Friday, 16 December 2011

L&G unit secures RM90m loan from OCBC Bank

KUALA LUMPUR (Dec 19): Land & General Bhd’s unit Sri Damansara Sdn Bhd (SDSB) has secured a RM90 million loan from OCBC Bank (Malaysia) Bhd.

L&G said on Friday the credit facilities were to enable SDSB to undertake a condominium project, Damansara Foresta, in Bandar Sri Damansara, Selangor and to provide general working capital.

SDSB is a property development company with an authorised and issued and paid-up of RM100 million and RM69 million, respectively.

The first party first legal charge would be created over three parcels of land for Damansara Foresta project; debenture by way of fixed and floating charge over all of SDSB’s present and future assets relating to the development of Damansara Foresta project.

L&G would also execute a corporate guarantee for RM90 million and it would also provide a letter of undertaking to finance the CONSTRUCTION [] cost and any other costs; associated with the development of Damansara Foresta project to complete the project.

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Wah Seong sets up Singapore JV, eyes regional pipe, engineering biz

KUALA LUMPUR (Dec 16): WAH SEONG CORPORATION BHD [] and Insituform BV have set up a joint venture company in Singapore to target pipelines business and also provide onshore corrosion protection services in Southeast Asia and Australia.

Wah Seong said on Friday the new joint venture company WCU Corrosion Technologies Pte. Ltd would seek businesses in lining new and existing pipelines and passageways with corrosion and abrasion resistant polyethylene pipe.

WCU would also look into onshore corrosion protection services, including engineering services, CONSTRUCTION [], installation, inspection, monitoring and maintenance and related product sales.

It said WCU had an initial issued and paid-up of US$1,000 comprising 100 ordinary shares held by WC Singapore (51%) and Insituform BV (49%) respectively.

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Boustead gets Mindef contract for 6 ships, contract ceiling RM9b

KUALA LUMPUR (Dec 16): Boustead Naval Shipyard Sdn. Bhd has received the letter of award from the Ministry of Defence (Mindef) to supply six patrol vessels with a contract ceiling of RM9 billion.

Bousted Holdings Bhd said its subsidiary Boustead Naval Shipyard had received the letter on Friday to design, construct and deliver six second generation patrol vessels.

“The contract carries a ceiling of RM9.0 billion, to be implemented over three Malaysia Plans, 10, 11 and 12. The delivery of the first of class ship is estimated in 2017 with follow-on ships every six months thereafter,” it said.

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OSK Securities Thailand gets licence nod from Thai govt

KUALA LUMPUR (Dec 16): OSK Securities (Thailand) Public Co. Ltd (OSKST) has obtained the permanent approval for the foreign business licence from the Thai regulator.

OSK HOLDINGS BHD [] said on Friday the Thai unit had obtained the permanent approval for the foreign business licence from the Ministry of Commerce and the fees were paid on Dec 13.

“The aforesaid licence would enable OSKST to undertake such businesses relating to securities businesses and services as approved by the Ministry of Finance and the Securities and Exchange Commission, Thailand,” it said.

OSKST was formerly known as BFIT Securities Public Co. Ltd, a subsidiary of OSK Investment Bank Bhd.

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Gamuda 1Q net profit up 49.5% to RM132.32m

KUALA LUMPUR (Dec 16): GAMUDA BHD [] posted net profit of RM132.32 million in the first quarter ended Oct 31, 2011, up 49.5% from RM88.53 million a year ago due to higher contributions from all divisions.

Following the strong performance, the infrastructure-based company had on Friday provided an upbeat outlook for the group. It said it expected to achieve a stronger performance this year supported by its ongoing CONSTRUCTION [] projects, continued strong property sales and steady earnings from the water and expressway

The revenue for the quarter rose marginally to RM641.99 million from RM634.2 million in 2010. It declared a single-tier first interim dividend of 6.0 sen per share. Earnings per share were 6.41 sen compared to 4.35 sen a year earlier, while net assets per share were RM1.85.

The group posted profit before taxation of RM167.2 million for the current quarter which was higher than the fourth quarter’s profit before taxation of RM151.1 million. The higher profit was from higher contributions from the construction and property divisions.

On the construction division, it said there were four projects underway, including the Klang Valley Mass Rapid Transit project, electrified double tracking railway project, New Doha International Airport project in Qatar and the Yen So sewage treatment plant project in Hanoi, Vietnam

As for the Klang Valley MRT, it said to-date, nine packages for preparatory and preliminary works have been successfully tendered and awarded to various contractors.

“Tenders have been called for some of the remaining 80 works packages comprising elevated civil works, stations, systems and the underground works package. The awards to the successful bidders are expected to be made from early 2012 and substantially completed by the 4th quarter of 2012,” it said.

As for the railway project, it said 71% of the works were completed. The scheduled completion date for the main section of works from Padang Besar to Ipoh (Spine line) was June 2014, whereas completion of the section of works from Bukit Mertajam to Butterworth (Spur line) is November 2014.

On the New Doha International Airport, it said the project was 98% completed and the company was preparing to hand over the completed works to the client in January 2012.

Gamuda said the Yen So sewage treatment plant was 95% completed and it was in the testing and commissioning phase and to be handed over in May 2012.

As for the property division, it said for the current quarter, Gamuda Land continued to realise robust sales across all its ongoing projects. The division recorded RM450 million in sales while unbilled sales at the end of this quarter exceeds RM1 billion.

As for Gamuda Land’s Celadon City project in Ho Chi Minh City, Vietnam which was launched, the initial sales reflected the sluggish property sector in the country, especially for apartments, but sales momentum was expected to pick up in the coming months.

“Infrastructure works in Gamuda City and Celadon City are progressing on schedule and building construction works have commenced in Celadon City,” it said.

As for the expressway concessions division, it said the traffic volumes remain stable and resilient. It added a long term solution to resolve the issue of toll increases from the government is still pending.

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Country Heights unit redeems 68.8m loan stocks, funded by Maybank loan

KUALA LUMPUR (Dec 16): COUNTRY HEIGHTS HOLDINGS BHD []’s (CHHB) unit East Vision Leisure Group Sdn Bhd (EVL) has redeemed all its 68.82 million loan stocks funded by a RM92.91 million term loan from MALAYAN BANKING BHD [].

CHHB said the loan stocks redeemed were the 68.82 million redeemable secured loan stocks 2004/2011 (RSLS Series B).

“The rationale for redemption is to enable EVL to restructure its loan requirements and to redeem the RSLS Series B which is due and payable on Dec 19, 2011,” it said.

EVL had also signed a term loan facility agreement with Maybank wherein the loan was secured against the pledged assets comprising of the leasehold land and building known as Malaysia International Exhibition & Convention Centre, Mines Waterfront Business Park together with CHHB’s corporate guarantee.

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SILK 1Q net loss widens to RM2.19m despite higher revenue

KUALA LUMPUR (Dec 16): SILK Holdings Bhd net loss for the first quarter ended Oct 31, 2011 widened to RM2.19 million from a net loss of RM1.15 million, despite a 11.1% increase in revenue year-on-year to RM64.65 million from RM58.17 million.

The company said on Friday that loss per share for the quarter was 0.57 sen compared to loss per share of 0.30 sen, while net assets per share was 47.61 sen.

SILK chairman Datuk Mohd Azlan Hashim said the loss for the quarter was within expectation given the significantly higher depreciation and amortisation charges and finance costs incurred in line with the fleet expansion at its oil & gas (O&G) support services division.

“That said, the board is encouraged by the improvements in revenue and earnings before interest, tax, depreciation and amortisation (EBITDA) and expect that these will eventually provide a positive boost to the bottom-line,” he said.

Commenting on the company’s divisions, Mohd Azlan efforts by the management of its highway infrastructure division had enabled it to continue to record operational improvements.

“Given the relatively stable cost base of the division, the improved revenue emanating from the operational improvements has allowed for the after-tax loss for the quarter to be reduced considerably” he said.

On its O&G support services, Mohd Azlan said the division’s increase in depreciation and finance costs were unavoidable given its fleet renewal program and fairly conservative accounting policies in respect to the depreciation of its vessels and dry-docking costs.

“That said, the costs remain manageable and within expectation,” he said.

“All in all, the board is pleased with the overall top-line performance of the group.

“However, it takes cognisance of the increase in depreciation and finance costs and will monitor these closely going forward,” he said.

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Axiata Group lifts suspension on Alcatel-Lucent

KUALA LUMPUR (Dec 16): Axiata Group Bhd has lifted the group-wide suspension against the Paris-based Alcatel-Lucent and its group of companies which includes Alcatel-Lucent Malaysia Sdn Bhd (ALU Group) with effect from Friday.

Axiata said the decision to lift the suspension, enforced since March 23, was made after a thorough review that included external agency reports on the institutionalisation of policies, compliance structures and higher ethical standards throughout the ALU Group.

“It also takes into account satisfactory evidence and assurances by ALU Group that it has improved its policies and implemented enforceable measures to prevent a recurrence of any improper acts in the future and adherence to all applicable legal, regulatory and ethical requirements,” it said.

Axiata said the whole process was based on Axiata’s zero tolerance policy against corruption in its business dealings and transactions.

To recap, Axiata had on March 23 imposed the suspension which included suspension of the ALU group from any invitations to submit any new tenders, entry into new contracts or continuing with any negotiations that are currently being undertaken with any group member.

The suspension also applied to any consortium, joint-venture or partnership of which any ALU group member is a party.

In 2010, the US Securities and Exchange Commission had charged ALU with violating the Foreign Corrupt Practices Act (FCPA) by paying bribes to foreign government officials to illicitly win business in Latin America and Asia.

The SEC alleged Alcatel’s subsidiaries used consultants who performed little or no legitimate work to funnel more than US$8 million in bribes to government officials in order to obtain or retain lucrative telecommunications contracts and other contracts.

Alcatel agreed to pay more than US$45 million to settle the SEC’s charges, and pay an additional US$92 million to settle criminal charges announced today by the US Department of Justice.

The settlement covered activities in several countries in Africa, Latin America, Asia, including Malaysia.

The investigation in Malaysia covers events that occurred between October 2004 and February 2006, and involve alleged improper payments to TELEKOM MALAYSIA BHD []'s (TM) employees.

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UMW denies – again – reported bid to acquire Proton stake

KUALA LUMPUR (Dec 16): For the second time in as many days, UMW HOLDINGS BHD [] denied that its major shareholders had submitted a bid to acquire Khazanah Nasional Bhd’s controlling stake in national carmaker PROTON HOLDINGS BHD [].

The company on Friday was responding to an earlier report on Dec 16 that said that “shareholders linked to UMW Holdings, a strategic partner of Toyota Motor Corp, are believed to have won a bid to buy Khazanah Nasional Bhd's stake in Proton Holdings Bhd”.

The report had said that the UMW shareholders’ bid was in the range of RM6 per Proton share, and that they would eventually make a general offer for Proton via UMW Holdings.

“Further to our announcement dated 15th December 2011 on the above matter, UMW wishes to advise you that our major shareholders have confirmed that they have not submitted any bid to Khazanah Nasional Berhad ("Khazanah") nor have they won any bid to buy Khazanah's stake in Proton Holdings Bhd.

“UMW also wishes to re-affirm that it is not in any form of discussion with any parties in this regard,” it said.

UMW shares fell on Friday after it denied the initial report on Thursday, and the stock was the top loser. UMW fell 34 sen to RM6.50 with 2.3 million shares traded.

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Market Commentary

The FBM KLCI index gained 2.11 points or 0.14% on Friday. The Finance Index increased 0.61% to 13158.59 points, the Properties Index up 0.39% to 961.17 points and the Plantation Index down 0.53% to 7864.11 points. The market traded within a range of 9.51 points between an intra-day high of 1472.76 and a low of 1463.25 during the session.

Actively traded stocks include WIJAYA-WA, KURASIA, PROTON-CG, JCY-CD, PROTON-CH, ENVAIR, ASUPREM, DIALOG-CC, SANICHI and MAS-CC. Trading volume increased to 1790.67 mil shares worth RM1331.30 mil as compared to Thursday’s 1564.71 mil shares worth RM1251.16 mil.

Leading Movers were PBBANK (+22 sen to RM13.02), CIMB (+8 sen to RM7.00), PETCHEM (+8 sen to RM6.16), YTL (+5 sen to RM1.46) and PPB (+36 sen to RM16.76). Lagging Movers were IOICORP (-10 sen to RM5.05), UMW (-34 sen to RM6.50), AXIATA (-4 sen to RM4.86), YTLPOWR (-4 sen to RM1.76) and MAYBANK (-2 sen to RM8.21). Market breadth was positive with 426 gainers as compared to 345 losers. -- JF Apex Securities Bhd

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KLCI closes higher but struggles to breach 1,470-level

KUALA LUMPUR (Dec 16): The FBM KLCI could not sustain much of its gains on Friday and struggled to breach the 1,470-point level on some mild profit taking ahead of the weekend.

The FBM KLCI edged up 2.11 points to close at 1,466.22. The index had earlier risen to its intra-day high of

Gainers led losers by 426 to 345, while 313 counters traded unchanged. Volume was 1.79 billion shares valued at RM1.33 billion.

World stocks rose on Friday after upbeat U.S. data and corporate results, while concerns over the European banking sector and nervousness about potential ratings downgrades in European sovereign debt underpinned German government bonds, according to Reuters.

Surprising resilience in the U.S. economy and corporate sector are underpinning investor appetite for risky assets into the year end, although trading is thinning out ahead of a holiday season, it said.

At the regional markets, the Shanghai Composite Index rose 2.02% to 2,224.84, Hong Kong’s Hang Seng Index added 1.43% to 18,285.39, South Korea’s Kospi up 1.15% to 1,839.96, Taiwan’s Taiex gained 0.30% to 6,785.09, Japan’s Nikkei 225 edged up 0.29% to 8,401.72 and Singapore’s Straits Times Index gained 0.91% to 2,659.22.

On Bursa Malaysia, PPB added 36 sen to RM16.76, KrisAssets was up 26 sen to RM5.88, Public Bank 22 sen to RM13.02, LPI Capital 20 sen to RM13.40, Warisan 19 sen to RM2.79, Orient and BHIC 17 sen each to RM5.31 and RM3.15, Tasek 16 sen to RM7.86 and Bintulu Port up 15 sen to RM6.85.

Among the losers, UMW fell 34 sen to RM6.50, Carlsberg down 33 sen to RM8.66, Southern Acids and Malayan Flour Mills lost 17 sen each to RM2.15 and RM7.50, while GAB, IOI Corp, Tan Chong and Panasonic lost 10 sen each to RM13.40, RM5.05, RM4.04 and RM19.94 respectively.

Meanwhile, the actives included Wijaya, Kurnia Asia, Proton, JCY, Envair, Astral Supreme, Dialog and Sanichi.

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Dijaya targets foreign buyers for Tropez Residences

JOHOR BARU: Dijaya Corp Bhd is banking on the strategic location of its Tropez Residences in Tropicana Danga Bay, Iskandar Malaysia, Johor, to attract international buyers.

Tower A of the three-tower condominium was launched last Saturday. The project is part of the RM3.8 billion Tropicana Danga Bay development, a joint-venture project between

Dijaya Corp and Iskandar Waterfront Sdn Bhd. The integrated project sits on 37 acres (15ha) within Iskandar Malaysia.

“Due to the strategic location of Iskandar Malaysia at the crossroads of two straits, two oceans and two continents, Tropicana Danga Bay has great potential to become an international landmark. It is driving the development of a thriving modern metropolis in the southern part of Johor,” said Datuk Tong Kien Onn, Dijaya managing director.
“Our latest product, Tropez Residences, has garnered keen interest from local and foreign purchasers. Tropicana Danga Bay can capitalise on Malaysia’s synergies with Singapore by offering an optional address that is conveniently linked to vibrant Singapore,” he said.

The target market for the condos are young executives residing in Johor, small families, Malaysians working in Singapore, foreigners, especially Singaporeans, and investors, said Tong.

At press time, 200 of Tropez Residences’ 428 units in Tower A had been sold. The RM650 million bay front condominium stands 38 storeys tall. The units have built-ups of 689 to 1,668 sq ft with prices from RM400,000. There is a range of one-bedroom plus study to three -bedroom apartments.

Facilities include a swimming pool, gym, multi-purpose hall and tennis court. There will be two open air sky lounges in Towers A and B while the entire condo project will eventually be connected by a level six walkway to the entire Tropicana Danga Bay development.

Tropez Residences’ other towers will be launched next year. Tower B is 39 storeys with 424 units; Tower C is 29 storeys with 297 apartments.

Tropicana Danga Bay is set to be an integrated community linked via a network of well-shaded sky bridges and pathways and extensive green roofs.

It will also have a blend of lifestyle and commercial properties along with a hotel and a shopping centre.

Situated on the Straits of Johor, the project is accessible via a network of major highways, such as the North-South Expressway and access to Singapore is easy. It is close to the city centre and Senai International Airport as well as cargo hubs and seaports.

The developer of Tropicana Golf & Country Resort, Tropicana Indah Resort Homes and Tropicana City in the Klang Valley is also in a collaboration with Starwood Hotels & Resorts Worldwide Inc to develop a five-star W Kuala Lumpur Hotel and Residences in Kuala Lumpur city centre which is expected to commence by early 2012.

In Penang, the group has just entered into a joint venture agreement with Ivory Properties Group Bhd to build a mixed development project in Bayan Mutiara, Penang.

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TA Global unveils maiden residential project in Australia

KUALA LUMPUR: TA Global Bhd has launched the first phase of its maiden residential project in Australia.

Dubbed Little Bay Cove, the 33.6-acre (13.6ha) project along Sydney’s coastline is a joint venture development with Australia’s Charter Hall Group with a gross development value of A$600 million (RM1.9 billion).

“Little Bay Cove provides the platform for us to showcase the best practices in developing a sustainable community with a mix of housing types at affordable prices. It is one of

Sydney’s last remaining beachside communities and offers a desirable lifestyle in one of the city’s sought after coastal locations,” said Kimmy Khoo, executive director of TA Global.
The launch of the first phrase, known as Solis, was held simultaneously in Malaysia and Australia on Dec 3.

Despite the uncertainties in the global economy as a result of the eurozone debt crisis, Khoo is confident Little Bay Cove will do well.

“The property development sector in Sydney has been relatively shielded, according to the Australian Bureau of Statistics, the preliminary price index for established houses in Sydney has dropped only 0.2% between September 2010 and September this year,” she told The Edge Financial Daily.

Khoo said management has received a very encouraging response following the launch. The developer is targetting first home buyers, investors and upgraders.
“We are expecting strong demand from Asian buyers,” she added.

Solis, the Latin word for “sun”, comprises 45 apartment units, all of which face north and have spacious balconies. Buyers can choose from three layouts with built-ups ranging from 645 to 1,040 sq ft. Prices of the apartment units are tagged at A$495,000.

The entire project will take five years to develop and will offer about 570 residences ranging from apartments, courtyard homes to land allotments. Prices for the upcoming launches of courtyard homes are indicatively from A$985,000 while vacant land lots are from A$1.2 million.

Little Bay Cove is located just 20 minutes’ drive from the Central Business District of Sydney and 10 minutes from the University of New South Wales and the airport. It is also within walking distance of four golf courses, Little Bay Beach, a retail village, parks, playgrounds, a community centre and a chapel located in the adjacent established residential community at Prince Henry.

The green and eco-friendly coastal residential enclave is designed by several Australian firms, including Smart Design Studio, Tony Caro Architecture, Fox Johnston and SJB Architects. Little Bay Cove has committed to reducing potable water use by 60% and energy use by 40% to 50%. About 50% of the estate is dedicated to open spaces.

The green features in all the units are: recycled water supply, water efficient taps and flushing systems,energy efficient lighting, dishwashers and clothes dryers, six-star instantaneous gas hot water systems,motion sensor controls to common area lighting and ventilation and solar photovoltaic panels to power common area lighting.

The site for Little Bay Cove was previously home to the University of New South Wales’ sporting fields and research facility. It was acquired in 2008 by Charter Hall.

TA Global has invested in Australia since 1997, when it first acquired the Wales House heritage building on 66 Pitt Street and redeveloped the property into Radisson Blu Plaza Hotel Sydney, a 362-room five-star hotel. In 2009, the group acquired The Westin Melbourne, a freehold 262-room luxury full-service hotel located in the heart of Melbourne’s central business district.
Next year, TA Global is set to launch the land lots in Little Bay Cove while in Richmond, Canada, it plans to launch the Azalea Apartments and Magnolia Apartments in The Gardens.

Khoo said the group is continuously on the lookout to buy or undertake property development projects in Australia, especially in commercially viable areas in cities such as Perth, Sydney and Melbourne.

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Sime Darby-Bucyrus deal concluded

Sime Darby
(Dec 15, RM8.95)

Maintain hold with revised target price of RM8.50 from RM8.36: Sime Darby has completed the acquisition of the former Bucyrus distribution assets (in Australasia) and rights under Sime’s dealership territories for US$360 million (RM1.2 billion).

While earnings impact is neutral in the short term, the inclusion of Bucyrus product offerings will be positive in the longer term. We maintain “hold” but raise our target price to

RM8.50 (from RM8.36; based on unchanged 16 times FY13 price-earnings ratio) on revised earnings.
Yesterday, Sime completed the acquisition of assets used in the former Bucyrus distribution in Sime’s Caterpillar dealership service territories in Queensland and the Northern

Territory of Australia, Papua New Guinea and New Caledonia for US$360 million cash. The acquisition comes with distribution rights for former Bucyrus products where Sime’s industrial division operates: Malaysia, Singapore, the Maldives, Christmas Island and parts of China.

While the breakdown of the acquisition price was not made known, we consider the price somewhat high as it is almost double our earlier estimates of RM537 million.

The key difference is that our earlier price estimate only accounted for the Australian assets. The current order book for Bucyrus in Australia stands at RM2 billion (to be delivered over the

next 18 to 24 months). This adds to Sime’s existing order book of RM3.5 billion for the industrial segment, providing good earnings visibility.

We understand Sime is buying the Bucyrus assets at about 10 times enterprise value/earnings before interest, tax, depreciation and amortisation (EV/Ebitda). At 10 times EV/Ebitda, the additional Ebitda contribution to Sime is about RM110 million.

Assuming about 4% borrowing cost and 25% corporate tax rate, the incremental profit to Sime is some RM50 million per year, raising our FY12 to FY14 net profit by 1% to1.6%. This excludes potential synergies that Sime could tap into post the merger of operations in Australia. — Maybank IB Research, Dec 15

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MyEG: Tricubes not a ‘significant competitor’

KUALA LUMPUR: MyEG Services Bhd does not see Tricubes Bhd as a “significant competitor”.

Tricubes recently secured a contract from the Royal Malaysian Police for the collection of and enquiries about traffic summonses.

“[Tricubes] primarily focus on click-and-pay services, which we are moving away from. The value-add for click-and-pay services is too low,” said Wong Thean Soon, MyEG managing director, after the company’s AGM yesterday.

Wong said MyEG, which provides e-service for several government departments, is shifting its focus to develop more complex services that have higher value creation, for which the company can charge a higher fee.

“Any service that involves a security document can be considered high value added,” said Wong, citing passports, MyKads, licences and permits as examples.

He noted that click-and-pay services might have very high transaction volumes but the fee is “very low”. In fact, click-and-pay services only contribute about 10% to MyEG’s profit.

To climb the value chain, MyEG is going to launch the second phase of its vehicle ownership transfer service next month. The service will allow the electronic transfer of ownership to eventual buyers, which is currently only available via Road Transport Department (RTD) counters.

Wong explained that the service is more complex than traditional click-and-pay services. It involves the transfer of road tax and registration on the RTD’s database.

Wong declined to give an earnings forecast for the new service, but he said the size of the market is roughly RM50 million a year and earnings would depend on how much of it MyEG can capture.

MyEG will charge users a RM25 convenience fee. Industry statistics indicate that there are one million car ownership transfers and one million motorcycle ownership transfers a year.

“RTD-related services contribute roughly 60% of MyEG’s revenue,” said Wong, who explained that MyEG has been providing services to the RTD for over 10 years and its products are well established. The first phase of the vehicle ownership transfer e-Government service, which MyEG is currently providing, only allows for the temporary transfer of ownership and liability to used car dealers.

Wong said the company is in talks with government departments to secure more projects. He said the company does not want to limit its services to only a few government departments.

“We aim to provide our services to all of them.”

He disclosed that there are several projects in the pipeline but declined to reveal the details.

“It is the prerogative of the government to announce the services as and when they are ready because they are the owners of the service,” he said.

“We aim to release one or two major services each year and we have several already in the pipeline. It takes about two to three years from conceptualising a service, to research and development, to actualising it.”

MyEG started its FY12 with a big jump in earnings. The company’s net profit surged 92% to RM5.4 million or 0.9 sen per share for 1QFY12 ended Sept 30 from RM2.8 million or 0.5 sen per share in the same period last year. Revenue grew 18% to RM14.2 million from RM12 million previously.

MyEG closed unchanged at 67 sen yesterday with 141,300 shares traded.

This article appeared in The Edge Financial Daily, December 16, 2011.

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Dialog to bid for marginal field projects

Dialog Group
(Dec 15, RM2.44)

Maintain outperform with target price RM3.64: The investor meeting we arranged for Dialog’s management yielded a nice surprise — its aggressive plan to bid for two or three more marginal field contracts next year.

This exciting development comes hot on the heels of the award of the Balai marginal field contract in August.

We are thrilled with this latest development which could give Dialog additional sources of long-term earnings. We maintain our “outperform” call and continue to value the stock at its sum-of-parts (SOP), which does not factor in the new marginal fields.

Yesterday, we took Chew Eng Kar, Dialog’s executive director of corporate services, and Sue Ngau, manager of corporate services, to meet with 15 fund managers.

A pleasant surprise from the meeting was Dialog’s ambitious plan to bid for two or three more marginal field developments in CY12 after securing the 15-year Balai contract in August together with Petronas Carigali Bhd and Australia-based Roc.

The development cost for a marginal field is around US$500 million (RM1.6 billion) to US$1 billion and we understand that Dialog is vying for at least a 30% stake. Management assured that it will not make anymore cash calls to finance its marginal field venture other than the ongoing rights issue.

Slated for completion in Feb 12, the rights issue is expected to raise around RM500 million.

As at end-September, Dialog had RM92 million (4.6 sen per share) net cash.

We are encouraged by its hard-hitting marginal field strategy which will allow it to undertake more upstream works. The marginal field contracts add to Dialog’s earnings visibility and give it steady income streams in addition to the Balai contract, tank terminal concessions (Kertih, Tanjung Langsat and Pengerang) and a supply base (Jubail, Saudi Arabia).

Stay invested. We believe that things can only get more exciting for Dialog as it moves up the value chain. Already, the company is the sector’s biggest Economic Transformation Programme winner through the Balai contract and the Pengerang tank terminal. — CIMB IB Research, Dec 15

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Pavilion: New REIT on the block

Pavilion Real Estate Investment Trust made a solid debut on Bursa Malaysia last week. The trust unit rose as high as RM1.04 and was the most actively traded counter on its first day of trading. It has since retraced slightly to RM1.02, but remains comfortably above the initial public offering price of 90 sen.

Interest in the REIT is unsurprising given prevailing uncertainties in Europe and the potential impact on the health of the global economy. Currently, the general consensus is that the global economy will continue to grow in 2012, albeit at a slower pace. However, the eurozone debt crisis remains a wild card and further deterioration in the situation could
throw even modest expectations into disarray.

Meanwhile, the latest 3QFY11 earnings reporting season for companies listed on the local bourse was muted, weighed down by the gloomier outlook. A fair percentage of results have fallen short of expectations and we could see further earnings downgrades over the next few months.

As such, many investors are staying on the defensive, picking companies with more resilient businesses and earnings as well as higher than market average dividend yields. In view of the slowing economic growth, interest rates are unlikely to head higher anytime soon. In fact, central banks have started to loosen monetary policy in recent days. REITs are among the highest yielding instruments on the local bourse and most have fairly low beta relative to the broader market.

Portfolio valued at RM3.54 billion
Pavilion REIT’s portfolio consists of only two properties — Pavilion Kuala Lumpur Mall and Pavilion Tower — valued at a combined RM3.54 billion.

Pavilion Mall is the among the few premium fashion shopping malls in the country, catering for the mid- to high-end segment of the population. The shopping centre also attracts more than its fair share of tourist numbers, thanks to its location in the heart of the Golden Triangle and commercial business district.

The shopping mall is valued at RM3.42 billion and has a total net lettable area of almost 1.34 million sq ft. Occupancy rate for Pavilion Mall has averaged above 98% over the past
four years.

Pavilion Tower is a 20-storey office block connected to the mall. Contributions from Pavilion Tower are small relative to the REIT’s total revenue.

The trust intends to stay focused on properties used solely or predominantly for retail purposes. It has the rights of first refusal for two other shopping malls — fahrenheit88
(located across the street from Pavilion Mall) and a yet-to-be developed mall in Subang Jaya — as well as for the future expansion of Pavilion Mall.

This retail property market segment is, arguably, among the most resilient given that consumer spending is expected to remain fairly robust despite the global financial turmoil.

Indeed, rental rates for well-managed and well-located shopping malls have been trending higher, even through the 2008 global financial crisis.
This, compared to say, earnings risks for REIT exposed to the commercial market segment are erceived to be higher on the back of expectations of excess office space supply coming onto the market in the next few years.

Comparing retail-focused REIT
There are now 15 REIT listed on the Bursa Malaysia. Aside from Pavilion REIT, some of the other primarily retail-focused REIT are Sunway REIT, CapitaMalls Malaysia Trust (CMMT) and Hektar REIT.

In terms of total asset size, Pavilion REIT is second only to Sunway REIT. While the shopping mall accounts for nearly all of Pavilion REIT’s turnover, Sunway REIT has a more diversified portfolio. Retail properties account for roughly 73% of the latter’s turnover with the largest earnings contributor being Sunway Pyramid Shopping Mall in Bandar Sunway, an 324ha integrated township in the Klang Valley. The hospitality and office sectors contribute the remaining 17% and 10% of turnover.

Both CMMT and Hektar are pure retail-focused REIT. The former owns four shopping malls, including Sungei Wang Plaza, just a stone’s throw away from Pavilion Mall. The shopping

centre is one of the oldest in the country but has continued to draw traffic despite the sharp increase in the number of newer malls.

CMMT has done quite well since its listing in July 2010, currently trading at around RM1.40 per unit compared with its IPO institutional price of RM1.

Hektar owns three shopping malls — Subang Parade, Mahkota Parade in Malacca and Wetex Parade in Muar — valued at a combined RM752 million.

Pavilion REIT intends to distribute all of its income from the listing date through December 2012. Based on its forecast earnings, distribution per unit is estimated at 5.73 sen next year. That translates into gross yield of roughly 5.6% based on the prevailing price of RM1.02, in line with our estimated yield for CMMT but lower than that for Sunway REIT and Hektar.

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.

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MMC-Gamuda good choice for MRT tunnelling

SHAH ALAM: Tun Dr Mahathir Mohamad has lent weight to MMC-Gamuda Joint Venture Sdn Bhd as the appropriate candidate to undertake the RM7 billion tunnelling job for the proposed Klang Valley mass rapid transit (MRT) project.

Mahathir explained that the consortium, in which MMC Corp Bhd and Gamuda Bhd hold 50% equity interest each, has the track record in tunnelling jobs.

“They are the only [local company] with the experience. MMC-Gamuda should be a good choice,” Mahathir told reporters after opening the MMC-Gamuda Tunnelling Training Academy yesterday.

Tycoon Tan Sri Syed Mokhtar Al-Bukhary is the single largest shareholder in MMC with a 52% equity stake.

Being the project delivery partner, MMC-Gamuda is already granted the right to match the lowest rival offer for the tunnelling job under the Swiss challenge system. This gives the consortium an edge over other bidders for the tunnelling works.

The MMC-Gamuda track record includes the team’s 9.7km Stormwater Management and Road Tunnel that cost RM1.93 billion.

MMC-Gamuda Tunelling Training Academy students posing for a photograph after former prime minister Tun Dr Mahathir Mohamad opened the academy in Shah Alam yesterday.

Gamuda managing director Datuk Lin Yun Ling said the consortium “will do its best” to secure the MRT tunnelling project. Lin said the government is expected to announce the winning bidder for the tunnelling job by May next year.

In its statement, Gamuda outlined compelling reasons why a local contractor should undertake the tunnelling job. These include job opportunities for locals and the usage of domestically sourced materials to undertake the job.

The MMC-Gamuda consortium was the only Malaysian entity shortlisted for the RM7 billion MRT tunnelling project. Its global rivals include South Korea’s SK Holdings, two bidders from China and one from Japan. One of the Chinese bidders is China’s Sinohydro Group Ltd.

It was reported that these companies had three months to submit their tenders for the project.

This is the second business entity linked to Syed Mokhtar that the former prime minister has said should be granted its wish.

Over the past weekend, Mahathir, the adviser to Proton, remarked that DRB-Hicom Bhd, which is also controlled by Syed Mokhtar, is deemed the “preferred candidate” to take over the 42.7% stake in Proton held by Khazanah Nasional Bhd.

Mahathir said the national carmaker should remain as a national entity as this will entitle the firm to government support.

While technology transfers are crucial for the survival of Proton, Mahathir said it is not appropriate for the company, to divest a strategic stake in a state-owned asset to foreign partners in order to have access to overseas technology.

“Proton can have access to automotive technology from smaller entities,” said Mahathir.

Apart from DRB-Hicom, Naza Group and UMW Holdings Bhd are said to be keen on buying Khazanah’s stake in Proton.

Mahathir said it is an open bid and it is up to Khazanah to decide who it wants to dispose of its equity stake to.

This article appeared in The Edge Financial Daily, December 16, 2011.

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Gamuda lacks fresh catalysts

Gamuda Bhd
(Dec 15, RM3.03)

Maintain neutral with unchanged target price of RM3.20: The 18.9% drop in Gamuda’s share price year-to-date against a 3.1% decline in the FBM KLCI was due to:
(i) the recent selloff on the equity market amid rising concern over the external environment;
(ii) declining stock interest following its removal from KLCI; and (iii) slowdown in Vietnam property sales due to the weak economy.

Although the valuation looks attractive, the stock is trading at 14 times price-earnings ratio (PER) against its five-year average PER of 25 times, we believe the upside potential is limited due to lack of fresh catalysts apart from the possibility of winning the award for the tunnelling portion of the Klang Valley MRT project.

Gamuda will be removed from KLCI from Dec 19. This should erode interest in the stock especially from foreign investors.

Gamuda’s foreign shareholding fell to about 26% as at Dec 14 from 31% at the beginning of 2011.

Gamuda will announce its 1QFY12 results today. We are expecting net profit to fall by 12% quarter-on-quarter (q-o-q) to RM111.5 million owing to lower contribution from its
construction and property divisions.

We believe this is due to:

(i) slower construction activities during the festive season (Ramadan and Hari Raya Aidilfitri (August and September); and
(ii) margin contraction for the construction division amid high building material costs during the quarter.

Looking at Gamuda’s construction division, the only major ongoing project is the double-tracking (Ipoh-Padang Besar) project, with the balance gross development value (GDV) at RM2.1 billion.

As for its property division, we expect earnings to continue coming from the domestic markets like Bandar Botanic, Horizon Hills, and Jade Hills. Contribution from its Vietnam property operation will slow down in view of the economic slowdown.

We have decided to retain our forecasts for now pending the announcement of the results today.

On that note, we reiterate our target price at RM3.20 which we derive based on a PER of 14 times based on 0.75 standard deviation below its 10-year average PERs and earnings per share of 22.7sen using FY12. We maintain our “neutral” recommendation. — MIDF Research, Dec 15

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VS Industry gets new revenue boost but risks remain

VS Industry Bhd
(Dec 15, RM1.53)

Maintain underperform with fair value of RM1.40: We attended the opening ceremony of a new factory that will be dedicated to the production of Keurig Coffee Brewers. VSI has already commenced production of the first model, the Mini-Plus Brewing System, and will begin its maiden shipment in 3QFY12.

VSI’s production capacity for this model is about 23,000 to 25,000 units per month. We understand that VSI will add another assembly line with a capacity of 30,000 to 40,000 units per month for the shipment of another brewer model by FY13.

Presently, VSI’s capacity will only represent 11% to 13.9% of total brewer shipments of 5.8 million for Keurig. This could present VSI with an opportunity for higher sales volume with additional models.

Keurig is a pioneer and leading manufacturer of gourmet single-cup brewing systems for both household and corporate users and mainly caters for the US and Canada markets.

According to market research firm NPD, Keurig is estimated to have 20% to 25% of the total market for single-cup brewing systems in the US. The brewing system uses portion packs called the “K-Cup”, which contain ingredients to brew single servings of beverages.

The brewer provides a faster and a more convenient setup than conventional coffee machines.

Keurig is a wholly-owned subsidiary of US-based company Green Mountain Coffee Roasters (GMCR), which develops its own brand of portion pack K-Cup beverages. GMCR is listed on Nasdaq.

Keurig mainly markets its coffee brewers to North America. These brewers are considered high-end, with a price range of US$99.99 (RM320) to US$249.99 per unit, a 15% to 20% premium to its closest alternative. With the onset of a slowdown in economic growth especially in the US, this could result in down-trading by customers. The key risk is deterioration in the global macroeconomic environment. We maintain our forecasts for now.

Although VSI has yet to see a slowdown in orders, we remain wary on the global economic outlook. However, following the recent run-up to the share price, valuations are no longer compelling.

We downgrade our call to “underperform” (from “market perform”) with a fair value estimate of RM1.40 per share based on six times CY12 earnings per share. However, net dividend yield of 6.8% to 7.4% should provide some support to the share price. — RHB Research, Dec 15

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UMW associate receives takeover offer

KUALA LUMPUR: UMW Holdings Bhd’s 22.3% associate company, WSP Holdings Ltd, has received a takeover bid in New York.

The group yesterday also refuted rumours it has submitted a bid for Khazanah Nasional Bhd’s 42.7% equity stake in Proton Holdings Bhd.

According to WSP’s filing with the New York Stock Exchange (NYSE), the company said it had received a non-binding proposal letter from HDS Investments LLC notifying of its interest in acquiring all of WSP’s shares for US$0.60 per share. This is to be paid in cash. At the price tag of US$0.60, UMW’s 22.3% stake in WSP would translate into US$13.7 million (RM43.8 million).

Following the proposed acquisition, the WSP board formed a special committee of independent directors to consider strategic alternatives to enhance shareholder value.

In its filing with NYSE, WSP said its majority shareholder Expert Master Holdings Ltd, which has a 50.9% stake and is wholly-owned by WSP chairman and CEO Longhua Piao, has had preliminary and informal communications with HDS.

HDS had proposed to acquire all of the shares held publicly and by certain significant shareholders through a special purpose vehicle. However, WSP said the special committee has made no decisions pertaining to the proposal.

“There can be no assurance that any definitive offer will be made, that any agreement will be executed or that this or any other transaction will be approved or consummated,” it said.

WSP, which had been listed on the NYSE since 2007, is a Chinese manufacturer of seamless oil country tubular goods (OCTG) including equipment used for the exploration, drilling and extraction of oil and natural gas.

It has seen its earnings erode steadily over the past few years. WSP registered a net loss of US$118.8 million for its financial year ended Dec 31, 2010, from a profit of US$4.18 million the year before. Revenue dwindled to US$470.5 million last year from US$5.7 billion in 2009.

The company said it suffered a significant operating loss, working capital deficiency and negative operating cash flow last year.

Additionally, it said there was a significant amount of short-term borrowings to be refinanced. Its current liabilities stood at US$877.9 million in 2010, from US$764.4 million the year before.

It also said sales in the US had declined substantially in the past two years due to the anti-dumping and countervailing duty on seamless pipes manufactured in China.

Shares in WSP closed higher at US$0.46 on Wednesday from US$0.44 the day before. The stock has lost 65.7% year-to-date.

UMW told Bursa Malaysia yesterday it had not submitted a bid to buy Khazanah’s stake in Proton. The statement was in response to a media article.

This article appeared in The Edge Financial Daily, December 16, 2011.

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Sime to proceed with suits against ex-execs

KUALA LUMPUR: Sime Darby Bhd is set to proceed with its lawsuits against its former executives without the additional third party suits that were filed subsequently.

In a statement to Bursa Malaysia yesterday, Sime Darby said the Kuala Lumpur High Court on Tuesday struck out third party suits brought by former president and CEO Datuk Seri Ahmad Zubir Murshid.

To recap, Sime Darby and its units filed two civil suits against Ahmad Zubir and several other defendants last December in relation to the group’s Bakun Dam project and for its oil and gas (O&G) projects.

Sime Darby is seeking RM92.2 million from the defendants in the Bakun suit and another RM338 million from the defendants in the O&G suit.

In March, Ahmad Zubir filed third-party notices for both civil suits taken against him, seeking indemnity and contribution from Sime Darby directors should he be found liable.

The 17 Sime Darby directors named in the third party suits later asked the court to strike out the application, which the court did on Dec 13.

In the same statement, Sime also announced that the court had struck out the third party application filed earlier by former executive vice-president of Sime Darby’s energy and utilities (E&U) division Datuk Mohamad Shukri Baharom. Mohamad Shukri was named as a defendant in Sime Darby’s two legal claims alongside Ahmad Zubir.

“The High Court has allowed the applications by all 12 individuals in the O&G Suit and 11 individuals, Sime Engineering Sdn Bhd and Sime Darby Holdings Bhd in the Bakun suit and struck out Mohamad Shukri’s third party statement of claim, set aside the third party notices and dismissed the third party proceedings on the basis, among others, that the second defendant’s third party proceedings were frivolous and vexatious,” said the statement.

The High Court has scheduled Jan 19, 2012 for case management of the O&G suit and the Bakun suit.

It has been a year since Sime Darby filed suit against its executives after it revealed that three projects under its E&U division had suffered massive cost overruns.

The three projects are the Qatar Petroleum project, the Maersk Oil Qatar project and the project Marine, which relates to the construction of marine vessels.

After the massive cost overruns were revealed, Ahmad Zubir was asked to take a leave of absence ahead of the expiry of his contract on Nov 26.

Sime Darby appointed Zaid Ibrahim & Co to conduct a legal investigation into the losses suffered by the company in the projects under the E&U division.

The authorities, including the Malaysian Anti-Corruption Commission and the Securities Commission, also conducted investigations into possible breaches of law relating to the three projects.

This article appeared in The Edge Financial Daily, December 16, 2011.

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Full production for EngTek’s Thai units in 3Q12

KUALA LUMPUR: Full production level for the two subsidiaries of Eng Teknologi Holdings Bhd (EngTek) affected by the floods in Ayutthaya, Thailand will only return to normal in 3Q12.

Its manufacturing facilities — Thailand Engtek (Thailand) Co Ltd (ETCL) and Altum Precision Co Ltd (Altum) — are expected to restore its full production capacity by the second quarter (2Q) of 2012, noted the company’s statement to Bursa Malaysia yesterday.

It added that production levels are only expected to return to normal by 3Q as the output is meant for major customers, which have also been affected by the floods.

“The floods have caused a substantial disruption to the supply chain of key hard disk drive components and the whole hard disk drive industry in Thailand. It is estimated that the supply chain situation will only be normalised in the next three to six months,” said EngTek.

The company noted that the flood waters have receded at both the manufacturing facilities.

“Decontamination and cleaning work are currently underway at the facilities and is expected to be completed by next week. After which, restoration work will commence,” it said.

“The insurance loss adjustors have conducted a preliminary assessment of the damage caused by the floods. Initial assessment indicates that the machinery damage is widespread due to rust, corrosion and contamination after being submerged in flood waters above two metres since October 2011,” said the hard disc drive (HDD) manufacturer.

The company said that it is currently working on the detailed documentation for the insurance claims, which is expected to be finalised and submitted to insurers by end of

December. The insurance claims process is expected to be completed within three to six months.

EngTek’s Thai operations contribute 40% to the group’s revenue for FY10 ended Dec 31. The flooding has also delayed EngTek’s plan to privatise.

In a report in The Edge Financial Daily on Oct 14, the company said the floods would have a negative impact on its FY11 ending Dec 31.

EngTek announced in a note to Bursa on Oct 18 that its subsidiaries in China and the Philippines have also experienced disruptions to their production as a certain portion of their output was meant for their major customer in Thailand situated the flood affected areas.

Its counter closed unchanged at RM1.52 with stocks traded at a thin volume of 84,000 shares.

This article appeared in The Edge Financial Daily, December 16, 2011.

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TNB to rebalance fuel mix

KUALA LUMPUR: In order to reduce its dependency on gas, Tenaga Nasional Bhd (TNB) is looking to rebalance its fuel mix between coal and gas to 50:50 in 2016 from 40:60 currently.

“An additional 2,000MW using coal will be introduced into the system by 2016. One will come from Janamanjung and the other from Tanjung Bin,” TNB president and CEO Datuk Seri Che Khalib Mohamad Noh told reporters after the company AGM yesterday.

The utility group recently signed a power purchase agreement with Malakoff Bhd’s wholly-owned Tanjung Bin Energy Sdn Bhd to design, construct, own, operate and maintain an additional 1,000MW plant to add to the existing 2,100MW plant in Tanjung Bin, Johor.

This is in addition to 1,000MW block of its coal-fired Janamanjung plant in Lumut that TNB plans to expand.

TNB has been incurring extra cost to burn oil and distillate due to gas supply shortages from Petroliam Nasional Bhd (Petronas). The gas shortage has cost TNB an additional RM3.069 billion. The government and Petronas recently agreed that each of them will bear one third of the additional fuel cost incurred between Jan 1, 2010 and Oct 31, 2011.

“We have even asked them if they can release part of the payment due to us... so we can ease our cash flow position,” said Che Khalib.

“Petronas wants to see how we derived the figure of RM3.069 billion. We are providing them with all the information so they can audit our figures. Once they complete the audit, they will pay us.”

TNB saw its net profit plunge 84% to RM499.5 million for FY11 ended Oct 31 from RM3.2 billion for FY10. The sharp fall in earnings was due to the substantial increase in operating expenses arising from the extra cost for burning oil and distillate during 3Q and 4QFY11.

Revenue rose 6.2% to RM32.2 billion in FY11 from RM30.3 billion the previous year, while earnings per share declined to 9.16 sen from 58.92 sen.

In order to mitigate the shortfall of gas supply in the medium term, Che Khalib said TNB is in talks with some foreign gas suppliers to source liquefied natural gas (LNG) at market price once Petronas’ new re-gassification terminal in Malacca comes online by August 2012.

“We have already started talks with Shell. A few private traders overseas such as those from Qatar have also approached us. We recently received interest from Total Group too,” he said.

“In the next four to five years, ... we are going to import at market price [an additional] 200 million cu ft [per day]. That is less than 20% of the gas that will ... be provided to the power sector via subsidy,” he said.

Che Khalib said the amount of LNG to be imported only represents 9% of TNB’s total power generation containing a mixture of coal and gas.

In addition, he said TNB plans to call an open tender for additional electricity capacity by the first quarter of next year.

The counter closed one sen or 0.18% lower to RM5.44 yesterday with 3.3 million shares changing hands. TNB shares have declined 18.7% year-to-date.

This article appeared in The Edge Financial Daily, December 16, 2011.

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Harvest Court sees 17% traded off-market

KUALA LUMPUR: A large block of 31.4 million shares in Harvest Court Industries Bhd, equivalent to 17.23%, has crossed via off-market trade for a total of RM7.85 million or 25 sen a share.

The shares changed hands at 4pm yesterday. An hour later some 7.85 million warrants were also traded off-market.

There was no filing with Bursa Malaysia relating to the off-market transaction at press time.

The share vendor could possibly be Affin Bank Bhd and the buyer is likely to be the company’s managing director Ng Swee Kiat.

According to Bloomberg data, Affin Bank is the single largest shareholder in Harvest Court, which has been declared a designated counter on Bursa. The banking group holds 17.23% or 31.4 million shares in Harvest Court.

Other substantial shareholders are Raymond Chan Boon Siew holding 15.64%, Paramountvest Sdn Bhd 8.58% and Ng 8.33%.

To recap, on Oct 25, Ng had accepted Affin’s offer to sell the 31.41 million shares at 25 sen per share together with 7,852,666 attached warrants for a consideration of RM7,852,666.

If Ng was the buyer of the block of shares, his equity in Harvest Court would increase to 25.65%, making him the largest shareholder once again.

Affin acquired its stake in Harvest Court on Nov 26, 2009 as part of a debt-restructuring exercise undertaken by the then PN17-listed Harvest Court.

Harvest Court closed one sen lower at RM1.29 with 528,600 shares traded yesterday.

This article appeared in The Edge Financial Daily, December 16, 2011.

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Axiata grows Sri Lankan unit

KUALA LUMPUR: Axiata Group Bhd announced plans to acquire Suntel Ltd, a fixed telecommunications provider in Sri Lanka, for a maximum price of US$34.9 million (RM111.68 million) in a bid to expand its footprint there.

Axiata said Dialog Broadband Networks (Private) Ltd (DBN), a wholly-owned unit of Axiata’s 84.9%-subsidiary Dialog Axiata PLC (Dialog), had entered into a share purchase agreement to acquire all the ordinary shares of Suntel.

“Suntel [commands] a premium position in Sri Lanka’s fixed telecommunications sector and is ranked second in terms of business and revenue market share [behind Sri Lanka Telecom],” said Axiata in an announcement to Bursa Malaysia yesterday.

After the acquisition of Suntel, DBN and Suntel will be consolidated into a merged entity to provide advanced fixed line and broadband services.

The inclusion of Suntel will more than triple DBN’s market share to 16% from the current 5%, and improve the latter’s revenue by 12% based on its FY10 financials, according to a statement released by Dialog.

Additionally, there will be a projected cost saving of up to 600 million rupees (RM16.78 million) annually.

“The acquisition will elevate the position of Dialog within the fixed and converged services segments to a strong No 2, on a platform of product strength, cost leadership and converged brand strength,” said Dialog’s group chief executive Dr Hans Wijayasuriya.

The statement noted that Suntel’s “best in class” fixed line operations network is completely digital and caters for voice, broadband and data communication services using CDMA, WiMAX as well as other fixed wireless technologies.

Axiata said the purchase price would be at an enterprise value in the range of US$33.9 million and US$34.9 million, corresponding to a valuation multiple of between three and 3.1 times Suntel’s FY10 earnings before interest, tax, depreciation and amortisation (Ebitda).

The acquisition will be paid entirely in cash from internally generated funds.

Axiata said the exercise is not subject to shareholders approval.

Axiata’s Sri Lankan operations — Dialog — contributed 7.6% or RM927.05 million to its overall revenue for its nine months ended Sept 30, as it displayed improved margins and profitability due to aggressive de-scaling of its operating cost structure.

“Revenue (for Dialog) was up 10% on a year-to-date basis, mainly from improvements in the mobile business and in particular, increased consumption of voice and mobile broadband,” said Axiata in a recent media release.

Despite its higher performance, Dialog is still the smallest contributor to Axiata’s revenues behind the company’s operations in Malaysia, Indonesia and Bangladesh.

Axiata saw net profit for its third quarter ended Sept 30, drop 7.74% to RM589.6 million from RM639.1 million a year ago as revenue improved 6.5% to RM4.19 billion from RM3.94 billion.

It said operating costs increased 9.4% year-on-year (y-o-y) to RM6.87 million mainly due to Celcom, Dialog and Indonesia’s XL Axiata.

However, capital expenditure is expected to slow down after next year.

OSK Research noted that Axiata’s chief financial officer James Maclaurin, in a briefing with analysts on Wednesday, guided that capital expenditure would peak in 2012 after which there may be scope to distribute more returns to its shareholders.

OSK maintained its “buy” call and fair value of RM5.60 for Axiata.

Maclaurin also said the recent agreement signed between Celcom Axiata Bhd and Broadcast Australia in a bid for the country’s RM2 billion digital terrestrial television broadcast network (DTTB) is not a move into TV broadcasting.

The move is to further monetise Celcom’s mobile infrastructure, which the latter earlier said comprised 98% of the infrastructure required for the DTTB network.

In addition, Maclaurin said Axiata’s revenue growth next year will be sustained at the 2011 level as Ebitda margins undergo pressure from XL Axiata, which will be ramping up its capital expenditure and infrastructure deployment to grow its data segment.

Axiata said the data segment presents a “tremendous opportunity” as data usage has grown 278% and y-o-y revenue from this segment grew 50% in the recent quarter.

This article appeared in The Edge Financial Daily, December 16, 2011.

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Deadline poser for QSR, KFCH deal

KUALA LUMPUR: Analysts are doubtful the tight deadline for the joint takeover offer of QSR Brands Bhd and KFC Holdings (M) Bhd (KFCH) by Johor Corp (JCorp) and private equity firm CVC Capital Partners Asia III Ltd’s Massive Equity Sdn Bhd will be met.

“If they cannot get the board to accept the offer and fulfil all of its conditions in one week [deadline is Dec 21], they stand to lose the deal,” said an analyst with a bank-backed research house.

“Also, the interested parties from the previous two bids may decide to rejoin the bid with possibly higher bids,” he added.

Tan Sri Halim Saad and The Carlyle Group bid for QSR late last year, offering RM5.60 and and then upping the bid to RM6.70 per share. Both offers were rejected by both Kulim (M) Bhd and QSR’s management.

“It is hard to say [for certain] if they will rejoin the biding as the current offer is at 20 times FY12 price-earnings ratio (PER),” he said, adding, “It is no longer cheap.”

Still, it should be noted that just 10 sen separates Carlyle’s previous offer of RM6.70 and JCorp’s latest offer of RM6.80 per share for QSR.

The acquirers need to secure the approval of at least 75% of minority shareholders in order for the deal to materialise.

In a research note, Foong Wai Mun, food and beverage analyst at CIMB IB Research, believes the deal is likely to get the nod from KFC’s franchisor, Yum! Brands, Inc given that JCorp will still be driving the operations.

Foong along with other industry analysts agree the offer of RM6.80 and RM4 per share for QSR and KFCH respectively was a fair and attractive offer.

“Especially in the current volatile market conditions, investors may view the 13.3% premium as attractive. However, some investors may lament the lack of investment opportunities in strong consumer franchisers like QSR after this sale,” he added.

In terms of PER valuations, this offer is higher than Kulim’s first offer to privatise Sindora Bhd (about 15 times FY11 PER) but lower than what Asahi paid for Permanis (about 24 times FY12 PER), noted Kang Chun Ee of Maybank IB Research in his report.

“Valuations as such are about in line with consumer peers and this is a decent offer in our view,” he added.

“As this is an offer for KFCH’s business, an uncertainty this stage is how KFCH would deal with the funds once the exercise is completed, though the logical step would be to distribute the entire proceeds back to the shareholders,” Kang said.

Foong, however, said if JCorp and CVC Capital are serious about buying the assets and liabilities, there may be a sweetener in the form of a special dividends to entice the minority shareholders to vote for the deal in the upcoming EGM.
If the deal materialises, analysts said that both QSR and KFCH will have cash totalling RM3.2 billion and RM2.1 billion respectively as they will be left as shell companies.

Thereafter, analysts believe both companies may be classified as PN17 companies and will be required to acquire other businesses within one year to regularise their listing status.
The bulk of the sale proceeds are expected to be distributed back to shareholders in the form of capital repayment and special dividend.

JCorp has large debts, including RM3.6 billion due in July 2012, which an analyst says can be serviced more easily if KFCH’s dividends and cash flows accrue directly to JCorp rather than through different layers of holding companies.

JCorp’s effective interest in QSR, once the exercise is completed, will increase to 51% from 30% while its stake in KFCH will rise to 51% from 15%. At present, JCorp owns a 57.05% stake in Kulim, which in turn holds 58.78% of QSR. QSR is the major stakeholder of KFCH with a 50.64% stake.

On the contrary, in a report by Alvin Tai of OSK Research on Kulim, he noted that this seemed like an unusual move on the part of debt-saddled JCorp to take over QSR and KFCH.

However, this exercise will be carried out together with CVC, a sizeable private equity firm, he added. “We believe JCorp may have struck a back-to-back agreement with CVC or another party to flip QSR/KFCH at a higher price,” he said.

Viewed together with JCorp’s sale of 13,687ha of oil palm estates to Kulim, this is essentially an asset swap between Kulim and JCorp, which will transform Kulim into an even purer plantation play, he explained.

At the closing bell yesterday, the JCorp stable of companies — QSR, KFCH and Kulim— were among top five gainers on Bursa Malaysia bucking the downward trend on the local bourse.

QSR closed up 44 sen to RM 6.44, KFCH increased 39 sen to RM3.80 and Kulim rose 28 sen to RM 3.97.

This article appeared in The Edge Financial Daily, December 16, 2011.

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KL shares slightly high at midafternoon

KUALA LUMPUR:Share prices on Bursa Malaysia remained slightly higher at mid-afternoon today, boosted by persistent buying in selected bluechips and quality stocks, dealers said.

At 3pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) rose 5.4 points or 0.4 per cent to 1,469.51.

The Finance Index rose 39.74 points to 13,118.12 and the Plantation Index shed 5.89 points to 7,900.2 and the Industrial Index rose 18.84 points to 2,663.98.

The FBM Emas Index increased 37.109 points to 10,075.22, the FBM Mid 70 Index added 50.25 points to 11,081.64 and the FBM ACE Index gained 16.33 points to 4,130.53.

Gainers led losers by 354 to 302 with 289 counters traded unchanged.

Turnover stood at 1.18 billion lots worth RM694.86 million.

For the actives, JCY-CD gained one sen to 32 sen, Proton-CG lost three sen to 54.5 sen and Proton-CH fell two sen to 48 sen.

Among heavyweights, Maybank declined two sen to RM8.21, Sime Darby rose three sen to RM8.98 and CIMB was up two sen at RM6.94. - Bernama

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Mah Sing’s M Residence@ Rawang gets 80% take up for Phase 1

KUALA LUMPUR (Dec 16): MAH SING GROUP BHD []’s Phase 1 of its new 226-acre township, M Residence@ Rawang saw an 80% take-up rate in a single day on Friday when the company previewed the project for priority registrants.

In a statement Friday, the company said the township, which has an estimated gross development value of RM948 million had drawn 2,500 registrants since the land was acquired in October 2011.

It said PROPERTIES [] in Phase 1 comprising 214 units of 18’x70’ link homes with built up of approximately 1,650sq.ft were indicatively priced from RM360,800.

Meanwhile, Mah Sing said Phase 2 of the project comprising 233 units 22’x80’ superlink homes priced from RM558,800 would be opened for bookings on Dec 17 and 18 (Saturday and Sunday) at the sales gallery opposite Jaya Jusco in Rawang, it said.

Mah Sing chief operating officer James Bryuns said M Residence@Rawang meets the current need for quality housing at accessible entry level.

“We believe that Phase 2 shall see equally strong interest as we are offering semi-detached layouts in our superlink homes, at link home pricing,” he said.

He said the 22 footers in M Residence@Rawang have an expansive layout boasting 3 bedrooms with en-suites on the first floor, whilst the ground floor houses the living room, dry and wet kitchen, a guest room, bathroom and powder room, adding they also came with a 10ft yard area at the back.

M Residence@Rawang is 5km away from the matured townships of Anggun 1&2@Kota Emerald and 8km from Emerald East and West.

Mah Sing said besides Rawang town itself, the project had a large target market catchment from Kuala Lumpur, Petaling Jaya, Shah Alam, Bukit Jelutong, Subang Jaya, USJ, Kepong and Selayang who are looking for an affordable alternative in a well connected location.

Furthermore, there are large catchments of upgraders from Batu Arang, Kundang, Kuang, Sungai Buloh, in search of new township schemes offering a lifestyle concept, it said.

Bukit Badong Forest Reserve is located next to M Residence@Rawang and extensive green reserves namely Templer’s Park, Kanching Forest Park and Commonwealth Forest Park are all within the radius of 15km of the project, it said.

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Top Glove Q1 profit slips to RM42m

Top Glove Corp Bhd's pre-tax profit in the first quarter ended Nov 30, 2011 slipped to RM41.59 million from RM44.41 million in the same quarter of 2010.

Revenue, however, rose to RM554.84 million from RM491.51 million previously.

In a statement today, its chairman, Tan Sri Lim Wee Chai, said the retracement in latex prices and the stronger greenback delivered a generous boost to the group's earnings.

"With the improved performance, our cash flow continues to strengthen, allowing us to expand capacity and invest in efficiency improvement," he said.

The group's net cash position increased by 24.9 per cent to RM317.55 million as at Nov 30, 2011, he said.

He said in this quarter, with the completion of new facilities, the total group capacity has expanded to around 37 billion pieces of gloves per annum.

Lim said the downtrend in latex prices would likely be sustained given the uncertainty in the European debt crisis and the expectation of a slowdown in the global economy going into 2012.

"Nevertheless, we are still continuing with our strategy of achieving a more balanced product mix by increasing our production of nitrile gloves," he said. -- Bernama

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KL shares higher at midday

KUALA LUMPUR:Share prices on Bursa Malaysia were higher at mid-day today with plantation stocks leading gains, dealers said.

At lunch break, the FTSE Bursa Malaysia KLCI (FBM KLCI) rose 3.09 points or 0.21 per cent to 1,467.2.

Plantation stocks which retreated after a recent sell-off, saw the likes of PPB Group today, rising 26 sen to RM16.66 and KLK gaining 16 sen to RM22.28.

However, according to HwangDBS Vickers Research, the benchmark index will probably struggle to overcome the immediate resistance threshold of 1,475 moving ahead.

The research house reckons that the local bourse might not show much upside after outperforming regional peers yesterday.

It said the market could see an added interest in Proton on reports that it would be taken over at about RM6 per share and Coastal Contracts having secured RM233 million vessel contracts.

The Finance Index fell 4.68 points to 13,073.7 and the Plantation Index shed 7.91 points to 7,898.18 but the Industrial Index rose 8.63 points to 2,653.77.

The FBM Emas Index increased 10.75 points to 13,089.13, the FBM Mid 70 Index added 46.021 points to 11,077.41 and the FBM ACE Index gained 18.29 points to 4,132.49.

Gainers led losers by 324 to 291 with 274 counters traded unchanged.

Turnover stood at 974.25 million lots worth RM555.68 million.

For the actives, JCY-CD was flat at 31 sen, Proton-CG lost 3.5 sen to 54 sen and Proton-CH fell four sen to 46 sen.

Among heavyweights, Maybank declined two sen to RM8.21, Sime Darby rose four sen to RM8.99 and CIMB was up one sen at RM6.93. - Bernama

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Higher raw materials, forex loss weigh on Top Glove

KUALA LUMPUR (Dec 16): TOP GLOVE CORPORATION BHD []’s earnings fell 12.81% to RM31.43 million in the first quarter ended Nov 30, 2011 from the RM6.05 million a year ago as it was impacted by higher raw material prices and the oversupply in the industry but it performed better when compared to the preceding quarter.

“The current quarter’s net profit was also impacted by the recognition of net loss in foreign exchange amounting to RM13.3 million compared with a net gain of RM4.7 million in the corresponding quarter last financial year,” it said in a statement to Bursa Malaysia on Friday.

The world’s largest glove maker said its revenue rose 12.9% to RM554.84 million from RM491.51 million. Earnings per share declined to 5.08 sen from with 5.83 sen.

Top Glove, however performed better when compared with the preceding quarter in terms of revenue and earnings. It revenue rose 2.4% to RM554.84 million from RM541.84 million in the preceding quarter, while net profit increased 21.0% to RM32.46 million from RM26.82 million.

“The improved performance in the current quarter was largely attributed to a decline in latex prices which fell by 9.3% from the preceding quarter (from RM9.19 per kg in the quarter ended Sept 30, 2010 to RM8.34 a kg in the quarter ended Nov 30, 2011), and a stronger average US dollar against the ringgit which improved by 4.0% (from RM3 to RM3.12).

Elaborating on the raw materials, it said average latex price rose by 16% from RM7.19 per kg in the first quarter ended Nov 30, 2010 to RM8.34 a kg in Nov 30, 2011.

The average nitrile price has also increased by 46.4% from US$1.40 a kg to US$2.05 a kg during the period.

Top Glove group chairman, Tan Sri Lim Wee Chai expected the retracement in latex prices and the stronger greenback to deliver a generous boost to the group’s earnings.

“With the improved performance, our cash flow continues to strengthen, allowing us to expand capacity and invest in efficiency improvement,” he added.

Lim said the group’s net cash position increased 24.9%, rising to RM317.55 million as at Nov 30, 2011.

Top Glove’s total group capacity expanded to 37 billion pieces of gloves per annum in the just ended quarter after the completion of new facilities.

On the outlook for latex prices, Lim expected the downtrend in prices to likely be sustained given the uncertainty in the European debt crisis and the expectation of a slowdown in the global economy going into 2012.

“Nevertheless, we are still continuing with our strategy of achieving a more balanced product mix by increasing our production of nitrile gloves,” he said.

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KLCI in the black mid-day, gains limited

KUALA LUMPUR (Dec 16): The FBM KLCI remained in positive territory at the mid-day break on Friday in line with the gains at key regional markets, but gains were limited as sentiment stayed brittle with possible cuts in the credit ratings of euro zone countries.

Further compounding the already worried investors was Fitch Ratings’ downgrade of Goldman Sachs, Deutsche Bank and five other large banks based in Europe and the United States, citing "increased challenges" in the financial markets.

The FBM KLCI added 3.01 points to 1,467.12 at the mid-day break, lifted by PLANTATION []s and select blue chips.

Gainers led losers by 324 to 291, while 274 counters traded unchanged. Volume was 974.25 million shares valued at RM555.68 million.

The ringgit strengthened 0.25% to 3.1788 versus the US dollar; crude palm oil futures for the third month delivery rose RM29 per tonne to RM3,000, crude oil added 28 cents per barrel to US$94.15 while gold jumped US$18.13 an ounce to US$1,588.65.

At the regional markets, Japan’s Nikkei 225 added 0.51% to 8,420.30, Hong Kong’s Hang Seng Index rose 0.61% to 18,136.23, the Shanghai Composite Index edged up 0.01% to 2,181.22, Taiwan’s Taiex added 0.64% to 6,807.80, South Korea’s Kospi rose 0.82% to 1,834.01 and Singapore’s Straits Times Index was up 0.48% to 2,647.85.

On Bursa Malaysia, PPB was up 26 sen to RM16.66, Sungei Bagan and KLK up 16 sen each to RM2.98 and RM22.28, while United Plantations gained 12 sen to RM18.52.

Other gainers included Orient that rose 21 sen to RM5.35, Jaya Tiasa up 19 sen to RM7.10, Dialog 14 sen to RM2.58, Nestle 12 sen to RM56.14 and BHIC up 11 sen to RM3.09.

UMW was the top loser and fell 35 sen to RM6.49 after the company on Thursday said it was not in talks to by Khazanah’s stake 42.7% stake in PROTON HOLDINGS BHD [].

Other losers included Carlsberg that fell 19 sen to RM8.80, Southern Acids down 17 sen to RM2.15, Panasonic and JT International 14 sen each to RM19.90 and RM6.86, GAB 12 sen to RM13.38, Malayan Flour Mills 11 sen to RM7.56 and Advanced Packaging nine sen to RM1.13.

Meanwhile, the actives included Proton, JCY, Kurnia Asia, Sanichi and Wijaya.

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Maybank group CFO slated to head Bank Internasional Indonesia

KUALA LUMPUR (Dec 16): MALAYAN BANKING BHD []’s group chief financial officer, Khairussaleh Ramli has been identified to be the president director of Bank Internasional Indonesia (BII).

“This appointment is subject to approval from Bank Indonesia as well as the shareholders of BII at an EGM to be convened,” Maybank said in a statement on Friday.

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MAS sees 20m shares done off-market

KUALA LUMPUR (Dec 16): MALAYSIAN AIRLINE SYSTEM BHD [] (MAS) saw 20 million of its shares transacted in an off-market deal at average price of RM1.30.

The shares accounted for 0.59% of the airline’s paid-up of 3.342 billion shares.

MAS share price was unchanged at RM1.30 at the midday break.

The FBM KLCI rose 3.01 points to 1,467.12. Turnover was 964.25 million shares valued at RM555.67 million. There were 324 gainers, 291 losers and 274 stocks unchanged.

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UMW top loser on confirmation not buying Proton stake

KUALA LUMPUR (Dec 16): UMW HOLDINGS BHD [] was the top loser in the morning session on Friday after the company confirmed it had not submitted a bid to Khazanah Nasional for its 42.7% Proton Holding Bhd stake

At 12.12pm, UMW was down 34 sen to RM6.50. There were 423,900 shares done.

The FBM KLCI rose 2.89 points to 1,467. There were 933 million shares done valued at RM526.42 million. There were 313 gainers, 284 losers and 274 stocks unchanged.

On Thursday, UMW confirmed that it had not submitted any bid to Khazanah for the Proton stake.

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Dialog advance after fixing rights share price, analysts positive

KUALA LUMPUR (Dec 16): DIALOG GROUP BHD []’s shares climbed on Friday after it fixed the price of its rights issue and warrants, drawing positive response from investors and analysts.

At 11.58am, it was up 14 sen to RM2.58 with 5.7 million shares done.

The FBM KLCI rose 2.27 points 1,466.38. The broader market was firmer, with 305 gainers to 265 losers and 279 stocks unchanged. Turnover was 899.28 million shares done valued at RM495.62 million.

Dialog, which is undertaking a cash call to raise funds for more investments in the upstream oil and gas opportunities, had on Thursday fixed the rights shares at RM1.20 each and the exercise price of the warrants at RM2.40 each.

The issue price would be a discount of about 46% to the theoretical ex-rights price of RM2.23 per share, based on the five-day volume-weighted average market price (VWAMP) up to Dec 14 of RM2.43.

As for the warrants, it said the exercise price was 8% above the theoretical ex-rights price of RM2.23 per share, based on the five-day VWAMP up to Dec 14 of RM2.43.

RHB Research Institute said on Friday it was positive about Dialog’s corporate exercise involving the rights issue with warrants.

On Thursday, Dialog announced that the rights issue has been priced at RM1.20 a share for the new rights and RM2.40 a warrant.

The price of the new shares was a discount of 46.5% to the estimated theoretical ex-price of RM2.23/share (based on the five-day volume weighted average market price of Dialog up to Dec 14.

“We believe the additional discount is mainly to entice shareholders given the volatile market conditions, but the higher exercise price for the warrants suggests that the company is confident on delivering in the longer term,” it said.

RHB Research it was positive on the exercise despite the potential dilutive impact, as both projects are already secured and will propel Dialog’s long-term growth prospects.

It said that Dialog remained one of its premium-play picks as it still liked the company for its long-term project visibility and sound management track record.

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