MMC-Gamuda JV firm to spend over RM100m on tunnel boring machines

IPOH (Dec 17): MMC Gamuda KVMRT (T) Sdn Bhd (MGKT) will spend over RM100 million on refurbishing and upgrading its tunnel boring machines.

The 50:50 joint venture firm of MMC Corp Bhd and Gamuda Bhd is the underground work package contractor for the MRT project Line 1.

MGKT's head of tunneling Ng Hau Wei said the refurbishment and modification works of the tunnel boring machines are in preparation for its next tunneling job.

"We estimate the amount of direct works will cost over RM100 million," he told a media briefing here at their refurbishment plant.

He said the works included the storage and preservation of the boring machines.

According to Ng, MGKT will partner German firm Herrenknecht AG to undertake the necessary works for 10 tunnel boring machines, the same ones which were deployed for MRT Line 1.

Under the agreement, Herrenknecht AG will collaborate with local steel works and heavy engineering specialist Waiko Engineering Works Sdn Bhd to jointly carry out the machine refurbishment works.

Ng foresees the tunneling business in the Southeast Asia region will grow and he said MGKT is looking for more tunneling jobs.

"It is defintely growing if you look at Malaysia and Singapore, and even at Hong Kong. We hope the trend will be positive from now on," he said.

Gamuda erases losses amid downgrades on weaker property sales

KUALA LUMPUR (Dec 17): Gamuda Bhd erased losses after falling as much as 0.8% earlier on analyst downgrades. The earnings and target share price downgrades were subsequent to builder and property developer Gamuda's first quarter earnings report to Bursa Malaysia yesterday.

Today, Gamuda shares increased three sen or 0.6% to RM4.83 at 10:28 am after falling as much as four sen to RM4.76.

Yesterday, Gamuda said net profit rose 12% to RM185.85 million in the first quarter ended October 31, 2014 (1QFY15) from RM165.48 million a year earlier.

Revenue for 1QFY15 improved to RM569.64 million from RM486.12 million. Gamuda declared an interim dividend of six sen per share.

Today, TA Securities Holdings Bhd wrote in a note while Gamuda's 1QFY15 income was within expectation, TA had reduced its FY15 to FY17 earnings forecast for Gamuda by 7% to 7.6%.  

TA also cut its target price for Gamuda shares to RM4.81. This compares to RM5.17 previously, according to TA , which maintained its “sell” call on the stock.

According to TA, it had downgraded its Gamuda earnings forecast in anticipation of lower property sales.
"Its property sales slumped to RM240mn. Unbilled sales dropped to RM1.5bn from RM1.7bn a quarter ago.

"We cut our property sales assumptions for FY15/FY16/FY17 from RM1.84bn/RM1.65bn/RM1.7bn to RM1.0bn/RM1.2bn/RM1.3bn in line with the weaker-than-expected property sales," TA said.

TA also noted that besides Gamuda’s project delivery partner role in Malaysia's mass rapid transit (MRT) project, Gamuda had only one construction project in hand.

According to TA, Gamuda has an outstanding order book of RM1.8 billion, which could last until 2016.
“Should there be any delay in KVMRT (Klang Valley MRT) line 2 or lack of new construction project awards, we foresee an earnings gap in construction division in FY16. This may pose downside risks to the share price,” TA said.

Supermax recovers slightly after Monday’s tumble

KUALA LUMPUR: Shares of Supermax Corp Bhd recovered slightly yesterday after closing at its lowest level since October 2011 — but not nearly enough to scrape back what was lost on Monday after its founder and chief executive officer Datuk Seri Stanley Thai was charged by the Securities Commission Malaysia with alleged insider trading offences.

The glovemaker recovered slightly its losses but still closed the day with a 0.62% decline, in heavy trading.
The stock rebounded to hit an intraday high of RM1.73 before ending the day at RM1.61, with 10.91 million shares exchanging hands. Its market capitalisation stood at RM1.09 billion.

Supermax shares fell 32 sen or 16.5% to close at RM1.62 on Monday, following news that Thai, his wife and sister-in-law were charged in the Kuala Lumpur Sessions Court with handing a broker non-public information about a higher-than- expected hit to the bottom line of Supermax’s former associate APL Industries Bhd, of which he was an investor.

According to theedgemarkets.com, Supermax’s valuation score stood at 1.20, on a scale of 0 to 3, with 3 suggesting a company gives higher-than-market-average returns and is trading at a lower-than-average valuation.

Its fundamental score stood at 1 on a scale of 0 to 3, with 3 suggesting that it is profitable and has a strong balance sheet.

Supermax’s stock also has a volatility rate of 2, which measures the volatility of a stock based on its share price movements relative to the whole market over a period on a scale of 1 to 5, with 1 being the least volatile.

This article first appeared in The Edge Financial Daily, on December 17, 2014.

Malaysia's Mah Sing among Nomura top picks in Asean

PETALING JAYA: Property developers Mah Sing Group Bhd and Thailand’s Quality Houses (QH) are Nomura Research’s Asean property yield picks that are expected to offer above-average yields and dividend growth in 2015 and 2016. 

In a report on Asean property, it identified three out of the 28 property stocks, including 11 real estate investment trusts (Reits), that it covered which fulfilled two conditions. 

The conditions are that the stock’s 2015 forecast dividend yields would be higher than the market’s as well as the sovereign 10-year bond yield, and that the dividend per share (DPS) or unit (DPU) is projected to grow faster than the market in 2015 and 2016 forecasts.

It said that the report “aims to identify candidates amongst property stocks under our coverage in Asean for income-focused investors that are still looking for dividend yield ideas.”

Setting a RM3 target price for Mah Sing with a “buy” call, Nomura said its 2015 forecast yield was 5% versus the KLCI’s 3.6% and Malaysia’s 10-year bond yield of 4.2%. 

Additionally, it said Mah Sing’s forecast DPS for 2015 and 2016 were projected to grow 22.2% and 27.3% respectively, versus the KLCI’s 6.8% and 7.2% respectively.

“The projected growth in dividend is underpinned by unbilled sales of RM4.8bil, which should drive earnings to expand 22% (compound annual growth rate) over financial years 2013 to 2016 forecast,” it said.
As for QH, which has a target price of 4.40 baht and a “buy” call, Nomura said it had a projected 2015 forecast yield of 4.8% versus Stock Exchange of Thailand’s (SET) 3.4% and Thailand’s 10-year yield of 2.8%. 

Its DPS is projected to grow 12.5% and 16.7% in 2015 and 2016 versus the SET’s 11.4% and 12% respectively, underpinned by high earnings visibility due to resilient real demand for landed housing.

Nomura noted that Sunway Reit was its third stock that met the two conditions but retained its “neutral” call as it believed the robust DPU growth forecast in 2015 and 2016 was already largely reflected in the unit price. 

It also noted that none of the Singapore Reits it covered managed to qualify on account of overall pedestrian DPU growth in 2015 and 2016 forecasts (average 1.5% to 1.6%).

Meanwhile, RHB Research downgraded the Malaysian property sector to “neutral”, expecting property transaction volumes to decline 3% to 5% in 2015 on the back of slower economic growth and a high loan rejection rate.
It also anticipated 
property prices to remain flat as developers would have difficulty passing on incremental costs during weakening demand, while all parties would be likely to adopt a wait-and-see stance as the impact of the goods and services tax kicked in. 

“For the stocks under our coverage, we estimate new sales to drop by an average 10% to 20% year-on-year (y-o-y) versus -25% y-o-y in 2014 and +41% y-o-y in 2013,” it said. 

RHB Research maintained “buy” on Tambun Indah Land with a reduced target price of RM2, noting that affordable housing players should fare better while the company’s fundamentals remained solid with zero gearing.

It downgraded Eastern & Oriental, UEM Sunrise and UOA Development to “neutral” with respective target prices of RM2.27, RM1.65 and RM1.84 respectively. 

It downgraded Glomac to “sell” with a lower target price of 88 sen (6.5% downside), as it believed management’s 2015 (April) new sales target of RM504mil was a tall order given new launches would likely be delayed into the first quarter.

Masterskill aborts RM75m property disposal

KUALA LUMPUR: Masterskill Education Group Bhd has aborted its plan to dispose of its Cheras, Kuching, Kota Kinabalu and Johor campuses, after its board was unable to mutually agree on a revised sale consideration based on the property valuation done by independent valuer Cheston International (KL) Sdn Bhd.

Cheston had ascribed an indicative market value of RM110.4 million for the properties, higher than the initial indicative sale consideration of RM75 million offered by the group’s major shareholder Siva Kumar M Jeyapalan.

It is understood that the deal was aborted due to the valuation being too high. In a Bursa Malaysia filing yesterday, Masterskill said it would seek alternatives to implementing its asset light strategy and raising funds for the group.

Siva Kumar first proposed to make an offer for the four campuses on Nov 6, and then lease them back to the group for 10 years, with the option to extend for another five years.

Following that, on Nov 10, education provider SMRT Holdings Bhd and Creador II LLC announced the proposed acquisition of a 32.9% equity interest in Masterskill belonging to Siva Kumar at 60 sen apiece.
The acquisition will be done together with Rahpia Ltd, a wholly-owned subsidiary of Creador. SMRT will take up a maximum of 23% interest in Masterskill while Rahpia will acquire the remainder of Siva Kumar’s stake.

Rahpia is an existing shareholder of Masterskill with a 16.26% stake while Creador founder Brahmal Vasudevan holds a 6.15% stake in SMRT. The stock shed 0.5 sen or 0.8% to close at 59.5 sen yesterday, with a market capitalisation of RM223.77 million.

This article first appeared in The Edge Financial Daily, on December 17, 2014.

Hai-O 2Q net profit falls 32% to RM7.17m on weaker wholesale and MLM earnings

KUALA LUMPUR (Dec 16): Hai-O Enterprise Bhd's net profit fell 32% to RM7.17 million in the second quarter ended Oct 31, 2014 (2QFY15) compared to RM10.54 million in the previous corresponding period, primarily because of lower profit from its wholesale and multi-level marketing (MLM) divisions.

However, it should be noted that there was an exceptional gain on disposal of a property amounting to RM600,000 in 2QFY14, its filings to Bursa Malaysia this evening showed.

Despite the weaker earnings, the group still declared an interim single-tier dividend of 4 sen per share.
The group recorded a revenue of RM57.73 million for the quarter under review, down 12% from RM65.6 million a year ago.
Segmentally, its MLM division saw a pre-tax profit decline of about 19% for the quarter due to drop in sales of "big ticket" items which had offset the higher contribution from "small and medium ticket" items.

Its wholesale division's external revenue was flat at about RM14 million compared to 2QFY14, but pre-tax profit for the division declined from RM3.4 million to RM950,000, mainly due to lower inter-segment sales to MLM division, coupled with lower revenue from its Chinese medicated tonic and tea. 

The weakening of the ringgit against the dollar has also resulted in higher import costs for the division, thus further eroding its profit margin.

Retail revenue also fell, although by a marginal 4% to RM9.8 million versus the previous year, while pre-tax profit declined from RM1.1 million to RM950,000 due to lower revenue.

Meanwhile, its cumulative nine months (1HFY15) net profit was at RM13.39 million, down 30.73% from 1HFY14's RM19.33 million, as revenue shrunk 10.62% to RM107.51 million from RM120.28 million, also primarily because of lower profit from its wholesale and MLM divisions. 

Moving forward, the group said it will re-look its current strategies to mitigate the negative impact that arise from the uncertainties in the current economy, plunging crude oil price, as well as the weakening of the ringgit against the US dollar. It foresees these phenomenons will continue to impact domestic consumers sentiments for the remaining half of the financial year. 

"The board of directors remains confident and is of the opinion that the group will continue to perform profitably in the next quarter," it added. 

The edge: Market Preview- KLCI likely to remain below 1,700-level, external worries weigh

KUALA LUMPUR (Dec 17): The FBM KLCI is likely to remain below the crucial 1,700-point level today as global economic worries continute to weigh on international investor sentiment.

At the global markets, oil prices pared losses and global equity markets eased on Tuesday in roller-coaster trading as investors snapped up beaten-down energy stocks and wagered the Federal Reserve will be cautious amid the turmoil sparked by crude's collapse, according to Reuters.

Russia's huge emergency rate hike overnight failed to stabilize the ruble's decline, which jolted markets, and German Bund yields hit a new low as a collapse in Russian financial markets sent investors scurrying for top-rated assets, it said.

Meanwhile, U.S. stocks fell for a third day in a volatile session Tuesday, led by declines in consumer discretionary and technology shares, while another drop in the Russian rouble added to worries about the global economy.

Energy shares rebounded, keeping the S&P 500 and Dow mostly in positive territory until a bout of late-day selling took indexes lower. The S&P 500 moved more than 44 points from its high of the day to its low, while the CBOE Volatility index jumped 15.4 percent, according to Reuters.

AllianceDBS Research in its evening edition Tuesday said that dampened by the weak down close in the preceding day, the FBM KLCI had on Dec 16 traded lower to settle at the lowest low of a low of 1,673.94 as market participants continued to play on the selling side in anticipation of a lower market  (- 23.23, - 1.38%).

It said that in the broader market, losers outnumbered gainers with 572 stocks ending lower and 296 stocks finishing higher.

That gave a market breadth of 0.51 indicating the bears were in control, said the research house.

AllianceDBS Research said the benchmark index has lost 172 points over the past 14 market days (1,845 (27 Nov 2014) minus 1,673 (16 Dec 2014)) with 12 down closes and only 2 up closes.

It said following the down close on Dec 16, the market was expected to test lower ground again with immediate support seen at 1,670.

It said a fall below 1,670 would put pressure on the market down to the subsequent support zone between 1,600 and 1,610.

Indicator wise, the MACD is below the 9-day moving average line, it said.

“The analysis of overall market action on Dec 16 revealed that buying power was weaker than selling pressure.

“As such, the FBM KLCI would likely trade below the 1,673.94 level on Dec 17,” said AllianceDBS Research.

Aeon Credit posts higher earnings on bad debt recovery, processing fees

KUALA LUMPUR: Aeon Credit Service (M) Bhd’s earnings rose 12.1% to RM48.29mil in the third quarter ended Nov 20, 2014 from RM43.05mil a year ago, boosted by an increase in the bad debts recovered and AEON Big loyalty programme processing fee.

It said on Tuesday its revenue increased by 21.4% to RM216.21mil from RM178.03mil a year ago. Earnings per share were 32.50 sen compared with 29.9 sen.

For the nine months ended Nov 20, 2014, its earnings increased by 19.2% to RM152mil from RM127.53mil in the previous corresponding period. Revenue rose 29.2% to RM626.43mil from RM484.77mil.

Aeon Credit said total transaction and financing volume in the third quarter and nine months ended Nov 20, 2014 was RM848mil and RM2.559bil, a growth of 3.6% and 3.4% respectively from previous year corresponding period. 

“Higher growth was recorded for auto financing operations. The financing receivables as at Nov 20, 2014 was RM4.354bil, representing an increase of 29.5% from RM3.361bil in the previous year quarter ended Nov 20, 2013,” it said. 

Aeon Credit’s non-performing loans (NPL) ratio was 3.07% as at November 2014 compared to 2.02% as at November 2013. 

“Other operating income recorded of RM14.19mil and RM40mil for the third quarter and nine months ended Nov 20, 2014 was 64.6% and 46.6% higher than previous year corresponding period respectively. This is mainly contributed by increase in bad debts recovered and AEON Big loyalty programme processing fee,” it said.

Aeon Credit said receivables amounting to RM38.641mil and RM115.053mil (Nov 20, 2013: RM25.775mil and RM72.526mil) were written off against allowance for impairment losses on

receivables for the current quarter and nine months ended Nov 20, 2014 respectively.

Gamuda Q1 earnings up 12% to RM185.8mil

KUALA LUMPUR: Gamuda Bhd’s earnings in the first quarter ended Oct 31, 2014 rose 12.3% year-on-year to RM185.8mil from RM165.5mil, as its revenue improved 17.2% to RM569.6mil from RM486mil.


Earnings per share in the quarter went up to 8 sen from 7.25 sen in the corresponding quarter a year earlier.

The company, which is involved in construction, property, and water and highway concessions, declared a dividend of 6 sen per share, payable on Jan 28, 2015.


Gamuda said the increase in revenue was mainly due to recognition of revenue from Kesas Sdn Bhd, concession holder of the Shah Alam Expressway, for which it had upped its stake. 


The company said its property division and its water and expressway divisions recorded higher revenue and profits in the quarter under report. However, the construction division recorded lower revenue following the completion of the electrified double-tracking railway project in early November 2014.


Gamuda said it was anticipating a good performance this year from on-going construction projects, substantial unbilled sales of the property division and steady earnings from the water and expressway concessions division.

Petronas Gas becomes controlling shareholder of Dialog's PLNG-2 unit

KUALA LUMPUR (Dec 16): Petronas Gas Bhd (PetGas) is now the controlling shareholder in Pengerang LNG (Two) Sdn Bhd (PLNG-2), a special vehicle which used to be wholly owned by Dialog LNG Sdn Bhd, which is in turn a wholly owned unit of Dialog Group Bhd. 

In a Bursa Malaysia filing this afternoon, Dialog said PLNG-2 has ceased to be a subsidiary of Dialog Group following PetGas' subscription of 780,000 ordinary shares - representing a 72.22% stake in PLNG-2 - for RM780,000, cash. This means that Dialog LNG now only holds 27.78% in PLNG-2.

"The intended equity shareholding of PetGas of 65% and Dialog LNG of 25% in PLNG-2, as earlier announced, will be achieved upon subscription by State Secretary, Johor (Incorporated) (SSI) of its 10% shareholding, which is expected in 2015," said Dialog in its filing. 

According to the shareholders' agreement signed on Nov 14 this year, PLNG-2 will be restructured whereby PetGas will acquire 65%, Dialog LNG to hold 25% and the SSI to hold the remaining 10%.

PLNG-2 will develop the liquefied natural gas (LNG) regasification facilities comprising of a regasification unit and two units of 200,000 m3 LNG storage tanks with an initial send out capacity of 3.5 million tonnes per annum of natural gas at Pengerang, Southern Johor, for about RM2.7 billion. 

As at 3pm, Dialog shares were four sen lower at RM1.28 with a market capitalisation of RM6.34 billion. PetGas was four sen down at RM21.20, giving it a market capitalisation of RM42.07 billion. 

SP Setia Q4 earnings slightly higher at RM131.3m

KUALA LUMPUR: SP Setia Bhd’s earnings rose nearly 1.3% to RM131.31mil in the fourth quarter ended Oct 31, 2014 from RM129.64mil a year ago underpinned by the strong sales for its international projects.

“The group achieved RM922mil sales in Q4 of FY2014, bringing total sales for the group for the full financial year to RM4.62bil and total unbilled sales to RM11.10bil,” it said on Tuesday.

The property developer reported revenue rose 27.7% to RM1.233bil from RM965.68mil a year ago. Its earnings per share was 5.19 sen compared with 5.27 sen.

It rewarded shareholders with a dividend of 5.7 sen a share.

SP Setia said the international projects contributed RM1.80bil (39%) towards the group’s total sales for the current financial year. 

Sales contribution from the group’s international projects continue to be strong and further underscores the management’s deep conviction to venture into international projects in established global cities like London and Melbourne. 

On the Malaysian projects, it said despite the period of softness following the implementation of the property cooling measures implemented by Bank Negara Malaysia at the beginning of the financial year, the group posted a satisfactory result of RM2.82bil sales. 

SP Setia said there was strong support for its launches during the financial year focusing on land banks with ready infrastructure and amenities like Setia Alam and Setia Eco Park. 

“Projects such as Setia EcoHill and Setia Eco Glades will benefit from new infrastructure projects including the Klang Valley Mass Rapid Transit (KVMRT) project,” it said.

For the financial year ended Oct 31, 2014, its earnings were RM405.67mil, which was 3% lower when compared with RM418.35mil in the previous financial year. However, its revenue rose 16.8% to RM3.810bil from RM3.261bil a year ago.

SP Setia’s acting president and CEO Datuk Voon Tin Yow said its sales performed well due to the strong and loyal customers who continue to believe in our brand. 

“On the international front, S P Setia continues to obtain high brand acceptance among the locals in London, Melbourne and Singapore. 

“As for Malaysia, we are confident that once the market stabilises, aggressive demands for properties will return as Malaysia is a young nation with a growing population,” he said.

Top Glove 1Q net profit falls 3% on year to RM49m, revenue lower at RM568m

KUALA LUMPUR (Dec 16): Top Glove Corp Bhd reported a 3% drop in first quarter net profit from a year earlier as cheaper raw materials led to lower average selling prices (ASP) for its products.

Higher finance cost, and associate losses also curbed profit growth, Top Glove told the bourse today.
Top Glove said net profit fell to RM48.68 million in the first quarter ended November 30, 2014 (1QFY15) from RM50.28 million.

Revenue was lower at RM567.63 million compared to RM573.99 million, "largely owing to a lower ASP from decreasing raw material prices," Top Glove said.

"Intense competition in the nitrile glove segment also hampered cost past-through and resulted in weaker margins," Top Glove said.

Natural rubber, and synthetic rubber or nitrile are crucial raw materials for rubber glove production. Nitrile is derived from crude oil, prices of which, have fallen substantially.

Top Glove is expanding its nitrile glove production. The firm said the expansion included higher capacity at its factory in Lukut, Negeri Sembilan and another in Klang, Selangor.
According to Top Glove, the expansion will grow its total annual capacity to 44.6 billion pieces of gloves a year from 42.6 billion.

"The group expects the glove business environment to remain competitive and challenging.

"However, with better cost-discipline and cost-optimisation practices via continuous automation in place, coupled with an unwavering focus on quality across all aspects of its operations, the group is confident of navigating its way through this challenging time, to deliver an improved performance in the quarters ahead," Top Glove said.

Danajamin, OCBC guarantee Berjaya Land’s RM650m debt notes

KUALA LUMPUR: Danajamin Nasional Bhd and OCBC Bank (Malaysia) Bhd (OCBC) will guarantee Berjaya Land Bhd’s (BLand) RM650mil 10-year medium term notes (MTN) programme.

Danajamin, which is the country’s financial guarantee insurer, said on Tuesday it guaranteed the RM500mil tranche with a longer tenure of 10 years. 

OCBC Malaysia provided the guarantee for the remaining tranche of RM150mil with a tenure of up to six years.

Both tranches, rated at AAA(fg) and AAA(bg) rating respectively, were issued on Tuesday and were fully subscribed.

Proceeds raised from the bonds issuance will go towards BLand’s investments in its hospitality and integrated development businesses, and also the refinancing of its existing borrowings. 

B-Land is an intermediate investment holding company within the Berjaya group, and is mainly involved in hotel and recreation activities, property development, gaming and investments.

AmInvestment Bank Bhd is the sole principal adviser and lead arranger for the transaction. 

Danajamin said it has provided guarantees for RM7.6bil bond and Sukuk programmes, which included the latest guarantee for BLand.

SE Asia Stocks- Extend declines on emerging markets sell-off

JAKARTA (Dec 16): Southeast Asian stock markets slumped on Tuesday after emerging market currencies were hit by global risk aversion, triggered by a sharp decline in the Russian rouble.

"Conditions in Russia pushed investors to return to holding U.S. dollar, which hurt local currencies and stock markets in the region," said Muhamad Alfatih, an analyst with Samuel Sekuritas in Jakarta.

The Russian central bank on Tuesday sharply hiked interest rates to halt a collapse in the rouble. Before the hike, the currency hit a record low on plunging oil prices and sanctions linked to the Ukraine crisis.

Shares in Bangkok led the regional decline with a 2.4 percent loss led by energy and banking stocks. The index is down for the sixth consecutive session.

Thai stock exchange data shows foreign investors have been net sellers in the past four sessions to Monday with a total outflow of 14 billion baht ($424.50 million).

Thailand's central bank said it has not seen "unusual capital outflow" and is not planning to take measures to support the baht.

The Indonesian stock index fell as much as 2 percent to its lowest in five weeks after the rupiah hit 12,950 against the dollar earlier in the day, its lowest since August 1998. The index extended a 1 percent loss from the previous session.   

Philippine stocks fell 1.1 percent while Singapore's Straits Times Index lost nearly 2 percent. – Reuters

Mainly Ananda Krishnan owned Bumi Armada to be taken private again?

PETALING JAYA: Bumi Armada Bhd’s tumbling share price and the sudden departure of its chief executive officer on Dec 5 is fuelling talk that the company could be taken private again. 

The oil and gas services company’s main shareholder T Ananda Krishnan has a track record of de-listing companies when times are bad and taking it back to the market when conditions and valuations improve.

Ananda’s chief corporate lieutenant Ralph Marshall declined to comment on the matter when contacted by StarBiz.
“Sorry, I cannot comment. I don’t know anything about Bumi Armada,” he said.

But the prospect of a fresh corporate exercise is keeping its share price afloat above the RM1 level.
Maybank IB Research, in a recent report, did not rule out a potential privatisation for the stock, as it was trading at around one time book value.

Operationally, it said it liked Bumi Armada’s floating production, storage and offloading (FPSO) business model in light of the current weak/volatile oil market environment while valuation-wise, it was inexpensive to growth.

Another analyst agreed that the company’s fundamentals were doing well and that he also would not be surprised by a move to privatise the company.
“There is value in it, just that the share price is down for now,” he said.
Ananda had previously delisted and relisted companies under his stable including Astro Malaysia Holdings Bhd, Maxis Bhd and Bumi Armada.
“It has happened before and I don’t think anyone will be surprised if it happens again,” said an analyst, who declined to be quoted.
She noted that the company’s fundamentals seemed to be intact, with the recent hit to its share price most likely to be due to poor market conditions.

She said that Bumi Armada had a strong order book with quite a lot of new contracts as well as work-in-progress contracts.
“Everyone knows the earnings will not be immediate but the fundamentals are quite sound. Beside this, FPSO contracts are quite resilient,” she said.

She said another factor that could have affected the stock was CEO Hassan Basma’s resignation.

“We have also seen supposedly substantial shareholders actively selling over the past few months. But again, they seem to be nibbling back their stake,” she observed.

One of Bumi Armada’s shareholders, Ombak Damai Sdn Bhd, had a 7.17% stake on Sept 9 after disposing of 15 million Bumi Armada shares. It continued to pare its stake down to 6.97% in October via three transactions on Oct 1, 3, and 7 that saw it dispose of a total of 297,500 shares.

However, it then bought back some shares on Oct 9, raising its stake to 7.07% currently.

Bumi Armada was taken private by Ananda in 2003. The company, however, was re-listed on Bursa Malaysia in 2011 at an initial public offer price of RM3.03. The stock was last traded at RM1.01 yesterday.

Maybank KE Research maintains Hold on TM

KUALA LUMPUR: Maybank KE Research has maintained its Hold on Telekom Malaysia (TM) with a raised target price of RM7.20 on higher long-term growth assumption to reflect an improvement in TM’s longer-term prospects.

In a note on Tuesday, the research house said its FY14/15/16 net profit forecasts are consequently reduced by 2%/8%/11% respectively.

While the acquisition of a 57% stake in loss-making P1 was completed in Sep 2014, TM intends to only reveal its wireless strategy in 1Q15, it said.

"For now, we expect P1 to roll out its LTE network in 2015-17, with monetisation beginning in 2016. 


"We expect P1 to command 7% mobile data revenue share in 2017. By our estimates, P1 would only achieve break even (at the pre-tax level) closer to 2020," it said.

Maybank believed that a large part of TM’s 2014 share price rally was down to its impending entry into the wireless space (via the acquisition of a 57% stake in P1).

While the concept of convergence (between wireless and fixed) represents an attractive long-term proposition, there are near-term pains, which include the absorption of P1’s losses and additional capex for the LTE network rollout.

"This drag to TM’s P&L and cashflows would begin to manifest in 2015," it said.

Maybank Research retains Buy on Axiata, upgrades Maxis

KUALA LUMPUR: Maybank Investment Bank Research has retained its Buy call on Axiata and upgraded Maxis to a Buy as they would benefit from the implementation of the Goods and Services Tax (GST) when implement in April 2015.

“GST would allow wireless operators a chance to pass on the 6% service tax they currently absorb in the prepaid segment.

 “In reality, the benefits are likely less pronounced given elasticity and competition; we assume operators enjoy the equivalent of a 3% pass-through in service taxes for now,” it said.

Maybank Research said its sector picks are Axiata (maintain Buy, TP: RM7.80) and Maxis (upgrade to Buy, TP: RM7.40). 

"Consequently we raise net profit of Axiata/Digi/Maxis by 2.5%/4.1%/3.2% in 2015, and 3.1%/5.6%/4.3% in 2016 respectively.  

“For sensitivity purposes, every 1% pass-through in prepaid service tax raises net profit of Axiata/Digi/Maxis by 0.8%/1.4%/1.1% in 2015, and 1.0%/1.9%/1.4% in 2016 respectively,” it said. 
Maybank Research said the wireless operators have been absorbing the 6% service tax in the prepaid segment since 1998.

With GST, they can pass on the 6% service tax they currently absorb in the prepaid segment.  The theoretical impact of GST to operators is a direct flow-through of this previously-foregone revenue down to EBITDA. 

The research house explains that in reality, the benefits are likely less pronounced, given 1) the potential elasticity impact (prepaid is a price sensitive segment after all), and 2) possibility of increased competition, which effectively means part of the new-found revenue gets returned back to customers in the form of lower tariffs. 

Operators presently remain non-committal on their intentions with regards to GST treatment.
 “On the back of our earnings upgrades, we raise target prices of wireless operators under our coverage by 3%-7%. Consequently, we upgrade Maxis to BUY (from Hold). Our sector picks are Axiata and Maxis, on the back of their underperformance in 2014,” it added.

Supermax rebounds after plunging 16.5% as chief faces insider trading charge

KUALA LUMPUR (Dec 16): Glove maker Supermax Corp Bhd rebounded six sen or 3.7% after plunging 16.5% yesterday as its chief faces insider trading charges.

The Securities Commission (SC) had charged Supermax executive chairman and group managing director Datuk Seri Stanley Thai for insider trading involving APL Industries Bhd (APLI) shares. APLI is a former unit of Supermax.

The SC also charged Thai's spouse Tan Bee Geok and Bee Geok’s sister Tan Bee Hong for insider trading involving APLI shares.

Today, Supermax was traded at RM1.68 at 10.21am after rising as much as 11 sen or 7% to RM1.73 earlier. The FBM KLCI fell 7.31 points or 0.4%.  

Yesterday, Supermax shares fell 32 sen or 16.5% to close at RM1.62. Weak broader market sentiment also weighed on its share price.

The KLCI declined 35.68 points or 2.06% to close at 1,697.31 points.

In a press statement yesterday, the SC said Thai, 54, was charged at the Kuala Lumpur Sessions Court for communicating non-public information between October 26 and 29, 2007 to Tiong Kiong Choon, a remisier with a stock broking company.

Tiong was earlier charged by the SC last Tuesday at the Kuala Lumpur Sessions Court for disposing of 6.2 million APLI shares on October 26 and 29, 2007 while in possession of the information.

In addition, the SC also charged Thai’s spouse Bee Geok for communicating non-public information to Bee Hong between October 23 and 31, 2007.

The regulator alleged that Bee Hong had on October 31, 2007 sold 350,000 APLI shares held in her account while in possession of the information.

AFG gets Joel Kornreich as new group chief executive officer

TA Securities
(Dec 15, RM4.72)
Maintain “sell” with unchanged target price of RM4.35. Last Friday, Alliance Financial Group Bhd (AFG) announced the appointment of Joel Kornreich as its group chief executive Officer (CEO). His appointment will take effect on Jan 1, 2015. According to the press release, Kornreich has over 23 years of experience in the financial services industry. Before joining Alliance Bank, he was with Citigroup for 20 years in various roles around the world.

We are excited about this new appointment for AFG. We believe the new CEO can revive AFG’s consumer banking operations and imbue the bank with the wealth of his global experience.  Kornreich is reportedly well-known for his successful management of consumer banking businesses, built around superior service and innovative solutions.

Operationally, we believe AFG continues to lag its peers in the consumer banking space — reporting decreases in the credit card and personal loan segments in 2013 before accelerating only in 2014.  Its mortgage portfolio remained buoyant with growth of 15% to 20% year-on-year (y-o-y). While still eyeing double-digit loan growth, momentum is expected to slow down in the coming quarters.  Housing loans are expected to come off to 11% due to the impact of new regulations to control household debt. The HP portfolio has also been recording average growths of close to 50% y-o-y since 2013.

Its consumer market share is still shy of 3%. AFG accounts for 2.7% of the entire loan market in Malaysia. — TA Securities, Dec 15

This article first appeared in The Edge Financial Daily, on December 16, 2014.

IJM appointed main contractor for WCE

IJM Corp Bhd
(Dec 15, RM6.42)
Upgrade to “buy” with an unchanged target price of RM7.20. The IJM Construction Sdn Bhd (IJMC)-Kumpulan Europlus Bhd (KEB) joint venture (JV) recently accepted the letter of award (LoA) from West Coast Expressway Sdn Bhd, appointing the JV the engineering, procurement and construction contractor to undertake and complete the construction works for the West Coast Expressway (WCE) from Taiping to Banting for a fixed sum not exceeding RM5 billion.

Pursuant to the LoA, the JV shall award to IJMC the WCE construction works for packages 3,4,5,8 and 9 at a cost not exceeding RM2.83 billion.

The construction period is five years. We are not surprised with the JV appointment as a main contractor as it was announced by KEB that the government had given the nod for the appointment in May this year.

We opine the above appointment could lead to an open tender stage for the remaining RM2.2 billion packages of the WCE project in the coming weeks and the contract award stage in the following months. We do not rule out the possibility of IJM Corp participating in the other work packages. Winning the other work packages could provide an earnings surprise for IJM Corp in terms of higher construction job replenishment and more demand for its industry products.

We make no changes to our earnings forecasts. Going forward, we expect to hear more positive news flow on the WCE development. On its recent share price weakness, we upgrade IJM Corp to “buy” with an unchanged target price of RM7.20. We advise investors to take opportunity to accumulate this stock. — MIDF Research, Dec 15

This article first appeared in The Edge Financial Daily, on December 16, 2014.

Kossan continues landbanking activities

Kossan Rubber Industries Bhd
(Dec 15, RM4.60)
Maintain “buy” with unchanged target price of RM5.05. Kossan announced last Friday the acquisition of a 13.3 acre (5.38ha) piece of freehold industrial land at Mukim Kapar in Klang, Selangor, for a cash consideration of RM39 million.

The purchase consideration implies a price tag of RM68 per sq ft. This is 40% higher than the price it previously paid for 9.3 acres of industrial land located close by in late 2013.

The acquisition will be funded via internally generated funds and/or bank borrowings, and is expected to be completed by the first quarter of financial year 2015 ending December 2015 (1QFY15).

Funding should not be an issue given the group’s low gearing level of 0.1 times as at end-3QFY14.

We understand the land is located near its existing plants. As such, we believe the site is well connected to necessary infrastructure for glove manufacturing, including natural gas supply. This should reduce the associated execution risks in the construction of new plants.

Management plans to develop this land after it completes the construction of two plants at the adjacent 15-acre site in 2016.

We are positive on this acquisition as it will help the group to achieve its long-term growth plan. Including this site, Kossan has 95 acres of vacant land available to drive its expansion plans.

Management guided that it could put up a warehouse and two plants with total annual capacity of 3.8 billion to  four billion gloves. This represents 18% to 19% of the group’s estimated production capacity at end-2015.
We maintain our “buy” rating on Kossan with an unchanged RM5.05 target price, based on 18 times FY15 earnings per share. We are keeping our earnings forecast unchanged, pending further details on the development plans for the land. — Alliance DBS Research, Dec 15

This article first appeared in The Edge Financial Daily, on December 16, 2014.

Perwaja Steel to undertake retrenchment exercise

PETALING JAYA: Perwaja Holdings Bhd has came out to clarify that its its wholly-owned subsidiary, Perwaja Steel Sdn Bhd (PSSB) has in fact ceased all material operations since August 2013 when its dry gas and electricity supplies were curtailed.

"Given the cessation of operations, PSSB intends to undertake a company-wide retrenchment programme for its employees," it told Bursa Malaysia yesterday.

To date, it said that PSSB has about 1,000 employees under its employment.
"All the employees have been informed on the Proposed Retrenchment Programme, and PSSB is currently undertaking a consultation process with the employees via their appointed representatives."
Perwaja said the financial impact of the proposed retrenchment programme can only be determined once the plan is finalised.

RHB Research upgrades aviation sector to Overweight, top pick AirAsia

KUALA LUMPUR (Dec 16): RHB Research has upgraded the aviation sector to “Overweight” from Neutral and said the slump in oil prices would benefit the aviation sector.

In a note Tuesday, the research house said while it does not see demand growing strongly, sector earnings will be underpinned by yield recovery, with an additional positive impact from lower jet fuel prices.
“As such, we upgrade the sector to Overweight from Neutral.

“AirAsia Bhd is our Top Pick for the Malaysian aviation sector. AirAsia X Bhd remains a Sell as losses will continue into FY15,” it said.

At 10am, AirAsia rose 0.36% or one sent to RM2.81 with 1.37 million shares done while AirAsia X fell 0.73% or half a sen to 68 sen with 969,300 shares traded.

CIMB Research maintains Hold on KLCC Property, target price RM6.90

KUALA LUMPUR (Dec 16): CIMB Research has maintained its “Hold” rating on KLCC Property Holdings Bhd at RM6.50 with an unchanged target price of RM6.90 and said that in the current market conditions, REITs could provide a safe haven for capital preservation given its stable dividend yields.

In a note Tuesday, the research house said during its recent tour of some of KLCCP's assets, it was pleasantly surprised that Menara ExxonMobil still looked relatively new despite being almost 18 years old.

“This gives us confidence that it will not face issues extending its tenancy when it expires in 2017. We were also impressed by Menara 3, which was more recently built (in 2011) and houses Petronas's offices and other O&G companies.

“While the offices were impressive, we understand that KLCCP's acquisition pipeline remain scarce in the next 1-2 years.

“We maintain our Hold call and DDM-based target price of RM6.90. For exposure to M-REITs, we prefer Axis REIT,” it said.

The edge: Hibiscus’ shareholders raised interest, says MD

KUALA LUMPUR: Key shareholders of junior oil and gas exploration company Hibiscus Petroleum Bhd have increased their shareholding since its initial public offering (IPO) in 2011, said managing director Dr Kenneth Pereira.

Pereira, in a written response to a story published by The Edge this week, noted that Hibiscus’ top nine shareholders have been raising their interest in the company since its listing to 67% currently.

According to data presented by Pereira and collected from Bloomberg, as of yesterday, through Hibiscus Upstream Sdn Bhd, the company’s management team held an 18.75% interest in Hibiscus. Its shareholdings rose from an initial 83.61 million shares post-IPO to 167.22 million shares currently.

Several other shareholders in the private oilfield services sector and an investor in technology companies have also accumulated their shareholdings in Hibiscus after its listing in 2011. According to Bloomberg, current substantial shareholders of Hibiscus include Mercury Pacific Marine Pte Ltd (8.17%), Littleton Holdings Pte Lte (5.99%) and Chye Tek Lee (5.06%), among others. Note that Chye is the group chief executive officer and managing director of Singapore-listed Ezra Holdings Limited and also non-executive chairman of EMAS Offshore Limited.

Yesterday, Hibiscus announced to Bursa Malaysia that Datuk Sri Muhammad Syafiq Baljit Abdullah increased his shareholding to 12.78% by acquiring 4.12 million shares from three transactions between Dec 8 and 12, making him the company’s second-largest shareholder. Hibiscus shares shed 6.32% yesterday to close at 89 sen a share, translating into a market capitalisation of RM793.6 million. Year-to-date, the stock has fallen 49.17%.

The story in The Edge highlighted accumulating losses at Hibiscus which may have contributed to the stock’s recent poor performance.

“It is well known and widely reported that the share prices of oil and gas companies have been adversely affected by the slide in oil prices, both in Malaysia and worldwide. We do not understand the grounds for stating that the share price decline is due to accumulating losses when other oil and gas companies are also suffering from price declines,” said Pereira.

He also noted that Hibiscus’ share price has been resilient, substantiated by the fact that even with a 99.6% warrant conversion rate in July 2014, the company’s market capitalisation has been reasonably stable.
Meanwhile, Pereira also emphasised that Hibiscus had drilled two wells from November 2013 to February 2014, culminating in the first offshore discovery in the east of Oman after almost 40 years of exploration in the region by several other companies.

“Our 50% success rate in exploration drilling is significantly higher than the global average, where approximately one out of seven wells are successful,” said Pereira.

This article first appeared in The Edge Financial Daily, on December 16, 2014.