Wednesday 7 December 2011

Market Commentary

The FBM KLCI index gained 2.07 points or 0.14% on Wednesday. The Finance Index increased 0.38% to 13233.15 points, the Properties Index up 0.64% to 957.73 points and the Plantation Index rose 0.44% to 7882.82 points. The market traded within a range of 9.31 points between an intra-day high of 1482.99 and a low of 1473.68 during the session.

Actively traded stocks include PAVREIT, WIJAYA-WA, SANICHI, LFECORP, RA, UTOPIA-WA, PROTON-CG, COMPUGT, MACRO-WA and UTOPIA. Trading volume decreased to 2088.21 mil shares worth RM1770.42 mil as compared to Tuesday’s 2261.26 mil shares worth RM1304.55 mil.

Leading Movers were AXIATA (+14 sen to RM5.09), CIMB (+11 sen to RM7.20), MAYBANK (+10 sen to RM8.30), GAM (+15 sen to RM3.40) and KLK (+48 sen to RM22.16). Lagging Movers were TENAGA (-19 sen to RM5.46), IOICORP (-6 sen to RM5.12), PETCHEM (-8 sen to RM6.08), DIGI (-4 sen to RM3.62) and PBBANK (-6 sen to RM12.66). Market breadth was positive with 445 gainers as compared to 304 losers. -- JF Apex Securities Bhd



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KLCI reverses earlier losses to close higher

KUALA LUMPUR (Dec 7): The FBM KLCI reversed its earlier losses and closed higher on Wednesday, in line with the improving but still cautious sentiment at key regional markets.

The FBM KLCI rose 2.07 points to close at 1,482.99.

Gainers led losers by 445 to 304 while 306 counters traded unchanged. Volume was 2.09 billion shares valued at RM1.77 billion.

Growing optimism that euro zone leaders are on track to produce a confidence-boosting package of measures to solve the debt crisis at their weekend summit lifted risk appetite on Wednesday, with the euro and global equity markets posting gains, according to Reuters.

At the regional markets, Japan’s Nikkei 225 rose 1.71% to 8,722.17, Hong Kong’s Hang Seng Index up 1.58% to 19,240.58, Taiwan’s Taiex added 1.10% to 7,033.00, South Korea’s Kospi rose 0.87% to 1,919.42, the Shanghai Composite gained 0.29% to 2,332.73 and Singapore’s Straits Times Index rose 1.21% to 2,782.55.

On Bursa Malaysia, KLK was the top gainer and added 48 sen to RM22.16; Nestle rose 40 sen to RM53.60, JT International and KrisAssets were up 30 sen each to RM6.80 and RM5.38, Allianz 21 sen to RM4.88, Aeon 20 sen to RM7.40, Boxpak 18 sen to RM1.69 while Chin Teck, Dutch Lady and BHIC rose 16 sen each to RM8.56, RM22.26 and RM2.86 respectively.

Pavilion REIT, which made its debut on the Main Market of Bursa Malaysia, was the most actively traded counter with 197.3 million units done. The counter added 12 sen to RM1.02.

Other actives included Sanichi, LFE Corp, Utopia’s securities and Proton.

Among the decliners, Proton fell 27 sen to RM4.04, MAHB 24 sen to RM5.80, Tenaga 19 sen to RM5.46, UMW and RHB Capital 13 sen each to RM6.54 and RM7.13, Tradewinds PLANTATION []s 11 sen to RM4.40 while Tasek and LPI Capital fell 10 sen each to RM7.70 and RM13.



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MAS to cut unprofitable routes

Malaysian Airline System Bhd, the loss-making national carrier, said it will cut unviable routes, spin-off ancillary businesses and form a new regional unit in a bid to return to profit in 2013.

The new airline, which will start operations in the second half of next year, will initially have 45 Boeing Co. 737-800 planes and fly to cities in Southeast Asia and Greater China, Chief Executive Officer Ahmad Jauhari Yayha, told reporters outside of Kuala Lumpur today. Routes being dropped include Johannesburg, Cape Town and Buenos Aires, he said.

Malaysian Air, which will likely make a loss of RM165 million ringgit (US$53 million) next year, has begun discussions to cooperate with AirAsia Bhd to cut costs after the two airlines’ biggest investors undertook a share swap in August. Subang, Selangor-based Malaysian has struggled to turn rising sales into profits because of higher fuel costs and competition from AirAsia.

“Consolidated operations will deliver better service at lower costs,” said Ahmad Jauhari, who took over as CEO in September. Potential areas for cooperation with AirAsia include fuel purchasing, maintenance, training and ground-handling, he said.

The airline’s engineering, pilot training, cargo and ground services operations could all be spun to raise proceeds of as much as RM337 million, he said. Malaysian Air aims to make an annual profit of RM900 million in 2016, Ahmad Jauhari said. The company lost RM1.2 billion in the first nine months of this year.

The carrier, which will join the Oneworld alliance by September 2012, intends to add 23 new planes next year as its phases out older fuel-hungry planes, Ahmad Jauhari said. AirAsia Chief Executive Officer Tony Fernandes and partners own 20.5 per cent of Malaysian following the share-swap. They gave 10 per cent of AirAsia to Malaysian’s state-controlled parent Khazanah Nasional Bhd in return. Fernandes and his deputy Kamarudin Meranun also now sit on Malaysian Air’s board. -- Bloomberg



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GuocoLand buys Cheras land for RM108m

KUALA LUMPUR: GuocoLand (M) Bhd is buying nine land parcels measuring 18.9ha in Cheras for RM107.87 million or RM53 per square foot (psf) to be satisfied via cash.

In a filing with Bursa Malaysia yesterday, the property developer said its wholly-owned subsidiary Ace Acres Sdn Bhd (AASB) had entered into a conditional sale and purchase agreement (SPA) with Bonds Corp Sdn Bhd (BCSB) to purchase the nine freehold land parcels.

The proposed development of the said land will comprise a mixture of bungalows, semi-detached houses, superlink houses, condominiums and shophouses, it said.

However, it did not provide any further information on the project as the development proposal is currently at the initial planning stage.

GuocoLand said the land is currently occupied by squatters. The developer added that the purchase would be funded entirely by borrowings and its gearing is expected to increase to 1.34 times from 1.13 times as at June 30.

In addition to the SPA, AASB and BCSB also signed an agreement where AASB would get the first priority within the next 12 months to acquire an adjacent 2ha plot from BCSB for RM53 psf.

The 18.9ha site is located 10km south of the city centre, and is sandwiched between Alam Damai and Bandar Damai Perdana townships.

The proposed acquisition is subject to approval by the Prime Minister Department’s Economic Planning Unit.

GuocoLand closed unchanged at 83.5 sen with 121,800 shares traded.


This article appeared in The Edge Financial Daily, December 7, 2011.



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Wijaya to start logging in Indonesia in 2Q12

KUALA LUMPUR: Wijaya Baru Global Bhd, in which politician Datuk Seri Tiong King Sing owns a 32.02% stake, will begin logging operation in Indonesia in 2Q12, after having received the go-ahead from shareholders at the EGM yesterday to acquire Wealth Gate Pte Ltd and Suffolk Pte Ltd for a total of US$80 million (RM251 million).

Suffolk and Wealth Gate, incorporated in Singapore, have 80,000ha of land in Irianjaya, Indonesia that have been approved for oil palm plantation and related activities. The land valued at US$1,000 per ha is covered with virgin forests and Wijaya will extract the timber first before the area is converted into oil palm plantations.

Wijaya chairman Datuk Abdul Azim Mohd Zabidi said there are no plans to undertake oil palm plantation in Indonesia at the moment,though it remains an option.

He added that after logging is completed and the land cleared, only then will the company weigh options to either venture into plantation or sell the land or lease it to others to plant oil palm trees.

“It is (venturing into oil palm plantation) on the radar and the option is there. But Wijaya has always been a timber company. We had a timber concession in Sarawak and that licence expired in July 2010. We want to stay focused on our core business and that is why we explored this deal,” said Azim.

“This business (timber) has been contributing well to profits year in, year out for the last 20 years,” added Azim.

The concession for oil palm cultivation for the total 80,000ha will last for 35 years and may be renewed for another 25.

Azim acknowledged that there has been a global slowdown due to issues in the eurozone and the US, but said, “What goes down must come up. When the global market recovers, we expect to see demand for construction activity increase, hence more demand for timber.”

“Furthermore, it is unlike those days where you had a lot of timber concession areas. In fact, Indonesia has imposed a (two-year) moratorium (from April 2010) as part of an international treaty with Norway. Fortunately, this (the two plots of land) was approved prior to that,” said Wijaya Group CEO and executive director Datuk Faizal Abdullah.

Wijaya will pay for 20% of the US$80 million purchase consideration via internal funds with the remaining 80% in borrowings sourced from Export-Import Bank of Malaysia Bhd (Exim). The company could not raise funds through a rights issue or shares placement as its current stock price is trading below its par value of RM1.00.

The acquisition should be completed by year-end after Wijaya secures the necessary funding, said Azim, and the company will start clearing the land.

Since both plots of land are virgin forests, Wijaya will have to build up the entire infrastructure for timber extraction which Azim said will cost around RM40 million, including the cost of setting up a sawmill.

Timber logging could begin as early as 2Q12 once the infrastructure is in place, said Azim, who said Wijaya has all the appropriate permits, including undertaking an environmental impact assessment.

Wijaya’s share price rose sharply yesterday to close at 80.5 sen, up 4.5 sen or 5.9% in reaction to the company getting shareholders’ approval for the Indonesian deal.


This article appeared in The Edge Financial Daily, December 7, 2011.



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SIA: Lower global chip sales forecast for 2011, 2012

KUALA LUMPUR: Growth forecast for global semiconductor sales for 2012 has been cut after the October sales recorded a 1.8% year-on-year (y-o-y) decline, according to the US-based Semiconductor Industry Association (SIA).

In a statement on Monday, the SIA said global semiconductor sales slipped 0.1% month-on-month in October to US$25.7 billion (RM80.7 billion) from US$25.8 billion in September.

The SIA said it was endorsing the World Semiconductor Trade Statistics’ (WSTS) Autumn 2011 forecast which cut its global sales growth projection to 1.3% or US$302 billion in 2011 and 2.6% or US$310 billion in 2012.

WSTS had previously forecast a growth rate of 5.4% for 2011 and 7.6% for 2012.

SIA president Brian Toohey said that despite a challenging global economic environment this year and the natural disasters that had impacted production in Asia, the semiconductor industry had demonstrated impressive resilience.

“The growing level of semiconductor content embedded across a wide range of consumer, industrial, business and government applications points to continued growth in 2012 and 2013,” he said.

RHB Research said in a note yesterday that demand for chips would likely remain subdued as order visibility remained limited due to the slowdown in Europe.

The 1.8% y-o-y decline in global chip sales marked the fourth consecutive drop on a y-o-y basis since July and thus did not provide any optimism that a recovery was in sight, it said.

The research house maintained its “underweight” call on the sector as recent indications by major tech players like Maxim, a key customer of local packaging players, have highlighted persistent hesitance by electronic manufacturers to volume loading.

This has caused growing uncertainty on the industry outlook, it added.

RHB Research said global chip sales growth remained lukewarm as demand in the broader market was weak particularly in PCs and consumer electronics despite strong volume growth in communication devices.

However, recent retail sales data from the US has indicated that there may be a possible recovery in consumer spending and a slight pick-up in equipment spending, it said.


This article appeared in The Edge Financial Daily, December 7, 2011.



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MISC’s exit from liner business will impact industry

KUALA LUMPUR: MISC Bhd’s exit from the container liner business will be felt in the industry, given the group’s extensive network overseas.

MISC has offices and agents in 28 countries including Australia, Japan, Holland, New Zealand, Singapore, the UK, South Africa and the Middle East.

The closure of the group’s entire liner operations announced recently will have a major impact on its existing clientele, said industry observers.

According to sources, MISC Australia, which is solely in the container liner business, has sent out notices to its clients informing them to make the necessary arrangements for alternative shipping services.

In the notice, MISC Australia said its liner business will cease operations in Australia by the end of June 2012.

The liner industry has been hit by falling freight rates and overcapacity in the past few years, with players like Denmark’s Maersk Line, Japan’s Mitsui OSK Lines Ltd and Hong Kong’s Evergreen Line experiencing challenging operating conditions.

MISC’s liner business suffered a total financial loss of US$789 million (RM2.5 billion) over the past three financial years which had impacted the overall performance of the company.

The group expects to incur further losses in the current financial year ending Dec 31, 2011 as the expected one-off costs from exiting the liner business are estimated to be approximately US$400 million.


This article appeared in The Edge Financial Daily, December 7, 2011.



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Pudu Jail project to include bumi firms

KUALA LUMPUR: The Ministry of Finance (MoF) has ordered UDA Holdings Bhd to come up with a new master plan for the redevelopment of its Pudu Jail land to ensure a higher level of bumiputera participation.

UDA chairman Datuk Nur Jazlan Mohamed yesterday said MoF has also directed that the city centre land be divided into three parcels, with two of the plots given to bumiputera developers.

He added that UDA, as the project’s master developer, will have to find a suitable way to split the 19.8-acre (8ha) site three ways.

He did not say if the plots will be equal in size.

Nevertheless, Nur Jazlan concedes that more can be done with the land if it were to be developed as a single site as it is not a large tract.

This development confirms a story in The Edge weekly on Oct 24 that the former prison site will be divided into three parcels for redevelopment, diverging from UDA’s earlier plans for its last parcel of prime land.

Earlier, UDA had proposed to develop the land with one joint venture partner that would construct a complex comprising several levels of parking space, a public transport hub and a retail mall at a cost of about RM600 million.

(From left) Nur Jazlan, Awang Adek and Syed Nazri Syed Kamaruzzaman pose with the commemorative stamps to mark UDA's 40th anniversary.

In exchange for the retail and public transport hub, UDA would surrender the land rights to its partner to construct high-rise buildings above the complex.

The project, with an estimated gross development value at over RM6 billion, had previously attracted interest from local and foreign companies keen to tie up with UDA.

Its earlier plans had been criticised by rights groups that were concerned that bumiputera contractors would be excluded.

UDA’s board was said to be in favour of China-based Everbright International Construction Ltd as its joint venture partner.

But those plans were shelved after MoF directed UDA, which was formerly the Urban Development Authority, to come up with a new master plan.

Nur Jazlan, who is also Pulai Member of Parliament, said bumiputera companies will still be subject to an open tender process to participate in the project.

“We are not looking for contractors. We are looking for investors with the financial capacity to develop the land.

“They have to be financially capable or UDA might as well develop it ourselves!” Nur Jazlan quipped during a press conference after unveiling commemorative stamps for UDA’s 40th anniversary.

Deputy Finance Minister Datuk Awang Adek Hussin said the government is open to allowing bumiputera companies to enter into joint ventures with non-bumiputera companies to develop the bumiputera plots.

“The government is flexible when it comes to joint venture with non-bumiputera companies. What is important is the spirit. The spirit is that there has to be significant bumiputera content,” he said.

He also noted that the bumiputera companies involved cannot merely be sleeping partners in the project.

He also stressed that UDA’s mandate is to help the bumiputera community and ensure that bumiputera participation in property development is more visible.

“Bumiputera participation in real estate development is currently very, very small. Thus, UDA’s mandate is very critical,” he said.

Awang Adek declined to provided a time-line for the Pudu Jail redevelopment project, only saying that a committee will be established to “find the most appropriate development model” for UDA.

Market observers opine that UDA cannot afford lengthy delays to its Pudu Jail project as it could face stiff competition from the various real estate projects being planned around the city centre, including the Kuala Lumpur Financial District.


This article appeared in The Edge Financial Daily, December 7, 2011.




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Uneventful 3Q results season for banking

Banking sector
Maintain neutral: In a fairly uneventful reporting season, Malayan Banking Bhd’s 1QFY11 results (for 6MFY11E) surprised on the upside mainly due to lower provisions, while RHB Capital Bhd and BIMB Holdings posted lower-than-expected earnings. We remain “neutral” on the banking sector with a “buy” on Public Bank Bhd and BIMB, and “sell” on CIMB Group Holdings Bhd and RHBCap. We are “neutral” on AMMB Holdings Bhd and Hong Leong Bank Bhd.

Cumulative 3QFY11 net profit rose 15% year-on-year (y-o-y), but this was driven primarily by lower provisions. Operating profit was flat, up just 2% y-o-y, due to negative JAWS (income growth rate — expense growth rate), with operating expenses expanding at a faster rate than income. Net profit for 9M rose 14% y-o-y with a moderate improvement (+5% y-o-y) in operating income, but aided yet again by lower provisions.

Positively, loan growth was robust at 17% y-o-y for the top six banks, inclusive of foreign loans. Fee income was also buoyant (+14% y-o-y), while credit charge rates dropped off eight basis points (bps) quarter-on-quarter (q-o-q). On the flip side, net interest margin (NIM) remained under pressure (-13bps y-o-y but stable q-o-q) while investment income was negatively impacted by market volatility.

Earnings growth for our basket of stocks is further trimmed and we now forecast slower net profit growth of 4.5% in 2012 (9.8% in 2013) against 10.6% this year. Our net profit growth forecast of 4.5% for 2012 is a tad slower than consensus’ 6.5%, while our 2013 net profit growth of 9.8% is about 7% behind consensus’ estimate of 12%.

Our loan growth assumptions are unchanged in that we still expect industry loan growth to taper off to 9.4% in 2012 (from 12.4% in 2011), supported by GDP growth of 3.5 to 4%. For the top six banks, we expect gross loan growth (including foreign lending) to average 10.4% in 2012 (17.5% in 2011).

Contrary to some market expectations, we are of the view that interest rates will be unchanged in 1H12. We nevertheless continue to expect some margin compression into 2012, albeit at a slower rate of 5bps against 11bps this year. We have also imputed a 16bps uptick in average non-performing loans ratios in 2012 amid credit charge rates at about 32bps. Overall, we expect 2012 return on equity to come off by one percentage point to 15.3% from 16.3%. — Maybank IB Research, Dec 6


This article appeared in The Edge Financial Daily, December 7, 2011.




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Puncak Semangat, REDtone big 4G spectrum winners

REDtone International Bhd and billionaire Tan Sri Syed Mokhtar Al-Bukhary’s Puncak Semangat Sdn Bhd have a tad more to cheer about among the nine fourth generation (4G) spectrum winners. All nine will receive the coveted resource after their business plans are approved by the Malaysian Communication and Multimedia Commission (MCMC), sources said.

“While Puncak Semangat’s 30Mhz [of 4G spectrum] is at least 10Mhz bigger than all other winners, everyone else has existing spectrum — 900Mhz, 1800Mhz, 1900Mhz [3G] or 2.3Ghz [WiMAX]. From that perspective, the bigger existing players still have more spectrum,” said a source close to the regulators.

“The decision was made to bring in new entrants and allow room for market forces, and in that light the spectrum allocations are equitable, though not entirely equal,” the source told The Edge Financial Daily. “We believe Puncak has the financial resources for a decent rollout,” the source said.

The 4G allocation will give REDtone, whose existing 2.3Ghz WiMAX licence is limited to Sabah and Sarawak, a licence to roll out mobile services in Peninsular Malaysia and a more level playing field relative to the remaining three WiMAX spectrum holders, the source said. Its challenge, however, will be to secure the necessary funds for a wider rollout, an observer said.

To recap, all four 3G spectrum assignment holders — Maxis Bhd, Celcom Axiata Bhd, DiGi.Com Bhd and U Mobile Sdn Bhd — stand to receive 20Mhz of 4G spectrum. Like REDtone, two other WiMAX spectrum holders — Green Packet Bhd’s Packet One (Networks) Sdn Bhd and YTL Communications Sdn Bhd — will also receive 20Mhz of 4G spectrum in January 2013, if their business plans are accepted by the MCMC.

The remaining WiMAX spectrum holder, Asiaspace Sdn Bhd, will be given a 10Mhz block of 4G spectrum, provided its business plan gets MCMC’s go-ahead. Asiaspace, will also need to settle a sizeable fine first for not meeting rollout commitments made in its WiMAX business plan submission, another source added.

All nine winners will need to submit their 4G rollout plans to the MCMC by Dec 15 and pay a RM5 million irrevocable guarantee for every 10Mhz of spectrum.

But why not just give bigger blocks of spectrum to the big boys? After all, only three out of seven newcomers in the mobile telecoms space have decent-sized coverage and service offerings close to five years since the powers that be decided to sidestep incumbents and allow new entrants. Didn’t one 3G pectrum winner even make money from transferring its 3G spectrum?

Moreover, easily 94% of Malaysia’s 35.7 million mobile phone users are with the big three — Maxis, Celcom and DiGi — and they have the most money to invest, going by their earnings pool. Wouldn’t giving them more spectrum help on network quality?

“Yes, incumbents have a lot more subscribers, but they still have a lot more spectrum than the new entrants. Their spectrum allocation is already bigger than the likes of Vodafone in the UK, which has a bigger population size and wider geographical area to cover,” an industry observer pointed out. This could not be independently verified at press time.

“Are you satisfied with your current mobile phone service?” the observer asked, drawing attention to the sizeable earnings margins of 45% to over 50% that the big boy operators here command.

“Those margins are very high by industry standards. I’d call 30% a decent margin. From where I stand, that level of margins either means operators are not investing enough money in network or they’re charging customers too much,” the observer added.

Maxis, the leader in terms of earnings before interest, tax, depreciation and amortisation (Ebitda) margin, has maintained that its 50% plus margins are ahead of Celcom’s 45% and DiGi’s 46% because it has a bigger pool of higher spending subscribers.

To be fair, Maxis, Celcom and DiGi have spent an average of RM1 billion a year on improving their networks. And if that level of investment is not enough, only time will tell if the solution is to bring in new players, especially those with smaller purses.

What is certain is that more competition is on the way for existing players and the cost of delivering seamless Internet on-the-go is much higher than enabling voice and plain text message.

To maintain the kind of margins and dividends that their investors have come to expect, telecoms players are already cutting back everything they can and are now letting rivals piggy-back on their networks.

They have even resorted to no longer absorbing the 6% service tax on prepaid users to help shore up margins — or at least they tried. It is understood hat regulators have asked the operators to pass on the cost of the service tax to prepaid users on a staggered basis, instead of doing it at one go.

All that throws into question whether the high margins the big boy operators are enjoying will hold. To be sure, chances are that margins will not immediately collapse, but investors may need to start considering the possibility of smaller growth numbers and, in turn, lower dividend payouts — at least until the mobile broadband space matures.


This article appeared in The Edge Financial Daily, December 7, 2011.




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Oriental’s share price rises 6.9%

PETALING JAYA: The share price of Oriental Holdings Bhd shot up by 31 sen or 6.9%, making it the top gainer on Bursa Malaysia yesterday, and extended Monday’s rebound to RM4.79 from near year-to-date low of RM4.31 last Friday.

The stock has rallied by more than 8% since the beginning of this week.

Investors may have realised the underlying value of the stock, as the company is sitting on a huge pile of cash with most of its assets being undervalued, and some not revalued since the 1970s, according to Bharat Joshi, assistant investment manager at Aberdeen Asset Management Asia Ltd.

Aberdeen holds 44.63 million or 7.19% of the group’s shares as at Dec 6, up from 31.08 million shares or 5.01% it held in September last year.

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

As at end-September this year, Oriental’s net asset per share stood at RM6.98.

Investors might have taken the cue from Aberdeen which has been slowly increasing its stake in Oriental via the open market since emerging as a substantial shareholder in September last year.

While Aberdeen is raising its stake, another substantial shareholder — the Employees Provident Fund (EPF) — is paring down its holdings in Oriental.

The EPF currently holds 44.05 million or 7.1% of Oriental’s issued and paid-up share capital. This is down from the 58.68 million shares or 9.46% it held in July last year.

Joshi added that Oriental’s cash pile at end-September which stood at RM2.8 billion could be an essential buffer during uncertain times.

As at end-September, Oriental had short-term debt commitments of RM896.48 million while its long-term borrowings amounted to RM34.93 million.

Joshi commended the company’s expansion of its oil palm business especially in Indonesia, where it has 60,000ha, as this segment has become the group’s anchor earnings contributor, overtaking the automotive distribution and auto parts manufacturing operations.


This article appeared in The Edge Financial Daily, December 7, 2011.



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AirAsia wants SLA for KLIA2

SEPANG: AirAsia Bhd wants Malaysia Airports Holdings Bhd (MAHB) to implement its requests. If these requests are not implemented, its operations at the new low-cost carrier terminal (LCCT), KLIA2, will be negatively impacted, the company says.

AirAsia commercial director Jasmine Lee wants MAHB to provide a service level agreement (SLA), which should incorporate aeronautical charges at KLIA2.

“At the current LCCT, what MAHB gave us is only conditions of use [as an agreement] and it is a useless piece of paper with no contract executable.

“As a public listed company, how can you not have a service agreement? AirAsia can be a victim here, as they can charge any rate at any time,” Lee told a press briefing yesterday.

Ashok Kumar, AirAsia regulatory issues and infrastructure development regional head, said despite a request for a SLA from MAHB from over a year ago, there has been no response from the airport operator.

MAHB currently has conditions of use (CoU) agreements with its airline partners and ground handlers at KLIA. The CoU provides guidance on the use of airport facilities, particularly with regards to the safe and secure use of the airport, as well as a schedule of airport charges.

MAHB has responded positively to AirAsia’s request for a SLA and welcomed AirAsia’s input on the matter (see table).

AirAsia has asked for a full and parallel taxiway to Runway 2 that can save the airline some RM40 million in additional fuel costs yearly.

“The current design of the KLIA2 now requires us to cross runways. We burn RM40 million [annually] in extra fuel just for this and we would have to absorb this cost,” AirAsia management pilot Captain Fareh Ishraf Mazputra said.

(From left) Fareh Ishraf, Bo and Zaman show the airline's proposed development of the new LCCT and associated works at KLIA2.

He said although there is provision for a full and parallel taxiway to Runway 2 under the KLIA2 project, it will not be ready when AirAsia moves into the new terminal come 2013 as it will only be developed at a later stage. Airlines operating out of KLIA2 will have access to both Runway 2 and Runway 3 come April 2013, while those at the main KLIA terminal will utilise Runway 1.

Lee said had MAHB agreed to set up a joint committee with AirAsia, the airport operator could have avoided the ballooning of costs of KLIA2 as all the requirements made by the airline would be met from “day one”.

AirAsia chief operating officer Bo Lingam said, for instance, one of the requests was to build the KLIA2 at a different site, which would have resulted in a cheaper but more efficient airport.

“We have outlined the detailed requirements and done costing at a site we had chosen, and it would only cost RM700 million,” he said, adding that there are now concerns over higher aeronautical charges because of the costlier KLIA2.

“Our operational requirements do not need aerobridges. We don’t need all that [the additional specifications of the new KLIA2]. The airport we suggested back then was ideal,” said Bo. He also claimed that the airline had written to the Transport Ministry about its requests.

MAHB had said earlier that the increase in the cost of KLIA2 cost will not translate into higher aeronautical charges, which are heavily regulated.

The briefing held by AirAsia yesterday came in the midst of a war of words between AirAsia and MAHB since the unveiling of the new and costlier RM3.9 billion KLIA2.

The three other AirAsia officials who attended the press briefing were management pilot Captain Chin Nyok San, customer experience regional head Zaman Ahmad, and head of commercial Kathleen Tan. AirAsia group CEO Tan Sri Tony Fernandes was not present.

The disagreements between MAHB and AirAsia escalated after the latter launched a campaign to encourage its customers to say nay to MAHB’s move to increase airport charges. What is interesting about this spat is that fresh information about the development of KLIA2 is being unveiled in the process.

On Monday, AirAsia issued a press statement to refute claims made by MAHB that it had asked for a bigger airport and said it should not be blamed for the cost of constructing KLIA2, which had nearly doubled from RM2 billion to RM3.9 billion.

The cost increase at KLIA2 by some RM1.6 billion to RM1.9 billion stems largely from earthworks (RM670 million), a bigger terminal building (RM420 million), a longer runway at 3.96km (RM180 million) and better public infrastructure (RM260 million).

One of the key arguments involves the implementation of a fully-automated baggage handling system (BHS) at KLIA2, as AirAsia wanted a semi-automated system.

An airline official said yesterday the decision on the BHS, just like the provisions for A380 aircraft at KLIA2, was made unilaterally by MAHB.

To add insult to injury, Fernandes said in a twitter feed yesterday that the argument unveiled by MAHB on the BHS was “fake”.

It is important to note that material changes to the BHS was one of the main reasons behind the further delay of the completion of KLIA2. The project will now be operational only by 2013.

Despite the later projected completion of KLIA2, AirAsia officials said no decisions have been made yet on more aircraft deferments due to the delay.


This article appeared in The Edge Financial Daily, December 7, 2011.



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Proton says unaware of any corporate proposals

PETALING JAYA: The rally in the share price of national automaker Proton Holdings Bhd that started last Thursday came to a halt yesterday, as its top management clarified to Bursa Malaysia that it is not aware of any reason for the unusual market activity in its shares.

The national automaker’s share price fell 19 sen or 4.22% to close at RM4.31 yesterday, after trading within a wide range of RM4 to RM4.94 throughout the day.

The stock started its upward surge last Thursday after rumours re-emerged that its largest shareholder Khazanah Nasional Bhd was inviting parties to bid for part or all of its stake in the group. The sovereign wealth fund holds 234.73 million shares or 42.74% of Proton’s issued and paid-up capital.

“The board of directors of Proton wishes to clarify that after making due inquiry with the board of directors and major shareholders, the company is not aware of any reason for the unusual market activity in the shares of the company recently, and further, that there is no material corporate development not previously disclosed,” the group said yesterday.

Trading in the stock was halted for one hour, from 10.20am to 11.20am, for the announcement.

The stock price surged by more than 45% in just four trading days from last Thursday to yesterday, as rumours of a potential sale, which periodically make the rounds, re-emerged.

Quoting sources, The Edge weekly reported at the weekend that Khazanah has sent out feelers and approached several automotive industry players to ask them for business plans for Proton if they were keen to take up the investment fund’s stake in the group.

According to the report, the automotive players approached include Sime Darby Bhd’s motor division, Hyundai Berjaya Sdn Bhd, UMW Holdings Bhd, the Naza Group and DRB-Hicom Bhd. However, only DRB-Hicom indicated any interest in acquiring the stake, the report said.

DRB-Hicom has in the past tried to acquire a substantial stake in Proton. In 2009, the conglomerate submitted a bid to buy 32% of Proton, but the deal failed to materialise without any concrete reasons given.

DRB-Hicom, which is 56% owned by tycoon Tan Sri Syed Mokhtar Al-Bukhary through his investment vehicle Etika Strategi Sdn Bhd, has recently stated that it will bank on mergers and acquisitions to fuel future growth.

During a press conference after its AGM in September, DRB-Hicom managing director Datuk Seri Mohamed Khamil Jamil said the company embarked on a five-year business development plan in 2006 to stabilise, rationalise and grow the group’s businesses. These include the assembling and distribution of passenger cars and other automotive businesses, financial services through Bank Muamalat Malaysia Bhd, and snail mail services through its 32.2% stake in Pos Malaysia.

He said DRB-Hicom will raise about RM1.7 billion for capital expenditure as the group enters the second phase of its development plan. This may include acquiring stakes or other corporate proposals, as the group seeks to expand its businesses through mergers and acquisitions.


This article appeared in The Edge Financial Daily, December 7, 2011.



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Masteel fares well in 3Q11

Malaysia Steel Works (KL) Bhd’s (Masteel: RM1.09) earnings in 3QFY11 ending December held up well despite challenging operating conditions for the steel sector, where larger peers such as Southern Steel Bhd, Ann Joo Resources Bhd and Kinsteel Bhd all reported weaker earnings quarter-on-quarter (q-o-q). We attribute this, in part, to Masteel’s relatively lean inventory holding policy that allows it to better match costs against selling prices.

Masteel’s turnover was 5.4% higher at RM300.3 million from the previous corresponding period due to higher average selling prices of steel products but was down 11.1% q-o-q as the result of lower volume sales. Operating margin improved from that of 3QFY10 and the immediate preceding quarter. Net profit rose to RM16.2 million in 3QFY11, up slightly from RM15.5 million in 2QFY11 and well above the RM4.8 million recorded in 3QFY10.

Fairly upbeat outlook going into 2012
We remain fairly upbeat on Masteel’s prospects, taking into account expectations for improving steel demand from the domestic construction and infrastructure sectors over the next few years.

Rollout of projects under the various government initiatives, including the Economic Transformation Programme, is expected to gather traction going into 2012. For instance, the mega MRT project is expected to break ground by 1H12, driving up demand for steel bars. Masteel believes that it is in a good position to supply this project based on the geographical advantage of its factories.

The company is in the process of expanding capacity to cater for the forecast volume demand growth.

The meltshop capacity will be gradually raised to 650,000 tonnes over the course of the next year, from the current 550,000 tonnes. Masteel is also planning to expand its rolling mill capacity by about 150,000 tonnes. The new plant is expected to be operational sometime in 2013. Once operational, the company intends to divert part of its expanded billet capacity as feedstock to this plant to extract better margins.



Capital expenditure is estimated to total roughly RM230 million for 2011 to 2013. The company’s balance sheet is fairly healthy with 49% gearing as at end-September this year, well below the industry average.

Selling prices retrace on uncertain global economic outlook
Selling prices of steel products, on the other hand, are likely to remain within a tight range, at least for the near to medium term.

Prices of steel bars have fallen over the last two to three months and are hovering around RM2,200 per tonne at the moment. This is due primarily to growing uncertainties stemming from the financial turmoil in Europe and the global economic slowdown.

Even though domestic demand is expected to be relatively robust going forward, we expect competition from imports to keep prices relatively in line with those in the global market.

At the moment, the outlook for the global steel market is one of caution. Demand growth is expected to slow in 2012 with sluggish economic growth in major developed countries and cooling emerging market economies.

The World Steel Association estimates global steel consumption growth at roughly 6.5% in 2011, after the strong 15.1% recovery in 2010. The pace of consumption increase is forecast to slow further to about 5.4% in 2012.

Indeed, some of the big steel millers, including those in China and Europe, have initiated production cutbacks in view of the uncertain economic conditions.

Raw material prices have also fallen well off their recent peaks. Major iron ore suppliers accepted lower selling prices for the raw material from the pre-determined 4QFY11 contract prices, in recognition of weakened demand.

Prior to this, the comparative resilience in prices of iron ore and coking coal have resulted in a margin squeeze for global steelmakers, even if they have kept a relative steady floor on prices of steel products. Having said that, few expect prices to go much lower for both key raw materials, taking into account the still rising demand, albeit at a slower pace of growth.

Most market observers believe that prices of iron ore will average around US$140 to US$150 per tonne in 2012, compared with the peak of about nearly US$200 per tonne early this year. Prices of coking coal too are expected to be lower. Shipments for 1Q12 are being priced around US$235 per tonne, down from about US$285 per tonne in 4Q11 and as high as US$330 per tonne in 2Q11.

Double-digit earnings growth in 2012
Assuming steel prices remain more or less at current levels and strengthening in volume sales, we forecast double-digit growth for Masteel for the next few years.

The earnings recovery, since hitting a trough in 2009, will continue to unfold. Net profit is estimated at RM46.1 million this year, up from RM28.2 million in 2010, conservatively assuming a weaker 4QFY11. Net profit for 9MFY11 totalled RM37.9 million.

Earnings are forecast to expand to RM54.8 million in 2012 and RM76.9 million in 2013. Masteel’s valuations remain attractive with price-earnings ratios of only 4.2 and three times for the two years, 6.1 and 4.4 times on a fully diluted basis.


Note: This report is 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 7, 2011.




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Hiap Teck: The iron ore rush is on

Hiap Teck Venture Bhd (Dec 6, 90 sen)
Upgrade to trading buy at 88 sen with revised fair value of RM1.17 (from 80 sen): A Bernama report yesterday said Terengganu Mentri Besar Datuk Seri Ahmad Said announced that Eastern Steel Sdn Bhd will be awarded a 243ha area in Bukit Besi and can mine for Grade A iron ore until it is depleted. He was performing the ground-breaking ceremony for Eastern Steel’s blast furnace in Kemaman, Terengganu. Eastern Steel is 55% owned by Hiap Teck, 40% by Shougang via Orient Steel, and 5% by Chinaco.

We laud the announcement, which confirms our earlier speculation that the company may win a share of the mining area and our house view that the iron ore reserves in Terengganu are now up for grabs.

During the ground-breaking ceremony, Ahmad said the iron ore mining area in Bukit Besi is divided into four areas of 243ha each. Besides Eastern Steel, Perwaja Steel Sdn Bhd has also been allotted one area, while the remaining two will be given to “interested investors” who need to build a steel mill.

The iron ore reserves in Bukit Besi are estimated at 45 million to 50 million tonnes while Kemaman has an estimated 25 million tonnes.

This is actually lower than our earlier estimates. But we are not too concerned about the lower- than-expected reserves as: (i) we did not incorporate any iron ore discounted cash flow (DCF) value in our previous valuation; (ii) the estimates were based on a simple geological survey and we believe more reserves may be discovered when mining begins and further geology surveys are carried out; and (iii) according to our sources, the actual iron ore reserves in Bukit Besi are higher than that reported, based on the output from some private mines which are currently producing about 800,000 tonnes of iron ore per month.

Nonetheless, we still prefer to take a relook at our iron ore DCF model by modifying our assumptions to: (i) Eastern Steel mining 500,000 tonnes of iron ore in 2012, increasing to one million tonnes per year starting from 2013 up to 2031; and (ii) assuming that iron ore would be selling at US$120 per tonne in 2012, declining by US$5 per tonne every year and stabilising at US$100 per tonne from 2016 to 2031. Hiap Teck’s 55% stake in Eastern Steel will translate into about RM653.7 million in DCF valuation (previously RM708 million).

We note that Ahmad has changed his tone in the announcement when saying that the 243ha area in Bukit Besi will be “given” to Eastern Steel and Perwaja.

This we think is far more promising than his remark four months ago that the state government was “ready to consent” while attending the ground breaking of Perwaja’s pelletisation plant. As such, we think that both Eastern Steel and Perwaja are one step closer to inking their iron ore concession agreements.

No doubt the iron ore concession announcement is exciting but we prefer to remain cautious and prudent since an official agreement has yet to be signed between Eastern Steel and the state government, although the mentri besar’s tone provides more assurance.

Nevertheless, we think it justified to incorporate 20% into our blue-sky iron ore DCF value, or 37 sen per share, into our valuation. That said, any subsequent progress will prompt us to boost the DCF value in our valuation.

The mentri besar indicated that two more 243ha areas in Bukit Besi are awaiting interested investors, but these come with the condition that they must invest in Kemaman and set up their plants there.

As for now, there has yet to be indication of interest from any steel mill. As such, there may be a possibility that both Eastern Steel and Perwaja may get to share the remaining areas, which will boost their iron ore income stream.

This aside, the two companies may also win the concession to mine iron ore in Kemaman, where reserves are estimated at some 25 million tonnes, assuming there are no takers. However, this is merely speculation on our part and too early to arrive at a valuation.

Separately, Hiap Teck said in a statement that the company is confident that the blast furnace will contribute as much as 50% of group profit in 2014.

Phase 1 of the project, scheduled to be completed by mid-2013, is capable of producing 700,000 tonnes per year (tpy) of steel slabs and 350,000 tpy of coke.

Construction on phase 2 will start after phase 1 becomes operational and is estimated to involve an investment of RM1.05 billion. On completion of phase 2 in 10 months, Eastern Steel will be capable of producing 1.5 million tpy of steel slabs and 700,000 tpy of coke. However, we prefer to monitor this before incorporating any earnings from the blast furnace.

We will now value Hiap Teck by incorporating 20% of the iron ore DCF value of 37 sen per share, on top of our base fair value (FV) of 80 sen.

We maintain our base valuation at -1 standard deviation, which is still lower than our general valuation of -0.5 standard deviation for the steel stocks in our universe. This is mainly attributed to the weaker sentiment arising from the cash call exercise.

Nevertheless, as the new FV of RM1.17 provides a decent 33% upside from its last close, this prompts us to upgrade our recommendation from “neutral” to “trading buy”. — OSK Research, Dec 6


This article appeared in The Edge Financial Daily, December 7, 2011.




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Ekovest-MRCB JV gets River of Life project

PETALING JAYA: Ekovest-MRCB JV Sdn Bhd, a 60:40-joint venture between Ekovest Bhd and Malaysian Resources Corp Bhd (MRCB), has finally been appointed the project delivery partner (PDP) of the RM2.2 billion Klang river rehabilitation and beautification project, known as the River of Life project.

The JV first obtained the letter of intent from the government for the job back in February.

According to the announcements made by both Ekovest and MRCB yesterday, the JV as the PDP will receive 1% of the estimated value of the project of RM2.2 billion, or RM22 million, as compensation for managing or coordinating the river rehabilitation and beautification projects over a three-year time period.

“The PDP will also enjoy monetary incentives with respect to the river rehabilitation and beautification works,” said Ekovest-MRCB JV in a press statement, without elaborating.

Notwithstanding the “monetary incentives”, the 1% fee or RM22 million may seem low compared with the usual contract margin in the construction industry that is at least 5% or more.

Nonetheless, according to a source familiar with the River of Life project, Ekovest-MRCB JV could still actually bid for the cleaning, rehabilitating and beautifying works for the project through a Swiss challenge exercise, which was what applied to the MMC-Gamuda JV in the MRT project.

This means the Ekovest-MRCB JV could still bid for the tenders and the authorities would call for other companies to submit a matching or better proposal to get the best quality at the lowest possible cost.

“The government has actually mentioned that if the JV can do the work at a cheaper rate than the other bidders, it would get the job. It doesn’t matter if it (the JV) was appointed the PDP, as the project does not belong to it.

“The River of Life project is led by a multi-agency task force under the purview of the Ministry of Federal Territories and Urban Wellbeing, hence the authorities will call for the tenders,” the source said.

In an interview with The Edge weekly recently, Datuk Bandar Kuala Lumpur Datuk Seri Ahmad Fuad Ismail, said as the PDP of the River of Life project, the party appointed (Ekovest-MRCB JV) should not bid for the other projects whose tenders were called by the government, so as to avoid any conflict of interest and to ensure transparency.

Nevertheless, the source said as the government would want to get the lowest price for the jobs, there is no reason why bids by Ekovest-MRCB JV should be disqualified or the company itself barred from competing only because it is the PDP.

He said the JV had been mulling over the project for quite a long time, so it is quite “familiar” with the classification and requirements of the project.

The River of Life project is an Entry Point Project identified in the Greater Kuala Lumpur National Key Economic Area under the government’s Economic Transformation Programme. It aims to transform the rivers running through the heart of Kuala Lumpur by undertaking river rehabilitation, beautification of riverbanks and river corridor development.


This article appeared in The Edge Financial Daily, December 7, 2011.




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Easing plywood inventory in Japan

Timber sector
Maintain neutral: According to the latest statistics from JLIA, arrivals of imported plywood in September have dropped sharply to 202,315 cu m, down 36.4% quarter-on-quarter and 24.5% year-on-year. The low arrivals were mainly due to curtailed purchases by importers as a result of the build-up in plywood inventory after the March earthquake and tsumani.

Generally, there have not been very large imports or build-up in inventory for floorbase (FB) plywood after the March earthquake. Hence, according to the Japan Lumber Report, the supply of imported FB plywood is actually tight and prices are firming, although demand is not strong enough to push prices up very much. In contrast, supply of thick panel plywood such as CP and SP remains ample due to large imports after the March earthquake, and thus prices remain weak.

Share prices of Jaya Tiasa Holdings Bhd and Ta Ann Holdings Bhd have outperformed their peers such as WTK Holdings Bhd and Lingui Development Bhd year-to-date. The decline in timber prices since June dragged down the performance of purer timber players such as WTK and Lingui, but Jaya Tiasa and Ta Ann have been supported by rising earnings contribution from oil palm plantations.

We maintain our calls as we have recently adjusted our crude palm oil price assumptions for Jaya Tiasa and Ta Ann. The risks include: (i) lower-than-expected improvement in Japan’s housing starts; and (ii) price discounting from neighbouring countries with lower cost of production, resulting in lower exports from Malaysia to its major export markets.

We maintain our “neutral” call on the timber sector as we remain cautious that the recovery in Japan housing starts could stall due to a protracted slowdown in the global economy. This could weigh on timber prices and timber companies earnings over the longer term. — RHB Research, Dec 6


This article appeared in The Edge Financial Daily, December 7, 2011.




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AirAsia and MAHB’s key disagreements

On the service level agreement (SLA):
AirAsia: MAHB should come up with a service level agreement (SLA), which should incorporate aeronautical charges at the new low-cost carrier terminal (LCCT) KLIA2. With a SLA, AirAsia is ensured good quality of service by MAHB, especially at the LCCT. What AirAsia has now is only a condition of use (CoU) agreement, which is a “useless piece of paper”. AirAsia has SLAs with airports abroad, so why not with MAHB?

MAHB: The current CoU is very much in line with the common industry practice. With regards to AirAsia’s request for a specific service level agreement (SLA) and its claim of having SLAs at airports abroad, we have indicated our willingness to have an SLA and are awaiting AirAsia’s proposals on the SLA for further study and consideration.

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.

On the KLIA2 site selection
AirAsia: AirAsia has outlined in detail the requirements and done costing at a site that it had chosen. It would only cost RM700 million to build the new LCCT. AirAsia’s request was to build the terminal building at a different site in the north, nearer to the KLIA main terminal, which required no additional Runway 3, which added another RM180 million to the entire cost of KLIA2.

MAHB: The present site for KLIA2 was selected based on the National Airport Master Plan (NAMP) after a detailed and comprehensive study involving all our stakeholders including the Ministry of Transport, Department of Civil Aviation, Ministry of Finance, Ministry of Home Affairs and all airlines including AirAsia.

On a joint working committee
AirAsia: Had MAHB agreed to set up a joint committee as requested by AirAsia, the airport operator would have avoided the ballooning of costs at KLIA2, as all the requirements by the airline would be met from “day one”.

The weekly meetings held with AirAsia were “one-sided” and MAHB decided unilaterally on whether or not to grant AirAsia’s requests. AirAsia was not asked to sign off the minutes of meetings.

MAHB: The weekly meetings held with AirAsia and other stakeholders served as a platform for all views and requirements to be discussed and addressed. ost 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 MAHB’s view that in dealing with our partners, issues raised by either party are best resolved through proper consultation. However, from time to time, we are duty bound to make clarifications so that the public receive accurate information and a balanced perspective.


This article appeared in The Edge Financial Daily, December 7, 2011.



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MAS expects to return to profit by 2014

Malaysian Airline System Bhd, the national carrier, expects to make losses this year and next, the company said in a statement. The airline should return to profit in two years through a business transformation plan, it said. Malaysian Air lose RM165 million next year, the statement said. -- Bloomberg



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Toyo Ink gets nod for Vietnamese job

Toyo Ink Group Bhd received approval from the Vietnamese government to research and develop the Song Hau 2 thermo power plant project in the province of Hau Giang, the Malaysian company said in a statement to the stock exchange.

Toyo Ink will negotiate with a few unnamed parties to set up a joint venture to start the investment project which will cost an estimated US$2.5 billion, it said. -- Bloomberg



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GuocoLand rises on RM108m land buy plan

GuocoLand Malaysia Bhd, a property developer, rose 1.2 per cent, set for its highest close since Dec 1. The company plans to buy land for RM107.9 million, according to an exchange filing. -- Bloomberg



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1 Utopia set for biggest drop since Nov 29

1 Utopia Bhd, previously known as Tejari Technologies Bhd, fell 4.2 per cent to 11.5 sen, set for its biggest drop since Nov 29. It was queried by the stock exchange over the stock’s recent share-price surge. -- Bloomberg



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Sanichi Tech eyes pact with FIRC Trade

Sanichi Technology Bhd, a precision-moulds maker, plans to form an alliance with FIRC Trade (Malaysia) Sdn Bhd to venture into the business of minerals mining and supply, it said in a statement to the stock exchange today.

Sanichi has secured at least 3 million metric tons of coal supply a year from Indonesia’s CV. Permata Al Zahra, Sanichi said in a separate filing. The contract will last two years beginning Dec. 6, it said. -- Bloomberg



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Bank Islam eyes growth in Indonesia, Bangladesh

Bank Islam Malaysia Bhd is eyeing opportunities for expansion in Indonesia and Bangladesh, which have sizeable Muslim populations and adequate Islamic banking regulatory policy and supporting infrastructure in place to facilitate Shariah-based financing and banking operations.

Managing Director Datuk Seri Zukri Samat said that as mergers and acquisitions are on Bank Islam’s agenda for inorganic growth and corporate expansion, the bank is on the lookout for suitable candidates but has not initiated any discussions on mergers or acquisitions.

While the two countries have been identified as “very interesting countries” that fit into the bank’s expansion plan, Zukri, however, said such plans would have to take into consideration the current global economic situation and its effect in this region.

"Some economists believe that there could be a double dip with Europe going into recession and growth in the Asian region decelerating.

"We are monitoring this situation and because of that, we are adopting a cautious approach towards our agenda, so we are very cautious and we don’t want to be overly aggressive.

“Nonetheless, there is always an opportunity in a crisis -- acquisition may occur when a shareholder wants to exit -- and as long as there are synergies and the pricing is right, the opportunity arises,” he said.

Zukri said both countries have sound economies which offer opportunities for Islamic banking, and the presence of many Indonesian and Bangladesh migrant workers here also allows the bank to tap the lucrative remittance business.

Asked to comment on the Indonesian market, Zukri said the Central Bank of Indonesia has yet to make an announcement on foreign ownership in the country's financial institutions. Currently, the regulation allows foreigners to own more than 90 per cent, however this may change.

“Indonesia has a population of more than 240 million, the majority of whom are Muslims. However, the penetration of Islamic banking assets is only three per cent of the total banking asset. We see an opportunity here,” he told Bernama in an interview.

Bangladesh, apart from its Muslim population of 140 million, has also put in place an Islamic banking infrastructure for Bank Islam to start its operations should there be a merger or acquisition. It is a market that is similar to Indonesia, he said.

He said Bank Islam’s overseas expansion model would involve acquiring Islamic banks rather than conventional banks. This is to avoid operational issues involving non-Shariah income from the businesses of the conventional banks during the transition period.

Zukri said Bank Islam prefers to work with a local party, who would be familiar with the local market and the regulatory environment, adding a controlling stake is not a requirement but preferred, provided it is not costly to the bank.

On the bank’s acquisition of a 20 per cent stake in Sri Lanka-based Amana Bank Ltd, he said: “It’s a good decision to go to Sri Lanka. We are upbeat about the potential and we expect this investment to break even after two years.” -- Bernama



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Toyo Ink gets nod to start R&D for Vietnam thermo-power plant

KUALA LUMPUR (Dec 7): TOYO INK GROUP BHD [] has been given the nod to commence research and development of the proposed US$2.5 billion Song Hau 2 Thermo Power Plant in Vietnam.

The company said on Wednesday that it had a letter from Vietnam's Ministry of Industry and Trade for it to start research and development of the plant with a capacity of 2 X 1000 MW at Song Hau Power Center, Hau Giang Province.

It said the ministry would provide it guidance in the setting of the investment project and implementation of the next steps of the project, as well as submission for approval as required by law.

Toyo Ink said the project would be undertaken as a joint venture, and that it would negotiate with a few parties to incorporate a joint venture company in Vietnam to undertake the project.

However, the identity of the joint venture partners and shareholdings of the proposed joint venture company have not been finalised yet, it said.

Toyo Ink said the project was expected to take between four and five years to complete with power coming on stream in 2017/2018.



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KL shares lower at mid-afternoon

The FTSE Bursa Malaysia KLCI (FBM KLCI) continued to decline at midafternoon today against a mixed backdrop, with selected bluechips weighing in on the market due to the soft sentiment, dealers said.

As at 3pm, the benchmark index dropped 5.34 points to 1,475.58, with losses led by Proton and Malaysia Airports. It had opened 0.33 of a point lower at 1,480.59.

However, global stocks rose on hopes that European leaders would agree to beef up the region's financial rescue ahead of the European Union Summit later this week, the dealers said.

The Finance Index lost 55.03 points to 13,128.47 and the Industrial Index declined 6.6 points to 2,673.42, while the Plantation Index increased 12.98 points to 7,861.04.

The FBM Emas eased 30.13 points to 10,092.96, the FBM 70 Index dropped 34.351 points to 10,964.51 and the FBM Ace Index was 13.56 points higher at 4,238.11.

Gainers led losers 347 to 297 while 286 counters were unchanged with a total volume of 1.343 billion shares worth RM824.530 million traded.

Among active stocks, Pavilion Real Estate gained 10 sen to RM1, Sanichi earned 3.5 sen to 20.5 sen, Wijaya Baru-WA went up five sen to 38 sen and LFE Corporation rose 11.5 sen to 24.5 sen.

Of the heavyweights, Maybank eased three sen to RM8.17, Sime Darby dropped one sen to RM8.94, CIMB edged down six sen to RM7.03 and Petronas Chemicals slipped one sen to RM6.07. -- Bernama



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Pavillion REIT eyes expansion in Malaysia

Pavilion Real Estate Investment Trust (Pavilion REIT), Malaysia's largest retail real estate investment, is seeking opportunities to expand its assets in Penang, Johor and the Klang Valley.

Pavilion REIT's manager, Pavilion REIT Management Sdn Bhd chief executive officer, Philip Ho said: "As a retail real estate investment trust, our duty is to acquire malls, to build up the portfolio.

"We will evaluate any financially viable investment opportunity that comes around," he told reporters at a press conference in Kuala Lumpur today.

Speaking on the expansion plans, Ho said the company's trustees had signed three rights of first refusal (ROFR) to acquire Farenheit88, the Pavilion Mall's extension, and also another mall in USJ Subang Jaya.

On overseas expansion, he said the management will evaluate opportunities when presented, but for now, the company is focused on local expansion.

Ho also said the Pavilion Mall contributes 96.4 per cent to the Group's overall revenue.

Meanwhile, on Bursa Malaysia's main market today, Pavilion REIT opened at RM1.03, a 13 sen premium over its institutional price of 90 sen, with 15.7 million unit shares traded at the opening bell. -- Bernama



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Pasdec buys 31pc of CRH Africa

Pasdec Holdings Bhd bought a 30.8 percent stake in Johnson Controls Inc’s CRH Africa to expand its business in the automotive industry, Business Day reported, citing Kevin Pather, chief executive officer of Pasdec’s local unit.

CRH Africa is 70 percent owned by Milwaukee-based Johnson Controls, the newspaper said. Pasdec bought the stake from a family trust for an undisclosed amount, the Johannesburg-based newspaper said. -- Bloomberg



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Petronas to double Turkenistan capacity

Petroliam Nasional Bhd, Malaysia’s state oil and gas company, plans to double its production capacity in Turkenistan over the next three to four years, Malaysian Prime Minister Najib Razak said in a statement today in Putrajaya, near Kuala Lumpur.

Petronas, as it is known, has already invested US$5.6 billion in gas production in the country, Najib said. -- Bloomberg



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Bumi Armada to sign US$300m facilities pact

Bumi Armada Bhd, a Malaysian offshore oilfield-services provider, will sign an agreement for financing facilities exceeding US$300 million tomorrow, according to a media invitation.

The agreement will be with several financial institutions, it said, without naming them. -- Bloomberg



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KLCI stays in the red at mid-day while Asian markets edge higher

KUALA LUMPUR (Dec 7): The FBM KLCI remained in negative territory at the mid-day break on Wednesday while most key regional markets rose on hopes that European leaders would come up with a positive framework to resolve the eurozone debt crisis at a summit later this week.

Standard & Poor's, which on Monday told 15 euro zone member nations that it may cut their debt ratings, fired a second shot less than 24 hours later, threatening on Tuesday to cut the credit rating of Europe's financial rescue fund, according to Reuters.

The rating action weighed on stocks initially, but US stocks picked up a little late on Tuesday after the Financial Times reported that European leaders would discuss boosting the firepower of the euro zone bailout fund, it said.

The FBM KLCI fell 5.04 points to 1,475.88, weighed by banking and select blue chips.

Gainers edged losers by 319 to 278, while 271 counters traded unchanged. Volume was 1.17 billion shares valued at RM660.94 million.

The ringgit strengthened 0.20% to 3.1288 versus the US dollar; crude palm oil futures for third month delivery gained RM14 per tonne to RM3,103, crude oil rose 18 cents per barrel to US$101.46 while gold added US$1.08 an ounce to US$1,729.28.

At the regional markets, Japan’s Nikkei 225 rose 1.25% to 8,682.26, Hong Kong’s Hang Seng Index gained 0.93% to 19,117.53, South Korea’s Kospi was up 0.78% to 1,917.59, Singapore’s Straits Times Index rose 0.73% to 2,769.33, Taiwan’s Taiex added 0.71% to 7,005.34 and the Shanghai Composite Index edged up 0.10% to 2,328.14.

Proton was the top loser this morning after the national carmaker’s top management yesterday clarified to Bursa Malaysia that it is not aware of any reason for the unusual market activity in its shares.

Proton fell 37 sen to RM3.94 with 4.25 million shares done.

The rally in the share price of Proton started last Thursday on rumours that re-emerged that its largest shareholder Khazanah Nasional Bhd was inviting parties to bid for part or its entire stake in the group. Khazanah holds a 42.74% stake in Proton.

Others losers included MAHB that fell 24 sen to RM5.80, UMW 13 sen to RM6.54, AirAsia 11 sen to RM3.82, Tasek 10 sen to RM7.70 and CBIP nine sen to RM4.54.

Among banking stocks, HLFG fell 12 sen to RM11.48, Hong Leong Bank eight sen to RM10.76, RHB Capital five sen to RM7.21, CIMB six sen to RM7.03, Public Bank two sen to RM12.70 and AMMB one sen to RM5.90.

Pavilion REIT, which made its debut on the Main Market of Bursa Malaysia, was the most actively traded counter at mid-morning with 138.8 million units done. The counter added 10 sen to RM1.

Other actives included Sanichi, LFE Corp, Compugates and Keladi Maju.

Gainers this morning included KLK, Nestle, Orient, Dutch Lady, Chin Teck, Petronas Dagangan Genting.



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Mixed trend continues at FBM KLCI

Share prices on Bursa Malaysia extended the mixed trend to midday today on profit-taking activities in key heavyweights, which weighed on the FTSE Bursa Malaysia (FBM KLCI), dealers.

As at 12.30 pm, the key index slipped 0.19 point to 1,475.84, after opening 0.33 point lower at 1,480.59, led by losses in Proton, Malaysia Airports and UMW Holdings.

Jupiter Securities head of research Pong Teng Siew said the market yielded mildly to profit-taking activities in the morning session following a fund inflow.

"There are some foreign funds moving into the country and with the limited upside, there's a temptation to take profit," he told Bernama.

Pong said although the global market edged up against prospects that the European Union summit on Friday would produce a workable agreement to contain the eurozone debt crisis, the local bourse remained on a cautious mode.

"The developments in the eurozone is foreseen to be on the mixed side today and on an uptrend in the US. "The local market is thus, torn between the leads, provided by the two developed markets," he added.

The Finance Index lost 57.33 points to 13,126.17, the Plantation Index increased 2.48 points to 7,850.54 while the Industrial Index eased 6.57 points to 2,673.45. The FBM Emas Index shed 31.68 points to 10,091.41, the FBM Mid 70 Index slipped 43.771 points to 10,955.09 and the FBM ACE Index added 20.09 points to 4,244.64.

Gainers outnumbered losers 319 to 278 while 271 counters were unchanged, 618 untraded and 24 others suspended. Turnover stood at 1.167 billion shares worth RM660.640 million.

Pavilion Real Estate Investment Trust, which made its debut on the Main Market today, was the most active stock, gaining 10 sen to RM1. It had opened at a 13 sen premium of RM1.03.

Among other actives, R&A Telecommunication gained two sen to 14 sen, Sanichi perked four sen to 21 sen and 1 Utopia-WA was unchanged at five sen. For the heavyweights, Maybank dropped three sen to RM8.17, Sime Darby slipped one sen to RM8.94, CIMB eased six sen to RM7.03 while Petronas Chemicals was unchanged at RM6.08. -- Bernama



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Bursa Securities queries 1 Utopia

KUALA LUMPUR (Dec 7): Bursa Malaysia Securities Bhd has issued an unusual market activity query over the trading of 1 Utopia Bhd's shares today.

The regulator said on Wednesday the query was high trading volume in 1 Utopia’s shares recently.

At 10.45am, 1 Utopia fell half a sen to 11.5 sen with 8.02 million shares done, while its warrants rose one sen to 6 sen with 29.81 million units done.



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KLCI extends losses at mid-morning, new listing Pavilion most active

KUALA LUMPUR (Dec 7): The FBM KLCI extended its losses at mid-morning on Wednesday as cautious sentiment kept investors on the sidelines.

Regional markets, however, mostly edged up on optimism that Standard & Poor’s threat of mass credit rating downgrades will pressure European leaders to come up with a convincing framework for resolving the euro zone debt crisis at a crucial summit later this week, according to Reuters.

The FBM KLCI fell 3.90 points to 1,477.02, weighed by losses at select blue chips.

Gainers edged losers by 184 to 163, while 231 counters traded unchanged. Volume was 545.44 million shares valued at RM268.58 million.

At the regional markets, Japan’s Nikkei rose 0.70% to 8,634.93, Hong Kong’s Hang Seng Index gained 0.84% to 19,101.11, the Shanghai Composite Index was up 0.22% to 2,330.94, Taiwan’s Taiex rose 1.11% to 7,033.64, South Korea’s Kospi up 0.80% to 1,918.09 while Singapore’s Straits Times Index was 0.54% higher at 2,764.19.

Maybank Investment Bank Bhd head of retail research and chief chartist Lee Cheng Hooi in a note to clients on Dec 7 said the FBM KLCI’s resistance areas of 1,480 and 1,503 may cap market gains, whilst the obvious support areas may be located at 1,458 and 1,477.

“Despite the US markets’ firm tone last night, we might not see a good day for the local index further gap filling takes place today,” he said.

Meanwhile, ECM Libra Investment Research in a strategy note on Dec 7 said it expects the FBM KLCI to trade in a range of 1,520 and 1,300 in 1H2012 before moving up towards 1,600 in 2H2012.

It said Malaysia had outperformed in 2011 and was not cheap relative to other markets.

“Hence, for better potential upside, we would be buying individual stocks that have underperformed the FBMKLCI due to negative news or developments, but could see a turnaround in their situation.

“We have identified Tenaga Nasional and Lion Industries,” it said.

Among the decliners on Bursa Malaysia, MAHB fell 21 sen to RM5.83, Proton down 18 sen to RM4.13, UMW 13 sen to RM6.54, Hong Leong Bank 12 sen to RM10.72, Lafarge Malayan Cement 11 sen to RM6.61, Tasek and Baneng fell 10 sen each to RM7.70 and 3 sen, while IJM Corp and Axis REIT fell six sen each to RM2.65 and RM2.55.

Pavilion REIT, which made its debut on the Main Market of Bursa Malaysia, was the most actively traded counter at mid-morning with 88.65 million units done. The counter added 8.5 sen to 98.5 sen.

Other actives included Sanichi, LFE Corp, MLabs, Wijaya warrants and Compugates.

Gainers at mid-morning included Nestle, Aeon, Orient, QSR, Dutch Lady, BHIC, Perstima and Genting.



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KL shares mixed in early trade

Share prices on Bursa Malaysia were somewhat mixed in the early trading today as investors remained cautiously optimistic ahead of the European Union Summit later this week.

Twenty-two minutes after the opening, the FTSE Bursa Malaysia (FBM KLCI) lost 0.86 points to 1,480.06, with losses mostly seen in Proton. Earlier, the benchmark index opened 0.33 points lower at 1,480.59.

The Finance Index dwindled 30.99 points to 13,152.51, the Plantation Index eased 10.25 points to 7,837.81 and the Industrial Index slipped 1.23 points to 2,678.79. The FBM Emas Index slid 2.399 points to 10,120.69, the FBM Mid 70 Index was 0.16 points lower at 10,998.7 but the FBM ACE Index gained 49.84 points to 4,274.39.

Advancers led decliners 149 to 78 while 153 counters were unchanged, 1,106 untraded and 24 others were suspended. Turnover stood at 261.173 million shares worth RM145.514 million.

HWANGDBS Vickers Research said it expects investors on the local bourse to stay on the sidelines following the dearth of newsflow. The key benchmark index may continue to trade within a tight range, likely on a slight downward bias and trend closer to its immediate 1,475 support level, it said in a research note today.

Actives, Pavilion Real Estate added 10 sen to RM1, R&A Telecommunications earned 2.5 sen to 14.5 sen and LFE Corporation gained 13.5 sen to 20.5 sen.

For heavyweights, Maybank, Sime Darby and Petronas Chemicals, were unchanged at RM8.20, RM8.95 and RM6.08, respectively, while CIMB shed 4.0 sen to RM7.05. -- Bernama



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Proton dips after saying unaware of corporate proposals

KUALA LUMPUR (Dec 7): PROTON HOLDINGS BHD [] shares fell on Wednesday after the national carmaker’s top management clarified to Bursa Malaysia that it is not aware of any reason for the unusual market activity in its shares.

At 9.45am, Proton lost 26 sen to RM4.05 with 1 million shares done.

The rally in the share price of Proton started last Thursday on rumours that re-emerged that its largest shareholder Khazanah Nasional Bhd was inviting parties to bid for part or its entire stake in the group.

Khazanah holds a 42.74% stake in Proton.



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Pavilion REIT active, up on debut

KUALA LUMPUR (Dec 7): Pavilion Real Estate Investment Trust, which made its debut on the Main Market of Bursa Malaysia on Wednesday, was the most active in early trade.

At 9.25am, Pavilion REIT was up 10 sen to RM1 with 70.1 million units done.

Pavilion REIT’s most valuable asset is Pavilion KL Mall (with 1.3 million sq ft of net lettable area (NLA)), which is valued at RM3.4 billion.

The REIT also manages Pavilion Tower – a 20-storey office tower with 167,400 sq ft of NLA valued at RM128.0 million.

Pavilion KL Mall has a diversified tenant base, ranging from supermarkets/department stores (Parkson, Mercato) to high-end fashion outlets (Prada, Gucci, Michael Kors) only available in 1-2 malls in Malaysia.



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Wah Seong price target cut, stock falls

Wah Seong Corp, a Malaysian pipe-coating company, fell to a one-month low in Kuala Lumpur trading after HwangDBS Vickers Research Sdn Bhd cut its price target to RM2.50 after losing potential contracts in Australia.

The stock dropped 1.5 percent to RM1.96 at 9:15 a.m. local time, set for its lowest close since Oct. 3. -- Bloomberg



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Pavilion REIT jumps in KL listing debut

Pavilion Real Estate Investment Trust, a Malaysian property trust, rose 13.3 percent in its Kuala Lumpur stock market debut after raising RM710 million in its initial share offering.

The stock rose to RM1.02 at 9:09 a.m. local time from a reference price of 90 sen. -- Bloomberg



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Baneng plummets ahead of delisting

Baneng Holdings Bhd, a Malaysian fabrics manufacturer, fell the most on record after saying its shares will be suspended from Dec. 14 ahead of their delisting.

The stock plunged 76.9 percent to 3 sen at 9:29 a.m. local time. -- Bloomberg



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CIMB Research has technical sell on Tebrau Teguh at 71.5 sen

KUALA LUMPUR (Dec 7): CIMB Equities Research has a technical sell on Tebrau Teguh at 71.5 sen at which it is trading at a price-to-book value of 1.0 times.

It said on Wednesday the rebound from its August’s low may have hit a snag near the 61.8% FR level. Prices are now struggling to stay above its key moving averages.

“If the 50-day SMA gives way, there is a high possibility that prices may fall towards 67 sen and 63 sen. The 38.2% FR level is also a magnet for prices,” it said.

CIMB Research said the technical landscape is deteriorating. MACD signal line has staged a negative crossover while RSI has hooked downward.

“Unless prices swing back above the 75 sen level, we would rather stick with the bear’s camp. Put a buy stop at 77.5 sen, just in case. Unload on strength,” it said.



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