Stocks to watch: Gamuda, Syarikat Takaful, Bintai Kinden, WCT

KUALA LUMPUR (March 29) : While trading momentum in the Malaysian stock market has improved, analysts said cautious sentiment ahead of the country’s general election could prompt traders to safeguard their profits against the backdrop of challenging external macro dynamics.

Apart from less optimistic sentiment on economic growth prospects in the US and China, analysts also foresee the return of inflation as a key theme in financial markets, spurred by rising crude oil prices.

“We remain neutral on Malaysia. On the positive side, we currently do not expect its rates to increase, and we like the defensiveness of the market, with about one-third of its total market cap in defensive sectors, such as telecoms and utilities.

“National elections are likely to add to market volatility as well, although we expect the event to be market-neutral,” HSBC Global Research wrote in a note.

The FBM KLCI of 30 stocks erased earlier gains to finish 4.35 points lower at 1,583.75 points on Wednesday.

Stocks to watch on Thursday include GAMUDA BHD [], SYARIKAT TAKAFUL MALAYSIA BHD [], Bintai Kinden Corp Bhd and WCT BHD []. Other companies which could attract interest are NEXTNATION COMMUNICATION BHD [] and ENG TEKNOLOGI HOLDINGS BHD [].

Infrastructure-based Gamuda’s earnings rose 45.1% to RM136.47 million in the second quarter ended Jan 31, 2012 compared with RM94.02 million a year ago.

For the first half, earnings increased by 47.2% to RM268.79 million from RM182.55 million in the previous corresponding period.

Syarikat Takaful’s share price rose 5% or 15 sen to close at RM3.05 after CIMB Equities Research said the Islamic insurance firm should trade higher at RM4.60 in anticipation of its growth potential.

Bintai Kinden and joint venture partner Samsung C&T Corp have clinched S$166.24 million (about RM405 million ) worth of projects from Singapore’s Land Transport & Authority.

The jobs include the supply and installation of electrical services apart from tunnel ventilation and environmental control systems

Singapore-based Oversea-Chinese Banking Corp Ltd has emerged as a substantial shareholder in CONSTRUCTION [] firm WCT Bhd after acquiring a 5.01% stake in the builder.

Nextnation plans to raise up to RM15.49 million under a private placement of 137.21 million new shares to finance the telecommunication software developer’s commercial land acquisition, and capital needs. Trading of Nextnation shares were suspended from 2.30pm to 5pm on Wednesday.

The board of Eng Teknologi has accepted the revised takeover offer of RM2 a share by the founders and major shareholders of the hard disk drive component manufacturer.

SYF RESOURCES BHD [] swung into the black with net profit of RM3.22 million in the second quarter ended Jan 31, 2012 compared with net losses of RM431,000 a year ago due to higher sales with lower raw material costs.

For the first half ended Jan 31, 2012, it posted net profit of RM42.46 million compared with net loss of RM1.01 million in the previous corresponding period.



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Eng Teknologi board accepts revised takeover offer, to seek shareholders’ consent

KUALA LUMPUR (March 28) :The board of ENG TEKNOLOGI HOLDINGS BHD [] has accepted the revised takeover offer of RM2 a share by the founders and major shareholders of the hard disk drive component manufacturer.

In a statement to the exchange on Wednesday, Eng Teknologi said its directors will seek the company’s shareholders’ consent on the revised offer at an extraordinary general meeting.

Founders of Eng Teknologi Datuk Teh Yong Khoon, and Low Yeow Siang via private vehicle TYK Capital Sdn Bhd, have proposed to lower the offer price to RM2 from RM2.50 as their financiers were unable to justify the funding of the takeover at RM2.50, according to Eng Teknologi.

OSK Investment Bank Bhd is the independent adviser for the exercise.



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Stocks to watch : Mega First , Metronic Global , Public Bank, Eng Teknologi

KUALA LUMPUR (March 19) : Malaysian stocks could take the cue from more external news flow on Tuesday as investors weigh the prospects of a recovering US economy against less optimistic updates in China.

The spotlight this week will be directed at the US housing market data, deemed a crucial indicator of the health of the world’s largest economy. Investors are also taking note of China-based banks which are due to report their quarterly earnings.

On Monday, the FBM KLCI rose 0.14% or 2.2 points to finish at 1,573.6.

Stocks to watch on Tuesday include Mega First Corp Bhd and its 60.43% subsidiary ROCK CHEMICAL INDUSTRIES (M) [] Bhd, besides KOBAY TECHNOLOGY [] BHD [] and its 53.16% subsidiary Lipo Corp Bhd.

Heavily-traded METRONIC GLOBAL BHD [] and its 17%-owned unit Ariantec Global Bhd are also worth noting. Other stocks to watch include PUBLIC BANK BHD [], and ENG TEKNOLOGI HOLDINGS BHD [].

Mega First, a power plant builder and property developer , has served a takeover notice on Rock Chemical, a building materials entity, to acquire the remaining shares it does not own at RM2.10 each.

Mega First shares rose two sen to close at RM1.72 on Monday while Rock Chemical was up 31 sen to RM2.06 after both stocks resumed trading at 2.30pm.

Trading of shares in industrial component manufacturers Kobay and Lipo has been suspended since 3.05 pm on Monday, pending an announcement. Kobay was last traded on Friday at 79 sen while Lipo was last transacted at RM1.04 on Monday.

Metronic said it was informed by its managing director Dr Ng Tek Che that he was approached by parties who are keen to acquire his 5.23% stake in the firm.

Metronic,which specialises in system integration of intelligent building management and integrated security management systems, saw its shares rose 0.5 sen to 13 sen with about 177 million shares changing hands on Monday.

Ariantec, which offers information technology services, rose four sen to 13.5 sen with some 235 million shares done.

Public Bank is expected to maintain its 50% dividend payout ratio, chief operating officer Leong Kok Nyem said at the group’s AGM. Public Bank shares rose four sen to close at RM13.64.

The founders and major shareholders of Eng Teknologi who are in the midst of privatising the hard disk drive maker said the takeover offer price has been revised downwards from RM2.50 to RM2. Eng Teknologi shares closed unchanged at RM1.77.



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Offer price for Eng Teknologi revised lower

KUALA LUMPUR (March 19 : The founders and major shareholders of ENG TEKNOLOGI HOLDINGS BHD [] who are in the midst of privatising the hard disk drive component maker, said the takeover offer price has been revised downwards from RM2.50 to RM2.

In a statement to the exchange on Monday, Eng Teknologi said its founders Datuk Teh Yong Khoon and Low Yeow Siang via private vehicle TYK Capital Sdn Bhd, has proposed to lower the offer price as their financiers were unable to justify the funding for the takeover at RM2.50.

The financiers were unable to justify the funding after taking into account Eng Teknologi’s financials considering that its business was affected by the floods in Thailand, according to the company.

Eng Teknologi said it will deliberate on TYK’s revised offer. Shares of Eng Teknologi closed unchanged at RM1.77 on Monday.



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PNB, LTH decision crucial over Engtek privatisation offer

KUALA LUMPUR (March 9): Pemodalan Nasional Bhd (PNB) and Lembaga Tabung Haji (LTH), which hold a combined 23% stake in Eng Teknologi Bhd (Engtek), will be the deciding factors in the privatisation of the hard-disk drive components manufacturer.

According to OSK Research’s estimates, both PNB and LTH, have held the Engtek stake since 2000 and their average cost per share was between RM1.40 and RM1.80.

“Assuming that the offer price is now RM2 a share, there is an upside of 10%-45% compared to 35%-75% based on the previous offer of RM2.50 a share,” it said on Friday.

However, OSK Research also pointed out that any offer price below RM2 a share could discourage PNB and LTH from participating in the proposed privatisation.

On Thursday, Eng Tek announced that TYK Capital was still negotiating with its financiers to fund the privatisation of the company.

OSK Research said it had come to understand that the offer price would likely be adjusted to a value not exceeding RM2.00 a share, instead of the earlier proposed RM2.50 a share made prior to the severe floods in Thailand late 2011. However, this would hinge on the outcome of the due diligence exercise scheduled to be completed by March 19.

The research house also said there was still a high chance that PNB and LTH would give their consent, especially with the hard-disk drive segment now facing long-term headwinds.

The factors affecting the HDD market were the proliferation of smartphones and tablets which has sapped the demand for PCs, and the slow but steady transition to solid state drives (SSD) as the primary medium of storage.

OSK Research said it was not making any changes to its fair value of RM1.52 on Engtek, based on 0.9 times FY12 price-to-net tangible asset, but it was downgrading its recommendation from Neutral to Sell due to the fluidity of the situation.

“We advise investors to cash out from Engtek as we see better trading opportunities for both Notion (Trading Buy, FV: RM2.43) and JCY International (Trading Buy, FV: RM1.80) which have a better product mix and economies of scale respectively.

“Moreover, the potential new offer price of RM2 for Engtek would only provide a rather limited upside potential of 12% from the current market price. Being a HDD component maker that is severely affected by the Thai floods, Engtek’s short- to long-term outlook is undoubtedly murky,” it said.



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Stocks to watch: Pantech, MISC, EngTek, Johore Tin, MAHB

KUALA LUMPUR (March 9): Malaysian stocks could take the cue from positive sentiment across global markets on Friday as investors pinned their hopes that Greece’s sovereign debt woes will be contained. Markets could also find support from the anticipation of better employment numbers in the US.

Private holders of Greek government bonds have until Thursday night (March 8) to voluntarily swap their bonds for new ones. The swap is vital to help Greece to obtain bailout funds, without which the country may default on its debt obligations this month.

Reuters reported that as of Wednesday, major banks and pension funds, accounting some 40% of Greece's outstanding bonds, has participated the in the swap, raising hopes that the country could avert a default. US policymakers are expected to announce on Friday, a rise of 210,000 jobs in the country’s non-farm payrolls. This could boost sentiment among Asian exporting nations.

Japan stole the limelight on Thursday when it announced that its gross domestic product contracted by an annualized 0.4%, less than the 2.3% contraction estimated earlier.

Key regional markets racked up gains of up to more than 2% on Thursday, as investors’ sentiment was boosted by hopes that Greece could avert a default and positive news on the US economy.

However, the FBM KLCI lagged the regional markets and managed to close up only 3.53 points or 0.22% to 1,578.36, after falling 15.08 points – the worst loss for this year – on Wednesday

Stocks to watch on Friday include PANTECH GROUP HOLDINGS BHD [], MISC BHD [], ENG TEKNOLOGI HOLDINGS BHD [], JOHORE TIN BHD [], and Malaysia Airports Holdings Bhd (MAHB)

Pantech, a pipes, fittings and flow controls solutions provider, has acquired the entire stake in UK-based Nautic Steels (Holdings) Ltd for GBP9.5 million or RM45.46 million. Pantech said on Thursday the acquisition will help the company expand its geographical presence and product range. Pantech shares rose 1.5 sen to close at 54 sen.

Moody's Investors Service had on Thursday downgraded credit ratings of MISC Bhd to Baa2 from Baa1. The outlook on the ratings remains negative. According to Moody’s, the downgrade reflects MISC’s weaker earnings amid excess capacity which could stifle the shipping firm’s profitability.

Moody’s is also mindful of MISC’s substantial capital needs requiring additional debt funding, which will lead to higher debt leverage and negative cash flow in the short to medium term. MISC shares closed five sen down to RM5.32

Meanwhile, founders and major shareholders of Eng Teknologi Holdings Bhd who are in the midst of privatising the hard disk drive component maker, say they are still in talks with financiers on the funding dynamics for the acquisition, and that the outcome could result in a lower offer price for the proposed takeover. Eng Teknologi finished at RM1.78, down one sen.

Meanwhile, OSK Research said Johore Tin shares are trading at attractive valuations with a low market capitalisation of RM75.6 million, hence, the possibility of the company being an acquisition target. OSK maintained its buy call for Johore Tin with a fair value of RM1.51. Johore Tin added six sen to RM1.14.

Malaysia Airports Holdings Bhd (MAHB) has fixed the price of its recently announced private placement of up to110 million new shares at RM5.60. This translates into gross proceeds of RM616 million, MAHB said MAHB shares declined three sen to RM5.62.



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Flash: Founders : Offer price for Eng Teknologi could be revised lower

KUALA LUMPUR (March 8): The founders and major shareholders of ENG TEKNOLOGI HOLDINGS BHD [] who are in the midst of privatising the hard disk drive component maker, say they are still in talks financiers on the funding dynamics for the acquisition, and that the outcome could result in a lower offer price for the proposed takeover.

In a statement to Bursa Malaysia on Thursday, Eng Teknologi said its founders Datuk Teh Yong Khoon and Low Yeow Siang via private vehicle TYK Capital Sdn Bhd, had indicated that should the funding arrangements with lenders be finalised, the terms “will very likely” include an adjustment to the original offer price of RM2.50 a share. According to TYK, the final offer price could be adjusted to a level not exceeding RM2 a share.

“The board has not deliberated on the letter from TYK Capital and wishes to caution shareholders that pending the satisfaction of all conditions precedent in the SBA (sale of business agreement), the proposed disposal cannot be completed.

“Shareholders should be fully aware of the risks and rewards of investing in Eng Teknologi shares, particularly in the light of the letter from TYK Capital,” Eng Teknologi said.

TYK had served a takeover notice in July 2011 to acquire the business, assets and liabilities of Eng Teknologi. Cash proceeds from the disposal of the company’s undertakings to its founders will be distributed to entitled shareholders of Eng Teknologi.

Eng Tek’s share price was at RM1.77 at midday on Thursday.



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Eng Tek slides on Q4 net loss

Eng Teknologi Holdings Bhd, an electronic-components maker, slid 2.9 percent to RM1.68 in Kuala Lumpur trading at 9.29am, the most since Nov. 30.

Eng reported fourth-quarter net loss of RM53.8 million, compared with a profit of RM9.3 million a year earlier, according to a company statement. -- Bloomberg



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Market cautious in early trade

KUALA LUMPUR (Feb 22): Blue chips edged lower in early trade on Wednesday as the rally seemed to have run out of steam with PLANTATION []s among the major decliners as investors took profit.

At 9.08am, the FBM KLCI fell 1.28 points to 1,562.50. Turnover was 124.26 million shares valued at RM40.44 million. There were 112 gainers, 90 losers and 154 stocks unchanged.

CIMB Research said in its market outlook that the rebound from Friday continues to be weak as the internal sports weakness. There are more losers compared to gainers in the past week suggesting that the rally is running out of steam.

The research house said the KLCI is still below the key resistance band of 1,560-1,565, where sellers have been strong.

“We continue to wait for a close below the 1,550 levels to confirm that the trend has reversed. For now, expect more sideways movement as the bullish momentum from the September lows grinds to a halt.

“A close below the 1,550 levels would likely send the index back towards 1,530 and 1,500 next,” said CIMB Research.

Among the decliners were plantations, with Harrisons down 26 sen to RM3.44, PPB 24 sen to RM17.40, Genting Plantations 23 sen to RM9.17 and IJM Plantations seven sen to RM3.28.

Eng Tek fell six sen to RM1.67 and Unisem five sen to RM1.42 on losses in the October-December quarter following the severe Thai floods last year.

Other decliners were Perwaja, down 14.5 sen to 76.5 sen, Petronas Dagangan 14 sen to RM17.96 and Lafarge Cement nine sen to RM7.15.



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Stocks to watch: AFG, Maybank, Tradewinds Plant, KrisAssets

KUALA LUMPUR (Feb 22): With the corporate results season for the October-December in full swing until Feb 29, they will provide the leads for investors.

So far the banks and PLANTATION []s have been reporting firm set of earnings, based on the recent results, though there had been some writebacks.

Among the stocks to watch are ALLIANCE FINANCIAL GROUP BHD [] (AFG), MALAYAN BANKING BHD [], Tradewinds Plantations Bhd and TH PLANTATIONS BHD [].

Also in focus could be QL RESOURCES BHD [], KRISASSETS HOLDINGS BHD [], Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE), Malaysia Airports Holdings Bhd (MAHB), TEBRAU TEGUH BHD [] and ENG TEKNOLOGI HOLDINGS BHD [].

AFG posted net profit of RM121.29 million in the third quarter ended Dec 31, 2011, up 9% from the RM111.26 million, underpinned by growth in interest income due to the expansion in loans.

Its revenue increased by 9.2% to RM311.43 million from RM284.98 million. Earnings per share were 7.90 sen compared with 7.30 sen.

AFG said for the nine months ended Dec 31, 2011, the earnings rose 14.6% to RM371.80 million from RM324.27 million while it recorded a 9% increase in revenue of RM935.80 million from RM858.18 million.

Maybank has proposed to establish a subordinated programme of up to RM7 billion in nominal value. The net proceeds from the issuance of the subordinated notes will be utilised to fund Maybank’s working capital, general banking and other corporate purposes.

Tradewinds Plantations’ earnings increased 17.5% to RM97.75 million in the fourth quarter ended Dec 31, 2011 from RM83.33 million a year ago, boosted by an increase in its palm products production.

Its revenue soared 174% to RM804.23 million from RM293.45 million.

For the year ended Dec 31, 2011, its net profit increased 79.9% to RM335.46 million from RM186.40 million. Revenue rose 86.8% to RM1.70 billion from RM909.13 million.

TH Plantations recorded a 11.3% fall in profits to RM37.71 million in the fourth quarter ended Dec 31, 2011 from RM42.52 million a year ago, due to maintenance carried out during the quarter.

Its revenue increased by 1.99% to RM130.09 million from RM128.53 million. It proposed dividend per share of 12.50 sen.

For the year ended Dec 31, 2011, net profit increased 39.5% to RM124.83 million from RM89.48 million. Revenue rose 18.8% to RM434.86 million to RM365.97 million.

QL Resources' net profit increased by 3.8% to RM34.42 million in the fourth quarter ended Dec 31, 2011 from RM33.14 million a year ago, due to increased sales in its marine product manufacturing arm, palm oil activities and livestock farming. Its revenue increased 10.6% to RM498.96 million from RM450.95 million a year ago.

KrisAssets said the market value of its two malls -- Mid Valley Megamall and The Gardens Mall in Kuala Lumpur – have been revalued at RM3.290 billion as at Dec 31, 2011. It said this was RM470 million above the valuation as at Sept 30 of RM2.82 billion.

MMHE’s earnings fell 65.4% to RM46.35 million in the third quarter ended Dec 31, 2011 from RM134.15 million a year ago. Its revenue declined 45.6% to RM716.15 million from RM1.316 billion a year ago.

For the nine months, its earnings fell 36.1% to RM205.60 million from RM322.11 million in the previous corresponding period. Its revenue declined 39.1% to RM2.137 billion from RM3.512 billion.

MAHB’s earnings were just up 0.8% to RM122.88 million in the fourth quarter ended Dec 31, 2011 from RM121.91 million a year ago. Its revenue increased by 2% to RM837.38 million from RM820.60 million.

For the financial year ended Dec 31, 2011, its earnings rose 26.6% to RM401.11 million from RM316.78 million. Its revenue increased 11.6% to RM2.754 billion from RM2.468 billion.

Tebrau Teguh reported net losses of RM1.13 million for the fourth quarter ended Dec 31, 2011 due to higher operating expenses. It was also in the red with net loss of RM212,000 a year ago.

For FY11, it was still profitable, with net profit of RM2.58 million, down by 29% from RM3.63 million in FY10. Revenue fell 37.3% to RM113.41 million from RM180.97 million.

Eng Teknologi was in the red for the fourth quarter ended Dec 31, 2011 and for the financial year with net losses of RM51.81 million, and RM42.90 million. The manufacturer of components for hard disk drives said it wasimpacted by the severe floods in Thailand last year.



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Interest may return to HDD component makers

KUALA LUMPUR: Investing interest may return to smaller hard disk drive (HDD) component makers after recent earnings results from JCY International Bhd, as well as Western Digital Corp and Seagate Technology in the US topped analysts’ expectations, implying a more positive outlook on the sector.

Ironically, the devastating floods in Thailand which disrupted the global supply chain of HDDs have created an opportunity for the industry. From excess inventory and falling prices amid keen competition from existing players and the threat of solid state drives (SSD), the HDD industry is now witnessing supply shortages and higher prices. Companies like Dufu Technology Corp Bhd, Eng Teknologi Holdings Bhd (EngTek) and Notion VTec Bhd, which supply smaller HDD components that benefited less after the Thai floods, may see investor interest return as the outlook on the sector improves. However, analysts also note that they are unlikely to see a large increase in profit on a scale similar to JCY.

JCY reported a 20-fold increase in net profit to RM162.45 million for 1QFY12 ended Dec 31, from RM7.5 million a year earlier. Revenue also grew 27% to RM559.04 million from RM438.9 million. Its share price has risen 18% year-to-date (YTD).

Apart from the Thai floods which inundated the factories of other competitors, JCY finance director James Wong cited internal measures to increase output and reduce costs as a contributor to its performance.

“If the floods did not happen, I think we could have recorded 50% of our net profit for the quarter due to our internal efficient cost measures,” Wong told The Edge Financial Daily.

Industry observers attributed JCY’s commendable performance to its ability to capitalise on the supply chain disruption which saw demand for two of the larger HDD component parts — base plates and actuators — spike as their manufacturers in Thailand were flooded.

JCY, which supplies to Seagate and Western Digital, was able to secure contracts for these larger components at relatively high prices.

Be that as it may, positive earnings announcements at the end of last month by Seagate and Western Digital, which reported “substantial progress” in the recovery from the flooding, suggest the outlook for the industry is improving.

Seagate’s share price has risen 62% and Western Digital’s 26% YTD. Unlike Western Digital, Seagate was not directly affected by the floods and saw its profit surge as HDD prices increased. Seagate managed to quadruple its net profit to US$563 million (RM1.7 billion) for the quarter ended Dec 30, 2011 on the back of increased revenue of US$3.2 billion. Although hit by the floods, Western Digital’s earnings fell but were still better than expected.

In a statement on Jan 23, Western Digital president and CEO John Coyne said supply remained significantly constrained, adding that this will persist throughout 2012 with improvement during the year.

EngTek, Notion VTec and Dufu will announce earnings results in the next few weeks. Notion will announce its results on Feb 20, while EngTek traditionally releases its results in the third week of February and Dufu the fourth. YTD, Notion’s shares are up 15%, while Dufu has risen 4.5% and Engtek 8.2%.

In an announcement to Bursa Malaysia last Friday, Notion VTec updated its progress on the cleaning up of its Ayutthaya, Thailand, plant and indicated confidence in its prospects for the year.

“The Group’s business outlook has turned for the better with a strong recovery in January 2012 sales to much higher than pre-flood levels. The trend is expected to be upwards for the remainder of the financial year ending Sept 30 and beyond, as the HDD segment is expected to be in short supply until mid-2013 due to a backlog of orders,” it said.

“The average selling price of HDD is expected to remain above pre-flood levels for multi-quarters ahead,” Notion said.

“With the entrance of three new major Japanese customers in the HDD segment and the ramp-up in HDD component sales, we expect FY2012’s revenue to grow in strong double digits over FY11. The sustainability of this new business is expected to be good as the customers’ commitment is assumed to be long term,” it added.

The group expects camera orders to remain robust from this month as the camera segment is expected to be en route to full pre-flood operations by March, while its auto and industrial segment remains stable.


This article appeared in The Edge Financial Daily, February 15, 2012.



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Should PNB be made to divest assets to a few?

Since Permodalan Nasional Bhd (PNB) has been successful in asset management and has over the years delivered handsome returns to its account holders that are majority bumiputera investors, it raises a question now why it should be made to divest five of its non-core holdings to just a few bumiputera companies.

Prime Minister Datuk Seri Najib Razak announced last Thursday that Khazanah Nasional Bhd and PNB would each divest five of their non-core holdings/companies to bumiputera companies through open tender. According to Najib, the 10 companies have been identified.

“In the case of Khazanah, the intention could be to allow qualified bumiputera entrepreneurs to help grow some of the companies, especially if they are non-core ones. But questions arise why PNB should be made to divest its holdings when it has brought good returns to its investees who are majority bumiputera. Its annual dividends have been higher than other local funds and the companies it invests in are professionally managed,” said an industry observer.

He added that PNB has a stated bumiputera agenda since its inception. Hence, he said it would make more sense to keep those so-called non-core holdings within PNB to benefit the wider bumiputera community, rather than divesting them to a few bumiputera companies. He maintained that ideally, any such decision on asset disposal should be driven by market forces.

“With PNB, the fruit of the assets are enjoyed by a larger bumiputera community which are millions of account holders. But now the government wants them to off-load some of their non-core holdings to just a few bumiputera companies. This doesn’t really increase the overall levels of bumiputera ownership, but transfers ownership from a lot to a few,” said the observer.

“PNB has been a very astute investor and has done well in raising returns for its stakeholders,” he said.

He hoped that PNB would be able to get the best price for its five non-core companies, and that the fund ensures potential buyers have synergies with those companies.

PNB is an entity under the government’s New Economic Policy (NEP) which was conceived after the 1969 race riots to promote national unity through equal wealth distribution.

Incorporated in 1978, PNB’s aims are to promote bumiputera share ownership in the corporate sector, and to develop opportunities for suitable bumiputera professionals to participate in the creation and management of wealth.

PNB set up its wholly-owned subsidiary Amanah Saham Nasional Bhd (ASNB) in 1979, which operates as a vehicle to accumulate funds through its first unit trust fund Amanah Saham Nasional (ASN), launched in 1981.

It now has 10 unit trust funds with 79 billion units in circulation and nine million bumiputera and non-bumiputera account holders.

It is worth noting that PNB is sitting on assets of over RM120 billion (based on 2010 numbers). On average, its investments have yielded at least 8.5% in terms of annual returns to unitholders for the past five years.

In comparison, the Employees Provident Fund (EPF) provided returns to unitholders of less than 6%, Lembaga Tabung Haji 4.5% to 7% and Lembaga Angkatan Tentera (LTAT) between 15% and 16% over the same period.

In December last year, ASNB announced an income distribution of 7.65 sen per unit and a bonus of 1.15 sen per unit for Skim Amanah Saham Bumiputera (ASB) for FY11 ended Dec 31.

The income distribution is 0.15 sen higher than the 7.5 sen a unit paid out in 2010. The income distribution involved a total payout of RM7.04 billion, an increase of 21% over the RM5.82 billion paid out in 2010. The bonus involved a total payout of RM628.29 million.

Up until Dec 15, 2011, ASB recorded a gross income of RM7.19 billion. Dividend income from investee companies contributed RM4.09 billion or 56.9% of the gross income. Profit from the sale of shares made up RM2.25 billion or 31.3% with the rest derived from investments in short-term instruments and others.

Among the bigger companies PNB has invested in are Sime Darby Bhd in which it owns a 48.14% stake valued at around RM28 billion.

One of the smaller companies where PNB has a large stake is Bonia Corp Bhd. The fund holds a 32.99% stake in the leather goods company.

PNB’s largest and highest dividend-yielding investment is Malayan Banking Bhd. The fund, via ASB and PNB directly, owns about 51.4% of the country’s biggest bank.

It also owns 46.42% in UMW Holdings Bhd, which in turn controls Perusahaan Otomobil Kedua Sdn Bhd (Perodua).

PNB also invests in little known companies such as Formosa Prosonic Industries Bhd, which makes high quality speakers. It has a 22.4% stake in Formosa.

Other companies in PNB’s portfolio include Mesiniaga Bhd, Malaysian Building Society Bhd, Eng Teknologi Holdings Bhd and property developer S P Setia Bhd, for which it recently launched a revised takeover offer with the latter’s president and chief executive Tan Sri Liew Kee Sin.

PNB also has about 170 directors on the boards of 138 companies in which it has significant investments.


This article appeared in The Edge Financial Daily, February 13, 2012.



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Flood-induced higher margins may not be sustainable

KUALA LUMPUR: Some hard disk drive (HDD) component makers are receiving a boost after last year’s Thailand floods disrupted the HDD supply chain and resulted in a rise in the prices caused by a drop in production volume.

Certain players, notably JCY International Bhd, stand to benefit from a strong growth spurt in profitability in the near term, say industry observers. However, they reckon that this earnings boost may not last long.

Some industry players believe structural issues continue to plague the HDD industry. Against the backdrop of slowing demand and thin margins as a result of competition from solid state drives (SSD), plus an industry oversupply, the long-term prospects for the HDD industry have not improved much.

Investing interest in Dufu Technology Corp Bhd, Eng Teknologi Holdings Bhd (EngTek) and Notion VTec Bhd has increased, thanks to JCY’s recent announcement that it is likely to see an increase of 1,900% in profits for 1Q2012.

JCY cited higher selling prices as a result of the floods that have caused a supply shortage and the US dollar’s appreciation versus the ringgit. In addition, effective product mix and better cost management helped enhance its earnings.




“We and others in the industry saw an increase in average selling prices (ASP) of about 10% to 20% after the [Thai] floods,” its finance director James Wong told The Edge Financial Daily recently.

While JCY’s profit forecast raises hopes and stock prices of HDD-related companies, analysts warn that it may not hold true for all HDD component manufacturers.

They caution on the sustainability of high margins and profits when the supply chain shortages are rectified.

According to industry observers, JCY was able to capitalise well on the supply chain disruption as it saw increased demand for two of its products — base plates and actuators. These two are the larger parts in an HDD.

Production of these parts was severely disrupted because most of the manufacturers making such parts were located in Thailand, and they were inundated by floodwaters.

This turned out to be a blessing for JCY, whose production plants were not affected by the flood. Thus, JCY, which supplies mainly to Seagate Technology and Western Digital Corp, was able to secure contracts for these components at relatively high prices.

However, companies like Dufu, which produces smaller HDD components, benefited less as these parts saw a smaller increase in prices.

“For smaller parts such as pins, clamps and spacers, production is spread across Malaysia and Singapore. As being smaller, they are cheaper to ship to factories in Thailand,” said an analyst.

“The supply of these parts was not disrupted, unlike bigger parts like base plates and actuators, which are produced in Thailand to lower transport costs.”

While higher prices amid volume compression can only compensate for bigger margins for so long, the higher demand for SDD is seen as a threat to the longer term prospects of HDDs.

With HDD prices now sharply higher due to the shortage problems, it could exacerbate the problem as the price gap narrows between the two memory devices.

OSK Research said Western Digital and Seagate had used this opportunity to raise prices of their HDD products by 50% to 100%, while cutting down warranty periods.

Wong: We and others in the industry saw an increase in average selling prices of about 10% to 20% after the floods.

“We believe demand for HDDs could be hampered in the longer term by demand for alternative storage mechanisms, such as cloud computing and hybrid storage,” RHB Research said in a research note on the outlook for semiconductors.

Furthermore, according to MIDF Research’s Byte IT report, the development of cloud computing will result in mobile devices lighter than current smartphones or tablets, and these would be able to access large amounts of Internet data at any given time or place.

“Once cloud computing technology matures, tablets will replace personal computers as the main device for greater corporate productivity,” the report said, implying that the need for HDDs will decline as more SSD-based gadgets emerge in the market.

In the meantime, analysts are awaiting the release of the 4Q2011 results of the local HDD component players, due by end-February, to gauge the financial impact of the floods.

It will be interesting to see if the effects of higher margins due to parts shortages can outweigh the impact of lower volume sales.


This article appeared in The Edge Financial Daily, January 31, 2012.



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Semicon, HDD-related counters advance on positive outlook for sector

KUALA LUMPUR (Jan 25): Shares of semiconductor and hard disk drive-related counters advanced on Wednesday as investors appeared confident of a more positive outlook for the semiconductor sector.

At 12 noon, MALAYSIAN PACIFIC INDUSTRIES [] jumped 31 sen to RM3.59, UNISEM (M) BHD [] gained nine sen to RM1.44, JCY International added five sen to RM1.19 while Eng Teknologi rose three sen to RM1.73.

RHB Research Institute last week upgraded Unisem and MPI to market perform from underperform following the upbeat outlook from major players about the semiconductor industry.

It raised the fair value (FV) for Unisem to RM1.22, MPI’s FV to RM2.79 while Notion VTec’s FV was raised to RM1.69 (underperform outlook unchanged).

RHB Research said US based IC design company Linear TECHNOLOGY [] gave an upbeat outlook for the industry.

This would be the third positive guidance after Broadcom and ChipMOS, and indicates a more positive tone for the industry after a parade of negative guidance last month.

“We have already factored in a weak 1Q12 for local packaging players, as there is still lack of order visibility, but we believe the industry may be on track for some recovery in 2Q12, and stronger recovery in 2H12.

“We believe the demand weakness for chips has already been priced in. Thus, we are raising our benchmark forward target P/BV from 0.6 times to 0.8 times for the semiconductor players. We upgrade Unisem and MPI to Market Perform (from underperform),” said RHB Research.



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CIMB Research has technical buy on Eng Tek at RM1.69

KUALA LUMPUR (Jan 9): CIMB Equities Research has a technical buy on ENG TEKNOLOGI HOLDINGS BHD [] at RM1.69 at which it is trading at a price-to-book value of 0.7 times.

It said on Monday EngTek broke out of its consolidation pattern last Friday and it believes this is a prelude to more upside ahead.

“If we are right, the next upswing is likely to push prices towards RM1.79 and RM1.89. The 200-day SMA is also a magnet for prices,” it said.

CIMB Research said the bullish divergence on its MACD signal line suggests that buying momentum has picked up. RSI too has hooked upward.

“Buy on weakness looks like a good option here. However, always place a stop at below RM1.61-RM1.55 to limit downside risk,” it said.



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Stocks to watch: Muhibbah, Perisai Petroleum, MRCB, HELP, technology-related stocks

KUALA LUMPUR (Dec 22): Trading on Bursa Malaysia on Friday ahead of the extended weekend is likely to be cautious, given the muted reaction of regional markets on Thursday following the take-up of nearly 490 billion euros from the European Central Bank at its first-ever offer of three-year loans on Wednesday.

Although the FBM KLCI closed higher on Thursday, the broader market remained weaker with losers edging gainers, a trend that will likely be repeated on Friday.

Among the stocks that could be in focus today are Muhibbah Engineering Bhd, PERISAI PETROLEUM TEKNOLOGI BHD, MALAYSIAN RESOURCES CORPORATION BHD, HELP INTERNATIONAL CORPORATION BHD and TECHNOLOGY-related stocks.

Muhibbah Engineering Bhd and its Australian joint venture partner Monadelphous Group Limited have landed a RM1.05 billion (AUD330 million) job to build an approach jetty and ship berth in Queensland.

Muhibbah said on Thursday that Monadelphous Muhibbah Marine JV (MMM) had secured the contract to build the jetty and ship berth associated with the Wiggins Island Coal Export Terminal Pty Ltd’s (WICET) Project at Gladstone in Queensland.

MMM is a 50:50 joint venture between Muhibbah CONSTRUCTION [] Pty Ltd, a wholly owned subsidiary of Muhibbah in Australia and Monadelphous Engineering Pty Ltd, a wholly owned subsidiary of Monadelphous Group Ltd.

Perisai expects contribution from its mobile offshore production unit (MOPU), which it acquired through Garuda Energy (L) Ltd to be realised by FY12.

Its managing director Zainol Izzet Ishak said on Thursday that the acquisition would be finalised by the end of this year and will start contributing to the group's bottom line from the first day of its operation as the group's asset.

MRCB’s unit MRCB Engineering Sdn Bhd was awarded a RM13.93 million contract to upgrade the Sabah Employees Provident Fund (EPF) building in Kota Kinabalu.

HELP’s net profit for the fourth quarter ended Oct 31, 2011 fell 44.6% to RM3.59 million from RM6.47 million a year earlier, due to new student recruitment affected by delays in obtaining licences and approvals for operations.

Revenue for the quarter rose to RM28.44 million from RM27.33 million in 2010.

HELP proposed a final gross dividend of two sen per share of 50 sen each, amounting to RM2.13 million for the financial year ending Oct 31, 2011.

For the financial year ended Oct 31, HELP’s net profit fell 31.6% to RM13.06 million from RM19.1 million in 2010, on the back of increased revenue of RM108.06 million from RM105.2 million a year earlier.

Meanwhile, OSK Investment Research on Thursday upgraded the technology sector to Neutral and said that better HDD pricing could help mitigate losses from the Thailand flood.

It said that against the backdrop of the massive works in progress to restore operations following Thailand’s crippling floods, the worst could well be over.

The research said it had become less bearish on the hard-hit HDD components sector given the ongoing accelerated restoration as well as potential price hike over the immediate term, which could mitigate the earnings pressure from forgone capacity in the short term.

The research house upgraded Eng Teknologi and Notion Vtec from Sell to Neutral, and upped its recommendation on JCY International to Trading Buy from Sell.



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OSK Research upgrades Technology sector to Neutral

KUALA LUMPUR (Dec 22): OSK Investment Research has upgraded the TECHNOLOGY [] sector to Neutral and said that better HDD pricing could help mitigate losses from the Thailand flood.

It said that against the backdrop of the massive works in progress to restore operations following Thailand’s crippling floods, the worst could well be over.

The research said it had become less bearish on the hard-hit HDD components sector given the ongoing accelerated restoration as well as potential price hike over the immediate term, which could mitigate the earnings pressure from forgone capacity in the short term.

"Hence, we are upgrading our call on the sector to Neutral as the downside risks subside and the supply chain moves towards full restoration, possibly by 3QCY12," it said on Dec 22.

The research house upgraded Eng Teknologi and Notion Vtec from Sell to Neutral, and upped its recommendation on JCY International to Trading Buy from Sell.



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EngTek cleaning Thai plant after flood

Eng Teknologi Holdings Bhd, a Malaysian electronics-components maker, said flood waters receded at its Thai manufacturing facilities and cleaning work should be completed by next week.

Insurance assessors have indicated that machinery damage is widespread after being submerged under two meters of water since October, Eng said.

Insurance claims could take up to six months to complete and it may take until the third quarter of 2012 to fully normalize production, the company said. - Bloomberg



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Production at Thai plants to normalise by 3Q next year, says Eng Teknologi

KUALA LUMPUR (Dec 15): ENG TEKNOLOGI HOLDINGS BHD [] said the production level at its two subsidiaries affected by the floods in Ayuththayya, Thailand would only return to normal by the third quarter of 2012 as the output was meant for major customers that had also been affected by the floods.

It said on Thursday that flood waters had receded at the manufacturing facilities of both Engtek (Thailand) Co., Ltd. (ETCL) and Altum Precision Co., Ltd. (APT).

The company said that decontamination and cleaning work were currently underway at the facilities and was expected to be completed by next week, adding that restoration work would commence after that.

It said insurance loss adjustors had conducted a preliminary assessment of the damage caused by the floods, and that initial assessment indicated that the machinery damage was widespread due to rust, corrosion and contamination after being submerged in flood waters above two metres since October 2011.

“Meanwhile management is currently working on the detailed documentation for the insurance claims which is expected to be finalised and submitted to the insurers by the end of December 2011.

“Thereafter further assessment will be made by the insurers while operations gradually resume,” it said.

Eng Teknologi said the insurance claims process was expected to be completed within three to six months.

“Whilst production capacity of ETCL and APT may be fully restored by the second quarter of 2012, production level at both ETCL and APT are only expected to return to normal by the third quarter of 2012 as the output is meant for major customers which have also been affected by the floods.

“The floods have caused a substantial disruption to the supply chain of key hard disk drive components and the whole hard disk drive industry in Thailand,” it said.

The company said the supply chain situation would only be normalised in the next three to six months.



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Seagate benefit for JCY and Dufu

KUALA LUMPUR: Malaysian hard disk drive (HDD) component makers, which supply mainly to Seagate Technology plc, could well take pole position in the HDD industry after rival Western Digital Corp (WD) was beaten out by the flooding in Thailand.

And with a global HDD shortage looming, higher prices are likely to boost margins down the entire value chain, providing some relief for component suppliers hit by low prices and poor margins.

In particular, Malaysia’s JCY International Bhd and Dufu Technology Corp Bhd could well become the prime beneficiaries of having Seagate as a client, said industry observers.

“In fact, orders have been coming in as people are taking advantage of the higher prices they can fetch amid the potential shortage of supply [of HDDs] in the next few months,” said the industry observer.

He said prices of HDDs and components are expected to increase in view of the disrupted HDD supply chain that will in turn hit original equipment manufacturers (OEMs) such as IBM, Dell and EMC in the coming months.

Press reports from Thailand suggest that prices of HDDs have increased by 20% to 25% in the past two weeks.

For an industry where margins are thin, this could provide a big boost to earnings, even if overall volume declines.

An analyst noted that it is not easy for HDD producers to switch component suppliers quickly, due to product qualification issues. As a comparison, Seagate’s net profit margin was 5% in the latest quarter. In the June 2011 quarter, Dufu was just marginally profitable while JCY posted losses.

In contrast, Notion VTec Bhd will likely be most affected by the floods, with a double whammy for both its HDD and camera divisions, as its HDD sales are mostly to WD and its Thai factory has stopped production. Its sole camera client, Nikon Corp Ltd, has also shut its operations in Thailand due to the floods.

To recap, the global HDD sector has been hard hit by the flooding in Thailand because a huge portion of the supply chain is situated in the country’s worst hit areas.

WD recently announced a halt to its production in Thailand. Malaysian HDD component makers that had operations in that country, such as Eng Teknologi Holdings Bhd and Notion VTec, followed suit.

WD CEO John Coyne the company’s December quarter revenue will fall 60% from a year ago since the company has a high concentration of factories in the flooded areas in Thailand. Some 60% of its HDDs are produced in Thailand, and reports estimate it will take four to six months to resume normal production.

Seagate, on the other hand, issued a press release recently announcing that its manufacturing facilities in Thailand are fully operational.

Analysts expect WD’s market share to fall while Seagate gains, as the latter’s production facilities remain largely unscathed.

“Seagate expects its December quarter units to be 45 million, implying a 12% quarter-on-quarter (q-o-q) decline. In contrast, WD guided to a 58% q-o-q decline in units. We believe the stark contrast in relative deterioration in units [or production volume] could prop up shares of Seagate,” JP Morgan said in a research note on Oct 21.

With JCY’s operations largely unscathed by the flooding in Thailand, the company could well stand to benefit from more orders coming from Seagate, said industry observers.

But JCY could still face some cost pressure going forward, said an analyst.

“The tighter supply could perhaps help to push up [JCY’s] average selling price [ASP], but still they have input and labour costs to address,” said the analyst.

The company posted a net loss of RM31.86 million for 3QFY11ended June 30, against a net profit of RM55.6 million the same period a year ago, on the back of a 17.8% drop in revenue. Net losses for the nine-month period totalled RM11.89 million or 0.6 sen per share.

JCY attributed the lower profitability to higher raw material prices, inventory provision resulting from the depreciating US dollar and slow moving stocks.

In addition, it said a labour shortage affected production and increased the direct cost of labour, according to notes accompanying its announcement to Bursa Malaysia.

The lower revenue was mainly due to the lower ASP, lower volume of shipments and depreciating US dollar against the ringgit, said JCY.

JCY shares have rebounded off their lows to 57 sen, and are trading above its net assets per share of 41.6 sen as at June 30, 2011. The stock is down 64.4% from its initial public offering price of RM1.60 in February 2010.

Things haven’t been smooth sailing for Dufu either during the quarter ended June 30, 2011.

Dufu, whose operations are in Penang and Southern China, saw its net profit slump to RM154,000 for its 2Q ended June 30, 2011 from RM605,000 the same quarter last year mainly due to the appreciation of the ringgit against the greenback and increase in raw material prices.

This weaker profitability came despite revenue rising marginally to RM31.81 million during the quarter from RM29.71 million a year ago.

For the six months to June 30, 2011, Dufu chalked up a net profit of RM532,000, or 0.44 sen per share, down from RM4.5 million a year ago.

On an asset valuation basis though, Dufu appears attractively priced. It closed at 33 sen last Friday, less than half its net assets per share of 74.6 sen as at June 30, 2011.

The recent strengthening greenback against the ringgit could help ease some cost pressure for both companies, although how they could contain other cost factors and the impact of the floods on volume sales remain uncertain.

But with Seagate as a major client, with operations that remain largely intact and higher HDD prices on the horizon, JCY and Dufu could be well positioned to gain some benefit from the tighter supply of HDDs going forward.


This article appeared in The Edge Financial Daily, October 31, 2011.