global market accessibility upon the exchange of a joint technology product development with Volkswagen.

We understand that in 2010 Volkswagen was interested in renegotiating with Proton a potential strategic partnership to localise production of Volkswagen cars but the deal eventually reached a stalemate, which led to Volkswagen partnering with DRB-Hicom instead. — OSK Research, Dec 5

This article appeared in The Edge Financial Daily, December 6, 2011.

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Non-interest income key drag on earnings for banks

Malaysian banks
Net interest income improved despite a softer net interest margin (NIM), thanks to loan growth (+4% quarter-on-quarter [q-o-q), 9MFY11: 9%). Non-interest income was the key drag on earnings with mark-to-market losses from interest rate swaps and derivatives, and lower fee income from treasury and unit trusts. These left pre-provision profits flat q-o-q.

Provisions fell due to recoveries coupled with higher provisions set aside in the quarter before. Gross non-performing loan (NPL) ratio improved to 3% against 3.2% in 2QFY11, while absolute NPLs fell further, easing concerns of asset quality stress. Malayan Banking Bhd’s (Maybank) NPL ratio continued to improve despite the uptick in PT Wahana Otomitra Multiartha Finance’s (WOM Finance) NPLs, as its used motorcycle exposure is largely contained.

Loan growth had moderated slightly since early 3QFY11, but loan applications and approvals surged in October this year. We are retaining our 14% loan growth target for FY11, but trim FY12’s marginally to 13% after cutting assumptions for CIMB Group and AMMB Holdings Bhd. New private debt security issuances grew 49% (RM56 billion until October 2011 against RM37 billion the same period last year) and the pipeline remains healthy.

We expect NIM to weaken further as competition for deposits drives up funding costs, while loan pricing remains competitive. Banks with Indonesian operations (BII and CIMB Niaga) are also expected to see weaker NIMs due to higher funding costs.

We sense that some local banks are shying away from competing in mortgages and are seeking to improve NIM by focusing on higher yielding auto, personal and SME loans. Asset quality should remain under control given Bank Negara Malaysia’s rules for prudent retail lending.

We like Alliance Financial Group (“buy”, target price [TP]: RM4.30) for its scalable domestic franchise and non-interest income traction, which ensures sustainable earnings and return on equity. Among large caps, we prefer Maybank (“buy”, TP: RM10.60) for its resilient transactional banking income and dividend yields. We also like Hong Leong bank Bhd (“buy”, TP: RM16) for merger synergies. — HwangDBS Vickers, Dec 5

This article appeared in The Edge Financial Daily, December 6, 2011.

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Glomac building warchest for landbanking

Glomac Bhd (Dec 5, 86 sen)
Maintain hold with revised target price of 88 sen from 73 sen: Glomac’s RM35 million 1HFY12 core net profit accounted for 45% of our and consensus full-year estimates. With close to RM50 million (8.6 sen per share) net cash, Glomac is in a good position for accretive landbanking opportunities.

We raise FY13/FY14 earnings forecasts by 4% and revalued net asset value (RNAV) by two sen. We now value Glomac at 88 sen on a lower 40% discount (previously 50%). The formalisation of Bank Negara Malaysia’s prudent lending guidelines should remove surrounding policy risk.

Excluding RM6.5 million net gains from the 49%-owned Thai warehouse disposal, Glomac’s 1HFY12 net profit rose by 12% year-on-year (y-o-y). The y-o-y growth in net profit was due to lower minority interest as its 51%-owned Glomac Tower was completed and handed over in November 2011.

Glomac has locked in RM212 million sales in 1HFY12 (Glomac Damansara: 41%; Glomac Rawang: 30%), meeting 42% of its RM500 million target for 2012. We expect sales to pick up in 2H with the launch of RM770 million new projects including: (i) RM370 million BU Centro @ Bandar Utama (phase 1; service apartments at RM560 per sq ft (psf) average selling price and shop offices at RM2.1 million per unit ASP); and (ii) RM270 million Reflection Residences @ Mutiara Damansara (RM750psf ASP).

Post completion of its Thai warehouse sale, Glomac’s net cash position has further improved to RM50 million (or 8.6 sen per share) as at October 2011, from RM13.5 million (2.3 sen per share) as at end-1QFY12. With a stronger war chest, Glomac is looking to expand its landbank aggressively.

It is eyeing both big parcel tracts (more than 161.8ha for township development) and smaller sizes for pocket developments in the Klang Valley.

We raise our FY13/FY14 forecasts by 4% to factor in higher gross development values for Reflection Residences (to RM270 million, from RM250 million) and BU Centro (to RM520 million, from RM400 million) as guided by management.

Management aims to distribute at least 4.75 sen this financial year-end, translating into a 5.8% yield (compared with our 6.5% yield based on 30% payout ratio). — Maybank IB Research, Dec 5

This article appeared in The Edge Financial Daily, December 6, 2011.

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TNB positive on new PPA with Tanjung Bin

Tenaga Nasional Bhd (Dec 5, RM 5.72)
Maintain buy with fair value of RM5.47: We reiterate our “buy” call on Tenaga Nasional Bhd (TNB) with an unchanged discounted cash flow-derived fair value of RM6.57 per share, which implies a CY12F price earnings ratio (PER) of 12 times.

We maintain FY12F to FY14F earnings which incorporate the one-off RM2 billion fuel relief provided for the natural gas shortage and assumption of normalised fuel costs. Recall that TNB had received a letter last week from the government that provides a fuel cost sharing mechanism to address the current increased cost borne by the group due to the gas shortage.

TNB has signed a power purchase agreement (PPA) with Malakoff’s wholly-owned Tanjung Bin Energy Sdn Bhd to design, construct, own, operate and maintain an additional 1,000MW plant to the existing 2,100MW plant in Tanjung Bin, Johor.

The PPA covers the purchase of daily available capacity and despatch of net electrical output for 25 years from the commercial operation date, which is expected on March 1, 2016. The actual tariff rate has not been revealed at this juncture.

TNB’s wholly-owned TNB Fuel Services Sdn Bhd has also signed a coal supply and transport agreement to sell coal to Tanjung Bin Energy for its new coal plant.

We understand that the equity internal rate of return (IRR) of this new Tanjung Bin power plant is 8.5%. Given that the project IRR is at 5%, we estimate that the new plant will be funded on an equity-to-debt ratio of 20:80.

As these IRRs are much lower than the third generation power plants, around 11% to 12%, we expect TNB’s cost efficiencies to gradually improve over the next five years.

Together with TNB’s additional 1,000MW block at its coal-fired Janamanjung plant in Lumut, the additional capacities are clearly needed by 2016 to raise Peninsular Malaysia’s power reserve margin to over 20%.

TNB’s power generation mix currently has 45% coal, which is expected to reach over 50% in 2016. But we expect TNB’s strategy to return to natural gas fired plants given Petroliam Nasional Bhd’s upcoming re-gassification plants, initially in Malacca while the next two will be in Pengerang, Johor and Lumut, Perak.

The stock currently trades at a price-to-book value (P/BV) of one time, at the lower range of one to 2.6 times over the past five years. Earnings-wise, TNB offers an attractive CY12F PER of 10 times compared with the stock’s three-year average band of 11 times and 16 times. — AmResearch, Dec 5

This article appeared in The Edge Financial Daily, December 6, 2011.

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Proton exercise picks up pace

KUALA LUMPUR: Proton Holdings Bhd continued to attract a frenzy of investor interest amid speculation that a corporate exercise is in the offing, with DRB-Hicom Bhd emerging as the likely suitor. The share price shot up by another 89 sen yesterday to close at RM4.50.

DRB-Hicom also saw a significant rise in its share price, gaining 20 sen to end trading at RM2.20, its highest since early August this year. Over the weekend, Proton chairman Datuk Mohd Nadzmi Mohd Salleh confirmed there is a corporate exercise in the offing at Proton but declined to elaborate.

Tan Sri Syed Mokhtar Al-Bukhary, who controls DRB-Hicom, is believed to be in negotiations with Maybank Investment Bank (Maybank IB) to craft a deal in his bid to take control of national automaker Proton, sources said.

“Maybank IB is to assist and handle the required merchant banking work as well as possible funding for its proposal to take over the automaker,” said a source. Maybank IB officials could not be reached for comment.

Maybank IB’s appointment should not come as a surprise as the investment bank has been doing the lion’s share of Syed Mokhtar’s work since one of his first major corporate exercises, the injection of the Port of Tanjong Pelepas (PTP) into MMC Corp Bhd in 2005.

Based on the share price movement, the market seems to have accepted that DRB-Hicom is to be Syed Mokhtar’s vehicle to amalgamate his interests in the automotive industry. But the company’s top officials have denied any interest in Proton

Syed Mokhtar has a 56% interest in DRB-Hicom.

Syed Mokhtar has a 56% interest in DRB-Hicom Bhd which has an assembly plant in Pekan, Pahang.

Yesterday, Proton and DRB-Hicom were among the major gainers on Bursa Malaysia. Proton chalked up another 89 sen to close at RM4.50 with more than 20 million shares changing hands. In intra-day trading the automaker’s stock hit a high of RM4.60. DRB-Hicom, meanwhile, gained 20 sen to end trading at RM2.20, its highest since early August this year.

Other parties who are understood to be interested in Proton include the Naza Group although senior officials of the automotive group deny any interest in Proton.

Apart from these two local automotive giants, the management of Proton led by Nadzmi is also keen on a management buyout of Khazanah’s stake.

“However, the management does not have the financial muscle,” said a source.

Khazanah Nasional Bhd, which controls 42.7% of Proton is leading the charge in the impending corporate exercise in Proton. According to a report in The Edge weekly, the sovereign wealth fund is likely to call for bids for its interest in Proton, which is a non-core asset. This is similar to what it did with Pos Malaysia Bhd and Time dotCom Bhd.

If there are no parties prepared to take the entire 42.7% block, Khazanah may opt to sell a stake of less than 33%, so as to allow the bidder to avoid making a mandatory general offer.

While DRB-Hicom has several businesses including defence, property development, hotels, engineering and banking to name a few, its auto business is its mainstay.

At its plant in Pekan, it assembles Volkswagen cars, after signing a collaboration and licence agreement last year.

Ironically, a few years ago Volkswagen AG had attempted to take control of Proton, but talks with Khazanah fell through at the 11th hour after prolonged negotiations. Many speculate that Volkswagen’s expertise could be brought in this time around via DRB-Hicom.

For its six months ended September 2011, DRB-Hicom posted a net profit of RM195.34 million on the back of RM3.06 billion in revenue. Earnings per share (EPS) for the six-month period amounted to 10.10 sen.

Proton registered a net profit of RM20.11 million on RM4.50 billion in revenue, for its six months ended September this year. For the six months, Proton’s EPS was 3.7 sen, while its net assets per share stood at RM9.81.

This article appeared in The Edge Financial Daily, December 6, 2011.

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Carpet Raya’s Deepak surfaces in Envair

KUALA LUMPUR: Carpet Raya Sdn Bhd director Deepak Jaikishan has emerged as a substantial shareholder in loss-making Envair Holding Bhd.

A filing with Bursa Malaysia showed that Deepak had acquired 5.06% equity interest in Envair in a direct deal on Dec 2.

Deepak, who is known to be a politically connected dealmaker involved in various property deals, forked out RM1.32 million for the six million Envair shares at 22 sen a piece.

A search on the Companies Commission of Malaysia’s (CCM) database revealed that Deepak is one of the five shareholders of Carpet Raya, a carpet trading company incorporated in August 1999.

The 39-year-old businessman owns a 20% stake in Carpet Raya, with four other family members, each holding a similar stake.

Carpet Raya posted a net profit of RM5.34 million on RM121.9 million in revenue for FY05 ended December according to CCM’s records.

Deepak’s 5.06% stake in Envair makes him the group’s seventh largest shareholder.

Envair’s core business activities include air filtration systems, manufacturing and liquid filtration systems.

Deepak owns a 20% stake in Carpet Raya.

Deepak’s buy at 22 sen per Envair share is at a 24.13% discount to the ACE Market-listed company’s closing stock price of 29 sen on Dec 2.

After a lull of several years, Envair’s stock price started climbing in early October this year. Up until then, Envair’s shares had been trading on very thin volumes at prices between 6.5 sen and 11 sen. But the stock recently hit a three-year high of 41.5 sen on Nov 1, gaining 277% in less than a month from 11 sen on Oct 6. Its last peaks were 55.5 sen on May 7, 2007 and 67.5 sen on June 21, 2005.

Yesterday, Envair rose 2.5 sen to 31.5 sen with 7.75 million shares traded. Its net assets per share was 6.56 sen as at Sept 30.

Envair made the headlines last month when it announced plans to supply two million barrels of light crude oil a month to a China company, An Hong Shenzhen, for a five-year period.

In its clarification to Bursa Malaysia, Envair said two million barrels of WTI light crude oil were worth US$182 million (RM571 million) based on the market price of US$91 per barrel.

Envair recently appointed Mohd Anuar Hanadzlah, brother of Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah, its executive director.

Anuar has marketing expertise within the oil and gas services sector, Envair said in recent filings.

This article appeared in The Edge Financial Daily, December 6, 2011.

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SapCrest net profit jumps 52% in 3Q

PETALING JAYA: SapuraCrest Petroleum Bhd’s net profit rose 51.6% for 3QFY12 ended Oct 31, 2011 to RM83.14 million or 6.51 sen a share. Profit before tax increased by 36.3% to RM136.4 million from RM100.1 million previously due to higher contribution from the marine services division, it said. Group revenue, however, was lower at RM745.8 million compared with RM1.02 billion recorded in the previous corresponding quarter.

For the nine months ended Oct 31, net profit was 47.2% higher at RM233.7 million despite the 26.5% decrease in group revenue to RM2 billion.

The group did not elaborate much on the reason why it posted lower revenue but higher profitability, merely stating that the lower revenue was consistent with its clients’ planned activities during the quarter, while the higher profit was due to higher contribution from its marine services and installation of pipelines and facilities division.

On a quarter-on-quarter (q-o-q) basis, SapCrest’s net profit increased by 6.3% from RM78.23 million in 2QFY12 ended July 31, while its revenue increased in tandem, being 6.6% higher from RM699.4 million in 2Q.

Profit before tax increased marginally from RM135.4 million in the preceding quarter to RM136.4 million in 3Q due to expenses incurred in relation to the acquisition of Clough marine business, the group said.

SapCrest is being merged with Kencana Petroleum Bhd to become one of the largest integrated oil and gas service providers in the world.

Its stock is currently trading at RM4.22, up by 34.82% from RM3.13 on Jan 3. It touched its 52-week high on July 12 at RM4.57.

This article appeared in The Edge Financial Daily, December 6, 2011.

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MAHB refutes AirAsia’s statement

KUALA LUMPUR: Immediately after AirAsia Bhd claimed that it did not ask for a fully automatic baggage handling system (BHS) in KLIA2, Malaysia Airports Holdings Bhd (MAHB) came out to defend its position on the matter.

In a statement issued yesterday evening to counter AirAsia’s statement sent out earlier in the day (read above story), MAHB provided documents to show that AirAsia had indeed requested to change the BHS in KLIA2 from a semi-automated to a fully automated one, which would result in the delay of KLIA2 completion and cost overruns.

The letters also highlighted that AirAsia had projected the KLIA2 to have more than 35 million passengers per annum within five years of opening day.

MAHB provided a letter dated June 16 from AirAsia group CEO Tan Sri Tony Fernandes, which stated that AirAsia opted for a fully automated BHS after considering three options given by MAHB.

The AirAsia letter read: “Our official response to MAHB is that AirAsia prefers that the BHS system be developed as shown in BHS Option 3: Dual Tilt Tray Sorter with Full Connectivity (fully-auto BHS). There are two principal reasons why we have chosen this approach, and they both have to do with insuring that the AirAsia group has a BHS system which has the capacity and flexibility to support our continued growth and development.”

In the letter, AirAsia had also said it had developed a state-of-the-art passenger and baggage check-in system, which would be rolled out at the new KLIA2.

The airline and airports operator, helmed by Tan Sri Tony Fernandes (left) and Tan Sri Bashir Ahmad respectively, tell their side of the KLIA2 story.

AirAsia also stated its new projections that KLIA2 would have more than 35 million passengers per annum within five years of opening day (by 2017). It added that the capacity must be installed at the onset of completion of KLIA2 as it would be difficult to expand the BHS system within five years of opening.

“We recognise our decision to select the most powerful BHS system option may have certain impact on the current work at the PLCCT (KLIA2). However, the evolving nature of our business requires a high level of strategic agility for our continued growth and success,” said the AirAsia letter.

MAHB also provided a letter dated Oct 10 that it wrote to AirAsia X Sdn Bhd chairman Tan Sri Rafidah Aziz. In the letter, MAHB said AirAsia’s request to change the BHS from semi-automated to fully automated would delay the progress of the KLIA2.

“MAHB had a meeting with AirAsia and AirAsiaX on July 1. MAHB had highlighted during this meeting that with the current progress of the development of KLIA2 having reached almost 40% as per the completion timeline by October 2012, any material changes in the BHS system would most certainly impact the completion date of the project,” MAHB said in its letter to Rafidah.

The delay is due to the reworking of the terminal design and layout, MAHB added.

The MAHB letter further said that in order to reduce the delay of KLIA2 completion, MAHB and AirAsia contemplated on a modified version of option 2 (semi-auto BHS) which would incorporate certain features from option 3 (full-auto BHS). MAHB said the modified version 2 would satisfy AirAsia’s immediate operational needs but not its long-term needs.

MAHB noted that during its board meeting on July 4, the board had decided to proceed with Option 3, as it was concerned that “AirAsia’s position could very well change in the future” and it would be difficult to accommodate any changes then.

MAHB conveyed its board’s decision to AirAsia on July 6.

It also required AirAsia’s confirmation on its willingness to use the full Baggage Source Message system (BSM) and the Common Use Passenger Processing System (CUPPS) that is needed for a fully-auto BHS.

“Although we received AirAsia’s confirmation to comply with the BSM requirements on Aug 18, AirAsia’s response on the CUPPS is still outstanding and this could further delay the upgrade of the BHS beyond six months,” said MAHB.

This article appeared in The Edge Financial Daily, December 6, 2011.

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The Edge Billion Ringgit Club - Malaysia Building Society Bhd

The origins of Malaysia Building Society Bhd (MBSB) can be traced back to the Federal and Colonial Building Society Ltd, incorporated in 1950. In 1956, it changed its name to Malaya Borneo Building Society Ltd (MBBS), with the Malayan government as its major shareholder. MBBS was then listed on the Stock Exchange of Malaysia and Singapore in 1963.

MBSB was incorporated in 1970 to take over the Malaysian operations and was listed on the then Kuala Lumpur Stock Exchange in 1972. MBSB is a scheduled institution as defined under the Banking and Financial Institution Act 1989 (Bafia). It was granted exempt finance company status in 1972 by the finance ministry and the status has remained in force since.

Employees Provident Fund Board and Permodalan Nasional Bhd are two major shareholders of MBSB. As a financial provider, MBSB offers a spectrum of innovative financial products and services for both individuals and corporates throughout its branches nationwide.

CEO Datuk Ahmad Zaini Othman shares with The Edge Financial Daily his strategies and dreams for the company, and the transformation he has led MBSB through since taking over the helm in early 2009.

TEFD: What are the company’s competitive strengths and advantages?
Zaini: MBSB is an exempt finance company granted by the finance ministry on March 1, 1972. This allows MBSB to undertake a financing business in the absence of a banking licence. As a result of this, it is not subjected to Bafia and is limited in its ability to provide a comprehensive range of financial products and services in comparison to its licensed peers.

Nevertheless, it does possess certain strengths and advantages to continue providing promising returns to its shareholders.

MBSB has an established position in the market as a financial provider that is preferred by the government servants. As a small financial institution, we have great flexibility and agility in product development and the decision-making process.

Zaini: The company shall continue to capitalise on its strengths as a small financial institution.

What have been the major achievements of the company in the past four years?
We have achieved record profitability for two consecutive years, with pre-tax profit of RM80.3 million in 2009 and RM207.4 million in 2010.

(Editor’s note: MBSB has since chalked up pre-tax profit of RM327.1 million for the nine months to Sept 30, 2011).

As far as non-financial achievements are concerned, MBSB is the only financial institution with a network of representative offices (REP) compared to conventional full-fledged branches which require higher capital expenditure. Our first REP was set up in 2010.

MBSB is also the only financial institution to possess qualified project experts such as engineers, property valuers and quantity surveyors. They are housed under the project management and monitoring department, which has also been ISO 9001:2008 certified.

In terms of corporate governance, we were ranked 34th under the Malaysian Corporate Governance Index 2010

What are the major challenges your company faced over the years and how did it overcome them? Is there anything else you would have done differently?
As a non-bank financial institution, we have several challenges. These include effectively competing with existing market players that are superior in terms of funding costs, asset size, branch network and infrastructure. We are also constrained in our ability to extend our reach to customers due to a limited branch network.

Due to our new business direction, we need the talent and skills required to execute new business initiatives. We are also constrained by the inability to provide trade facilities for corporate clientele. Lastly, there are also various misconceptions of the company due to past issues and legacy problems.

How do we resolve these challenges?
We revived the personal financing product for government servants to establish and cement market positioning as a preferred financial provider for the government servants. This provides MBSB with a niche market to serve and avoid direct competition with existing market players.

We established REP to only promote and sell retail financial products. This network is less costly to set up and maintain compared with a full-fledged branch, and is able to provide high returns.

We have outsourced the sale of retail financial products to qualified agents nationwide, which provides a greater reach to customers. New talents and skills have been hired from within the industry with attractive remuneration packages. More importantly, we offer them a better career growth due to their position as pioneers in the company.

MBSB is leveraging on other financial institutions for the provision of trade facilities, resulting in fee income opportunities and the ability to become a one-stop financial solution centre.

In the past, MBSB had been media-shy, leading to misconceptions not being corrected. Hence, in the last two years, improvement in the company’s image was achieved through the execution of fresh marketing campaigns on products to increase brand awareness and continuous meetings with analysts.

How is the company positioning itself within your industry? What are your strategies to grow or gain market share?
The company is positioning itself as a key financial provider to the government servants and to the corporate clientele who has been awarded government projects. It shall continue to pursue market share in personal financing through product development and new campaigns, while continuing to work with the government and its agencies in securing financing of their awarded projects.

What are your company’s plans for the future, short-term and long-term?
In the short term, we want to grow our retail assets critically via the personal financing and home mortgage products, and establish our position as a reliable financial provider in the corporate segment. In the long term, we want MBSB to become a respectable industry player with a strong financial position while serving its niche market.

What are your plans to compete in the increasingly globalised environment?
The company shall continue to capitalise on its strengths as a small financial institution in comparison to its peers to compete in a highly competitive environment. These include the agility in decision-making process and personalised customer service, especially for corporate clients. We will leverage on outsourcing to operate efficiently with a fast turnaround time. The company will avoid direct competition with the existing financial players.

What is your dream for your company? How would you like to see it in 10 years?
The company aims to achieve pre-tax profit of RM500 million and be known as a strong financial institution. In early 2009, we established the “Taking MBSB to the Next Level” programme to achieve this profit target. Record profits that were achieved for the last two consecutive years were based on this mission and the long-term business plan being put in place will assist the company in achieving that target.

This article appeared in The Edge Financial Daily, December 6, 2011.

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KLCI closes lower in line with weaker regional sentiment

KUALA LUMPUR (Dec 6): The FBM KLCI closed lower on Tuesday, in line with the weaker sentiment at key regional markets.

Asian and European stocks, bond futures, and the euro were sent reeling on Tuesday by the shock warning from Standard & Poor's that it might downgrade euro zone countries en masse if no credible plan to solve the debt crisis emerges at a summit later this week, according to Reuters.

The FBM KLCI fell 9.03 points to close at 1,480.92.

Losers led gainers by 493 to 255, while 281 counters traded unchanged. Volume was 2.26 billion shares valued at RM1.31 billion.

At the regional markets, Hong Kong’s Hang Seng Index fell 1.24% to 18,942.23, Taiwan’s Taiex lost 2% to 6,956.28, Japan’s Nikkei 225 was down 1.39% to 8,575.16, South Korea’s Kospi fell 1.04% to 1,902.82, the Shanghai Composite Index lost 0.31% to 2,325.90 and Singapore’s Straits Times Index fell 0.61% to 2,749.24.

Among the decliners on Bursa Malaysia, KLK fell 30 sen to RM21.68, Tasek 20 sen to RM7.80, Proton 19 sen to RM4.31, Aeon 15 sen to RM7.20, BAT 14 sen to RM47.96, Yahorng 13 sen to 47 sen, while BRDB and CIMB fell 12 sen each to RM2.02 and RM7.09.

Orient was the top gainer and rose 31 sen to RM4.79; Dutch Lady and LPI Capital added 20 sen each to RM25.10 and RM13.10, SHL added up 15 sen to RM1.30, Tradewinds PLANTATION []s 14 sen to RM4.56, South Acids 13 sen to RM2.32, while United Plantations and Malpac were up 12 sen each to RM18.48 and RM1.40.

Utopia was the most actively traded counter with 160 million shares done. The stock added two sen to 12 sen.

Other actives included Sanichi, Compugates, Proton securities, MBF Holdings warrants and DRB-Hicom securities.

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Aberdeen nibbling at Oriental shares

PETALING JAYA: Aberdeen Asset Management plc has been slowly nibbling at shares of conglomerate Oriental Holdings Bhd and controls about 44.62 million shares or 7.19% equity interest in the company.

At end-March this year, the fund had about 38.1 million or 6.14% of Oriental shares. Aberdeen first surfaced as a substantial shareholder in September last year, with 31.08 million shares or 5.01% equity interest. At yesterday’s closing price of RM4.46, the block of shares it owns in Oriental is worth some RM198.99 million.

At the same time, the Employees Provident Fund (EPF) has been paring down its stake in the company.

In July 2010, EPF’s holdings in the company stood at 58.68 million shares or 9.46%, making the fund the company’s second-largest shareholder after Boon Siew Sdn Bhd, which has a 52.76% stake directly and indirectly.

As at Nov 30, EPF’s stake in Oriental stood at 44.25 million shares or a 7.13% stake.

“Oriental has about RM2.7 billion in cash and it only has loans and other short-term debts of around RM500 million. The group is basically sitting on a RM2.2 billion pile of cash, which makes it an attractive stock to buy,” an industry observer told The Edge Financial Daily.

The observer said the group’s net cash position could be the reason for investment funds to acquire its shares.

As at Sept 30, the group held cash and cash equivalents of RM2.8 billion while its total current liabilities amounted to RM896.48 million, of which RM540.45 million constituted loans and borrowings.

The group’s current assets stood at RM3.5 billion, out of RM6 billion of total assets. As at end-September, the company’s net tangible asset per share stood at RM6.98.

On top of its cash pile, the group has been consistently making profits. Profits for the past five financial years were well in excess of RM200 million, with the highest recorded at RM323.92 million in financial year 2007. The group registered RM249.59 million in net earnings for the financial year ended Dec 31, 2010.

For the nine-month period ended Sept 30, the group recorded RM179.73 million in net profit, up almost 44% from RM124.85 million in the same period last year.

According to Bharat Joshi, assistant investment manager at Aberdeen, as the group’s biggest value lies in its huge cash pile, Oriental’s assets are also undervalued.

He said some of these assets have not been revalued since the 1970s.

The group has diversified its earnings base from the traditional automotive distribution business under Boon Siew Honda company to oil palm plantation and property development.

“The group’s oil palm plantation business has been doing very well. It has close to 60,000ha in Indonesia and this segment has become the group’s anchor earnings contributor, overtaking the automotive distribution and autoparts manufacturing businesses,” said Joshi.

The plantation business contributed RM397.95 million or 16.5% of the group’s total revenue, lagging behind its automotive business with RM1.16 billion or 47.9% of the total.

However, in terms of profitability, the plantation division posted RM151.07 million or 47.8% of the group’s total profit before tax, outpacing the RM16.7 million recorded by its automotive business.

Oriental’s share price increased by 17 sen or 3.94% yesterday to end at RM4.48. Year-to-date, the stock has lost some 19.86% of its value.

“I think investors have started to appreciate that the stock has been undervalued,” said Joshi. “In uncertain times like this, cash is king. Investors might be banking on Oriental pulling off some interesting manoeuvres in the near future.”

This article appeared in The Edge Financial Daily, December 6, 2011.

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Why the rush to sell Proton now?

KUALA LUMPUR: Speculation has been rife recently that Khazanah Nasional Bhd is looking to dispose of its 42.74% stake in Proton Holdings Bhd. The Edge weekly reported this week that Khazanah is putting out feelers for potential bidders for its shares in the national automaker.

The Edge reported that Khazanah had approached Sime Darby Motors, Naza Group, Hyundai-Berjaya Sdn Bhd, DRB-Hicom Bhd and UMW Holdings Bhd. However, it appears that DRB-Hicom is the only one interested in Khazanah’s stake. There is also talk of a management buyout (MBO).

While Khazanah has chosen not to comment on the speculation, some say there is no smoke without fire. Proton gained 24.6% or 89 sen yesterday to close at RM4.50 with 20.16 million shares done.

However, the question that arises is this: Why is Khazanah looking to sell its stake in Proton now, when it could have sold it at a much higher price several years ago, or even earlier this year?

Back then, there were several players interested in acquiring Proton. One notable candidate was global giant automaker Volkwagen AG, which has the expertise, potential synergy and deep pockets.

Now it appears that DRB-Hicom may be the only interested party among the local players.

The question for Khazanah is: would this be a buyer’s, rather than seller’s market? That could make all the difference in terms of pricing.

Speculation about Proton is nothing new. Last month, rumours re-emerged that Tan Sri Syed Mokhtar Al-Bukhary’s DRB-Hicom and Naza were looking to buy Proton. There was also talk of interested parties buying Lotus Group.

While it is known that Khazanah has been looking at exiting Proton, the timing could be questionable.

As early as 2006, Khazanah was in talks with Volkwagen AG, the European auto giant, to sell its Proton stake. However, talks broke down in late 2007, which some had attributed to nationalistic interest.

In 2009, DRB-Hicom approached Proton and submitted a bid to buy 32% of Proton shares. Again, the talks failed for reasons unknown.

The pricing is unclear, although Khazanah is believed to have bought the shares at above the RM8 mark.

Proton is currently trading below its book value per share of RM9.81 and net tangible assets per share of RM7.62.

But observers are asking why Khazanah did not sell the company much earlier, when there was more interest.

Even as early as the start of this year, Proton’s shares traded around the RM4.80 level before plummeting to RM2.55 in early October as it embarked on a turnaround plan for Lotus Group. And what positive proposition does the acquisition bring to Proton?

“It does not make sense for an M&A as things are looking pretty grim for Proton. The Lotus Group is expected to bleed for the next two to three years. There is also no value proposition for DRB-Hicom to purchase the stake. DRB-Hicom has already invested heavily in its Pekan plant. It would have bought the stake much earlier if it wanted to utilise Proton’s spare capacity in Tanjung Malim,” said an auto analyst.

He also questioned the value propositions that DRB-Hicom could bring to Proton. “Unless DRB-Hicom is assembling new models, it does not need Proton’s capacity. There is really little upside for DRB-Hicom to buy the stake,” he said.

The analyst also noted that the stake purchase could require a general offer (GO) and DRB-Hicom’s minority shareholders could react negatively to paying such a high premium for Proton shares.

While Proton’s current plant could be its most attractive asset, observers note that the company would have been more attractive earlier — as the turnaround plans for Lotus have bled Proton’s books.

Proton’s net profit fell 76% to RM15.6 million for 2QFY12 ended Sept 30, 2011 from RM65.9 million a year earlier due to higher expenses incurred by Lotus Group. Likewise, its 1HFY12 earnings took a sharp 86.6% fall to RM20.1 million from RM150 million a year earlier.

As at Sept 30, Proton had RM1.31 billion in cash, bank balances and deposits. Its short-term and long-term borrowings grew 158% to RM959.1 million compared with RM371.2 million six months earlier. Proton is in the second year of a five-year turnaround plan for Lotus Group that costs £480 million (RM2.35 billion).

“It is anyone’s guess why Khazanah is inviting bids now,” said the auto analyst. “Also, Proton’s current share price has already factored in the premium. I would advise retail investors to be careful as anything could happen.”

This article appeared in The Edge Financial Daily, December 6, 2011.

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No severe stake reduction for Lion Corp’s major shareholder

KUALA LUMPUR: Lion Corp Bhd major shareholder Tan Sri William Cheng Heng Jem will not see a significant reduction in his shareholding even if Lion Corp’s proposal to issue 950 million new shares to its creditors goes through.

If the share issuance takes place, Cheng’s stake in Lion Corp will be reduced marginally, to 74.26% from 77.35%.

According to an industry observer, while the stakes of the existing major shareholders of Lion Corp will not be adversely affected, minority shareholders in the company will be.

Minority shareholders will be subject to essentially an 80% haircut in the form of a five-into-onecapital reduction scheme.

The creditors, who are mainly companies within the Lion group, will be issued new shares at full par value of RM1 after the capital reduction scheme.

Lion Corp’s share price fell by 5.3% or 1 sen to 18 sen yesterday. Its stock has traded between a 52-week high of 42 sen in July and a low of 16.5 sen in September. Year-to-date, its stock has fallen by 32.1%.

Lion Corp last Friday proposed a settlement scheme involving the issuance of 950 million new shares in Lion Corp to settle RM950 million of debt owed by its 79%-owned subsidiary, Megasteel Sdn Bhd.

The settlement scheme would also involve a deferred cash payment of 20 sen for every RM1 of the overdue amount.

Lion Corp said the source of funding for the deferred cash payment would be from a proposed investment by new investors in steelmaking companies within Lion Corp and its related companies, Lion Diversified Holdings Bhd and Lion Industries Corp Bhd.

However, Lion Corp said in the event that the proposed investment does not materialise, Megasteel will seek alternative forms of funding such as internally-generated funds or fundraising exercises that may include the realisation of certain assets or investments in the Megasteel group.

Before the issuance of the 950 million new shares and deferred cash payment of 20 sen, Lion Corp will undertake a capital reduction exercise, where its existing shares of RM1 par value will be reduced to 20 sen each by the cancellation of 80 sen.

Lion Corp said as at Dec 1, 2011, its existing issued and paid-up capital of RM1.901 billion, comprising 1.901 billion shares of RM1 par value, will be reduced to RM380 million comprising 1.901 billion shares of 20 sen par value each.

The company said the 80 sen reduction will give rise to a credit of RM1.521 billion which would be utilised to reduce Lion Corp’s group accumulated losses of RM1.699 billion for FY11 ended June.

After the capital reduction, Lion Corp’s issued and paid-up capital will be consolidated on the basis of five shares of 20 sen each into one share of RM1, and thereafter the new shares for the debt settlement scheme will be issued.

This article appeared in The Edge Financial Daily, December 6, 2011.

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Hiap Teck unit gets iron ore mining rights in Terengganu

KEMAMAN: Hiap Teck Venture Bhd’s 55% owned Eastern Steel Sdn Bhd has been granted a licence by the Terengganu government to mine iron ore on a 243ha site near Bukit Besi.

Mentri Besar Datuk Seri Ahmad Said said after the symbolic ground-breaking ceremony that the mining concession will allow Eastern Steel to mine the area, which has estimated reserves of 40 million to 50 million tonnes of iron ore, until the end of its mining life.

He said Eastern Steel has received the second of four licences that have been made available so far. “This is an incentive the state government is giving to encourage Eastern Steel to invest in the steel milling business here, in addition to building the infrastructure to improve accessibility and logistics.”

Perwaja Holdings Bhd, which also has a steel operation in the state, was the first company to be given mining rights.

Low Choong Sing, executive director of Hiap Teck, said the mining concession will help Eastern Steel secure the supply of iron ore, the main raw material, for the integrated steel complex it is building in Kemaman to produce steel slab.

He added that this would reduce Eastern Steel’s input costs as it would have to import fewer raw materials from abroad.

Hiap Teck is investing about RM415 million in Phase 1, Stage 1 of the integrated steel complex project, that is estimated to cost up to RM3.8 billion upon full completion. Stage 2 of Phase 1 will involve an investment of RM1.05 billion.

Datuk David Law, the company’s deputy executive chairman, said Hiap Teck’s investment in Eastern Steel is a step for the steel pipe maker into upstream activities.

Law, a major shareholder in Hiap Teck, said about half of its earnings will be derived from Eastern Steel starting from FY14 once the integrated steel complex commences operations in mid-2013.

“Hiap Teck expects 50% of its profit to come from Eastern Steel in 2014. The remaining 50% will be generated by pipe manufacturing and the trading of steel products,” said Law. He declined to reveal the earnings forecasts for the upstream project.

At present, pipe manufacturing and trading of steel products are the key contributors to Hiap Teck. For FY11 ended July 31, the company posted sharply lower net profit of RM25.5 million compared with RM50.5 million a year ago. Revenue dropped marginally to RM1 billion from RM1.06 billion.

Eastern Steel is a partnership between Hiap Teck and Beijing-based China Shougang International Trade and Engineering Corp. State-owned Shougang International holds a 40% stake in Eastern Steel while Chinaco Investment Pte Ltd owns the remaining 5%.

Eastern Steel’s steel complex, which will cover 486ha, will have a maximum annual capacity of 3.5 million tonnes. The project is divided into two phases. The first phase consists of Stage 1, that is to build an initial capacity of 700,000 tonnes in 18 months, and Stage 2 to add 800,000 tonnes.

Eastern Steel is Shougang International’s first overseas investment in a steel complex. Shougang International chairman and president Hu Bin said political stability is the key factor that lead to Malaysia’s selection as Shougang’s base in Asean.

Hu believes Eastern Steel’s timing is good despite the economic headwinds. By investing now, Eastern Steel will be able to ride the recovery when the global economy turns around.

This article appeared in The Edge Financial Daily, December 6, 2011.

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AirAsia hopes for fair consideration on KLIA2

In the latest twist to the feud between AirAsia Bhd and Malaysia Airports Holdings Bhd (MAHB), the budget carrier today expressed its hope to work as a family and for the airport operator to give fair consideration to the airline's requirement in the new low cost terminal (KLIA2).

AirAsia Chief Operating Officer Bo Lingam said the airline would be the biggest company to utilise the new airport but some of its proposals and basic requirements were not entertained by MAHB.

"As per the meeting between MAHB and AirAsia which was chaired by Datuk Seri Najib Tun Razak, who was then Deputy Prime Minister, it was proposed that both the entities form a joint committee on the development of KLIA2.

"However, until now, there has been none. Although its quite late now, we are still open for a joint committee for the benefit of AirAsia, MAHB and all related parties in the development of the airport.

"Had the joint committee been formed, all these problems would not have cropped up as it would have been resolved internally," he told a media briefing here today.

He said the airline's main concern was the cost escalation of the new terminal which would result in higher rental, surcharges and extra bills imposed on AirAsia, when the company moves its operations to KLIA2 scheduled to operate in 2013. This, he said, may also be a reason for AirAsia to increase its fares in future.

"Besides, we are requesting that MAHB agree to have a service level agreement with us to occupy the new airport as we have no such agreement now with the present low cost carrier terminal.

"We also want MAHB to state in black and white the current airport charges so that it will not be raised once we move to the new airport," he said.

Bo Lingam said the airline also requested for a taxiway to be built in the first phase of the new terminal and this was infact slated in the airport's initial runway plan, but the plan was aborted.

It has now been planned for construction in the second phase of the project.

"If the runway is not constructed, we are going to incur losses amounting to some RM40 million, annually, only on fuel, because we have to cross the runway without a taxiway," he added.

Bo Lingam also said AirAsia does not deny the fact that MAHB and the airline company had a total of 47 meetings on the new airport project.

"However, no decision was taken at the meetings. It was more one-sided with us presenting our latest plans and proposals and all they said was that the board would meet to deliberate and make a final decision.

"We want a low-cost airport, our operating procedures does not require a world-class airport. We have told them (MAHB) this many times but the latest development clearly shows that they are not getting what we are trying to prove here," he said.

Bo Lingam said in 2009, the company identified a piece of land and drew up a sample airport design.

"The cost of the project, if based on that design, would not have cost more than RM700 million, but without any reason, MAHB rejected both the site and design.

"We already know that the current site will incur more cost and work because the soil is soft but MAHB make the final decision and now the date of completion is being delayed from year-end to September 2013," he said.

He also said due to the delay, AirAsia had to defer new aircraft delivery due to space constraint.

"We are now talking with MAHB and related parties on securing a piece of land to park the new aircraft until the new airport is ready because we cannot keep deferring aircraft delivery just like that," he said.

AirAsia, Bo Lingam said had helped Malaysia place itself on the world map as one of countries offering low-cost travel.

"So, what's wrong if MAHB grants us a business partner relationship in this particular matter," he said.

AirAsia and MAHB are sheduled to have their update meetings on the new airport tomorrow. -- Bernama

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Shougang gets US$150m loan for steel mill project

Steel giant China Shougang Group, which holds a 40 per cent stake in Eastern Steel Sdn Bhd, has finalised a US$150 million loan facility to finance phase one of a steel mill project in Kemaman, Terenganu.

Chairman Zhu Ji Min said the facility will be arranged by a consortium of major banks comprising Hong Kong and Shanghai Banking Corporation, Bank of China and Industrial and Commercial Bank of China.

Eastern Steel, a joint venture between China Shougang Group and Hiap Teck Venture Bhd, plans to complete the project's phase one, which has an investment cost of RM754 million, by mid-2013 with an annual steel production capacity of 700,000 tonnes.

Hiap Teck executive director Low Choong Sing said the company has also arranged their own funding by way of private placement, rights issue and convertible bonds.

The second part of the project, involving an investment of about RM1 billion, would double the mill's annual capacity to 1.5 million tonnes, he told reporters at the signing ceremony of the financing with major banks here today.

"The current economic situation offers the best opportunity to implement the project, with much lower raw material costs and fast delivery of equipment ordered," he said.

Total investment in the project, located at the Kemaman Heavy Industrial Park within in the East Coast Economic Region, is RM1.8 billion.

Zhu said the overall situation of the steel industry will be better in the next few years with demand for steel expected to grow on the back of steady demand from China and Asean countries.

Steel prices currently fluctuate sharply and frequently, mainly due to developments in the world economy and slow demand from Europe and the United States, he said.

"In the next few years, I am sure the world economy will recover and push steel prices higher," he said. -- Bernama

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MK Land:Indian project contribution from 2013

MK Land Holdings Bhd expects its affordable homes project in Bangalore in India to contribute to the group's earnings beginning its financial year 2013.

Group chief executive officer Lau Shu Chuan said the project, with a gross development value (GDV) of more than RM3 billion, is targeted to take off after the company's current financial year.

"We are now in the midst of getting relevant approvals from the authorities in India," he said after the company's annual general meeting in Kuala Lumpur today.

Lau said the 74ha project would take between eight and 10 years to complete. He also said that demand for residential properties in India had been picking up and prices were also increasing, adding the project has an advantage as it is only a few kilometers from the airport.

The project will be carried out by MK Embassy Land Sdn Bhd, a joint venture between MK Land (47.5 per cent), Embassy Group subsidiary Star Dreams Pte Ltd (47.5 per cent) and Emkay Group subsidiary MKN Embassy Development Sdn Bhd (5 per cent).

Emkay Group is the private vehicle of Tan Sri Mustapha Kamal Abu Bakar, who is major shareholder of MK Land.

Lau sees better performance for the group for its current financial year with major contributions from the group's Damansara Perdana, Damansara Damai and Meru Perdana projects.

"The next two to three quarters are expected to remain stable. At this point of time, things are looking stable. We are seeing demand for properties," he said.

For its financial year ended June 30, 2011, MK Land posted a net profit of RM18.96 million compared to RM11.0 million recorded for the previous financial year.

For its first quarter, the company turned in a net profit of RM3.87 million compared to RM3.4 million for the previous corresponding period.

Lau also said that the company is cautious about the changes in the economic environment and had taken measures including planning for affordable as well as high-end homes.

"If the economy does turn, affordable homes are still in demand," he said. Lau said the company's undeveloped land currently stood at 2,000ha located mostly in Damansara Perdana, Damansara Damai and Taiping, Perak.

He also said that the company had not looked at any merger and acquisition plan for the time being. -- BERNAMA

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Parkson eyes Indo-China market

Parkson Holdings Bhd, a Kuala Lumpur-based department-store operator that makes most of its revenue in China, plans to enter new markets in Southeast Asia to tap the region’s growing affluence.

The retailer that has 102 outlets in China, Malaysia, Vietnam and Indonesia, sees Myanmar, Thailand and the Philippines as potential markets, said Alfred Cheng, managing director of the units listed in Hong Kong and Singapore. Parkson plans to open 24 more stores in Asia by the end of next year, followed by its first in Cambodia in the first half of 2013, Cheng said.

“I am always on the lookout,” he said in an interview in Kuala Lumpur yesterday. “The Indo-China region, as a whole, has about 160 million people. That’s where we want to be.”

Malaysia, Indonesia and Vietnam collectively contributed 30 percent to Parkson’s group revenue for the financial year ended June, with the rest coming from China, according to data compiled by Bloomberg. Non-China revenue may grow to mirror that generated in China in the future as the group expands, Cheng said, without specifying a time frame.

It currently operates 49 outlets in China, 37 in Malaysia, eight each in Vietnam and Indonesia.

Parkson’s China outlets will probably sustain same-store sales growth of as much as 13 percent next year, according to Cheng. Revenue from stores open more than a year in Vietnam will grow about 15 percent to 20 percent next year, and 8 percent to 10 percent in both Malaysia and Indonesia, he said.

Singapore Debut

Parkson was set up in Malaysia in 1987 as the retailing arm of the Lion Group, controlled by Cheng Heng Jem, better known as William Cheng. The holding company owns 51.5 percent of Hong Kong-listed Parkson Retail Group Ltd., which is based in Beijing, and 67.6 percent of Singapore-listed Parkson Retail Asia Ltd., which runs all stores outside China, according to stock exchange filings. Alfred Cheng is managing director of both.

Parkson Retail Asia debuted on the Singapore stock exchange on Nov. 3 after raising S$138.2 million (US$108 million) in an initial share sale. In June, the group ventured into the Indonesian market after acquiring PT Tozy Sentosa, which owns the country’s Centro department stores, for US$12.8 million.

“The idea of Parkson Retail Asia listing in Singapore is for it to have an independent profile so that it can undertake expansion within the countries we operate in, as well as to take on new countries when opportunity arises,” Cheng said. “Fifteen years or 20 years down the road, the rest of Asia could be equal size” to Parkson’s China business.

Parkson Retail Asia has risen 5.3 percent since its debut, compared with a 2.4 percent decline in the benchmark FTSE Straits Times Index in the same period. The stock rose 1.3 percent to S$1.19 at 11:10 a.m. in Singapore trading today.

Store Expansion

Parkson Holdings, the Malaysian parent, had RM3.2 billion (US$1 billion) in cash in September, according to data compiled by Bloomberg. Its position is “strong enough” for acquisitions and opening stores in new markets as opportunities arise, Cheng said. Parkson Retail Group signed an agreement last month to expand a loan, completed last year, by 60 percent to US$400 million, giving it additional working capital to expand in China.

The group plans to open four new stores in China this month, said Cheng. The retailer opened its first store in Beijing in 1994 and now derives 70 percent of sales from the world’s most populous nation for the financial year ended June, according to data compiled by Bloomberg.

“We are cautiously aggressive with our plans,” he said. “We are operating in countries where the underlying domestic consumption is still growing very quickly.”

Dividend Policy

Parkson posted a 19 percent increase in net income to RM90.3 million for the three months through Sept. 30, driven by higher sales and improved operating efficiency. Revenue grew 21 percent to RM792 million.

“Our same-store sales growth is still growing at a very strong double-digit rate, so with that improvement, our bottom line continues to expand in double digits,” he said. “Despite the global uncertainty in the economic environment, the countries we are operating in are still in developing mode.”

Both Parkson Retail Group and Parkson Retail Asia have a policy of paying as much as 50 percent of net income as dividends to shareholders, Cheng added. -- Bloomberg

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KL shares remain in red at mid-afternoon

Share prices on Bursa Malaysia continued to decline and remain in the red at midafternoon today with the Standard & Poor's downgrade warning on 15 European countries continuing to influence sentiment on the local bourse.

As at 3.21pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) stood at 1,478.83,
down 11.12 points, with losses led by Boustead Holding-OS, Nestle and Kuala
Lumpur Kepong.

The Finance Index plunged 99.23 points to 13,179.47, the Industrial
Index declined 18.78 points to 2,676.24 and the Plantation Index decreased 25.34 points to 7,851.74.

The FBM Emas dipped 68.91 points to 10,112.28 and the FBM 70 Index dropped 53.26 points to 10,997.26, while the FBM Ace Index was 30.68 points higher at 4,239.6

Losers led gainers by 456 to 208 while 278 counters were unchanged, with the
total volume at 1.698 billion shares worth RM846.012 million.

Among active stocks, 1 Utopia added 2.5 sen to 12.5 sen, Wijaya Baru-WA
gained 11.5 sen to 35 sen and Sanichi was unchanged at 20 sen.

Of the heavyweights, Maybank dwindled nine sen to RM8.20, Sime Darby shed
five sen to RM8.93 and CIMB lost 13 sen to RM7.08 while Petronas Chemicals was flat at RM6.17. -- Bernama

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Wijaya Baru gets shareholder nod to buy timber, palm oil concessions

KUALA LUMPUR (Dec 6): WIJAYA BARU GLOBAL BHD [] received shareholder approval for the acquisition of US$80 million in timber and palm oil concessions from Wealth Gate Pte Ltd and Suffolk Pte Ltd.

Its chairman Datuk Seri Abdul Azim Mohd Zabidi said on Tuesday after the company’s EGM that Wijaya would be acquiring 100% of Suffolk and Welathgate's shares which will grant the company ownership of two 40,000 hectre plots of land in Irianjaya which have the rights to be converted into palm oil PLANTATION []s.

The land is currently covered in virgin forests and Wijaya will be extracting timber from it.

Wijaya has no plans to undertake palm oil plantation operations in the future, but told press that the option is there, he said.

The acquisition should be completed by the end of the year when Wijaya secures funding, which will be 80% debt.

Abdul Azim said that timber extraction activities may begin as early as 2Q 2012, once RM40 million worth of infrastructure, including a sawmill, was in place.

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Asian markets remain in the red at mid-day on Eurozone jitters

KUALA LUMPUR (Dec 6): Asian markets extended their losses at mid-day on Tuesday, after Standard & Poor's warned that the credit ratings of top-rated European nations may be cut.

The rating agency’s warning brought to a halt a rally in global equities that began last week and had continued on Monday, when the leaders of France and Germany agreed a plan aimed at guiding the region out of its two-year-old crisis, according to Reuters.

The FBM KLCI was down 9.90 points to 1,480.05 at the mid-day break.

Market breadth was negative with losers leading gainers by 404 to 199, while 268 counters traded unchanged. Volume was 1.36 billion shares valued at RM616.77 million.

The ringgit weakened 0.19% to 3.1380 versus the US dollar; crude palm oil futures for the third month delivery fell RM23 per tonne to RM3,103, crude oil slipped 46 cents per barrel to US$100.53 while gold fell US$10.35 an ounce to US$1,712.65.

At the regional markets, Japan’s Nikkei 225 fell 1.23% to 8,588.66, Hong Kong’s Hang Seng Index lost 1.51% to 18,889.76, Taiwan’s Taiex was down 1.2% to 7,012.63, South Korea’s Kospi lost 0.98% to 1,904.11, Singapore’s Straits Times Index fell 0.97% to 2,739.37 and the Shanghai Composite Index shed 0.78% to 2,315.12.

On Bursa Malaysia, KLK fell 34 sen to RM21.64, Batu Kawan and Nestle lost 20 sen each to RM16.90 and RM53, Aeon and Hong Leong Bank down 14 sen each to RM7.21 and RM10.70, CIMB fell 13 sen to RM7.08 while Proton lost 11 sen to RM4.39.

Among the gainers, Dutch Lady added 20 sen to RM25.10, Orient 19 sen to RM4.67, Tradewinds PLANTATION []s 13 sen to RM4.55, United Plantations 12 sen to RM18.48, UM Land 11 sen to RM1.53, Mintye and LPI Capital up 10 sen each to RM1.30 and RM13, Muda 8.5 sen to 95.5 sen and Nylex eight sen to 63 sen.

Utopia was the most actively traded counter with 115.4 million shares done. The stock added two sen to 12 sen.

Other actives included Sanichi, Compugates, Proton securities and DRB-Hicom securities.

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FBM KLCI down 0.65pc at midday

The FTSE Bursa Malaysia KLCI (FBM KLCI) lost 0.654 per cent at midday today as global sentiment continued to be gripped by worries over the possible downgrade warning on 15 euro nations by Standard & Poor's, dealers said.

At midday, the key index stood at 1,480.20, after opening 5.14 points lower at 1,484.81.

The major losers were led by Kuala Lumpur Kepong, Bousted Holdings-OS, Nestle, Batu Kawan, Hong Leong Bank, Aeon, CIMB and Proton.

The Finance Index plunged 108.021 points to 13,170.68, the Plantation Index declined 33.82 points to 7,843.26 and the Industrial Index slid 18.42 points to 2,676.6. The FBM Emas Index shed 60.551 points to 10,120.64, the FBM Mid 70 Index dipped 48.25 points to 11,002.27 and the FBM Ace added 25.04 points to 4,233.96.

Losers outstripped gainers 404 to 199 with 268 counters unchanged and 612 others untraded. A total of 1.355 billion shares worth RM617.752 million were traded.

Among active stocks, 1 Utopia added 2.0 sen to 12 sen, Sanichi gained half-a-sen to 20.5 sen, Proton-CG dropped 3.0 sen to 34 sen while Wijaya Baru-WA went up 6.5 sen to 30 sen.

For the heavyweights, Maybank eased 9.0 sen to RM8.20, Sime Darby lost 8.0 sen to RM8.90, CIMB lost 13 sen to RM7.08 while Petronas Chemicals added 1.0 sen to RM6.18. -- Bernama

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Sanichi falls after 74% rise yesterday

Sanichi Technology Bhd, a precision moulds maker, fell 2.5 per cent to 19.5 sen. The company said in a statement it was unaware of the reason for a 74 per cent jump in its shares yesterday. -- Bloomberg

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