Friday, 6 January 2012

CIMB Bank picks PwC as receivers, managers over Asia Petroleum Hub project

KUALA LUMPUR (Jan 6): CIMB Bank Bhd, which is the financier of the Asia Petroleum Hub Sdn Bhd (APH) project, has appointed PricewaterhouseCoopers (PwC) as receivers and managers over APH to facilitate a restructuring exercise.

Muhibbah Engineering Bhd said in a statement to Bursa Malaysia on Friday that the APH project was viable and it was “working with various financiers, including CIMB, and other relevant parties towards an amicable solution”.

To recap, APH had awarded an RM820 million contract for Muhibbah to undertake marine piling and jetty works. Payments later stalled and about RM371 million was outstanding.

In mid-June 2011, news reports that APH had been placed under receivership by CIMB Bank sent Muhibbah’s shares tumbling 32 sen to RM1.52 from RM1.90 in a single day.

Investors were understandably concerned whether Muhibbah would be able to collect RM371 million owed by to it by APH.

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Federal Court allows Can-One to buy 146m Kian Joo shares

KUALA LUMPUR (Jan 6): CAN-ONE BHD [] has won the legal tussle to acquire the 146.13 million KIAN JOO CAN FACTORY BHD [] shares held by Kian Joo Holdings Sdn Bhd after a Federal Court ruled in its favour on Thursday.

Can-One announced to Bursa Malaysia on Friday that the apex court had allowed its appeal to proceed with the completion of the acquisition of the 32.9% stake for RM241.11 million.

Can-One, whose share price had surged over the past two trading days, said that it was advised by its solicitors that the Federal Court had allowed its appeal.

Its share price closed 22 sen higher at RM1.59 with 14.12 million shares done. Its intra-day high was RM1.78.

On Thursday, its share price surged 29.2% to close at RM1.37, prompting Bursa Malaysia Securities to issue an unusual market activity (UMA) query. Its share price jumped 31 sen to RM1.37, the highest in at least 52 weeks.

To recap, on Nov 16, 2011 Can-One said the Securities Commission had approved a further extension of times until May 6, to complete the proposed acquisition.

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Bursa Securities removes trading curbs on Harvest Court

KUALA LUMPUR (Jan 6): Bursa Malaysia Securities Bhd is removing the trading curbs on HARVEST COURT INDUSTRIES BHD []’s shares and warrants with effect from Monday – nearly eight weeks after they were imposed on Nov 16.

The exchange said on Friday with the removal of the designated securities status on Harvest Court securities, they would be traded on a ready basis.

The delivery and settlement of contracts would be effected on a T+3 basis as provided under the rules of Bursa Malaysia.

However, the exchange said it would continue to monitor the trading activities of the shares and warrants and “where trading concerns are noted, the exchange may take appropriate regulatory actions”.

The exchange’s move last November to declare the securities as designated counters was the sternest warning to speculators who had chased up the stock. The trading curbs saw the securities falling sharply.

Speculators had also chased up other penny stocks, prompting Bursa Securities to issue unusual market activity queries.

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Sime Darby subsidiary files application to intervene in judicial review against SC

KUALA LUMPUR (Jan 6): SIME DARBY BHD [] subsidiary Sime Darby Nominees Sendirian Bhd (SD Nominees) has filed an application to intervene in the judicial review sought by Michael Chow Keat Thye against the Securities Commission.

It said on Friday that it had filed the application on Jan 5 on the grounds that it would be a party whose legal and commercial interest will be directly affected by the judicial review proceedings and should therefore be afforded the opportunity to be heard in such proceedings.

It said a copy of SD Nominees' intervener application was served on the solicitors for Chow and the SC.

Sime Darby said SD Nominees had on last Dec 21 been given a copy of the cause papers by solicitors for Chow.

Chow, a minority shareholder of E&O Bhd is suing the SC for failing to compel Sime Darby to make a general offer for all the shares in the property developer after the conglomerate acquired a 30% stake in August for RM776 million.

Singapore’s The Straits Times had reported on Dec 23 that Chow was seeking to overturn the waiver granted to Sime Darby by the industry regulator, on the grounds that the waiver was “irrational and one which no reasonable body would have reached”.

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Astral Supreme secures RM12.45m orders for Vodafone

KUALA LUMPUR (Jan 6): ASTRAL SUPREME BHD [] has received a boost with the securing of a €2.96 million (RM12.45 million) contract from Germany’s Sphairon Technologies GmbH.

It said on Friday its electronic contract manufacturing division Singatronics (M) Sdn Bhd had received orders to produce 70,000 units of its EasyBox product for Vodafone.

Astral Supreme said under the contract, the expected delivery was 5,000 units every two weeks.

“The company’s latest annual revenue for financial year ended Dec 31, 2010 was RM13.36 million and the order value is approximately 93.2% of its latest annual revenue,” it said.

Astral Supreme expected the order to contribute positively to the consolidated earnings of Astral Supreme for the financial year ending Dec 31, 2012.

Sphairon is involved in telecommunication development and production in Bautzen, Germany. The products include terminals for ISDN, ADSI and VDSL networks.

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AWC subsidiary in JV for Saudi Arabia waste collection system

KUALA LUMPUR (Jan 6): AWC Bhd’s subsidiary is partnering with the Dallah Group Company to undertake automated waste collection system projects in Saudi Arabia.

AWC said on Friday its 51% owned Nexaldes Sdn Bhd had signed a shareholders’ agreement with Dallah on Dec 21 to set up a joint venture (JV) company.

It added Nexdales’ unit Stream Environment Sdn Bhd would undertake the projects in Saudi Arabia, which was one of the best performing fastest growing emerging markets in the world.

AWC added the JV company’s initial paid-up would be 2.0 million Saudi riyals (RM1.67 million) where Dallah would have a 75% stake and Stream 25%.

AWC said Stream’s 25% stake, comprising of 500,000 riyals, in the JV company would be funded through its own funds.

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Market Commentary

The FBM KLCI index lost 0.30 points or 0.02% on Friday. The Finance Index fell 0.03% to 13387.71 points, the Properties Index dropped 0.04% to 992.02 points and the Plantation Index down 0.55% to 8436.93 points. The market traded within a range of 6.34 points between an intra-day high of 1515.27 and a low of 1508.93 during the session.

Actively traded stocks include NEXTNAT, HIBISCS-WA, UNISEM-WA, XDL, MAYBULK-CB, DUTALND-WA, UTOPIA, WIJAYA-WA, MAYBULK-CC and JCY-CD. Trading volume decreased to 1466.83 mil shares worth RM1388.62 mil as compared to Thursday’s 1668.82 mil shares worth RM1462.48 mil.

Leading Movers were AXIATA (+6 sen to RM4.95), GENTING (+10 sen to RM11.24), IOICORP (+4 sen to RM5.40), CIMB (+2 sen to RM7.18) and HLFG (+16 sen to RM11.72). Lagging Movers were MAYBANK (-6 sen to RM8.23), KLK (-62 sen to RM24.64), PETCHEM (-5 sen to RM6.33), BAT (-90 sen to RM48.76) and DIGI (-2 sen to RM3.86). Market breadth was negative with 377 gainers as compared to 391 losers. -- JF Apex Securities Bhd

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KLCI wraps up choppy first trading week of New Year in negative territory

KUALA LUMPUR (Jan 6): The FBM KLCI pared down some of its earlier losses on Friday as it ended a choppy first trading week in negative territory, while most regional markets fell more than 1% on growing worries over the lingering eurozone debt crisis.

The FBM KLCI closed 0.30 point lower at 1,514.13, weighed by losses at select blue chips.

Losers edged gainers by 391 to 377, while 299 counters traded unchanged. Volume was 1.47 billion shares valued at RM1.39 billion.

At the regional markets, Hong Kong’s Hang Seng Index fell 1.17% to 18,593.06, Japan’s Nikkei 225 lost 1.16% to 8,390.35, South Korea’s Kospi was down 1.11% to 1,843.14 and Taiwan’s Taiex shed 0.15% to 7,120.51.

Meanwhile, European shares edged up in early trade on Friday, ahead of the closely-watched US nonfarm payrolls report, which may provide more evidence of the world's biggest economy strengthening, according to Reuters.

US nonfarm payrolls, due at 1330 GMT, may have risen by 150,000 in December, according to a survey. Hopes of an even stronger number were driven by data on Thursday, showing more than twice the expected number of private sector jobs were added in December while initial jobless claims dropped 15,000 in the latest week, it said.

On Bursa Malaysia, BAT fell 90 sen to RM48.76, KLK down 62 sen to RM24.64, Tradewinds PLANTATION []s and SOP down 17 sen each to RM4.33 and RM5.78, Boxpak down 14 sen to RM2.38, BHIC 13 sen to RM3.98, Gamuda nine sen to RM3.36, Kulim eight sen to RM4.30 while Jetson and Daibochi fell seven sen each to RM1.25 and RM2.82.

Among the gainers, BLD Plantations added 40 sen to RM8, Batu Kawan 30 sen to RM18.48, F&N 26 sen to RM18.50, Maybulk 25 sen to RM1.79, Can-One 22 sen to RM1.59, Dutch Lady 20 sen to RM25.20, Puncak Niaga 18.5 sen to RM1.16, HLFG 16 sen to RM11.72, KPS up 15.5 sen to RM1.05 and Eng Teknologi 15 sen to RM1.69.

Nextnation was the most actively traded counter with 60.65 million shares done. The stock rose three sen to 11.5 sen.

Other actives included Hibiscus, Unisem, XDL, Maybulk, Utopia and JCY.

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KFCH — Due diligence expected to be completed by February

KFC Holdings (M) Bhd (Jan 5, RM3.80)
Maintain trading buy at RM3.82 with fair value of RM4: We attended a discussion with JCorp’s management on Wednesday regarding the proposed acquisition of the assets and liabilities of KFCH and QSR.

The key points of the discussion are as follows. We understand that Massive Equity Sdn Bhd, the special purpose vehicle (SPV) involved in the exercise is now in the process of due diligence for both KFCH and QSR.

The process is expected to take a few more weeks and is slated to be completed by early February, barring any unforeseen circumstances. After the due diligence process, the sale and purchase agreement is expected to be signed followed by an offer letter to the shareholders of KFCH and QSR.

An EGM will be held 21 days after letters to shareholders have been sent out. Assuming minority shareholders accept the offer by JCorp, we expect the deal to be completed in April or May and the capital repayment to be paid before the end of 1H12.

Regarding the potential counter offer by the Malay Chamber of Commerce Malaysia (MCCM), JCorp stated that they had not received any official offer from the party. Furthermore, the decision will be up to JCorp to either accept the offer or reject it, and JCorp is not interested in any other offers.

RHB Research optimistic minority shareholders of KFCH will approve the deal as they believe the offer by JCorp is fair.

We had already highlighted this in our note dated Dec 30, 2011 when the MCCM announced its offer to the media last week. Note that Johor Mentri Besar Datuk Abdul Ghani Osman highlighted the same thing in his interview with Bernama yesterday.

No change to our forecasts Risks.
1) Bird/swine flu escalation;
2) escalation of corn and soyabean prices, which would eat into margins; and
3) deteriorating consumer spending power, resulting in lower same-store sales (SSS) growth.

Our fair value remains unchanged at RM4/share, based on JCorp’s offer for the assets and liabilities of KFCH, and we reiterate our “trading buy” call. We believe the next hurdle for the completion of the deal is the minority shareholders’ vote, which we are optimistic will go through as we believe the offer price by JCorp is fair. — RHB Research, Jan 5

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A sluggish Malaysian start to 2012

US stocks climbed and sent the S&P 500 index to its highest level since end-October 2011, amid signs that manufacturing output is increasing from China to Australia and America. Manufacturing across the globe showed improvement in December, suggesting that production is weathering strains from Europe’s debt crisis.

In the US, a report showed factory output grew at the fastest pace in six months.

Australian manufacturing expanded for the first time in six months while similar Chinese and German data surpassed economist estimates recently, too. Another report showed construction spending in the US rose in November for a third time in four months.

Locally, the FBM KLCI traded in a listless sideward price range of 23.05 points with consistent volumes (of 1.61 billion to 1.67 billion shares) done. The market rose in a listless manner yesterday on minor nibbling activities in some key blue chip stocks.

Some minor local buying lifted the market especially yesterday, after post window-dressing profit-taking activities on Tuesday and Wednesday.

The index closed at 1,514.43 yesterday, up 10.21 points from the day before as blue chip stocks like CIMB Group Holdings Bhd, DiGi.Com Bhd, IOI Corp Bhd, Kuala Lumpur Kepong Bhd and Petronas Chemicals Group Bhd inched up in afternoon buying activities.

The recent upward market action for the KLCI since Dec 21, 2011 has now caused the daily price bars to remain marginally above the 18-, 40- and 200-simple moving average line (SMA). The obvious support levels are seen at 1,487, 1,502 and 1,514 while the key resistance levels are seen at 1,525, 1,530 and 1,597.

Due to the potentially volatile global markets, we believe that investors should remain cautious and take a short-term view of the market. The current rebound may still be viewed as a “bear market relief rally”. From the all-time high of 1,597.08 (July 2011) to the 1,310.53 swing low (September 2011), the index surpassed the 1,500-psychological mark to a temporary high of 1,530.73 (December 2011).

Despite surpassing the 200-SMA level of 1,501.52 currently, the indicators like the MACD Histogram and Oscillator depict bearish divergence signals — indicating waning upside on the strength, depth and breadth of the index components.

Our stock in focus this week is UEM Land Holdings Bhd — the flagship company of the real estate investment and development business of UEM Group which is wholly-owned by Khazanah Nasional Bhd. The counter was admitted into the FBM KLCI 30 benchmark index on Dec 19, 2011.

Since then, the stock has risen from RM2.25 until it reached a high of RM2.47 on Dec 23. After that high, it fell to its last traded price of RM2.28. It is now undertaking the development of Nusajaya into a regional city with diverse catalyst developments to create and promote economic growth and development in the area.

UEM Land recently released its 3Q results for FYE11. It recorded a lower revenue of RM290.8 million compared with RM372.8 million for the previous quarter mainly due to weaker contribution from the overall developments. Second, it saw weaker industrial land sales of RM84.2 million against RM122.1 million in the preceding quarter due to stronger sales performance for the Southern Industrial & Logistics Clusters (SiLC) project.

Our Maybank IB fundamental analyst expects increasingly tougher competition in the property market, especially in the office segment due to massive government land developments.

These projects, which have similar concepts as UEM Land’s Aurora Tower and developments in Mont’ Kiara, could flush the market with ample supply of varieties, boost take-up/occupancy risks and limit pricing power.

Currently, Maybank IB has a “hold” call on UEM Land with a target price of RM2.02.

There are 14 other research houses that cover the counter of which there are 10 “buy” calls, three “hold” and one “sell”.

UEM Land’s share price made a key daily and major Wave-5 high at RM3.40 (Jan 13, 2011), with grossly overbought and bearish divergent signals. Since that high, it plunged to a recent low of RM1.54 on Sept 26 (a bad loss of 54.7% in about a nine-month time frame).

Look to sell UEM Land on any rallies to its resistance areas as the moving averages depict a neutral trend for this stock, which eventually would succumb to further selling activities on high volume. The high of RM2.47 represents the 50% retracement level (from RM3.40 to RM1.54) and immediate key resistance for this stock.

The daily indicators (like the MACD and Stochastic) are firmly negative and now depict the obvious indications of UEM Land’s eventual weakness.

We expect UEM Land to remain weak on any rebound or retracement to its resistance levels of RM2.28, RM2.47 and RM2.58. It will attract some major selling at those levels. The weaker support levels are at RM1.54, RM2 and RM2.22. Our technical downside targets for UEM Land are RM1.54, RM1.74 and RM2.

In our 1Q12 strategy piece released recently, we favour some Asean countries for investments in 2012. They are Indonesia and Thailand.

Do attend our Maybank IB event next Saturday (Jan 14 at 8.30am) at the Securities Commission to hear what our regional research heads’ top sectors and picks are in those countries.

Lee Cheng Hooi is head of retail research at Maybank Investment Bank. The views expressed in the article are the opinions of the writer and should not be construed as investment advice. Please exercise your own judgment or seek professional advice for your investment decisions. Technical report appears every Wednesday and Friday.

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Resilient bets in sector

Gaming sector
Singapore is expected to surpass Las Vegas as the world’s second largest gaming market with US$7 billion (RM22 billion) gross gambling revenue (GGR) in 2012 (2011E: US$6 billion). Marina Bay Sands (MBS) is leading now, but Resorts World Singapore should catch up as it ramps up slot operations (+33% to 2,470 machines, comparable to MBS), and gradually opens the Western Zone (targeting higher-end VIPs).

Genting Singapore could be an early beneficiary of junkets (if licences are approved) given Genting Group’s long relationship with Asean junkets. Malaysia GGR should remain resilient driven by locals (70% of visitors are day trippers) as Singapore novelty factor recedes.

Genting Malaysia Bhd will have a new growth engine in Resorts World New York (16% of 2012F earnings), but Miami remains a long-shot for now (complicated legislature amendments, competing bids from global casino operators).

Rising credit risk amid heightened economic uncertainties could see higher receivables provision/impairment and deleveraging. Singapore is more vulnerable as the VIP segment constitutes 50% of GGR (purely direct VIPs), while Malaysia’s exposure is only 35% (via junkets).

Singapore Integrated Resorts may also be affected by slower discretionary spending given higher reliance on tourist arrivals (two-thirds of visitors are foreigners).

Sales have proven to be resilient irrespective of economic cycles, being a small-ticket item. We estimate 2012F revenue growth at 5% (1x GDP growth) driven by rising 4D Jackpot sales, which should also lower average prize payout.

Berjaya Sports Toto Bhd’s (BToto) revenue market share will likely inch up to 42% (Multi-Purpose Holdings Bhd: 34%) as its 4D Jackpot game launched in June 11 gains ground (advantage of more outlets, including in Sabah).

Our top picks for Malaysia are Genting Bhd (cheapest gaming stock in the region, multi-prong re-rating from Genting Singapore, Genting Malaysia, Genting Plantations Bhd and disposal of non-core assets) and BToto (resilient cash flows, attractive yields). We also like MPHB (cheaper exposure to numbers forecast operators, capital management opportunities from disposal of non-core assets). — HwangDBS Vickers Research, Jan 5

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It is not just the yield appeal

Consumer sector
Maintain neutral: Amid expectations of slower domestic consumption into 2012, we are overall “neutral” on the consumer space. Positively, this sector comprises resilient companies with strong balance sheets and strong cash flows.

Dividend yields are decent and average 4% across the sector for 2012, while capital management remains an ongoing theme. It is for these very reasons, however, that consumer stocks had significantly outperformed the FBM KLCI in 2011, and current valuations are fair, with the sector trading at a 2012 PER of 15.8 times.

Within the consumer sector, there are pockets of interest, retail being one of them.

While 2012 is likely to be a challenging year, our two stocks in this segment, Padini Holdings Bhd and Aeon Co (M) Bhd are likely to outperform their peers, in our view, due to strong management, their responsiveness to customer needs and strong balance sheets.

Padini’s move into Brands Outlets provides it with a whole new clientele base while Aeon’s property management division provides it with stable recurring earnings.

We have a “buy” on QL Resources Bhd for its strong earnings growth ahead, emanating primarily from its Indonesian operations. We are nevertheless “neutral” on MSM Malaysia Holdings Bhd and Beras Nasional Bhd due to price control issues that cloud their near-term outlook.

Tobacco and brewery stocks had significantly outperformed the FBM KLCI in 2011.

Tobacco and brewery stocks had significantly outperformed the KLCI in 2011. Capital management is likely to be an ongoing theme that will sustain interest in all four stocks but valuations are fair in our view. The tobacco stocks trade at a 2012 PER of 15.8 times while the brewers trade at 17.5 times. With the recent run-up, we downgrade Carlsberg Brewery (M) Bhd and Guinness Anchor Bhd to “hold” from “buy”.

We have two great companies in this category — Nestle (M) Bhd and Fraser & Neave Holdings Bhd (F&N). Trading at average 2012 PER of 23.1 times with average net yield of just 3.3%, we see little reason to own Nestle at this stage while F&N’s near-term outlook is clouded by potentially stiffer competition from Coca-Cola and Permanis Sdn Bhd. — Maybank IB Research, Jan 5

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TSH’s prospects still look good

Shares in TSH Resources had done quite well in 2011 — gaining almost 48% (including dividends) based on the current price of RM2.05 — and far outperforming the benchmark FBM KLCI’s 0.8% gain. We attribute this to a number of factors, including strong double-digit production growth and higher selling prices of crude palm oil (CPO).

While CPO prices have come off their high, which were recorded at the start of 2011, we remain sanguine on TSH’s longer-term growth prospects — which will be underpinned by rising fresh fruit bunch (FFB) production from maturing acreage in Indonesia.

Recall that the company started acquiring plantation land in Indonesia back in 2005 and has been undertaking planting activities since then. Output growth kicked into high gear last year as more of these young trees began to bear fruits. Production will continue to expand going forward.

At the same time, new planting activities are expected to continue for the foreseeable future. TSH still has vast unplanted landbank in Indonesia, acquired in several parcels over the past few years. Its oil palm plantation landbank totals about 99,341ha currently, of which less than 30% has been planted.

Valuations remain decent. Based on our earnings forecast, the stock is trading at forward P/E multiples of roughly 13 times. Having said that, we suspect TSH’s share price may consolidate over the next few months, after chalking up gains through much of 2011. Nevertheless, we believe there remains good upside potential for the stock over a slightly longer-term investment horizon.

FFB output growth estimated at 40% for 2011
As mentioned above, FFB production from TSH’s oil palm plantations in Indonesia kicked into high gear last year as the young trees entered production age. Some 29% of total planted trees are now between four and seven years old, up from 19% in 2010.

Total FFB output was up 47.9% to 298,405 tonnes in the first nine months of 2011 from the previous corresponding period. Of this total, output from estates in Indonesia accounted for slightly less than two-thirds with the balance coming from plantations in Sabah. Going forward, output from the former will gradually account for a higher percentage of total output.

FFB output in 4Q11 is expected to fall back after peaking in 2Q-3Q11. Still, we estimate production growth to average at more than 40% for 2011. The double-digit pace of growth will continue over the next few years, albeit at a lower rate after taking into account the growing base, based on the age profile of TSH’s oil palm plantations.

Some 45% of the current planted areas will start producing over the next three years while 29% of them are now between four and seven years old and will gradually enter their prime production period.

By end-2015, we estimate about 48% of the company’s total landbank will be planted, of which mature acreage will account for roughly 62%, up from 46% in 2010. We assume new planting to increase at roughly 4,000ha-5,000ha per annum going forward. Over the same period, total FFB output is projected to double our estimated output in 2011.

TSH also purchases FFB from external parties to be processed at its three palm oil mills in Sabah for comparatively low margins. As its own FFB output grows and accounts for a greater percentage of total FFB processed, we expect overall margins to widen and further boost the company’s earnings.

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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BIMB Securities cautiously optimistic in 2012

What does 2012 hold for equity markets? After a volatile 2011 that saw financial markets tumble and investor sentiment rattled by the debt crisis in the US and eurozone, geopolitical upheavals and natural disasters, how will the local stock market fare in the New Year? BIMB Securities head of research Kenny Yee shares insights with The Edge Financial Daily’s Surin Murugiah.

What is your outlook for the Malaysian stock market and economy for 2012?
We are cautiously optimistic for 2012. Though the Asian region remains solid, like others our concerns stem on the progress in the eurozone and how it is going to pan out following numerous fund injections into the region.

What is your target for the FBM KLCI for 2012?
We have 1,600 as our preliminary target for 2012 at par to our market’s average PE of around 15.5 times.

Yee believes a full-blown crisis can be averted with regards to the euro-debt crisis.

How do you think the euro debt crisis will play out, and what impact will it have on Malaysia?
Judging from the more proactive approach by the policymakers, we believe a full-blown crisis can be averted. Nonetheless, our concerns stem from the intensity of the crisis and the aftermath on the global financial entities. With regards to the impact on Malaysia, though our economy is more domestically driven, nonetheless we are not insulated on the export front.

The years 2010 and 2011 were seen as years of M&A (merger and acquisition) activities, and the government’s economic transformation programme. What do you see as the domestic theme for 2012?
We believe the M&As as initiated by the GLICs (government-linked investment companies) to continue as part of the process to rationalise the shareholdings in GLCs (government-linked companies) and would have positive implications on the stock market.

As for the themes for 2012, our focus remains on the construction and oil and gas sectors. The plantation sector could offer an interesting proposition as well.

If the general elections are held in 2012, as widely expected, how do you expect the market to react, pre and post elections?
We have done some analysis on the past five GEs and there are no correlation between the general election on the stock market.

What sectors do you like for 2012?
Consumer, construction, oil & gas and possibly plantation.

What are your top stock picks and why?
Construction: Benalec Holdings Bhd (Rather insulated from external vagaries, most projects are domestic centric and strong order book.)
Oil & gas: Uzma Bhd (An up- and-coming oil & gas player. With expertise in the upstream segment).
Dialog Group Bhd (Strong orderbook backed by higher recurring income.)
Plantation: TH Plantations Bhd (improving prospects from recent land acquisitions)

Your wish list for the year?
Eurozone soft landing and flow of foreign funds back to Asia.

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Eversendai grows global presence

KUALA LUMPUR: The birth of Eversendai Corp Bhd, one of Malaysia’s most successful integrated structural steel turnkey contractors, came about by chance. It is currently in the running for projects worth RM12 billion.

Founder Datuk AK Nathan is neither an engineer nor a construction manager. He was in fact an insurance agent who later went into the printing business, yet he is today the executive chairman and group managing director of Eversendai.

“I am not an engineer, it’s just by chance that I went into construction and eventually learned the trade from the people whom I engaged and employed. And from then on, I single-handedly grew the company into a large entity,” Nathan told The Edge Financial Daily in an interview at his residence here.

Based in Rawang, Eversendai made its debut on the Main Market of Bursa Malaysia last July and has a market capitalisation of some RM1.26 billion.

Besides being an integrated structural steel turnkey contractor, it is also a power plant contractor and it provides mechanical, civil and electrical engineering services.

While it has a modest market capitalisation, Eversendai has a significant footprint internationally, especially in the Middle East. Notably, Eversendai commanded the largest market share of 26.5% based on annual fabrication capacity of structural steel in 2010 in the United Arab Emirates (UAE), according to Frost & Sullivan estimates.

Nathan says his vision is for Eversendai to become a world renowned contractor.

Nathan said the company plans to strengthen its presence in other developing countries despite the current global economic uncertainties.

This is reflected in the five projects Eversendai has in India, which accounted for some 5% of its total revenue for the nine-month period ended Sept 30, 2011 after two years there.

“There are a lot of opportunities out there. We are bidding for various types of infrastructure projects, which is quite a big spread in places like India, Southeast Asia and the Middle East.

“All in all, we have tendered for some RM12 billion worth of projects, which are spread out over three to five years. And in general, based on our past track records, we always get 20% of the jobs we’ve tendered,” said Nathan.

In the serenity of his residence where Japanese koi swim leisurely in a large indoor pond, the 55-year-old recounted how Eversendai made its breakthrough in the 1980s.

It was an interview with Tameshi Yamaki of Nippon Steel Corp for the Proton factory steel erection works in 1983 that spawned the success story of Eversendai.

“During the interview, he looked straight into my eyes and I looked straight back as we talked. He later revealed it was through this that he knew he can trust me, and he
eventually awarded me the job,” Nathan said.

Another major breakthrough followed in 1988, which saw Eversendai making its first venture abroad, clinching the contract for the fabrication and erection of structural steel work for the Singapore Indoor Stadium.

“This is our biggest breakthrough. It is by virtue of working in Singapore that we are able to have the opportunities to work on high rise buildings, with the first being the Hitachi tower and subsequently the 66-storey Republic Plaza,” says Nathan.

Eversendai’s track record brought the company back to its home ground to participate in the high profile Kuala Lumpur Tower job in 1993.

A year later, Eversendai made history with the award of the contract to fabricate and erect the steel structure for Petronas Twin Tower 2, the tallest twin towers in the world.

“It is with that kind of exposure and experience that we are able to showcase ourselves in a big way internationally. It really does help support us to win other jobs with similar profile in the Middle East,” he said

Eversendai did not stop expanding. It later undertook many key landmark projects in the Middle East especially in Dubai, Abu Dhabi, Saudi Arabia and Qatar. In Dubai, it was part of the construction team for various iconic buildings such as the Emirates Towers, Ski Dubai, Rose Rayhaan Rotana Tower, Dubai Mall and Dubai Festival City.

In 2008, Eversendai made its mark again by participating in the erection of the structural steel work (including the steel spire) for the Burj Khalifa, the world’s tallest building at 828m and more than 160 stories high.

“We were able to win that kind of support from clients as we are able to get the job done as what we have promised them. And now, we are the sort of company that clients
come looking for, because of the reputation that we have built and through word of mouth,” said Nathan, crediting his success to the values he picked up while working with the Japanese in the 1980s.

“Safety and timely completion — we have pretty much incorporated these fundamental values into the company, and practised them without fail. I have been emphasising these philosophies to my staff all the while, right from the company’s inception,” he added.

With some 6,800 employees now, Nathan said his vision is for Eversendai to become a world-renowned contractor.

“God will honour my commitment. When I make a commitment, I will deliver. I don’t believe in making empty promises. My staff and team support my vision and what I look towards fulfilling and achieving in the years to come,” he said.

Standing out among its local peers
Eversendai stands out among its local peers for commanding the bulk of its earnings from abroad and for having above-industry average profit before tax margins of 13.5% for the nine months ended Sept 30, 2011.

The company posted net profit of RM83 million on the back of RM720.4 million revenue during the period.

Its Indian and Malaysian operations contributed 5% and 6.5% respectively to its overall revenue, with the remaining coming from the Middle East region.

“The portion (from India) will grow larger. But I believe our major revenue contribution will still come from the Middle East.

“In the meantime, we are also looking at new markets,” said Nathan.

He said one of Eversendai’s strengths is that the company has always been able to look ahead.

“We always look to the future. We try to identify developing countries that possess the opportunities for us to ride on their growth.

“Take India as an example. I very much read it as a plane that is ready to take off.

When the time comes, it will take off. And we have gone in at the right time. When the boom takes off, we will just ride the wave,” said Nathan.

Eversendai is now looking at some new business opportunities via organic growth.

“We have not identified (any businesses) specifically, but we will be looking at expanding our core businesses, which are structural steel, power plant construction as well as civil construction. We are looking at taking on bigger projects,” he added.

Eversendai currently owns four fabrication plants in Hamriyah (Sharjah), Rawang, Doha (Qatar) and Al Qusais (Dubai).

These plants have a combined annual production capacity of 119,000 tonnes.

Eversendai’s earnings visibility looks strong going forward. It has an outstanding order book of RM1.5 billion that will keep it busy over the next three years.

Having grown Eversendai to what it is today, Nathan has every reason to be confident of the company’s prospects in the years to come.

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KESM Industries to capitalise on green tech

KUALA LUMPUR: KESM Industries Bhd, a semiconductor devices testing and burn-in services company, plans to capitalise on green technology amidst a weakening global semiconductor industry.

“We will be assured of gaining more clients as more clients turn ‘green’,” said Sam Lim, CEO of KESM Industries, after the group’s AGM yesterday.

Lim said the group’s recent ISO 14000:2008 certification in quality management standard for the automotive industry was going to be among factors that will sustain the company’s growth in the coming year. The certification was timely as more automobile manufacturers turn towards more environmentally-friendly cars and use more sophisticated electronics systems onboard, which means the group is now well-positioned to garner a larger clientele list.

Lim explained that with no new invention or gadget that would excite the market to spur the semiconductor industry, the group has had to focus on markets which can yield the best results such as lifestyle changing products with high growth, such as smartphones and tablets as well as the automobile industry.

“We are aligning (our) strategies now for the high growth market... that’s all we can do (in this economic climate),” he continued. “I cannot be optimistic with what I’m seeing right now.”

The semiconductor industry is largely dependent on the global economic climate, which in turn dictate consumer spending. In the past, Lim explained that most electronics with chip components were mainly used for military applications, now it is widely used in consumer electronics. The need for “burn-in” is fast becoming a necessity, he added.

Burn-in is the process of stressing semiconductor devices by applying electronic voltages and signals at an elevated temperature by pursuing burn-in boards, burn-in system, loader/unloader and testing equipment.

The technique involves subjecting a device to heat and voltage stress for several hours or days to test the limits of its electrical performance. This method ensures a high reliability of semiconductors.

KESM Industries saw net pro-fit and revenue for its first quarter ended Oct 31 fall 60% and 20.8% to RM1.8 million and RM50.4 million, respectively, from RM4.5 million and RM63.6 million a year ago.

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Single-digit growth for auto sales in 2012

KUALA LUMPUR: Malaysian automotive sales growth is expected to be flattish in 2011, with single-digit expansion seen for 2012 as fewer mass market models are launched in addition to stringent lending requirements by banks, according to market research company Frost & Sullivan.

Kavan Mukhtyar, Frost & Sullivan’s head of automotive and transportation practice said domestic automotive total industry volume (TIV) is expected to reach 612,000 units in 2012 compared to the estimated 605,000 units for 2011.

He added there will be limited models available in the sub-compact cars segment which are deemed entry level purchases.

“2011 was a volatile year for the global automotive sector due to unforeseen natural disasters and global economic uncertainty.

“Going forward, banks will be more cautious. Stringent loans and credit control are expected to affect the purchase of entry level vehicles in the A (sub-compact cars) and B segments,” Mukhtyar said during a press conference here yesterday.

The Malaysian Automotive Association will announce the full year TIV numbers for 2011 on Jan 18. In 2010, the TIV was 605,156 units, a 13% jump from a year earlier.

Mukhtyar said growth in 2012 will come from mid-sized sedans besides the premium and large sedans under the C and D segments. Under the C segment, Mukhtyar said notable
launches this year include the Hyundai Elantra and Honda Civic which are expected to complement strong sales of the Proton Saga.

The D segment which will see the unveiling of new models such as the Toyota Camry, Kia Optima and Volvo V60 this year, is expected post a 23% growth from a year earlier. The improvement stems from the recovery of the global automotive supply chain which was disrupted by the Japan earthquake and tsunami, as well as floods in Thailand last year.

These natural disasters had resulted in a 30.2% fall in sales within the D segment in 2011 as output of the Toyota Camry and Honda Accord were halted. The discontinuation of the Proton Perdana had also contributed to the decline, according to Mukhtyar.

Hybrid vehicles will also be closely watched. According to Mukhtyar, these vehicles will continue to see higher demand in 2012 due to the extended duty exemption for these vehicles, new launches and growing acceptance among consumers.

The price factor also plays a crucial role now that gasoline-fuelled vehicles are probably just 15% to 20% cheaper than hybrids of equivalent range.

“It makes financial sense for consumers to go for fuel-efficient hybrid vehicles,” said Mukhtyar who predicts hybrid vehicle sales to jump 60.9% to 13,400 units in 2012.

However, factors which may offset demand for the segment include maintenance and resale value concerns, apart from the cost of ownership and safety of the vehicles, according to Mukhtyar.

On whether national car manufacturer Proton Holdings Bhd could regain its pole position in the domestic market, Mukhtyar said it is possible for the company to recoup market share if it is able to deliver new products which are customer centric.

“One successful launch could make a big difference. It is model-sensitive,” Mukhtyar said.

Within the Malaysian passenger car market, Perusahaan Otomobil Kedua Sdn Bhd (Perodua) is believed to have retained its lead with a 34.3% market share in 2011 followed by Proton which registered a 29.1% share, according to him.

Among non-national brands, Toyota’s market share is believed to have declined 1.2 percentage points from 13.1% to 11.9% while Honda’s share is estimated to have dropped two percentage points from 8.2% to 6.2%.

“South Korean carmakers Kia and Hyundai are slowly gaining market share, supported by the launch of their new SUVs (sport utility vehicles) and sedans with attractive features and value for money,” Mukhtyar said.

To a question on whether the Malaysian automotive sector is saturated, he said the domestic market will still see growth, albeit, at a slower pace in the years ahead. He explained that the local sector will register a 5% to 6% growth annually in the next 10 years, unlike the 15% to 20% seen in the past.

Mukhtyar said the slower growth rates reflect the rise in disposable income among Malaysians as the country’s economic fortunes improve. For now, automotive sector observers will be keeping a close watch on the second revision of the National Automotive Policy (NAP) by the International Trade and Industry Ministry in the first half of this year.

It is believed that the revision aims improve the competitiveness of Malaysia as a regional automotive production centre and may include incentives to lure foreign investments into the domestic industry.

“The new revision to the NAP is likely to be announced only after the elections, (and as such) may have an impact only in 2013,” Mukhtyar said.

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JCY expects higher prices to continue

KUALA LUMPUR: Hard disk drive (HDD) component manufacturer JCY International Bhd’s profit guidance on Wednesday caused quite a stir in the market. For sceptics wondering if the earnings are sustainable, its management points to positive indicators on the horizon.

In a filing with Bursa Malaysia two days ago, JCY said it was expecting its earnings for the first quarter ended Dec 31 (1QFY12) to show a year-on-year leap of some 1,900%.

Analysts question whether JCY will be able to sustain this level of earnings in the coming months but JCY’s non-independent executive director James Wong said there are positive indicators on the horizon.

“We feel that the prices we are seeing will be maintained for quite a while,” Wong told The Edge Financial Daily.

JCY had in its announcement attributed the better profit performance to the increased average selling prices of components due to the October floods in Thailand, a more effective product mix, the appreciating US dollar versus the ringgit and cost management initiatives.

While the Thai floods during the last quarter of 2011 affected many IT-related companies, including major players Western Digital and Seagate, JCY’s facility there was spared. As such, many analysts had expected the company to show improved results.

According to Wong, the average selling prices for components rose by between 10% and 30% following the floods.

“The floods in Thailand changed the whole industry. They not only pushed up the average selling price, but also made the players more aware about the security of supply,” he said.

Although the water levels have subsided, many companies are now dealing with the fallout, which would entail writing off not just inventories but also machines.

Analysts believe the shortages will continue in the first half of 2012. This is in line with a report by technology research firm Gartner, which said the floods would cut the supply of HDD by 25% or more over the next six to nine months.

JCY’s 1QFY12 results are due to be announced in February. According to Wong, JCY made the profit guidance — which may be considered rare in corporate Malaysia — to be fair to public minority shareholders.

The Thai floods aside, Wong said the prospects for the HDD industry are already looking up.

“Based on a HDD industry consultant’s report, the global market demand for storage was about 330 terabytes for 2010. Now the demand for storage is higher than ever with the advent of digitalisation. Also, with the rise of cloud computing, the need for storage will rise further,” he said.

That’s why JCY has earmarked RM300 million for capital expenditure over the next 24 months, with the bulk going towards buying new machines for its factories in China, Malaysia and Thailand.

“We have already built the buildings and infrastructure, it is now a matter of getting the machines in. In China particularly, we have over 380,000 sq ft of new production floor space available for our immediate expansion,” said Wong.

JCY also had seen improvements from varying its product mix to four components, which gave the company more flexibility; and implementing various cost management initiatives that saw better allocation of resources.

OSK Research and CIMB Research both have a “trading buy” on JCY, while Hong Leong Investment Bank Research has a “hold”. While OSK upgraded its fair value on JCY to RM1.48 from RM1.30, the research house said it expects earnings to normalise in tandem with the restoration work in flood-hit areas.

“We reiterate our view that the Thai floods could represent short-term pain but long-term gain for the industry as a whole as we believe that major HDD customers Western Digital and Seagate would take the opportunity to push for better pricing,” said OSK.

CIMB also upgraded its fair value on JCY to RM1.54 from RM1.14, stating: “We project JCY to turn net cash and offer an attractive dividend yield of 9% by FY13.”

Hong Leong was more cautious on the development in the event that customers turn back to their original vendors once operations are fully restored.

JCY closed at a 17-month high of RM1.26 yesterday. The counter had already been on an upward trend over the past few weeks following reports that it would benefit from the Thai floods. Over the past 12 months, the stock had been trading at an average of 63.8 sen.

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In Brief

UMA for Can-One after spike in stock price

KUALA LUMPUR: Can-One Bhd attracted an unusual market activity (UMA) query from Bursa Securities yesterday after its shares spiked 29.2% to close at RM1.37. The latest of a string of companies that have courted a UMA query in recent months, Can-One opened at RM1.06 and shot up by 31 sen yesterday to close at RM1.37, the highest in at least 52 weeks, with 6.95 million shares done.

Can-One was yesterday’s third top gainer in absolute share price terms, behind Kuala Lumpur Kepong Bhd that added RM1.76 to close at RM25.26 and Dutch Lady Milk Industries Bhd, which gained RM1 to close at RM25.

In reply to the query, Can-One directors said they were not aware of any rumour, report or other factors that may have caused the jump in its share price. There are also no unannounced material corporate development or on-going negotiations, it said, adding that necessary disclosures would be made, should any arise.

BHIC quashes privatisation talks

KUALA LUMPUR: Boustead Heavy Industries Corp Bhd (BHIC) yesterday denied being part of any on-going privatisation talks.

In a statement to Bursa Malaysia to clarify media reports following the rise in its share price, BHIC said it “had not received any indication or direction from its shareholders with regard to any major acquisition of shares in the company which might include a privatisation”.

The company reiterated that its major shareholder, Boustead Holdings Bhd, had on Dec 21, 2011, “publicly announced” it was “not considering any proposal to privatise BHIC”.

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Khind buys S’pore home appliance retailer for S$2.8m

KUALA LUMPUR: Home appliances maker and distributor, Khind Holdings Bhd, is paying S$2.8 million (RM6.82 million) for a Singapore-based home appliances retailer-cum-distributor and its unit to grow its presence in the city-state.

In a statement to Bursa Malaysia yesterday, Khind said it had entered into a conditional sale and purchase agreement (SPA) with Singapore-based Chiang Hong Pte Ltd to acquire 100% of Mayer Marketing Pte Ltd (MMPL) and the latter’s 50%-owned associate Mayer Marketing Sdn Bhd (MMSB), which is incorporated in Brunei.

Both companies, collectively known as the MMPL group, are involved in marketing, distributing and retailing electrical products, household goods and home appliances.

“The proposed acquisition will provide a direct opportunity for Khind to participate in retailing business, to expand vertically into Singapore’s high-end retail market and to bring a synergistic effect products line-up via retail stores,” Khind said.

According to Khind, the S$2.8 million purchase consideration was based on the MMPL group’s adjusted unaudited net assets of S$2.31 million as at Oct 31, 2011, and future prospects. The adjustment was for a S$5 million waiver of vendor loans. For the year ended Dec 31, 2011, net profit for MMPL stood at S$430,000 while MMSB’s stood at RM80,000.

Among other things, the SPA includes a compensation clause, which in effect guarantees that MMPL achieves a minimum consolidated net profit of S$400,000 in FY ended Dec 31, 2011. Khind would be paid a sum equal to any shortfall in the actual net profit to the targeted amount of S$400,000.

Upon completion of the deal, the MMPL group shall employ a Chiang Hong director, Tan Gek Gnee, as executive manager for at least three months at a salary of S$6,000 per month.

Khind said it was optimistic on the outlook for Singapore’s household appliances industry, especially prospects of premium brand products, but did not disclose plans for the Brunei unit.

It currently derives the bulk of earnings from Malaysia, and has been selling its products in Singapore, the Middle East, Europe, African region and other parts of Asia.

Khind expects the proposed acquisition to be completed by March this year.

Its shares, which last closed at RM1.45, were untraded yesterday.

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Xidelang confirms ‘informal talks’ with Navis Capital

KUALA LUMPUR: Private equity fund Navis Capital Partners Ltd has engaged in “informal discussions” to buy a controlling stake in China-based Xidelang Holdings Ltd.

If it happens, the move would result in a mandatory general offer (MGO) for the rest of the company.

In a statement to Bursa Malaysia yesterday, Xidelang said Navis Capital had indicated its intention to acquire “the entire shareholding” held by Xidelang’s major shareholder HongPeng International Holdings Ltd.

HongPeng, the private vehicle of Xidelang co-founder, managing director and CEO Ding Pengpeng, holds 54.55% of Xidelang, which makes sports shoes, apparel and accessories.

“There was no discussion on Navis Capital’s offer price,” Xidelang said in a separate statement to further clarify a news report that appeared in the Chinese daily Nanyang Siang Pau.

The paper, quoting unnamed sources, said Navis Capital valued Xidelang at 1.2 times book based on the latter’s FY10 net asset value of 59 sen per share. At 70.8 sen apiece, HongPeng’s 54.55% stake could be worth RM169.92 million, back-of-the-envelope calculations showed.

Xidelang’s net asset value (NAV) stood at 72.72 sen per share, according to unaudited results for the third quarter ended Sept 30, 2011.

Xidelang shares were trading between 35.5 sen and 38 sen in the morning session yesterday before trading was suspended for an hour between 2.30pm and 3.30pm for the announcement.

Xidelang shares jumped to as high as 44.5 sen when trading resumed, before closing at 41 sen, up 4.5 sen or 12.33% for the day. It was yesterday’s third most active stock with a volume of 54.89 million shares.

According to Xidelang’s 2010 annual report, its three largest shareholders are HongPeng, Ding Chaohui (3.4%) and Zhuang Guohua (3.18%).

Notably, Xidelang shares had largely traded below NAV and barely touched the 50 sen per share mark over the past year, stock market data showed. The shares had in the past few days chalked up their steepest gains ever, adding eight sen or 27.11% to 37.5 sen on Tuesday from 29.5 sen on Dec 30 last year.

If Navis Capital makes an official offer for HongPeng’s 54.55% block in Xidelang, the private equity firm will have to offer the same price to buy out all other shareholders.

That would resemble Navis Capital’s acquisition and subsequent privatisation of formerly Singapore-listed industrial footwear maker King’s Safetywear Ltd in December 2008 for US$74 million (RM232.4 million). Last November, Navis Capital made headlines after it flipped its stake in King’s Safetywear to US manufacturing conglomerate Honeywell International for US$338 million.

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Genting hits US jackpot?

KUALA LUMPUR: With yesterday’s announcement of the proposed expansion of the Resorts World New York (RWNY), Malaysia’s Genting Group appears to have won the support of New York governor Andrew Cuomo to build the largest convention centre in the US, a project that may come with a full-fledged casino licence.

Expected to cost US$4 billion (RM12.56 billion), the proposed integrated mixed-use development would expand RWNY and includes 3.8 million sq ft of convention and exhibition centre with up to 3,000 hotel rooms.

As it is, RWNY, which opened Oct 28 last year, is something of a “virtual casino”, offering only video slot machines and electronic table games via an arrangement with New York Racing Association which operates the Aqueduct Racetrack in Queens. Hence, RWNY is also known as a “racino”.

In the State of the State address where Cuomo delivered a blueprint for rebuilding New York on Wednesday, he announced the intention to make the state the No 1 convention
site in the nation with the proposed expansion at Aqueduct.

Cuomo, who is reportedly in favour of legalising casino gambling to generate new revenue for New York state as well as create more jobs, also said New Yorkers could also approve a constitutional amendment to have Atlantic City-styled casinos outside Indian reserve land.

An artist's impression of the Resorts World New York

“Let’s amend the constitution so that we can do gaming right,” he said in the speech, pointing out that over US$1 billion of economic activity could be generated from gaming within the state.

While Genting was named as the partner for the convention centre in the speech, Cuomo did not specify who would be granted a full-fledged casino licence if such amendments
were made.

In a statement to Bursa Malaysia yesterday yesterday, Genting Malaysia said wholly-owned unit Genting New York LLC (Genting NY) had on Tuesday entered into a non-binding
agreement with the New York State Urban Development Corp for the proposed development, and would work closely with the latter’s business entity, Empire State Development
Corp, to have a binding agreement by Nov 30 this year.

The proposed project will replace The Jacob Javits Convention Centre on Manhattan’s West Side and reportedly will be larger than Chicago’s McCormick Place, currently the

largest convention centre in the US. The 18-acre Javits Centre site will become a mixed used facility to revitalise New York City’s West Side.

Genting Malaysia shares rose to a one-month high of RM3.93 intra-day after the news before closing at RM3.89 yesterday, up one sen or 0.26%. Its parent, Genting Bhd, rose to RM11.18 intraday, but ended unchanged at RM11.14 while Genting Singapore shed three cents or 1.9% to S$1.53 (RM3.73) yesterday.

Genting owns about 54% of Genting Singapore Ltd, 48.3% of Genting Malaysia and 18% of Genting Hong Kong Ltd, which houses Resorts World Manila.

It remains to be seen if Genting will get similar support in Florida, where the group has announced plans for a US$3.8 billion bayfront Resorts World Miami, complete with hotels, convention space, retail and recreational space, but is missing a casino licence.

Florida lawmakers are slated to discuss a gaming bill that could pave the way for the award of up to three casino-resort licences on Monday afternoon, according to the Senate session calendar.

Genting officials have won some local support with its promise of bigger revenue streams and higher job creation for Miami, but faces opposition from bigwigs like Florida’s

Orlando-based Walt Disney Co, as well as other community groups who still see casinos as a vice-filled industry linked to thug-like debt-collectors, prostitution and money laundering.

Clearly, the US — where there are some 23 million able but jobless workers — is quickly turning out to be an increasingly sizeable market for the Genting group as well as controlling owners, the Lim family, who through their private vehicle Kien Huat Realty Sdn Bhd, is among pioneer investors in Indian tribal gaming.

Coupled with the over US$580 million Genting has already spent on RWNY so far, the US$4 billion planned expansion, will match the US$4.7 billion that Genting has invested in Resorts World Singapore, the group’s biggest investment thus far.

In Britain, where Genting Malaysia via Genting UK is already the largest casino operator, works are underway for a £120 million (RM586.31 million) Resorts World @ NEC in Birmingham that could be ready by late-2013 or early-2014.

At the time of writing, Genting had not provided a timeline for the US$4 billion potential capital expenditure (capex) in New York. For Miami, the US$3.8 billion planned capex is over a period of 10 years, and will be spent faster if it gets a casino licence.

Prior to the latest US$4 billion planned capex for New York, analysts had estimated that the existing RWNY “racino” could potentially shore up Genting Malaysia’s annual earnings by 10% with the UK operations possibly giving another 5% boost.

Melvyn Boey, who heads Southeast Asia research for Bank of America-Merrill Lynch (BoA-ML) in Singapore, said he wouldn’t be overly concerned over Genting’s expansion moves for as long as its balance sheet can support debt levels.

“I’d only worry if net gearing goes above 50% and stays at that level,” Boey told The Edge Financial Daily in a recent interview.

Boey calculates that Genting Highlands in Malaysia generates “easily RM1 billion free cash flow (FCF) a year, with very little capital expenditure requirement”.

He also sees Genting Singapore steadily generating about S$1.5 billion FCF a year from FY13. “In FY12, the number is already S$1.3 billion and that will grow as capex tapers off,” said Boey, who has tracked Genting since the 1990s.

Even so, details on its planned capex would likely allay any concerns investors may have. Even as capex tapers off across the causeway, talks are that Genting Singapore is looking to invest some of its newly minted cash in Japan, where gaming laws may be liberalised to aid the economy.

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RAM Ratings reaffirms Hong Leong Bank’s ratings

KUALA LUMPUR (Jan 6): RAM Rating Services Bhd has reaffirmed HONG LEONG BANK BHD []’s long- and short-term financial institution ratings at AA1 and P1, respectively.

It said on Friday that at the same time, the respective issue ratings of both Hong Leong Bank and Prominic Bhd (a subsidiary set up to issue up to RM1.4 billion of subordinated notes under the stapled securities issuance) have been reaffirmed.

The ratings agency said the ratings of the up to RM2.0 billion subordinated medium-term notes issuance programme and up to RM1.0 billion Innovative Tier-1 capital securities issuance programme previously issued by the former EON Bank Bhd have also been reaffirmed at AA2 and AA3, respectively.

These debt securities were assumed by Hong Leong Bank on July1, 2011 and all the ratings have a stable outlook.

RAM Ratings said the reaffirmation of Hong Leong Bank’s financial institution ratings was premised on the group’s strong franchise and sound credit fundamentals.

Hong Leong Bank completed the acquisition of EON CAPITAL BHD []’s assets and liabilities on May 6, 2011. This acquisition has placed the group as the fourth-largest domestic banking group in terms of assets (from sixth position previously), with a stronger presence in consumer banking and small and medium-sized enterprises as well as a wider distribution network.

“The integration plan for the merger has been progressing according to expectations, with completion targeted for mid-2012. As with any merger of this scale, integration issues could arise, particularly with regard to human capital,” said the rating agency.

RAM Ratings said Hong Leong Bank’s gross impaired-loan (GIL) ratio came up to only 2.1% as at end-September 2011, even after the inclusion of EON Capital’s loans.

“While EON Capital’s loan book will now be managed under Hong Leong Bank’s more prudent credit culture, we expect the Group’s GIL ratio to edge up given that the inherited portfolio from EON Capital had been originated under different underwriting standards.

“ Nonetheless, we derive comfort from the Group’s prudent GIL coverage ratio of 137.8% as at end-September 2011. Meanwhile, the group’s loans-to-deposits ratio came up to a healthy 72.6% as at end-September 2011, albeit higher than the 54.2% as at end-June 2010,” it said.

As for the RM5.1 billion acquisition of EON Capital’s assets and liabilities, RAM Ratings said the impact had been largely offset by the timely issuance of RM1.4 billion of hybrid capital securities, RM1.0 billion Tier-2 subordinated debt and a RM2.3 billion Tier-2 capital cumulative subordinated loan (Tier-2 sub loan) extended by its parent, HONG LEONG FINANCIAL GROUP BHD [] (HLFG), in May 2011.

As of end-September 2011, the group’s tier-1 and overall risk-weighted capital-adequacy ratios (RWCARs) had come down to a respective 7.8% and 13.2% (end-June 2010: 15.3% for both).

RAM Ratings said In October 2011, the group undertook a RM2.6 billion rights issue and repaid the RM2.3 billion Tier-2 sub loan from HLFG; its pro forma tier-1 and overall RWCARs based on its risk-weighted assets as at end-September 2011 came up to about 11% and 14%, respectively.

“We opine that Hong Leong Bank’s current capitalisation levels are healthy relative to its sturdy asset quality and profitability,” it said.

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KL shares lower at mid-afternoon

Share prices on Bursa Malaysia continued their downtrend at mid-afternoon today with persistent profit-taking largely in plantation-related stocks, led by Kuala Lumpur Kepong and Tradewinds Plantation, dealers said.

At 3.28pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) eased 5.02 points to 1,509.41.

The local bourse continued to be influenced by tepid sentiment globally over the uncertain eurozone debt crisis, dealers said.

However, investors were also cautiously awaiting the United States jobs data due later in the day.

The Finance Index dropped 29.239 points to 13,362.28, Plantation Index plunged 102.45 points to 8,381.26 and the Industrial Index fell 17.07 points to 2,747.29.

The FBM Mid 70 Index dropped 10 points to 11,601.92, the FBM Ace Index rose 0.84 of a point to 4,110.64 and the FBM Emas Index fell 25.89 points to 10,390.96.

Decliners led advancers 390 to 302 while 286 counters were unchanged. Volume stood at 1.025 billion shares valued at RM829.795 million.

For the actives, Nextnation rose 2.5 sen to 11 sen, Hibiscus Petroleum-WA added one sen to 65 sen and Unisem-WA went up 12.5 sen to 39.5 sen.

Among heavyweights, Maybank lost six sen to RM8.23, Sime Darby inched down two sen to RM9.05, CIMB eased one sen to RM7.15 and Petronas Chemicals slid seven sen to RM6.31. -- Bernama

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What’s behind Can-One’s price surge?

KUALA LUMPUR (Jan 6): CAN-ONE BHD []’s share price surged for the second day on Friday despite the company’s statement to Bursa Malaysia it was unaware of the reasons for the unusual market activity (UMA).

At 3.33pm, it was up 28 sen to RM1.65 but off the high of RM1.78. Volume was 12.54 million shares done.

Meanwhile, the FBM KLCI was down 4.72 points to 1,509.71. Turnover was 1.05 billion shares valued at RM851.78 million. The broader market was weaker, with 399 losers to 297 gainers and 290 stocks unchanged.

Concerns were whether there were any fundamental reasons for Bob-Pak’s price surge despite the company’s recent statement there was no privatisation exercise.

On Thursday, the share price had jumped 31 sen to close at RM1.37 prompting a query from Bursa Malaysia Securities about the UMA.

However, Can-One replied there were no corporate developments relating to the group’s business and affairs that had not been previously announced that may account for the UMA.

At the current price of RM1.65, the share price was 31.2 sen above the net asset of RM1.348 as at Dec 31, 2011.

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Proton confirms talks with GM

Proton Holdings Bhd today confirmed that talks with General Motors Corp (GM) are only at a preliminary stage but did not reveal further details.

In a filing to Bursa Malaysia today, the national car maker said should there be further developments that warrant an announcement, Proton would make the necessary disclosure accordingly.

The company was responding to a query by the local bourse operator over a news report that Proton is in talks with GM to sell up to 50 per cent stake in its Tanjung Malim plant.

Meanwhile, Proton also maintained that Datuk Seri Mohd Nadzmi Mohd Salleh's bid for Proton is a bid in his own personal capacity as an individual.

The company said this in response to a query by Bursa Malaysia relating to an article appearing in The Star which stated that Mohd Nadzmi, the Proton chairman, has confirmed that he has put in a bid for state fund Khazanah Nasional Bhd's 42.7 per cent stake in Proton.

It added the reference to "a management buyout in a sense" is correct only insofar as it is Mohd Nadzmi's intention to retain most of the current management team in the event his bid is successful. -- Bernama

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Kumpulan Euro’s 6m shares done off-mkt at 9.7% below regular trade

KUALA LUMPUR (Jan 6): KUMPULAN EUROPLUS BHD [] saw 6.0 million of its shares transacted in an off-market deal at an average price of RM1.11 on Friday.

Stock market data showed the shares, which were crossed at RM1.11 each, were 9.7% below its regular market trade of RM1.23.

The 6.0 million shares accounted for just 1.15% of the paid-up of 520.99 million shares.

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HSBC cuts 2012 GDP forecast to 3.7%

HSBC has reduced its 2012 gross domestic product forecast for Malaysia to 3.7 per cent from five per cent due to slower global growth which will continue to dampen exports.

HSBC said it, however, expected the domestic demand to hold up relatively well, supported by a solid employment outlook and monetary and fiscal stimulus as well as more projects would commence under the Economic Transformation Programme, and help to shore up the economic growth.

It said the global cooling should help reduce inflationary pressure by slowing growth and reining in international commodity price inflation.

"Hence, we expect inflation in Malaysia to moderate, although there are upside risks to food inflation owing to the floods in Thailand and the potential farm labour shortages caused by crackdown on illegal workers," it said.

The bank said given the weaker global economic conditions, Bank Negara Malaysia has started to sound more dovish of late.

"We expect it to take action during the first half of 2012 and embark on a 'mini' easing cycle before guiding rates back up again the following year," it said.

HSBC said the government's target deficit reduction this year of 4.7 per cent from an estimated 5.4 per cent for 2011 may prove difficult to achieve, given the downside risks to growth and oil prices. - Bernama

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Nadzmi bids for Khazanah’s stake in Proton

Proton Holdings Bhd said its chairman Tan Sri Mohd Nadzmi Mohd Salleh has made a bid for Khazanah Nasional Bhd’s 42.7 per cent stake in the Malaysian carmaker.

Nadzmi plans to retain most of the current management team if his bid is successful, Proton said in a statement in Kuala Lumpur today.

Proton is also in “preliminary” talks with General Motors Co, it said without elaborating. - Bloomberg

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FBMKLCI to breach 1,700 by year-end: UBS

The FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) may breach the 1,700 points level by year-end as risk aversion normalises, says UBS Securities Malaysia Sdn Bhd.

Head of research/strategist Chris Oh said the expectation was also based on shares earnings growth of nine per cent for this year and 13 per cent for 2013.

"However, in the event the euro zone crisis deepens, the key barometer could slip back to 1,300 points level.

"The Euro zone crisis is expected to dominate Asian equity direction this year.

"Expectation is for the Eurozone to dip into a recession but the US economy will hold up," he told a media roundtable on "Malaysia Outlook 2012".

In the near-term, Oh believed an election rally would likely spur buying sentiment on the local bourse.

"The market believes spending by the government will take place ahead of the general election and will filter through the Budget 2012 incentives.

"I think broadly speaking the anticipation of the upcoming election will spur a rally and prices will move up the next couple of months," he added.

However, Oh said as Malaysia headed towards the 13th general election, investors may turn cautious as the outcome of the elections was difficult to predict.

"The result is important to determine market direction, the last six election results were mixed, so it's (outcome of next general election is) difficult to predict," he added.

Nevertheless, Oh expected Prime Minister Datuk Seri Najib Tun Razak to call for a general election as soon as sentiment improved on the back of either a clearer resolution to the sovereign debt crisis or a pick-up in economic data.

"This could result in a relief rally where cyclical sectors will benefit such as banks, property, construction and, oil and gas," he added.

Despite a bullish outlook for the KLCI, UBS, however, expects a Gross Domestic Product growth of around three per cent this year for Malaysia.

"We expect the Malaysian economy to slow down in response to weaker global demand and challenging global financial markets," he said. -- Bernama

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'AirAsia to gain most from MAS route cuts'

Malaysia Airlines' (MAS) air route cuts may provide opportunities for other carriers to enlarge their market, with AirAsia gaining the most, says a leading research house.

OSK Research said termination of some long-haul flights and redeployment to short haul only confined to the national carrier's "protected" Shanghai, Beijing and Sydney routes, for which there was limited competition.

It said termination of the KL-Bandung route has benefited AirAsia, the only carrier flying to the route, while the Langkawi-Penang-Singapore route allows the budget airline and Singapore's Silk Air to improve yields.

In addition, the termination of other long-haul routes to destinations like the United States and Dubai has created space for Singapore Airlines and the Emirates to expand their market share, it said in a research note today.

The research house said the termination of MAS' long-haul flights to Rome, Buenos Aires (via Cape Town), Dubai/Damman and Johannesburg would likely see two of its aircraft redeployed to Beijing and Taipei routes.

"The KL-Beijing frequency will double from 7x to 14x weekly while the KL-Taipei flights will be increased from 7x weekly to 10x weekly.

"It appears that MAS is redeploying significant capacity to its protected KL-Beijing route, for which China Air and Air Zimbabwe are currently the only competitors," it said.

With more capacity being deployed to this sector, OSK Research said the airfares may potentially come down although on a net basis.

It said overall yields would improve as MAS' China routes achieved better load factors compared with its previously loss-making long-haul routes elsewhere.

On funding, OSK Research said MAS has yet to secure its 2012 aircraft purchase totalling RM6 billion.

"We anticipate that MAS will raise as much as RM4 billion for this year's capital expenditure needs, which would effectively cause its net gearing to bloat from 213 per cent last year to 461 per cent this year," it said.

Its massive leverage would be a "double-edged sword" should MAS' turnaround plan crumbled, added the research house. -- Bernama

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Proton confirms in talks with General Motors but preliminary only

KUALA LUMPUR (Jan 6): PROTON HOLDINGS BHD [] has confirmed The Edge weekly report that the national car maker is in talks with General Motors Corp (GM) but they are only at a preliminary stage.

The national car maker said its replies to queries from Bursa Malaysia on Friday that as these talks were only at a “preliminary stage” and as such warrants no announcement at this point in time.

Proton said it there should there be further developments that warrant an announcement, it would undertakes to make necessary disclosure in accordance with the relevant requirements.

The Edge weekly reported that Proton’s top management was said to be in talks with GM to sell up to 50% stake in its Tanjung Malim plant. It also added GM could buy a 40% to 50% stake in the plant for between RM700 million and RM800 million.

On a separate note when responding to a newspaper report about Proton chairman Datuk Seri Mohd Nadzmi Mohd Salleh's bid for the car maker, Proton stated it was a “bid in his own personal capacity as an individual”.

Proton said he had earlier informed the board about his plan to make a bid for Khanazah Nasional Bhd’s 42.7% stake in Proton.

“Datuk Seri Mohd Nadzmi would like to clarify that management had merely expressed its concern about the persistent takeover rumours which were hampering the strategic direction of the Company, especially those which involved potential collaborations with foreign OEMs,” it said.

Clarifying the statement about "a management buyout in a sense", Proton said it was correct only insofar as Nadzmi's intention to retain most of the current management team in the event his bid is successful.

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PM: Have confidence in Felda Global listing

Prime Minister Datuk Seri Najib Tun Razak today urged the Felda community to place full confidence in the listing of Felda Global Ventures Holdings Sdn Bhd (FGVH), saying it will ensure them a more secure future and, perhaps, even a windfall in four to five months.

"I will personnally take an interest (in the venture) to make sure that the Felda community garners maximum profit, as much as possible, from this plan," he said when addressing the settlers at Felda Gedangsa during his visit to Hulu Selangor.

Najib said the listing would take the settlers on their second quantum leap of becoming shareholders of a global company reaping high dividends.

Their first quantum leap turned them from landless poor living from hand to mouth to owners of relatively affluent homes, he said.

The prime minister gave the assurance that FGVH, which is expected to be listed on the Main Board of Bursa Malaysia in April, would be more professionally managed to make it a leading plantation company in the world. -- Bernama

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Unresolved eurozone debt crisis haunts Asian markets

KUALA LUMPUR (Jan 6): Asian markets fell on Friday as Europe remained the central theme and the overhanging eurozone debt crisis kept investors on tenterhooks.

The FBM KLCI fell 4.71 points to 1,509.72 at the mid-day break, as blue chips including KLK, BAT, Petronas Gas and Maybank slipped.

Market breadth turned negative with losers beating gainers by 358 to 286, while 263 counters traded unchanged. Volume was 806.22 million shares valued at RM598.27 million.

The ringgit weakened 0.05% to 3.1525 versus the US dollar; crude palm oil futures for the third month delivery fell RM16 per tonne to RM3,173, crude oil slipped 46 cents per barrel to US$101.35 while gold added 85 cents an ounce to US$1,623.57.

Asian shares fell and the euro hovered near a 16-month low against the dollar on Friday on worries that the euro zone debt crisis is crippling European banks, with players hoping U.S. job data later in the day will help improve sentiment, according to Reuters.

At the regional markets, Japan’s Nikkei 225 fell 1.05% to 8,399.66, Hong Kong’s Hang Seng Index lost 1.4% to 18,550.37, South Korea’s Kospi was down 1.64% to 1,833.18, the Shanghai Composite Index down 0.32% to 2,141.51, Singapore’s Straits Times Index fell 0.23% to 2,706.66 and Taiwan’s Taiex shed 0.18% to 7,118.38.

On Bursa Malaysia, KLK fell RM1.02 to RM24.24 after the price surge on Thursday BAT down 36 sen to RM49.30, BHIC 20 sen to RM3.91, Tradewinds PLANTATION []s 15 sen to RM4.35, Petronas Gas and Box-Pak 10 sen each to RM14.74 and RM2.42, Parkson nine sen to RM5.47 while AIRB, Jetson and Maybank lost eight sen each to RM1.59, RM1.24 and RM8.21 respectively.

Among the gainers, Dutch Lady rose 40 sen to RM25.40, Can-One 27 sen to RM1.64, NSOP 23 sen to RM5.78, Maybulk 17 sen to RM1.71, BLD Plantations 15 sen to RM7.75, MPI 14 sen to RM2.87, KLCCP 12 sen to RM3.32 and Nestle up 10 sen to RM56.40.

Nextnation was the most actively traded counter with 43.4 million shares done. The stock rose three sen to 11.5 sen.

Other actives included Unisem, Hibiscus, XDL, Utopia, Maybulk and JCY.

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M’sian logistics industry to grow 10.3% to RM129.93b in 2012, says Frost & Sullivan

KUALA LUMPUR (Jan 6): The Malaysian logistics industry is expected to grow 10.3% to RM129.93 billion in 2012 as compared to an estimated RM117.8 billion a year ago, due to strong government support on logistics-related development and economic growth fuelled by foreign investments in the country, according to Frost & Sullivan.

Its vice president, Transportation & Logistics Practice, Asia Pacific and country head for Malaysia Gopal R said Malaysia’s strategic advantage due its geographical location and focus on improving supply chain efficiency would also drive growth in the logistics industry.

In a statement Friday, he said that external trade for Malaysia was expected to increase 5.9% to RM1.32 trillion in 2012 as compared to RM1.24 trillion in 2011.

“Growth of the country’s external trade signifies the growth of the transportation and logistics industry especially for import & export forwarding, air freight and ocean freight-related businesses,” said Gopal.

He said foreign direct investments (FDIs) surged to RM21.3 billion in the first half of 2011 as compared to RM12.1 billion in the corresponding period in 2010, reflecting the growing investors’ confidence following the government’s initiatives to stimulate economic growth.

“The introduction of several initiatives such as the Government Transformation Program and the Economic Transformation Program provided a conducive business environment for the logistics market to grow,” he said.

Gopal said Malaysia’s major trading partners were Asian countries, which are expected to experience stable economic growth.

He also said that electrical & electronic products, chemicals, palm oil, machinery, appliances & parts are key trading commodities for Malaysia.

“However, share of trade with Japan and Thailand is expected to shrink due to supply chain disruptions and production slow down following disasters in the respective countries,” he said.

He added that logistics service providers which are able to leverage their integrated network to offer alternative solutions and help clients maintain the distribution flow, can tap into the growth opportunities from new clients.

The Malaysian logistics industry is forecast to grow at a compound annual growth rate (CAGR) of 11.6% to reach RM203.71 billion in 2016, said Gopal.

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