Sunday, 19 August 2012

Affin eyes stake in Bank Muamalat

ANALYSTS have mixed views on Affin Holdings Bhd's surprise plan to buy a stake in Bank Muamalat Malaysia Bhd, one of the country's two standalone Islamic banks.

While they note that the move could strengthen Affin's foothold in the Islamic banking sector, they also don't see much synergies being derived.

Details remain scant as negotiations with Bank Muamalat's two shareholders - DRB-HICOM Bhd and Khazanah Nasional Bhd - are at an early stage.

Two days ago, Bank Negara Malaysia (BNM) gave all parties involved its permission to start the acquisition talks, which must be completed by year-end.

Talks are expected to gain momentum after the Hari Raya festive period.

Assuming a full acquisition, Affin's total assets will widen by 36 per cent to RM77 billion while its gross loan base will increase by 30 per cent.

However, this is not expected to change the group's market ranking. Affin is the second smallest of eight banking groups in the country in terms of assets and loans.

"We see the potential acquisition of Bank Muamalat as an expansion in size and an overlap in Islamic consumer financing. Affin's strength is in Islamic consumer financing, particularly in residential property loans and hire purchase.

"With Bank Muamalat's relatively smaller loan size, we believe that revenue synergies will be limited. Bank Muamalat in the past had high gross impaired loan ratios," banking analyst Kelvin Ong of MIDF Research said in a report yesterday.

The ratio has improved to 4.7 per cent as of March this year from a high of 8.7 per cent in December 2008, but the acquisition may result in a rise in collective assessment charge, he noted.

Ong kept his "buy" call on Affin's stock, which rose by 7 sen, or 2 per cent, yesterday to RM3.55, suggesting a potential 15.5 per cent upside from his target price of RM4.10.

Some one million shares changed hands, triple the previous day's volume.

Bank Muamalat's strength lies in consumer financing and while it is also involved in commercial, corporate and investment banking, growth in these areas remain unexciting.

Its revenue is domestically driven and the bulk of its loans comes from residential property - they comprise about a quarter of its smallish loan base of RM9.4 billion as at end-March - and hire purchase.

"Judging from the loan book, Bank Muamalat appears to be a complementary fit for Affin, given its focus on household lending. But there does not appear to be much benefit from the funding aspect, given that Bank Muamalat's CASA (current account, savings account) ratio is quite close to Affin's," RHB Research analyst David Chong noted.

Affin's plan to buy a stake in Bank Muamalat came as a surprise to some analysts, given that it had long indicated its intention to expand regionally rather than domestically.

As early as June, it had said it was still keen on pursuing an earlier plan to buy a controlling interest in Indonesia's PT Bank Ina Perdana, but was awaiting Indonesian authorities' long-awaited new rules on shareholding limits.

Indonesia has since said single ownership in its banks will be restricted to 40 per cent, which may have put paid to Affin's Indonesian ambitions.

Still, Bank Muamalat may be attractive for Affin, given both banks' ambitions to venture into Islamic banking in China.

Bank Muamalat had last month formed a strategic collaboration with China's Bank of Shi Zui Shan in the hopes that it will have a part in the Chinese lender's plans to set up the country's first Islamic bank in the Ningxia province - where some 30 million Muslims are concentrated - in two years.

For now, it has taken on the costs for training some of the Chinese lender's staff in Islamic banking.

"We believe that Bank Muamalat's upcoming venture into China is complementary to Affin's strategic business direction, given that Affin has recently announced that it is collaborating with Bank of East Asia Ltd (BEA), to set up Islamic banking operations in China in the latter part of this year," said Alliance Research banking analyst Cheah King Yoong, who kept a "strong buy" call on Affin with a target price of RM4.42.

BEA holds a 23.5 per cent stake in Affin.

Still, pricing will be the key as to whether a sale to Affin will go through.

Tan Sri Syed Mokhtar Al-Bukhary's DRB-HICOM, which owns 70 per cent of Bank Muamalat, had twice before attempted to pare its stake - to Bank Islam Malaysia Bhd last year and to Bahrain-based Islamic lender Al Baraka before that - but was unsuccessful.

BNM in 2008 allowed DRB-HICOM to buy the 70 per cent stake in Bank Muamalat on condition that it would eventually sell it down to 40 per cent.

Some analysts reckon that if Affin's offer is attractive enough, DRB-HICOM may give up its entire stake as the conglomerate seeks to pare down its debt.

Affin may also end up owning the smaller lender in its entirety as Khazanah, which holds the remaining 30 per cent stake, is on a mission to divest all non-core investments.

MIDF Research is not expecting Bank Muamalat to come cheap.

"Although Bank Muamalat is not listed, we do not expect it to come cheap. We believe that the PBV ratio for the acquisition will be around 1.5 times," Ong said.

Alliance's Cheah noted that one stumbling block to a deal being done could be the low return-on-equity (ROE) of Bank Muamalat, which stood at just six per cent for the financial year ended March 2012, as compared to Affin's ROE of 9.4 per cent in its last financial year.

Meanwhile, Affin late yesterday reported a 27.7 per cent rise in net profit to RM306.9 million for the first half of the year on the back of higher lending and fee-based income.

Its chairman Tan Sri Mohd Zahidi Zainuddin said in a statement that he expects the group to maintain its earnings momentum in the second half.

Bloomberg data shows that of the eight analysts who track Affin, five have "buy" calls on the stock, two are "neutral" and one with "sell".

Affin's shares have climbed 15.2 per cent so far this year, outdoing the benchmark index's 7.8 per cent gain.

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Saturday, 18 August 2012

FGVH denies talks with Sarawak Plantation

PETALING JAYA: Felda Global Ventures Holdings Bhd said is it currently not in discussion with any party on acquiring a stake in Sarawak Plantation Bhd.

In a filing with Bursa Malaysia, the response was directed to a newspaper article quoting sources that said the company was eyeing a meaningful stake in Sarawak Plantation.

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Guan Chong won’t proceed with listing in Singapore

PETALING JAYA: Main Board-listed Guan Chong Bhd will not proceed with its secondary initial public offering (IPO) on the Singapore Exchange (SGX-ST) “for the time being.”

In a statement, managing director and CEO Brandon Tay said that after much consideration, the processing company wished to reassess its strategic directions with regard to capital requirements for expansion.

“The group remains committed to expanding its global reach and broadening its profile as one of the leading cocoa processors in the world, going forward.

Ultimately, we remain focused on implementing growth strategies to bring sustainable benefit to Guan Chong,” it said.

It did not provide a reason for not proceeding with the IPO for now.

In July, Guan Chong refuted a report that it may want to scrap its plan for a secondary listing in Singapore in favour of selling a stake via a corporate exercise.

Guan Chong had in April announced plans for a secondary listing on the Singapore stock exchange to facilitate access to the island nation’s capital market, expand and diversify its shareholder base, and to enhance its profile in the international market.

The company said then that of the 62 million shares offered, 31 million were new shares and another 31 million were vendor shares that would be offered by certain existing shareholders.

Shares in Guan Chong closed 7 sen lower yesterday to RM3.01. A total of some 291,000 shares were traded.

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Brahim’s Q2 net profit down

PETALING JAYA: Brahim’s Holdings Bhd recorded a lower net profit of RM1.4mil for its second quarter ended June 30, compared with RM2.6mil in the previous corresponding quarter. Revenue rose to RM47.7mil from RM45.9mil previously.

In a statement, the company attributed its higher revenue to the increase in short-haul flights by Malaysian Airlines (MAS) in its route-realignment programme.

“Although revenue from in-flight catering fell due to overall lower volume to MAS compared with last year, Brahim’s group revenue in the quarter was lifted by a substantial jump in contribution from its food and beverage division, as it enjoys the first full-year impact from its airport restaurant operation under Dewina Host Sdn Bhd, which Brahim’s acquired in July 2011,” it said.

In the statement, group executive chairman Datuk Ibrahim Ahmad Badawi said the airline industry continued to be affected by the current global economic uncertainty.

“In such an environment, we are also proactively implementing cost-cutting initiatives, reviewing our procurement practices and overhead costs to further streamline our operations.

“Overall, we are satisfied with the group’s performance, knowing that we can only improve as Brahim’s transformation into a significant food-related group continues,” he said.

He said the company would be commencing with the construction of its 100,000 tonnes per annum sugar refinery in Kuching, and “pending our shareholders’ approval, we are also aiming to complete the acquisition of the remaining 49% of Brahim’s-LSG Sky Chefs Holdings Sdn Bhd by the end of September 2012.”

“Brahim’s will continue to seek out opportunities to expand our presence in food-related industries. Our niche and expertise in setting up and running the ‘halal’ flight kitchen has also given us a strong platform from which we can embark on the provision of ‘halal’ specialisation food services to regional and global markets. This is yet another strategy we intend to pursue,” he said.

For its six-month period ended June, its net profit was lower at RM2.06mil compared with RM4.94mil in the previous corresponding period.

Revenue for the half year was higher at RM92.50mil compared with RM90.42mil previously.

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Bernas net profit down 60% on higher cost of imports

PETALING JAYA: Despite an increase of 12.63% in revenue, Padiberas Nasional Bhd’s (Bernas) net profit fell 60.4% in the second quarter compared with the same quarter last year due to higher cost of imported rice and operating cost.

Bernas’ revenue climbed to RM937.57mil from RM832.4mil previously. Its net profit slid 60.4% from RM63.5mil in second quarter of 2011 to RM25.12mil in the quarter under review. Meanwhile, its basic earnings per share dropped 8.16 sen to 5.34 sen quarter-on-quarter in its latest quarterly results.

For the first half of 2012 (ended June 30, 2012), its revenue increased 10.2% to RM1.83bil from RM1.66bil last year. Net profit declined 47.22% to RM62.7mil from RM118.8mil previously.

In a note accompanying its quarterly financial results to Bursa Malaysia, it said: “Rice sales increased by RM186mil to RM1.6bil compared with the previous period. This was mainly due to higher volume of 8.5% sold from 668,538 tonnes in the previous period to 725,428 tonnes this period. The imported rice contributed 63% of the rice volume sold.”

Non-rice sales had decreased by 4% mainly due to lower sales of paddy to Skim Pengilang Bumiputra compared with the previous corresponding period, it said.

In its performance review, it said the lower margin was due to the higher price of imported rice and operating cost.

As for its commentary on prospects, it said global rice fundamentals remained mostly bearish as supplies continued to exceed demand in the second quarter of 2012.

“However, Thailand’s mortgage scheme and aggressive build-up of Thai government stockpiles resulting in lower volume of rice available to the market provides underlying support to the current rice prices.

“On the weather front, concerns about the drought in the United States, the less ideal Indian southwest monsoon and the possibility of El-Nino expected in September 2012 could influence the market towards the end of 2012,” it noted.

It also noted that the financial statements for the period ended March 31 had been prepared in accordance with the requirement of MFRS 134: Interim Financial Reporting and Bursa Malaysia’s listing requirements. The financial statements are consistent with those prepared for the year ended Dec 31, 2011 except for the reconciliation of foreign exchange reserve. The cumulative foreign currency translation differences of RM3.77mil were adjusted to retained profits, it said.

As for dividends paid, a second interim dividend of 15% taxable dividend less 25% taxation on 470,401,501 ordinary shares in respect of the financial year ended Dec 31, 2011 amounting to RM52.92mil was declared on April 24, 2012 and paid on June 1, 2012.

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1MDB muscles into power sector

THE entry of 1Malaysia Development Bhd (1MDB) into the power sector will only intensify the already competitive bidding process for re-negotiations of power purchase agreements (PPA).

“At the end of the day, it is an open tender. Whoever offers the lowest rate and better value propositions wins. I don't think they'll be any advantage for 1MDB in the re-negotiation of its PPAs,” an analyst with Maybank Kim Eng says.

Realistically speaking, 1MDB has relatively deep pockets and access to borrowings to offer a competitive rate, providing its competitors with a challenging bid, according to the analyst.

Etiqa Insurance and Takaful head of research Chris Eng concurs with Maybank that 1MDB's ability to raise funds and the instruments which were likely to be guaranteed by the Government will provide a competitive advantage for 1MDB in providing an attractive rate for its PPAs.

He believes 1MDB will put in a very competitive bidding to garner market share by way of contract expansion.

The first-generation independent power producers' (IPPs) PPAs, which will expire between 2015 and 2017, are not being renegotiated and the competitive tender exercise will replace these as the country plans for future energy demand. A total of 4,500MW of power is up for bidding in stages. The first-generation IPPs had a combined capacity of 4,150MW.

The IPPs under the first-generation PPAs are YTL Power International Bhd, Segari Energy Ventures Sdn Bhd (a subsidiary of Malakoff), Port Dickson Power of the Sime Darby group, Powertek Bhd and Genting Sanyen Power Sdn Bhd.

Originally, the first-generation IPPs were supposed to negotiate for their PPA extensions on a one-on-one basis. However, Tenaga Nasional Bhd (TNB) stood firm on that point, saying these IPPs had already made a lot of money.

In view of the potential rise in the price of gas, which will be imported soon, the pressure to cut costs has intensified.

Getting into the energy sector is one of 1MDB's mandates. So far, the government entity has two major power assets under its portfolio.

On Monday, Genting Bhd announced it was disposing its power generation business for RM2.3bil to state-owned 1MDB. Genting says the group and its indirect wholly-owned subsidiary Genting Power (M) Ltd was selling its entire 97.7% shareholding interests in Mastika Lagenda Sdn Bhd to IMDB for RM2.11bil. Asia Trade Investments Ltd, which owns the remainder 2.3% stake in Mastika Lagenda, will also sell its entire stake to IMDB for RM49.6mil.

On July 30, Genting Sanyen submitted a competitive bid to the Energy Commission (EC) under the “Track 2 Renewal of Existing Power Generation Facility” process, proposing a 10-year extension to the PPA beyond its current expiry based on a set of proposed terms.

This is 1MDB's second major power asset acquisition this year after the RM8.5bil deal to buy the power assets of Tanjong Energy Holdings Sdn Bhd in March.

Certainly, this purchase has made 1MDB the second-largest IPP in the country after Malakoff. Genting Sanyen has a capacity of 720MW, while Malakoff has a capacity of 7.9GW.

Apart from the acquisition of Genting Sanyen, it is also one of the bidders for the new 1,000MW combined-cycle gas turbine (CCGT) Prai power plant. This plant is expected to cost about US$1bil (RM3.1bil).

Nine consortia and sole bidders have been shortlisted by the Energy Commission to participate in the tender process for the Prai CCGT power project.

Etiqa's Eng says first generation IPPs' PPAs would be given an extension if they could produce electricity that was cheaper or comparable with the Prai plant. “The new rates for new PPAs will not be higher than the rates of the Prai CCGT plant,” he says.

Engs adds that there are indications that 1MDB has put in the lowest bid for the Prai power plant.

Meanwhile, Maybank Kim Eng's analyst points out that the Government currently controls some 75% of capacity available. He says TNB currently controls 50% of the capacity generated while 1MDB about 25%.

While analysts say the entrance of 1MDB would intensify the competitive bidding, TNB would also benefit given the potentially substantially lower capacity payments, going forward.

“It seems generation assets are moving into public hands, which we think is positive for TNB as the new owners will have lower hurdle rates,” CIMB Research says.

Maybank Kim Eng's analyst says TNB had been rather unlucky that it has to balance up the country's social agenda with its commercial benefits. He says that with the new PPAs, TNB's burden would be eased somewhat and capacity payments should not be an issue for the utility giant.

Given the tight supply of subsidised natural gas, which is used to generate most of the country's power, Petronas has built a regassification plant in Malacca which will import natural gas at world market rates.

TNB has said the impact on higher natural gas will have no effect on its financial as the higher costs will be past through.

The Maybank Kim Eng analyst says it was undeniable that electricity prices would rise in the future. “You can expect a price increase but hopefully the quantum will be small.”

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