Quality of buying declines on Bursa

KUALA LUMPUR (March 20): The quality of buying in the morning session on Tuesday declined, with trading interest focused on penny stocks, while the broader market showed some signs of weakness.

Investors were staying on the sidelines, as evidenced by the small gains and cautious regional markets. Most of the most active stocks were penny counters.

At 12.30pm, the FBM KLCI was up 3.48 points to 1,577.08. Turnover was 1.28 billion shares valued at RM676.65 million. Decliners led advancers 382 to 245 while 333 counters were unchanged.

Hong Kong’s Hang Seng Index slipped 0.67% to 20,974.03, Taiwan’s Taiex shed 0.69% to 7,988.42, South Korea’s Kospi 0.26% lower at 2,041.59 but Singapore’s Straits Times Index added 0.58% to 3,006.53. Japan was closed.

At Bursa Malaysia, dealers said retail investors were staying on the sideline while some who had already bought blue chips and mid-cap stocks were awaiting fresh news. They said the retail investors were not ready to rush in.

According to Bursa Malaysia, local retail participation had declined to about 26%, local institutions were at 54.6% and foreigners at about 19.4%.

Focus, which was queried by Bursa Securities over the sharp rise and heavy volume, added 3.5 sen to 23 sen. There were 112.93 million shares done. It warrants, WA added 4.5 sen to 8.5 sen and WB 2.5 sen to 15 sen.

Dutaland-LB added 15 sen to RM1.05, BCorp-LR 15.5 sen to 13 sen. Index-linked stock BAT rose 14 sen to RM52.52, HLFG 10 sen to RM11.98 and PetGas eight sen to RM16.48.

Ta Ann added 12 sen to RM5.87, PIE 11 sen to RM4.88 and IGB seven sen to RM2.87.

Share prices of Metronic Global and its 17%-owned unit Ariantec Global slipped in active trade. Ariantec fell three sen to 10.5 sen and it was the most active with 121.23 million shares done while Metronic eased one sen to 12 sen.

HL Industries was the top loser, down 12 sen to RM4.06, Batu Kawan and United PLANTATION []s shed 10 sen each to RM18.40 and RM25. EPMB extended its decline, down 6.5 sen to 90 sen.



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EPMB extends losses on MEX acquisition

KUALA LUMPUR (March 20): Shares of EP MANUFACTURING BHD [] (EPMB) extended its losses on Tuesday as investors were concerned about the proposed acquisition of the 26km Maju Expressway (MEX) from Maju Holdings Sdn Bhd as pricey.

At 10.15am, EPMB was down 5.5 sen to 91 sen with 1.24 million shares done. On Monday, it slid 13.8% or 15.5 sen to 96.5 sen.

The FBM KLCI was up 3.81 points to 1,577.41. Turnover was 683.38 million shares valued at RM252.98 million. There were 213 gainers, 193 losers and 292 stocks unchanged.

OSK Research said on Monday the acquisition at RM1.7 billion would include assuming debts totaling RM550 million.

Under the deal, the auto parts maker will pay RM1.7 billion for the highway concessionaire, according to sources. The RM1.7 billion price tag includes debts. The MEX links the city centre in Jalan Tun Razak here to Putrajaya.

“Although traffic growth is expected to be resilient, from a valuation standpoint, the deal looks pricey and raises our concern that it may cause EPMB’s net gearing to to 457% this year. Besides, the high interest cost will erode earnings in the immediate term,” it said.



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KLCI starts week on positive tone, select blue chips support

KUALA LUMPUR (March 19): The FBM KLCI started the week on a positive tone and closed slightly higher on Monday, lifted by gains of select blue chips including Petronas Gas, Tenaga and MISC.

The FBM KLCI closed 2.2 points up at 1,573.60. Turnover was 1.80 billion shares valued at RM1.51 billion. Declining stocks led advancers 434 to 319 while 329 counters were unchanged.

Asian shares edged higher and the dollar was steady against the yen on Monday after the U.S. market hit an almost four-year high last week and with higher European stocks reflecting signs of growing stability in the euro zone, according to Reuters.

The Shanghai Composite Index rose 0.23% to 2,410.18, Japan’s Nikkei 225 edged up 0.12% to 10,141.99, South Korea’s Kospi was up 0.62% to 2,0467.00. However, Hong Kong’s Hang Seng Index fell 0.92% to 21,121.67, and Taiwan’s Taiex shed 0.14% to 8,043.92 and Singapore’s Straits Times Index was down 0.68% to 2,990.09.

Ariantec Global was the most actively traded counter with 235.2 million shares done. The stock gained four sen to 13.5 sen.

Other actives included Metronic Global, Pan Malaysian Industries, Naim Indah Corp, IFCA MSC, Focus Point, Asia-Bio, Carotech and Hibiscus warrants.

Among the gainers were Dutch Lady, up 52 sen to RM30.50, Petronas Gas 40 sen to RM16.40, MISC 21 sen to RM5.36, HL Bank 18 sen to RM12 and Bumi Armada 16 sen to RM4.28.

Rock Chemical Industries rose 31 sen to RM2.06 or four sen below the RM2.10 takeover offer by Mega First Corp Bhd.

Bumi Armada added 16 sen to RM4.28. CIMB Equities Research raised the target price for Bumi Armada to RM4.80 from RM4.12.

It valued Bumi Armada at 18.2 times CY13 price-to-earnings, which is a 40% premium over its target market price range which was recently raised from 12.6 times to 13 times.

However, EPMB fell the most as investors were disappointed over its proposed acquisition of the 26km Maju Expressway (MEX) from Maju Holdings Sdn Bhd which was viewed as pricey.

Under the deal, the auto parts maker will pay RM1.7 billion for the highway concessionaire which included the debts. The MEX links the city centre in Jalan Tun Razak here to Putrajaya. OSK Research said the acquisition at RM1.7 billion would include assuming debts totaling RM550 million.

“Besides, the high interest cost will erode earnings in the immediate term. Given its excellent run but this pricey acquisition, we downgrade EPMB to a Neutral from a Buy, slashing its fair value from RM1.38 to RM1.15,” it said.

Other decliners were Cybertowers, down 14 sen to 31.5 sen, Top Glove 13 sen to RM4.83 while MAHB, Maybank and Mudajaya shed nine sen each to RM5.53, RM8.72 and RM3.01.



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EPMB dn 12.5% midday, OSK cuts FV to RM1.15

KUALA LUMPUR (March 19): Shares of EP MANUFACTURING BHD [] (EPMB) fell 12.5% by noon on Monday as investors viewed its proposed acquisition of the 26km Maju Expressway (MEX) from Maju Holdings Sdn Bhd as pricey.

At midday, EPMB was down 14 sen to 98 sen.

Under the deal, the auto parts maker will pay RM1.7 billion for the highway concessionaire, according to sources. The RM1.7 billion price tag includes debts. The MEX links the city centre in Jalan Tun Razak here to Putrajaya.

The Edge Financial Daily said a EPMB would finance the acquisition by issuing RM1.2 billion in sukuk while the remaining amount will be raised through bank borrowings.

OSK Research said the acquisition at RM1.7 billion would include assuming debts totaling RM550 million.

“Although traffic growth is expected to be resilient, from a valuation standpoint, the deal looks pricey and raises our concern that it may cause EPMB’s net gearing to to 457% this year.

“Besides, the high interest cost will erode earnings in the immediate term. Given its excellent run but this pricey acquisition, we downgrade EPMB to a NEUTRAL from a BUY, slashing our fair value from RM1.38 to RM1.15,” it said.



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EP Mfg slides on highway buy proposal

EP Manufacturing Bhd, a maker of automotive parts, slid 9.8 per cent to RM1.01 as of 9:32 a.m. in Kuala Lumpur, bound for its steepest decline since July 13, 2009. The stock jumped 14 per cent to an eight-year high on March 14 before a trading suspension to announce the company’s proposal to buy highway concessionaire Maju Expressway Sdn Bhd for RM1.15 billion. -- Bloomberg



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FBM KLCI rises in morning trade

KUALA LUMPUR (March 19) : Malaysian stocks rose in morning trade on Monday in tandem with Asian markets as investors digested positive updates on the world economy.

International Monetary Fund managing director Christine Lagarde had said the world economy has stepped back from the brink of danger and signs of stabilisation are emerging from the euro zone and the US. Lagarde, however, warned that high debt levels in developed economies and rising crude oil prices are still crucial risks for the global backdrop.

In Malaysia, the FBM KLCI was up 3.5 points to 1,574.9 at 9.38am with some 434 million shares worth RM155 million traded. There were 201 gainers versus 119 decliners while 214 stocks were unchanged.

Top gainers across Bursa Malaysia include Hibiscus Petroleum Bhd which rose 20 sen to RM1.83 followed by PPB Group Bhd which was up 16 sen to RM16.66.

Decliners include EP MANUFACTURING BHD [] which fell 12 sen to RM1 while AEON CREDIT SERVICE (M) BHD [] was down 10 sen to RM8.90.

Most active was Ariantec Global Bhd which added two sen to 11.5 sen with some 72 million shares done.

In a note on Monday, TA Securities Holdings Bhd said technical trading dynamics of the FBM KLCI could see a downside bias this week until bearish momentum has been neutralised. Last Friday, the FBM KLCI fell 0.5% or 7.98 points to close at 1,571.4.

“The weak market breadth and trading momentum could persist this week, pending more local market catalysts to boost trading momentum.

“Nonetheless, the better-than-expected US economic data last week should offset concern over China's economic slowdown in the region,” TA said.

Asian stock indices rose. Japan’s Nikkei 225 climbed 0.35% to 10,165.7 points , Australia’s S&P/ASX 200 was up 0.64% to 4,303.6, while South Korea’s Kospi rose 0.71% to 2,048.79.



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HDBSVR: KLCI may see mild technical rebound

KUALA LUMPUR (March 19): Hwang DBS Vickers Research said the key FBM KLCI may see a mild technical rebound on Monday after tumbling in the final few minutes of trading on Friday for a daily loss of 8.0 points.

“On the chart, the immediate support and resistance levels for the benchmark index are currently seen at 1,555 and 1,580, respectively,” it said.

HDBSVR said among the stocks that could attract added interest include Bumi Armada and MISC after a business weekly report that said the two companies (with their respective partners) are the front runners to bag a FPSO vessel contract to be awarded by an US-based oil & gas entity.

Another stock to watch are EP Manufacturing, in response to its proposed acquisition of an expressway concessionaire for RM1.2 billion.

Also in focus would be CCM Duopharma, which has announced a net dividend per share of 10.9 sen, translating to a net yield of 4.6%.



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Stocks to watch EP Manufacturing, Pharmaniaga, telcommunications, OSK Property

KUALA LUMPUR (March 17): Shares at the local stock market are expected to trend higher next week in line with the improved sentiment at global markets,

Global stocks advanced on Friday, with a benchmark U.S. equity index trading above an important level reached earlier this week, after news of subdued inflation bolstered investment sentiment and helped fuel a retreat in government debt markets, according to Reuters.

A report on U.S. consumer prices in February eased a hawkish view on interest rates, leading the dollar to fall and helping spur the sell-off in bonds. Improving U.S. economic data had recently sparked speculation the Federal Reserve would raise rates sooner than its time frame of late 2014, it said.

The Dow Jones industrial average was down 5.34 points, or 0.04 percent, at 13,247.42. The Standard & Poor's 500 Index was up 1.24 points, or 0.09 percent, at 1,403.84. The Nasdaq Composite Index was down 1.60 points, or 0.05 percent, at 3,054.77.

Affin Investment Bank vice president and head of retail research Dr Nazri Khan said the FBM KLCI was likely to trend higher on global equity upside momentum (FTSE All-World index at best level since August 2011), drop in oil price and strength in Wall Street (Dow Jones at best level since January 2008 following four year low weekly jobless claims, positive FOMC meeting comments and favorable bank stress test results).

Meanwhile, MIDF Research head of equity Syed Muhammed Kifni said foreign buying of Bursa-listed shares continued unrelenting this past week.

“Bursa data shows that foreign investors had been net buyers for 20 consecutive trading days until last Thursday, and we expect a continuation of the “risk-on” mood in the coming week,” he said.

Syed Muhammed said that in the US, a spate of housing numbers were scheduled to be announced next week and consensus expectations were pointing towards further improvements in the housing sector.

On the domestic front, the CPI number due for release in the middle of next week might also potentially be a key market mover, he said

He said the local inflation barometer was expected to further decline from the 2.7% year-on-year recorded in the earlier month.

“Hence barring ominous developments either internally or from the external front, we are sanguine on the ability of the KLCI to retest its all-time high of 1,597 points.

“Technically, we pegged the resistance and support levels for KLCI next week at 1,600 points and 1,560 points respectively,” he said.

Among the stocks that could be in focus on Bursa Malayssia are EP MANUFACTURING BHD [], PHARMANIAGA BHD [], telecommunications, OSK PROPERTY HOLDINGS BHD [].

EPMB is acquiring highway concession owner Maju Expressway Sdn Bhd for RM1.15 billion as part of its plan tp expand its highway concession business.

The move will see EPMB, an automotive parts manufacturer making a foray into the toll road business, and roping in new shareholders into the company.

The firm will acquire Maju Expressway from Bright Focus Sdn Bhd and Ulimas Sdn Bhd under a cash and stock deal. Bright Focus is a unit under the Maju Group of Companies.

Telcos could be infocus after the Malaysian Communications and Multimedia Commission (MCMC) said that it has not issued a memo to telecommunication industry players instructing them to be prepared for a proposed six per cent tax on prepaid phone subsribers.

The telecommunications regulator issued this clarification la Friday following a news report on a Hong Leong Investment Bank Research note on prospects for the local telecommunications industry.

Pharmananiaga plans to expand its market in the Middle East and Southeast Asia, particularly, Saudi Arabia, Indonesia, Myanmar and Vietnam.

Its chairman Tan Sri Lodin Wok Kamaruddin said the company was looking for growth opportunities in these countries including through mergers and acquisitions.

“We are exploring opportunities in Saudi Arabia as it is a growing market,” he sid last week.

OSK Property will raise some RM 24 million from a proposed rights issue which comes with free detachable warrants to finance its capital needs. Subscribers of the rights shares will also be entitled to bonus units from the company.



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EP Manufacturing to acquire Maju Expressway for RM1.15 billion

KUALA LUMPUR (March 16) : EP MANUFACTURING BHD [] (EPMB) is acquiring highway concession owner Maju Expressway Sdn Bhd for RM1.15 billion as part of its plan tp expand its highway concesion business.

The move will see EPMB, an automotive parts manufacturer making a foray into the toll road business, and roping in new shareholders into the company.

According to a statement by EPMB on Friday, the firm will acquire Maju Expressway from Bright Focus Sdn Bhd and Ulimas Sdn Bhd under a cash and stock deal. Bright Focus is a unit under the Maju Group of Companies.

The announcement by EPMB comfirms a report by The Edge Financial Daily erlier on Friday.

EPMB said it would finance the acquisition by issuing 38.46 million new shares at RM1.30 each, and 100 million redeemable unsecured loan stocks, apart from paying a cash portion of RM1 billion. Upon completion, Bright Focus and Ulimas will own 18.2% and 0.6% respectively of EPMB’s expanded issued share base.

Trading of EPMB shares has been suspended from Thursday to Friday to accommodate the announcement on the acquisition. The stock was last traded at RM1.12 on Wednesday.EPMB said the trading in its shares would resume at 9am on Monday.

The 26km Maju Expressway links the Kuala Lumpur City Centre to Putrajaya and Cyberjaya.



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TA maintains Buy call for EP Manufacturing, fair value unchanged at RM1.11

KUALA LUMPUR (March 16) : TA Securities Holdings Bhd is maintaining its estimates for EP MANUFACTURING BHD [] (EPMB) after news reports, quoting sources, indicate that the company is acquiring the 26km Maju Expressway for RM1.7 billion.

In a note on Friday, TA said it is keeping its Buy recommendation and fair value of RM1.11 for EPMB shares after maintaining its earnings forecast for the company.

“We shall review our earnings projections once an announcement is made later today,” TA said.

The research firm said the price tag of RM1.7 billion for the expressway is believed to be the enterprise value for the concession.

Trading of EPMB shares has been suspended from Thursday to Friday to accommodate an announcement on the “company’s intention to enter into an acquisition agreement which will result in the significant change of business direction of the company,” EPMB told the exchange.

The stock was last traded at RM1.12 on Wednesday.



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Trading of EP Manufacturing shares to be suspended

KUALA LUMPUR (March 14) : Trading of shares in EP MANUFACTURING BHD [] (EPMB) will be suspended from 9am on Thursday pending an announcement by the automotive component manufacturer, the company told the exchange on Wednesday.

EPMB shares rose 14% or 14 sen to finish at RM1.12.



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CIMB Research has technical sell on EP Manufacturing at 96 sen

KUALA LUMPUR (Feb 20): CIMB Equities Research has a technical sell on EP Manufacturing at 96 sen at which it is trading at a price-to-book value of 0.6 times.

“The uptrend channel from its September 2011 low may have exhausted. Selling pressure begins to pick up near the RM1.02 resistance level. Looking at the chart, we think the stock is due for a consolidation, with support seen at 90 sen and 84 sen,” it said.

CIMB Research said the indicators are showing signs of exhaustion. MACD signal line is poised for a negative crossover while RSI has also hooked downward.

“Unload on strength looks like a good option here as near term gains are likely capped at 98.5 sen to RM1.02. Put a buy stop at RM1.04,” it said.



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EPMB to expand further in Indonesia

PETALING JAYA: EP Manufacturing Bhd (EPMB) is bent on diversification to reduce dependence on its bread and butter automotive parts manufacturing business.

The company is looking into real estate development, road construction, and more water concessions in Indonesia to safeguard its revenue stream.

EPMB executive chairman Hamidon Abdullah said the company’s initial water treatment concession in Kota Serang in Indonesia is scheduled for operation this month. He said the project will serve as a platform for the company to undertake more infrastructure jobs in the neighbouring country.

“The infrastructure jobs include housing, roads and water supply. We have been talking to the Indonesian authorities,” Hamidon told The Edge Financial Daily in a recent interview. Hamidon is also the executive chairman of Nadayu Properties Bhd.

Hamidon said EPMB’s 25 litre per second water treatment project in Kota Serang is expected to post its maiden contribution in the coming financial year ending Dec 31, 2013, adding that the water treatment plant will essentially supply clean water to mobile tankers which will distribute the water to rural areas where supply of clean water is scarce.

While it is now venturing into water concession, it is worth noting that EPMB is also a contract manufacturer of water meters for New York Stock Exchange-listed Elster Group.

Hamidon said EPMB's initial water treatment concession in Kota Serang in Indonesia is scheduled for operation this month.

EPMB’s diversification plans come at a time when the company’s core automotive component business, which accounts for 97% of revenue, is seeing falling sales due to external headwinds such as the earthquake and tsunami in Japan early last year.

The natural disasters have disrupted the global automotive component supply chain, according to analyst.

The latest filings by EPMB show that the automotive component division registered sales of RM395.48 million in the nine months ended Sept 30, 2011, a 10% decline from the RM440.75 million a year earlier.

On the whole, EPMB’s cumulative nine-month net profit still rose 78% to RM29.82 million from RM16.79 million a year earlier despite revenue falling 10% to RM408.24 million from RM455.35 million. Its bottom line was also helped by tax incentives during the period.

As at Sept 30, EPMB had cash of RM76.19 million against debt of RM200.35 million, translating into a net debt of RM124.16 million. Hamidon said EPMB may raise more long-term funds in the form of bonds, rights issue or bank loans to finance the company’s diversification plans.



“We believe in the company,” he said when asked on the company’s move to buy back its own shares. Hamidon said EPMB had bought back its shares as they are undervalued.

In the 3Q ended Sept 30, EPMB repurchased 468,400 shares on the open market at an average price of 84 sen each. The securities are held as Treasury shares, according to EPMB’s filings with Bursa Malaysia.

EPMB shares closed at 90 sen last Friday, valuing the company at RM149.4 million.

At 90 sen, EPMB shares were traded at a 46.4% discount to its latest reported net assets per share of RM1.68. In price-earnings ratio terms, the stock was transacted at about four times annualised FY11 earnings compared with a peer average of 15 times.

Analysts believe EPMB’s business model is strategic by virtue of its focus on the two key automotive players in Malaysia — Proton Holdings Bhd and Perusahaan Otomobil Kedua Sdn Bhd (Perodua), both of which contribute some 80% of EPMB’s revenue.

But they also believe EPMB’s reliance on these two automobile producers could pose a risk to EPMB’s earnings should rival component manufacturers secure a slice of the business from these two automotive players. It is worth noting that DRB-Hicom Bhd, which is in the process of taking over Proton, also manufactures automotive parts and components.

Nonetheless, analysts have said the broadly positive review for Perodua’s replacement Myvi augurs well for EPMB since the latter’s revenue per car set had quadrupled. This is in tandem with the greater upstream localisation policy by Perodua.

As the manufacturing bottleneck for the replacement Myvi normalises, analysts expect EPMB’s sales to improve as well. However, the immediate downside risk to EPMB’s performance may stem from a slowing economy and negative consumer sentiment which may impact automotive sales in the coming months.

EPMB’s automotive parts division has two manufacturing facilities — one in Shah Alam and one in Batang Kali. The two factories have built-up areas of 16,000 sq ft and 428,000 sq ft respectively. The Shah Alam plant is designated for plastic-based automotive components as well as water meters while the Batang Kali plant manufactures metal-based automotive parts.

EPMB has strategic collaborations with global automotive parts manufacturers including Germany’s Bosch Pty Ltd and Japan-based Koito Manufacturing Co Ltd.

EPMB’s Batang Kali facility sits on a 22.6-acre (9ha) tract which includes a vacant portion of 6.6 acres. Analysts believe the vacant tract can be used to accommodate the expansion of EPMB’s manufacturing operations in the future.

While its annual automotive component capacity for both factories has already reached some 90%, EPMB has no immediate plans to expand its existing capacity but will instead upgrade its existing production lines to boost effciency, said Hamidon. EPMB earmarks a yearly capital expenditure of between RM50 million and RM80 million.

EPMB, which also supplies components for Toyota vehicles in the Middle East, is also capitalising on its sub-vendors’ capacity to boost EPMB’s production capability by another 25%, according to Hamidon. This is by virtue of EPMB being the assembler for semi-finished products from these vendors, he said.

“We have the building blocks to spur EPMB’s growth,” said Hamidon who also indicated that the company’s automotive component order book could sustain earnings for the next three years. The order book, he said, is worth some RM500 million a year.

He also mentioned the possibility of EPMB acquiring associate stakes of some 30% in automotive parts suppliers in Indonesia to expand the company’s business.

The expansion to Indonesia is crucial to leverage Perodua’s foray into the neighbouring country, where the new Myvi model was rebadged as the Daihatsu Sirion.

Perodua undertook the first shipment of 500,000 vehicles to Indonesia last June, according to news reports. It was reported then that Perodua was assessing the feasibility of exporting its vehicles to Thailand and South Africa.


This article appeared in The Edge Financial Daily, February 8, 2012.



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EP Manufacturing beating full-year estimates

EP Manufacturing Bhd (Nov 23, 78 sen)
Maintain buy at 76.5 sen with fair value of RM1.38: EPMB’s earnings for 9MFY11 of RM29.8 million surpassed our full-year estimate of RM31.6 million. Earnings for 9MFY11 surged 77.6% due to greater economies of scale despite a 10.3% drop in revenue. The lower revenue was due to the disruption in auto parts supply in Japan, which led to a few months’ delay in launching the new Myvi in 1H11. However, on a quarterly basis, EPMB’s earnings weakened due to the effects of slowing production during the Ramadan period coupled by amendments to the Hire Purchase Act, which resulted in delays in delivering vehicles at the time.

Owing to the economies of scale achieved, EPMB’s thin margins in the past are now on track to widen, thanks to the full-year output of the Perodua Myvi come 2012. This resulted in profit before tax margin year-to-date nudging up by 1.58 percentage points to 6.8%, which we think should move up and match its peers.

EPMB’s revenue is expected to grow further as the company secures more localisation jobs and recognises the full-year revenue impact from the Myvi. On top of manufacturing components for Proton’s Persona replacement, we also understand that the company is pushing to localise some components for UMW, as it currently supplies to Saudi Arabia’s biggest Toyota distributor.


We upgrade our earnings forecasts for FY11 by 15% but leave our FY12 and FY13 numbers unchanged. With our valuation already pegged at five times FY12 earnings since early 2H11, we maintain our “buy” call on the counter, with our fair value of RM1.38 retained. — OSK Research, Nov 23


This article appeared in The Edge Financial Daily, November 24, 2011.



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